Thompson Opening Statement at Select Revenue Measures Subcommittee Hearing on Temporary Policy in the Internal Revenue Code
(As prepared for delivery)
Good afternoon. I’d like to welcome all of my colleagues—particularly my friend, Ranking Member, Mr. Smith of Nebraska—and the distinguished panel of witnesses who have joined us here today.
The subject of today’s hearing is temporary policy in the Internal Revenue Code. Temporary policy exists throughout the code and its economic impacts are felt by individuals, small businesses, and large corporations alike. According to the Joint Committee on Taxation, there are 80 provisions in the Code that are set to expire between now and 2027.
Today, we will examine what some of those temporary tax policies are, and why they may have been enacted under a temporary basis. These are questions we need to ask as we evaluate what to do about these 80 policies that JCT identified and as we consider the legislation that will come before the Committee this Congress.
Temporary policy can be used to address a one-time need, such as when Congress provided targeted tax relief on payments made from a charitable fund created following the mass shooting at Virginia Tech University, or extending the period of time for which taxpayers could make a charitable deduction on their current year tax return following the late December Indian Ocean Tsunami in 2004.
The Congress has enacted temporary tax relief on an ad-hoc basis to offer individuals and businesses a helping hand in the wake of a disaster—something we will hear more about from our witnesses. Temporary policy can be used to provide transition rules for new policy and ensure fiscal responsibility.
Some temporary policies are routinely extended and are often expected to be extended…including many recently expired provisions aimed at encouraging energy production and conservation, U.S. energy independence, and pollution reduction.
In fact, there are approximately 29 provisions that expired in either 2017 or 2018, including a number of provisions that deal with clean energy and energy efficiency, the expiration of which has left taxpayers in limbo – the so-called “Tax Extenders.”
I’m not going to list all of these provisions, but please refer to the following JCT documents to see the provisions under consideration at today’s hearing: JCX-8-19 for a list and description of in the provisions expired or expiring in 2017, 2018, and 2019, and JCX-2-19 for a full list of the 80 provisions set to expire by 2027
Finally, temporary tax law can be used to hide the true cost of certain policy changes, as was the case with the Republican tax bill. Instead of engaging in regular order, holding public hearings, and soliciting bipartisan input, Republicans chose to use a budgetary process known as reconciliation, which allowed them to rush their tax bill through Congress without a single Democratic vote.
Under reconciliation, the Republican tax bill could increase the deficit by $1.5 trillion over ten years, but not a penny more. When it came time for Republicans to decide who they wanted to help, they spent that money on a massive reduction in the corporate rate from 35% to 21% by passing a bill loaded with future tax increases and uncertainty for regular people.…hardly the “tax reform for a generation,” that the bill’s supporters promised.
Economists tell us that the greater the uncertainty, the greater the economic cost. Research conducted by economists Scott Baker, Nicholas Bloom, and Stephen Davis, shows that policy uncertainty has increased in the U.S. over the past 50 years. This rising level of uncertainty leads to lowered consumer confidence, increased volatility in the stock market, and threatens investment and job growth in crucial sectors across our economy, including defense, health care, finance, and infrastructure.
For families, temporary manipulations of essential policies like the Child Tax Credit and Earned Income Tax Credit, can make a major impact on the family budget. And permanent individual changes, like indexing tax brackets to a slower indexation measure, means a permanent tax increase over time for families.
For those taxpayers trying to rebuild their lives in the wake of a disaster, temporary policies are just one further layer of uncertainty at a time when their world has been upended. Particularly for those low margin taxpayers who do not have an army of expensive lawyers and accountants at hand, certainty is key.
I have long advocated for permanent, national disaster tax policy so those who find themselves the unfortunate victims of a natural disaster aren’t left waiting to see whether the Congress will pass tax relief for them.
The cost of making every expiring provision in the Tax Cuts and Jobs Act permanent is estimated at $2.5 trillion over ten years. As this Subcommittee weighs the extension or modification of these and other expiring policies, it must do so with a commitment to fiscal responsibility and an understanding that the corporate tax rate could never have been lowered from 35% to 21% without the use of fiscal gaming that shortchanges families and small businesses.
We should strive to make tax policy that is forward-looking and provides not only predictability for our businesses, but security for regular people whose livelihoods and household budgets are impacted by temporary policy. I hope today’s hearing will be helpful in informing that debate.
And with that I will recognize the Ranking Member, Mr. Smith of Nebraska, for an opening statement.