Thank you for the opportunity to testify on the Tax Cuts and Jobs Act (TCJA) that passed the House and the Senate and will shortly be taken up by the conference committee. This bill would be the largest change to the tax code in over 30 years, and holding hearings is essential both to understand the overall impact it has on households and the economy as well as to understand the substantial technical complexities in the bill. In my testimony today I will focus on this first set of subjects and would refer you to a recent analysis by leading law professors on many of the important avoidance opportunities and technical problems in the bills (Avi-Yonah et al. 2017).
My testimony makes four main points:
- The tax bills would raise taxes on tens of millions of middle-class families, increase after-tax income inequality, and provide the largest gains to households at the top. These tax increases are despite the fact that they would cut revenues by nearly $1.5 trillion in total over the next decade.
- The tax bills have a very small impact on growth over the next decade with a wide range of estimates finding a boost to growth of less than 0.1 percentage point per year over the next decade. In the long run, the additional debt accumulation associated with the bills would most likely reduce the size of the economy.
- The bills would have a number of deleterious effects including causing future tax increases or spending cuts, increasing the number of uninsured, raising health insurance premiums, and reducing state and local services.
- Tax reform could do much more to promote growth and help middle-class families. Relative to the House and Senate bills, this would require, at a minimum, a number of changes, including a smaller corporate rate reduction, no new loopholes for passthrough businesses, no reduction of the estate tax, adding refundable child tax credits, an expansion of the Earned Income Tax Credit for childless workers, and permanent expensing of both equipment and structures, among other changes.