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Markup of H.R. 4004, H.R. 3936, H.R. 3937, H.R. 3938

House Ways and Means Committee

Markup of H.R. 4004, H.R. 3936, H.R. 3937, H.R. 3938

Tuesday, June 13th, 2023

 

Topline

  • The committee marked up and reported four pieces of legislation favorably to the House.
  • All four bills were passed on partisan lines.

 

Legislation

H.R. 4004, the United States-Taiwan Initiative on the 21st-Century Trade First Agreement Implementation Act

 

H.R. 3937, the Small Business Jobs Act

 

H.R. 3938, the Build It in America Act

 

H.R. 3936, the Tax Cuts for Working Families Act

 

Opening Statements

Chairman Jason Smith (R-Mo.)

In his opening statement, Smith said that the legislation being considered is for American families and small businesses who cannot afford an expensive lobbyist to make their voices heard. He said that it represents a jobs package that will put money back in the pockets of hardworking Americans who have seen so much of their paychecks stolen by inflation. Smith also highlighted that the $4,000 Guaranteed Deduction Bonus for families finally gives Americans some breathing room from “the Washington price spikes.” He added that the legislation makes it easier for entrepreneurs to pursue the American dream, find the investment they need to start a new business, and help small businesses buy the new equipment needed to expand facilities.

Specifically, Smith said that the policies maintain or restore critical tax provisions, like incentives for R&D, interest deductibility, and 100% immediate expensing to make sure American companies can thrive and create new jobs. Finally, the chair argued that while Democrats will call this a tax scam, the only real tax scam was the Inflation Reduction Act (IRA) that Democrats passed last year. He said that the bill did nothing to address inflation, but rather increased reckless spending and added to the deficit. The package being considered, on the other hand, puts workers and small businesses first, and “puts a stop to Democrats’ runaway green corporate welfare by repealing the worst of the special interest breaks.”

 

Ranking Member Richard Neal (D-Mass.)

In his opening statement, Neal said that this is the most ill-considered piece of legislation he has witnessed in front of this committee in years. He said that just ten days after Republicans were prepared to bring the nation to the brink of default, they now come back with a tax cut. He also added that it seems like the debt only matters if it is about spending, but not about tax cuts. Neal said that Democrats would be prepared to discuss some of these proposals in a balanced, legislative, professional manner, if the opportunity might avail itself for the purpose of discussing some of their priorities as well.

Neal concluded that this package represents a master class in failed promises and lip service to small businesses and working families, only for them to end up with pennies, and that the IRA is wildly popular with the American people, including the Republican base.

 

Consideration of Legislation

H.R. 4004, the United States-Taiwan Initiative on the 21st-Century Trade First Agreement Implementation Act

Smith introduced the bill and noted that the people of the US and the people of Taiwan share an invaluable economic partnership. He said that the Biden Administration’s decision to pursue a trade agreement was appropriate, but the way they went about establishing it was inappropriate and unconstitutional. He added that it flies in the face of Congress’s sole constitutional authority over trade. Smith said that this legislation rights that wrong, while confirming strong support for the partnership with Taiwan by providing congressional approval of this first step trade agreement. The bill requires the Biden Administration to work with Congress on any future agreements with Taiwan.

Neal stated that it was the Democratic position on USMCA that included workers’ rights, climate change, and human rights. He said that the Republican chairman of the committee at that time took the position that you could not amend a free trade agreement and could not include those priorities. On this bill, however, Neal said that the committee agrees on its intentions toward Taiwan. He said that this is a matter of standing up for the prerogatives of the Ways and Means Committee, as Congress and this committee are charged with trade responsibilities. He closed by stating that the Chinese threat to Taiwan is quite serious, and America backs economic enhancement of opportunities for the Taiwanese as they claim their independence.

Smith introduced the Amendment in the Nature of a Substitute (ANS), and committee staff read through the various sections of the legislation. There were no additional amendments offered.

The ANS was agreed to by voice vote, and H.R. 4004, as amended, was reported favorably to the House by a vote of 42-0.

 

 

H.R. 3937, the Small Business Jobs Act 

Smith introduced the legislation, which he said provides solutions that cut IRS red tape, expand jobs and investment, and support rural communities. He noted that the bill is increasing the reporting threshold for subcontract labor. He also stated that Democrats reduced the 1099K reporting threshold for third party payment platforms like Venmo and PayPal from $20,000 to just $600, but this bill includes a solution to get rid of this rule entirely. Smith also said that the Small Business Jobs Act unleashes jobs and innovation in the US and opens the floodgates of investment by expanding tax incentives to support more than half of all business entities. He said the bill helps farmers and machine shops invest in new equipment and expand their business by increasing immediate expensing for small businesses to $2.5 million. Finally, the chair noted a new Rural Opportunity Zone program to revitalize struggling communities, which also includes a transparency provision that was stripped out of TCJA.

Neal said that this bill contains two provisions designed to make it easier for people to avoid taxes. He said that one is to ensure that venture capitalists do not pay any capital gain taxes, and there is also a $44 billion giveaway to wealthy business owners. Neal noted that there are problems with the definition of Opportunity Zones, but consultation and negotiation might have brought the two sides to a different point on some of these issues. He also stated that Republicans could have used the occasion to focus on bipartisan efforts like New Markets Tax Credits, or workplace supports like universal paid leave and childcare. He concluded that there is no proof that these tax cuts will go anywhere but into the pockets of venture capitalists and some business owners.

Smith introduced the ANS and Joint Committee on Taxation staff provided and overview. They said that two provisions relate to increasing the reportable threshold for 1099s from $600 to $5,000 and reinstating the rules that are applicable to third party settlement networks of a standard of $20,000 and 200 transactions annually. There are also modifications to Section 1202 for reduction in effective tax rates on capital gains for qualifying small business stock, and the bill extends the present law to S corporation stock in addition to modifying the holding periods. On Section 179, expensing is increased from the present law ($1 million) to $2.5 million. Finally, the ANS modifies some of the definitions in the provision related to the reporting on Opportunity Zones and Qualified Opportunity Zones.

Rep. Don Beyer (D-Va.) offered the only amendment to the ANS. He said that while he appreciates investing in small businesses, the bulk of the benefit is going to the very wealthy who receive up to a $10 million reduction of capital gains if they invest. His amendment would say that for every $100 beyond $1 million in adjusted gross income, the amount of exclusion is reduced by $5. The amendment was rejected by a vote of 16-23.

The ANS was agreed to by voice vote, and H.R. 3937, as amended, was reported favorably to the House by a vote of 24-18.

 

H.R. 3938, the Build It in America Act

Smith introduced the bill, saying that it will help Americans pay less at the pump. He noted that it includes a solution introduced by Rep. Mike Carey (R-Ohio) that repeals Democrats’ Superfund petroleum tax, which he said was used to pay for special interest tax rates for corporations and big banks. Smith also said that this bill recognizes the importance of the TCJA for job growth, wage growth, and the economy, and it extends key provisions that are expiring. Specifically, he noted that it allows small businesses to immediately deduct R&D costs, as well as interest expenses, extends 100% immediate expensing, and lessens the blow of rising interest rates by extending the ability for medium-sized businesses to deduct interest expenses. Finally, Smith said that the bill takes an existing real estate withholding tax, increases it by 400%, and applies it to purchasers of farmland who are citizens of, or companies owned even 10% by, a foreign adversary.

Neal began by stating that in 2017, Republicans had to sunset some of their major giveaways in order to artificially lower the cost of the bill. He said that now they want to restore these provisions or risk the stronger getting a little closer to paying their fair share. On interest expense deduction, he said that 85% of the provisions benefit goes to businesses making more than $100 million a year in revenue. On bonus depreciation, Neal noted that two-thirds of the benefits went to corporations making over $250 million in revenue. He added that it would be nice if Republicans extended the same windfall to families who depend on the Child Tax Credit, or at least a negotiated pass for reasonable policy where the interests of members on both sides are acknowledged. Finally, Neal said that Republicans want to furnish these favors to big corporations and special interests by repealing the IRA’s energy credits for middle class families and stunting climate goals.

Smith introduced the ANS and the Joint Committee on Taxation staff provided an overview. They said the legislation would extend through 2025 the prior law Section 174, research expense deduction. Additionally, it extends the EBITDA limitation on interest deductions under code Section 163j, extends 100% bonus depreciation through calendar year 2025, and includes revenue offsets from repealing green energy initiatives that were passed in last August’s reconciliation bill. Specifically, under the ANS, the EV credit would revert to prior law, but would bring with it the MSRP and ATI limitations that the reconciliation legislation imposed. It would include some critical minerals and battery requirements along the lines of the reconciliation legislation, and it also reinstates that the credit is only available on a per manufacturer basis up to a total of 200,000 vehicles per manufacturer, with a phase out provided.

Neal offered an amendment to the ANS to provide that it does not change the rule that research expenses in the People’s Republic of China are subject to 15-year depreciation. The amendment was rejected by a vote of 18-25.

Rep. Linda Sanchez (D-Calif.) offered an amendment to the ANS that would require taxpayers receiving tax breaks for R&D, interest deduction, and bonus depreciation to demonstrate that they are paying a Davis-Bacon prevailing wage before getting a reduction in their tax liability. She said the amendment also brings back a tax provision that helps workers by reinstituting a deduction for union dues that Republicans previously eliminated. The amendment was rejected by a vote of 18-24.

Rep. Dan Kildee (D-Mich.) offered an amendment to the ANS related to the EV tax credit. He said that the bill eliminates important protections for American autoworkers, in a massive giveaway to the largest foreign automakers. Specifically, he said it prevents companies like GM from accessing the EV tax credit, but allows foreign built vehicles to benefit from the American tax dollars investing in the EV tax credit. His amendment would restore the reforms made in the IRA to support American auto companies and workers. Finally, he cautioned Republicans that the bill does not eliminate the EV tax credit, but rather eliminates GM and Ford from being able to use it. The amendment was rejected by a vote of 17-25.

Rep. Terri Sewell (D-Ala.) offered an amendment to the ANS related to junk fees. She said that it would deny the benefits of the three major business provisions in this bill on R&D, interest limitation, and bonus depreciation if those businesses charge excessive or early termination fees. It would also deny those benefits to airlines that pose additional fees for adults who need to sit next to their accompanying child. The amendment was rejected by a vote of 18-25.

Rep. Earl Blumenauer (D-Ore.) introduced an amendment to restore the superfund tax, which he said is a modest tax on the petrochemical industry to help remediate the damage that they have caused, based on the principle that polluters pay. The amendment was rejected by a vote of 18-25.

Rep. Lloyd Doggett (D-Texas) said that the heart of the 2017 tax scam was a 40% cut in the tax rate that corporations pay, which required borrowing $1.9 trillion. He added that loopholes gave American multinationals that were employing and acting abroad incentives to move further abroad. He offered an amendment to require the tax on foreign profits (GILTI tax) to be applied on a country-by-country basis, so no matter what offshore tax haven a multinational shifts its profits into, it still would be paying some tax on the revenue booked in that country. The amendment was rejected by a vote of 18-24.

Rep. Mike Thompson (D-Calif.) offered an amendment to revoke the PGA’s status as a 501(c)(6) nonprofit. It was also rejected by a vote of 18-24.

The ANS was agreed to by voice vote, and H.R. 3938, as amended, was reported favorably to the House by a vote of 24-18.

 

H.R. 3936, the Tax Cuts for Working Families Act 

Smith introduced the bill and said that it is a necessary response to the economic nightmare created by President Biden and Washington Democrats. He said that the bill builds on the success of the doubled guaranteed deduction included in the 2017 GOP tax reform law, which offered simplification and significant tax cuts to middle class families. The legislation also creates a targeted guaranteed deduction bonus of $4000 for everybody, and the largest percentage tax cut will go by far to earners below $100,000. For workers making between $15,000 and $30,000 a year, Smith said that this proposal will slash their taxes by more than 30%.

Neal noted that the US rebounded from COVID far faster than anyone else in the world, largely because of the assertive steps that Congress took to address the pandemic. He added that COVID and Ukraine were both shared responsibilities that Democrats and Republicans had on spending. Neal also reiterated that there could have been common agreement on the individual side of this section, and that Democrats want action on the Child Tax Credit. He concluded by saying that if this is not a messaging bill and Republicans want to get serious about tax policy that both sides might embrace, now is time to start negotiating.

Smith introduced an ANS and the Joint Committee on Taxation staff provided an overview. They said that the underlying legislation for tax years 2024 and 2025 would create a bonus deduction to be added on top of the standard deduction provided under current law. The ANS modifies the underlying legislation to make the bonus guaranteed deduction in the case of a joint return or a surviving spouse twice as big as the Act’s bonus deduction for a single filer.

Rep. Suzan DelBene (D-Wash.) introduced an amendment to the ANS related to the Child Tax Credit. She said that making it permanent would have a transformative impact on child poverty for generations to come across the country. She added that the Republican bill is silent on the Child Tax Credit, but this amendment ensures that at least four million children would no longer be living in poverty. The amendment was ruled not germane and not in order.

Rep. Bill Pascrell (D-N.J.) introduced an amendment to the ANS to restore the SALT deduction. It was rejected by a vote of 14-24.

Rep. Brad Schneider (D-Ill.) introduced an amendment to tap the giving potential of more than 90% of taxpayers who take the standard deduction. He said that it would restore and extend the charitable deduction for non-itemized givers and raise the cap that taxpayers can deduct to approximately $4,600 for individuals and $9,200 for joint filers. The amendment was rejected by a vote of 15-24.

Rep. Judy Chu (D-Calif.) introduced an amendment based on Rep. Blumenauer’s Travel for Care Act, which amends the Internal Revenue Code to exclude employer reimbursed travel expenses for abortion-related care from taxation. The amendment was rejected by a vote of 16-24.

Rep. Gwen Moore (D-Wisc.) introduced an amendment related to tweaking the Earned Income Tax Credit. She said that it would not increase the credit amount, simplify it, or expand the EITC, but simply asks the question of why the EITC is given to workers with no children between 19 and 24, and why workers over 65 are prevented from getting it. It was withdrawn.

Rep. Danny Davis (D-Ill.) introduced an amendment to create an above the line deduction for childcare expenses to provide $4000 for one child or $8000 for two or more children to working parents with earned income. He said that this provision mirrors the 2021 enhances to the Child and Dependent Care Tax Credit. The amendment was rejected by a vote of 16-24.

The ANS was agreed to by voice vote, and H.R. 3936, as amended, was reported favorably to the House by a vote of 24-16.

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.