Senators debate Trump tax cuts: growth fuel or just a payoff to the rich?

The Tax Cuts and Jobs Act of 2017 was a crucial job saver for the small-business sector and a massive gift bag for the high-net-worth crowd.

Whether you believe the former or the latter probably depends on your voter registration. Democrats and Republicans on the Senate Finance Committee batted those sentiments, along with many other claims, facts and hyperbole, back and forth Thursday in a preview of the impending 2025 debate over reauthorizing the TCJA.

Many tax cut provisions contained in the TCJA, notably including individual income tax cuts, such as the changes to the standard deduction in the Internal Revenue Code, are scheduled to expire in 2025; while many of the business tax cuts expire in 2028.

'Another big giveaway'

Republicans want to make the tax cuts permanent, while Democrats are pushing to raise taxes on the wealthy. Debate over this issue is expected to dominate not only the race for president between former president Donald Trump and Vice President Kamala Harris, but also in congressional races across the country.

"It's always the same Trump playbook," said Sen. Ron Wyden, D-Ore., chairman of the Finance Committee. "Donald Trump tosses out a bit of chicken feed to the working people and the ultra-wealthy like him pocket huge gobs of cash. He also wants another big payday for giant corporations, cutting the corporate tax rate down to 15%. Yet another big giveaway at a time when so many of these corporations are pulling in huge profits."

Republicans on the committee, led by ranking member Sen. Mike Crapo, R-Idaho, chided their colleagues for their persistent sock-it-to-the-rich tax plans. Crapo and Sen. James Lankford, R-Okla, referenced a Joint Committee on Taxation report released this week that found the top 1% paying a 34% tax rate post-TCJA.

The TCJA "had a massive effect positively on everybody in America," Crapo said. "The economy grew to be the strongest economy I think in any of our lifetimes. Unemployment was down at historic lows. Wage growth and job growth was increasing month after month. Inflation was at 2% rates, and we were moving ahead rapidly and strongly."

Democrats maintain that the real tax rate for the ultra-wealthy is more like 8%. The reason is tax avoidance, Wyden insisted, due to a strategy of "buy, borrow and die."

"Here's how it works: An ultra-wealthy person-investor uses their riches to acquire valuable assets," Wyden explained. "Then that investor watches them appreciate and they borrow against that value to generate cash. Then that person sits on the assets, enjoys all the cash they've been able to pocket, and when that person dies, any tax owed on the increase in value disappears into what I call the ledgers of history."

Step-up basis

Wyden is referencing the "step-up basis." When an asset with unrealized capital gains is passed on to an heir, the basis of the asset resets or “steps up,” to the current fair market value, wiping out any tax liability for the unrealized capital gains.

For example, a person who inherits an asset that was originally purchased for $100,000 but is now worth $250,000 benefits from a step-up in basis from $100,000 to $250,000. When the asset is sold, the seller would pay capital gains tax on the difference between $250,000 and the sales price, instead of the difference between $100,000 and the sales price.

President Joe Biden proposed killing the step-up provision in the past.

After a three-decade career as a tax attorney, Bob Lord is now senior advisor on tax policy for the Patriotic Millionaires. The group describes itself as "a nonpartisan organization of Americans with high net worth who promote the restructuring of the American tax system so that wealthy people pay a greater share of their income in taxes."

He testified and implored the committee to work together to eliminate tax loopholes that enable the ultra-wealthy to escape billions in taxes. Grantor-retained annuity trusts [GRATs], for example, allow a person to transfer assets to heirs while keeping some control over the assets and receiving income payments.

"The tax lawyer who developed the zeroed-out GRAT strategy estimated that wealthy Americans had avoided $100 billion or more of a estate tax through GRATs," Long said. "Closing the GRAT loophole is not complicated ... yet the loophole remains open over a decade after becoming widely known. That should alarm Americans because these are just the known loopholes."

Small businesses hurting

Jeff Brabant is vice president of federal government relations for the National Federation of Independent Business. He testified on behalf of small-business owners who need the tax deduction granted by the TCJA.

The legislation allowed some business owners to deduct up to 20% of qualified business income and also temporarily cut taxes on new equipment purchases and other qualified assets. Brabant came with a petition signed by more than 81,000 small business owners.

Since 2017, small business owners dealt with "a pandemic that closed many businesses for long periods, record inflation and a historically tight labor market," Brabant noted.

Likewise, many small business owners are competing with corporate entities like Home Depot and Starbucks, which are paying a permanent 21% corporate tax rate, Brabant added.

NFIB, in conjunction with EY, released a macroeconomic analysis Thursday of the small business impact of permanently extending the 20% small business deduction.

"This study concluded that permanently extending this provision would increase jobs in the small business sector by 1.2 million jobs each year for the first 10 years," Brabant said.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.