House Ways and Means Committee Republicans clashed with Treasury Secretary Janet L. Yellen on Thursday over President Joe Biden’s tax proposals, while panel Democrats welcomed them and pushed for additional policies beyond the president’s plans.
Yellen, in her second hearing in two days after testifying before the Senate Finance Committee on Wednesday, avoided efforts from both sides to get her to commit to policies not in Biden’s fiscal 2022 budget request. But she said the administration was willing to work with members of Congress on their ideas.
Ways and Means ranking member Kevin Brady tried to nail down the administration’s position on repealing the $10,000 cap on the state and local tax — or SALT — deduction, which some congressional Democrats are pushing, letting the 2017 individual tax cuts expire and signing an infrastructure spending bill that isn't fully paid for.
Yellen tiptoed around all three questions, saying "the president has not made a proposal with respect to the SALT tax" or taken a position on what tax policy should be after 2025, when many of the Republican tax cuts are scheduled to expire. She said Biden’s budget proposes fully paying for his infrastructure and other spending over 15 years.
“I was respectfully hoping for a little more direct” answers, Brady said.
On the SALT deduction cap, Yellen suggested Biden is willing to compromise with lawmakers and make some changes, but she did not commit to any specifics. "He recognizes that it’s a tremendous concern in a number of states and wants to work with Congress to see if there’s a way to mitigate the harms that it’s caused,” she said.
Repealing the cap is expected to cost around half a trillion dollars, but Pascrell said he has “many ideas” on how to pay for that.
“I hope that is not a major issue,” he said. “And I know we may not get the full relief. I know that. But the administration's silence on this makes my constituents worry.”
Democrats’ other asks
Several other Democrats brought up tax proposals that weren’t in the president’s budget that they want to see in any economic package Congress passes.
Rep. Danny K. Davis, D-Ill., proposed making the adoption tax credit refundable, “substantially expanding” so-called American Opportunity tax credits for college costs and creating an advance refundable credit to help subsidize rent and utility costs above 30 percent of gross income.
“Housing affordability we absolutely recognize is a key challenge and we’ve made proposals there to expand low-income housing tax credits. That helps address the supply side of the problem. But on the demand side we certainly would be interested in working with you on the kind of proposal that you’ve made,” Yellen said.
She said the administration would work with Davis on his other ideas as well.
Yellen also promised several other Democrats the administration would work on their ideas. Those included Washington Rep. Suzan DelBene’s proposed expansion of the housing credit; Wisconsin Rep. Gwen Moore’s proposed expansion of the earned income tax credit to cover home health care; Michigan Rep. Dan Kildee’s “highly targeted” tax credit for investment in economically distressed communities; and Nevada Rep. Steven Horsford's interest in tax credits to address "food deserts," or areas where residents lack access to affordable, healthy food options.
Democrats weren’t the only ones trying to get Yellen on the record on the majority party’s ideas. Rep. Lloyd K. Smucker, R-Pa., asked if the administration supports Massachusetts Sen. Elizabeth Warren’s proposal for a wealth tax.
“We haven’t supported a wealth tax,” Yellen said. “We have proposed a different approach. But our approach would result in higher taxation on capital gains for high-income individuals and would end step-up of basis, which is kind of a way of escaping capital gains taxation at all by holding [assets] until death.”
Several Republicans mentioned opposition to Biden’s proposal to eliminate stepped-up basis on assets above $1 million, saying it doesn’t do enough to protect family farms and small businesses even with a proposal to allow heirs to defer the tax as long as they continue to own and operate the business.
“Your recommended exemption won’t help most working farms, and Treasury liens would only stretch out the pain,” Rep. Adrian Smith, R-Neb., said.
International tax concerns
Democrats mostly expressed support for Biden’s tax proposals, but Virgin Islands Del. Stacey Plaskett had a concern over how the administration’s international tax changes could further exacerbate an issue the 2017 Republican tax law created for U.S. territories.
The law’s "global intangible low-taxed income," or GILTI, rules for taxing foreign profits treat companies headquartered in U.S. territories like the Virgin Islands as foreign corporations.
“Under the administration's recent proposal, the GILTI tax would increase to 21 percent and eliminate the existing exclusion for the first 10 percent,” Plaskett said. “We're concerned that this will have an even greater impact on disincentivizing companies to come into the Virgin Islands and Puerto Rico and the other territories.”
Yellen committed to working with Plaskett to “find a constructive approach” to address her concern.
Under questioning from Rep. Lloyd Doggett, D-Texas, Yellen also addressed questions about what would happen if Congress were to adopt Biden’s proposed 21 percent global minimum tax but the Organization for Economic Cooperation and Development negotiations led to an international agreement on a 15 percent floor.
“The gap between the U.S. tax on foreign earnings and the tax that's imposed by other jurisdictions will actually be narrower with a GILTI of 21 percent than the gap is today with a global minimum tax of zero,” Yellen said. “And I think it's clear from the experience of the last couple of years that even the larger gap created by the 2017 [law] hasn’t been a big impediment for U.S. firms. So if we lead in moving toward a higher rate domestically, we will motivate and give ambition to other countries to move higher as well.”