Featured Articles

House Taxwriters Mulling EITC Changes in Tax Reform Bill, Brady Says

Posted on October 19, 2017 by David van den Berg, Luca Gattoni-Celli

House GOP taxwriters working on tax reform are considering changes to the earned income tax credit to curb erroneous payments of the credit, House Ways and Means Committee Chair Kevin Brady, R-Texas, said October 18.

“We are looking at redesigning [the EITC] a bit to make sure we are knocking the fraud out of it,” he said at Rice University’s Baker Institute for Public Policy in Houston. “There is unfortunately far too much of those dollars wasted.”

Recent findings back up Brady’s assessment as a House Budget Committee report on the lower chamber’s budget resolution called the EITC “susceptible to fraud and abuse,” noting its high erroneous payment rate. The Treasury Inspector General for Tax Administration reported in April that 24 percent — or $16.8 billion — of EITC payments were issued improperly in fiscal 2016. However, National Taxpayer Advocate Nina Olson told a House Appropriations subcommittee in May that refund holds required under the Protecting Americans from Tax Hikes Act of 2015 lowered the improper payment rate for the EITC by 2.1 percent.

If tax reform passes, the EITC will be included on a postcard-sized tax return that Republican lawmakers believe can be used by an overwhelming majority of taxpayers to file their taxes, according to Brady, who also hinted at possible broader poverty policy reforms in 2018.

“We also think there are . . . ways to better incentivize people to move from welfare to work,” he said. “We think keeping it on the postcard, making it smarter, and then coupling it with new incentives next year outside the tax code can help get them, frankly, some opportunities they don’t have today.”

The EITC isn’t the only credit that might be affected by tax reform. The charitable deduction will remain, but House Republican taxwriters are “working to unlock more of that,” Brady said. Also, the child tax credit would be increased and the “college credit” would be redesigned to provide some assistance to families sending children to technical schools, he said.

“I have tasked our team [to] think fresh about every provision in the code, especially those on the postcard,” Brady said. “We are exploring the home mortgage deduction . . . and looking at ways perhaps we could extend it across the economy, not just for those who itemize — perhaps allow it to be used for all phases of home ownership. Same with the charitable deduction.”

Changes aren’t limited to individual provisions, according to Brady, who promised adjustments to expand on the Republican tax reform framework’s proposal for five years of full and unlimited expensing for businesses. He added, however, that the framework proposal for partial limits on interest deductibility for businesses will remain.

“That’s exactly where we’ll be,” he said.

Taxwriter Meetings

Ways and Means Republicans are expected to hold meetings on tax legislation October 24 and 25 after they return from recess, Brady’s office confirmed. Senate Finance Committee members, meanwhile, met with President Trump on October 18 to discuss tax reform. Committee member Rob Portman, R-Ohio, called the meeting productive.

“I’m pleased that President Trump and the White House continue to engage both Republicans and Democrats on the need for comprehensive tax reform,” Portman said in a statement. “We all agreed tax reform should focus on helping middle-class families, and that’s what our plan does. Our tax reform framework will help create more jobs, increase wages, and encourage more investment and opportunities in America.”

Finance Committee ranking minority member Ron Wyden, D-Ore., had a different take on the meeting and the Republican plan.

“I made it clear in today’s meeting that there is an enormous chasm between the rhetoric and the reality of the Trump tax plan,” Wyden said in a statement. “All the happy talk about helping the middle class and avoiding a giveaway to the wealthy sounds great, but it is not what the White House and Republicans have on offer. The Trump plan proposes tax increases for hardworking families while giving away trillions of dollars in tax cuts to the biggest corporations and the ultra-wealthy,” he added. “You’re not going to reach bipartisanship by plowing forward with this con job on the middle class.”

Sen. Bob Casey, D-Pa., told reporters he asked Trump about plans to cut taxes for super-wealthy Americans and reduce funding for Medicare. “I didn’t get good answers to either one of those questions,” he said.

However, Sen. Johnny Isakson, R-Ga., said Trump heard Democrats’ suggestions about making sure tax cuts go to middle-income taxpayers. Lawmakers from both parties want to help low-income people, but they differ on how to accomplish that goal, he told reporters.

Trump discussed the highlights of the framework with reporters before the meeting, saying it calls for “historic tax cuts.” He also noted a Council of Economic Advisers report that claims that lowering corporate tax rates to 20 percent would increase average household incomes by $4,000 per year.

Mnuchin Ties Stock Rally to Tax Reform

“Absolute guarantee,” Mnuchin said on a Politico podcast when asked if he was still certain tax reform could be accomplished in 2017. Politico Morning Tax said Mnuchin spoke before Trump hinted that tax reform could slip into next year.

“We expect to have a budget approved out of the Senate next week, then go to conference with the House. Once they pass the budget in conference, the House Ways and Means [Committee] will drop the [tax reform] bill,” Mnuchin said. “And the games will begin. We expect that we’ll get it to the president’s desk by the beginning of December.”

Mnuchin was asked how to square Trump’s call for corporate tax cuts with his frequent boasts about record-setting stock market values. “There is no question that the rally in the stock market has [baked] into it reasonably high expectations of us getting tax cuts and tax reform done,” as well as optimism about regulatory reform, he said.

“I think to the extent we get the tax deal done, the stock market will go up higher,” Mnuchin continued. “But there’s no question in my mind [that] if we don’t get it done, you’re gonna see a reversal of a significant amount of these gains.”

The former banker clarified that he does not believe stock prices embody tax reform per se. “I don’t think it’s priced in [100] percent certainty, so I think the market will go up” if tax reform happens, Mnuchin said. “But it’s definitely priced in an expectation of getting it done.”

After previously saying there would be no absolute tax cuts for high-income earners, Mnuchin conceded that the administration’s tax agenda will likely benefit wealthy individuals. He once again framed estate tax repeal as a philosophical issue, but rested much of his argument on the existing income tax code’s progressivity.

“The top 20 percent of the people pay 95 percent of the taxes,” Mnuchin said, referring to personal income tax receipts as a function of household income. “The top 10 percent of the people pay 81 percent of the taxes. So when you’re cutting taxes across the board, it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class. The math, just given how much you’re collecting, is hard to do,” he said.

White House press secretary Sarah Sanders downplayed any contradiction between Mnuchin’s comments and Trump’s recent pledges that tax reform will not benefit wealthy individuals. “That’s not the focus of the tax plan,” she said during an on-camera briefing. “The focus and the priority of the framework that the White House has laid out is to benefit the middle class.”

Sanders said she agreed with Mnuchin that “there may be some people that receive tax cuts that are also in the wealthy bracket,” but reiterated that giving middle-income taxpayers the greatest benefit remains the White House’s overriding priority.

Regarding Trump’s meeting with Finance Committee members, including his overtures to Democrats, Sanders said the White House would “love to see them get on board.”

“We don’t [know] why any Democrat would want to be against providing tax relief and tax cuts, specifically to middle-class America,” Sanders said. “I don't know why anybody wouldn’t want to get on board with that.”

Stephen K. Cooper contributed to this article.

Follow David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.

Follow David van den Berg (@TAtaxDavidVDB) and Luca Gattoni-Celli (@TheGattoniCelli) on Twitter for real-time updates.