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Chairman Smith: Inflation Twice the Federal Reserve’s Target Is No Reason to Celebrate

July 03, 2023

WASHINGTON, D.C.House Ways and Means Chairman Jason Smith (MO-08) released the following statement following the release of the Personal Consumption Expenditure (PCE) index, the Federal Reserve’s preferred measure of inflation:

“We would not be in this inflation crisis if not for Democrats’ big spending bills that fueled the labor shortage and gave billions in special interest tax breaks to the wealthy and well-connected, billion-dollar corporations, and big banks. Inflation was only 1.4 percent when Biden took office. Inflation that is almost double the Federal Reserve’s target is not a win for American wallets and budgets. In fact, core inflation is higher than topline, meaning sticker shock is not going anywhere for a while. Family budgets continue to get rocked not once, but twice – first through higher prices and then through high interest rates. While Democrats got us into this mess, Republicans are providing relief for families who have lost more than two months of pay. Ways and Means Republicans passed legislation to help families and small businesses dealing with the largest price spikes in a generation.”

Tax Cuts for Working Families Act

  • This bill provides a new $4,000 Guaranteed Deduction Bonus for the next two years, which will result in annual tax savings and more money in the household budgets of middle-class families who have been hit hard by the cost-of-living crisis.
    • This applies on top of the current Guaranteed Deduction (also known as the “Standard Deduction”), which was doubled by Republicans in the 2017 tax reform law.
    • Today, nine out of ten American households use the Guaranteed Deduction, which provides tax relief and fewer tax filing forms and paperwork.

Small Business Jobs Act

  • Eliminates headaches and unnecessary costs for small businesses by fixing an IRS reporting rule that has not been inflation-adjusted in almost 70 years.
    • Currently, business owners are required to send tax forms to contractors that provide more than $600 of work to their business.
    • In the Ways and Means Committee field hearing in Peachtree City, Georgia, a small business owner reminded Congress that those rules have remained unchanged since 1954.
    • This provision offers relief to American workers and small businesses by increasing the IRS paperwork threshold for subcontract labor from $600 to $5,000.
  • Stops the attack on the gig economy and Americans by repealing Democrats’ new rule that has the IRS targeting gig workers and those who use Venmo or PayPal to sell items like a used couch, guitar, or concert tickets.
    • In 2021, Democrats reduced the IRS reporting threshold for these transactions from $20,000 to $600.
    • The Biden Administration knows this rule is unfair and unworkable, which is why they have already delayed implementation this year.
    • Repealing this rule will ensure Americans aren’t saddled with a mountain of paperwork, confusion, or taxes that they don’t owe.
  • Increases U.S. innovation and jobs by growing small business access to funding by expanding a current tax incentive to investors in startups organized as Small Businesses.
    • Currently, these tax benefits are available only to investors in startups organized as C Corporations – leaving out S Corporations, which represent nearly half of all U.S. business entities.
    • According to U.S. Census data, startup companies less than five years old create the majority of net new jobs in our economy, creating more than 2 million jobs per year.
  • Encourages investment in new equipment and production capacity by increasing immediate expensing for small businesses to $2.5 million.
    • Builds on successful policy from the 2017 tax reform law, which doubled the expensing limit from $500,000 to $1 million.
    • With this provision, small businesses like farms and machine shops can afford new equipment and expand their businesses. Their investment raises productivity, boosts wages, and creates more jobs.
  • Delivers greater economic development and opportunity with a new Rural Opportunity Zone program that will revitalize struggling communities.
    • Opportunity Zones (OZs) were a major success from the 2017 tax reform law. They attracted investment and jobs to low-income communities across the country that were struggling to attract investment and capital.
    • While being the largest economic development program, investments have tended toward urban areas, which received 95 percent of OZ investment.
    • This provision will allow rural communities to benefit from the same recovery and development OZs have delivered to urban areas.

Build It In America Act
Several of the provisions in this bill that were originally enacted in the Republican 2017 tax reforms were in part responsible for economic growth rising a full percentage point higher than the previous decade. In the two years following enactment of the 2017 tax reforms, average GDP growth was 2.6 percent, as compared to an average growth of 1.5 percent over the ten years prior.

  • Restores American competitiveness and innovation by extending the ability for companies to immediately deduct research and development (R&D) costs.
    • Starting in 2022, companies could no longer immediately deduct R&D costs and have been required to gradually spread those expenses over time, for a minimum of 5 years and as high as 15 years.
    • Losing the immediate deduction has led to higher tax bills for small, innovative businesses – forcing them to slow their growth, reduce their workforce, or borrow funds to pay a big tax bill to the IRS.
    • This provision will ensure that the United States sustains its status as a global innovation leader.
  • Ensures that mid-sized businesses can deduct borrowing costs during this time of rising interest rates by extending interest deductibility.
    • Starting in 2022, employers face a more restrictive limit on the amount of business interest that they can deduct each year. Instead of using “earnings before interest, taxes, depreciation, and amortization”, companies may deduct interest expenses only up to 30 percent of their “earnings before interest and taxes”, resulting in higher tax bills.
    • With today’s higher interest rates, the 2022 change increases costs for mid-sized companies and industries that are required to finance their operations with debt and do not have the ability to issue other financing options like issuing stock.
    • This provision will ensure that the United States is a competitive location to hire, invest, and grow for manufacturing, energy production, and other critical industries.
  • Promotes American jobs and manufacturing by extending 100 percent expensing.
    • Starting in 2023, job creators are able to immediately deduct only 80 percent of the cost of equipment, machinery, and vehicles, with the rest of the deduction claimed over the life of each asset.
    • This provision will ensure that businesses are incentivized to re-shore their operations and facilities from China back to the United States.
  • Lowers the price at the pump by repealing Democrats’ superfund tax on petroleum.
    • Policies that harm affordable and clean American energy production drive up gasoline prices and increase American dependence on foreign countries.
    • Repealing this tax on affordable and secure energy resources from Democrats’ so-called Inflation Reduction Act will improve our energy security and lower prices for consumers.