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unidentified
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What was debated and decided in Washington? | |
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| Here this morning to talk about the 2017 tax cut under the first Trump administration. | ||
| Erica, York, remind our viewers of the key provisions of that 2017 tax cut and jobs act. | ||
| The 2017 tax law made some permanent and some temporary changes to the tax code. | ||
| The temporary changes were individual income tax cuts, including lower rates, wider brackets, a larger child tax credit, a larger standard deduction, and many other changes to itemized deductions, the alternative minimum tax. | ||
| It also made some temporary changes to the business tax code. | ||
| It created a deduction for pass-through businesses like S-corporations and partnerships. | ||
| It implemented expensing for business investment in the United States, so purchases of machinery and equipment. | ||
| Also made some changes to interest deductions, to research and development expenses. | ||
| And lawmakers are considering changing or extending all of those because the sunsets are scheduled to occur at the end of this year. | ||
| And without any congressional action, most of those tax cuts I mentioned would expire, leaving about 62% of taxpayers paying a higher individual tax bill in 2026 than they would if those tax cuts were extended. | ||
| As you go through the list of those that were temporary and need to be extended, Republicans argue, and some Democrats are in support of extending some of these. | ||
| What impact did they have on the economy and on our government? | ||
| So a couple of different channels you can think about. | ||
| The business tax provisions, we've got lots of academic research saying that especially that expensing provision that improves the deductibility of machinery and equipment investment led to higher investment in the United States than we otherwise would have. | ||
| The individual income tax cuts, they reduced tax rates on average for people across the income spectrum. | ||
| They have less of a growth benefit though, because people tend to be less responsive. | ||
| You know, if you have a full-time job, you have a full-time job. | ||
| You don't really work anymore when you get a tax cut. | ||
| You just get to keep more of that money. | ||
| And overall, they did reduce revenue. | ||
| You know, there are lots of lawmakers and others who will say it looks like they paid for themselves. | ||
| They didn't. | ||
| They reduced how much revenue the federal government brought in. | ||
| At the same time, they did boost some investment and some growth, though not as much as the proponents who signed them, who passed that legislation may have promised. | ||
| Do we know how much lost tax revenue there was? | ||
| Unfortunately, no. | ||
| Revenue estimation is really tricky. | ||
| You have a forecast out for the next 10 years of what you think the government will raise. | ||
| You estimate, okay, what will the government raise now that we cut taxes? | ||
| But then over those years, a lot changes. | ||
| So since the 2017 law was passed, we had a trade war in 2018 and 2019. | ||
| We, of course, had the COVID pandemic. | ||
| We had a lot of tax relief or pandemic support go through the tax code. | ||
| Then we came out of the pandemic and had really fast economic growth and really fast inflation. | ||
| So so many things changed that it's hard to pinpoint exactly what was the effect of the law that was signed in 2017 versus what was the effect of all of these other things. | ||
| A lot of analysis, including from the Congressional Budget Office, has tried to look at this, you know, and answer what is that amount. | ||
| Effectively, there's no like pinpoint estimate, but tax revenues were higher than expected. | ||
| A lot of that was from inflation, though. | ||
| A lot of that was from the tariffs that were bringing in revenue. | ||
| Some of it, a smaller share, was from economic growth. | ||
| So I think it's safe to say the tax cuts definitely reduced revenue, though maybe by not as much as was expected because there was a little bit of economic growth that occurred from them. | ||
| Do we know which one of the provisions, the 2017 provisions, had the largest impact on revenue gains and losses? | ||
| The largest impact on growth comes from two key provisions that the reform made. | ||
| The first was the reduction of the corporate income tax rate. | ||
| So at the time that TCJA was enacted, the United States had the highest corporate income tax rate in the developed world. | ||
| The 2017 law brought us right around the worldwide average. | ||
| So that improved incentives for investment in the United States, reduced incentives to shift profits out of the United States. | ||
| So a lot of academic research has found that boosted investment and boosted growth. | ||
| And similarly, another important provision there were the deductions for investment, speeding up those deductions, which reduces the tax burden that falls on investment. | ||
| So those were the key when it comes to what was the most pro-growth and what was the most beneficial for boosting domestic investment. | ||
| And who saw the most relief from taxes? | ||
| Which groups in this country? | ||
| So the Tax Cuts and Jobs Act provided tax cuts on average across all income groups. | ||
| As a percentage of income, the size of those tax cuts increased with income. | ||
| So higher income taxpayers saw a larger percentage reduction in their taxes than lower income taxpayers. | ||
| Part of that is a reflection of the starting point of our tax code. | ||
| We have a very progressive individual income tax code where about the bottom 30%, maybe a little bit more, don't actually pay any taxes in. | ||
| They receive payments back from the government through refundable tax credits, while at the top, you see very high average tax rates. | ||
| So when you provide a tax cut on a progressive tax structure, you tend to see that pattern. | ||
| But that's why provisions were included, like increasing the child tax credit, increasing the refundability of the child tax credit to still provide benefits to those lower income taxpayers who don't actually have tax liability. | ||
| We're talking about the debate here in Washington over making permanent the 2017 tax cut provisions that were put in place as temporary provisions back during the first Trump administration. | ||
| And Eric York, many of the provisions for businesses were permanent, while many of the provisions for individuals were temporary. | ||
| Why was that? | ||
| One of the main reasons was because the biggest problem that the tax reform was trying to solve was that our corporate tax system in particular had fallen out of step with the rest of the world. | ||
| So while the U.S. maintained a 35% federal tax rate and a worldwide tax system, the rest of the world had lowered their corporate tax rates in the 25 to 20 percent range, moved more towards territorial taxation, and that had created some problems for the U.S. | ||
| If you look back at newspaper headlines back in the period leading up to tax reform, you would see a lot about corporate inversions, corporations changing where they were headquartered to avoid that very high corporate tax rate we had. | ||
| So the problem that needed solved was our out-of-step corporate tax system, and that needed to be done permanently. | ||
| Because when you are trying to induce corporations to change their supply chains and their structure, they won't do that in response to something that's temporary. | ||
| They need to have that certainty in order to respond to those better incentives. | ||
| And if you look at, again, at the period leading up to tax reform, there were bipartisan tax hearings, you know, dating all the way back to 2014 and earlier about the issues of the international tax system and bipartisan support for fixing it. | ||
| So I think a lot of the provisions that ultimately were enacted were bipartisan, but then given that Republicans ended up with full control, they also added additional things to it. | ||
| So rather than it being a revenue-neutral tax reform that addressed our out-of-step corporate tax system, they also added major deficit-increasing tax cuts for individuals. | ||
| They used a budget process called reconciliation, which requires anything that's done permanently to be paid for. | ||
| So while we hear a lot about, you know, the corporate rate cut was permanent, it also had to be paid for. | ||
| So there were a lot of base broadeners, which effectively increased taxes on corporations that were permanent as well. | ||
| And that's what paid for the long run or the permanent corporate tax cut, while the individual provisions weren't paid for. | ||
| They were deficit increasing, they were net tax cuts. | ||
| And so because of budget reconciliation rules, those were done temporarily. | ||
| All right. | ||
| Erica York, here to take your questions and your comments about tax cuts. | ||
| Roger in Milwaukee, Independent. | ||
| Let's hear from you. | ||
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unidentified
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Good morning. | |
| Well, let me ask you the first question because I have three. | ||
| But based on the tax credit, is there any reason why we're actually giving tax credits when we have such a ridiculous national debt that we can't pay and we're coming up with tax credits? | ||
| That's one question I'd like to hear you respond to. | ||
| Just so do you think we should be giving tax credit at all right now? | ||
| All right. | ||
| We'll take that question. | ||
| Yeah, I think lawmakers really need to think about fiscal responsibility when they're asking what do we do going forward. | ||
| We had a deficit finance tax cut from 2017. | ||
| I think lawmakers should look closer at how do we pay for this so we don't worsen the fiscal trajectory. | ||
| What is your organization's estimate of how much making these temporary tax cut provisions permanent? | ||
| What is the cost? | ||
| We've estimated that across the individual, the estate, and the business tax provisions that are expiring or phasing out, making those permanent across the 10-year budget window would reduce revenue by about $4.5 trillion. | ||
| So, significantly increase deficits over the period, add to interest costs. | ||
| And that's a factor that needs to be weighed when lawmakers are thinking about what do we do next. | ||
| Because given that we're already close to running $2 trillion deficits each year, adding to that is probably not the best idea right now. | ||
| All right. | ||
| And work is underway here in Washington to prepare this budget reconciliation vehicle for action on the floor in the Senate as early as next week. | ||
| House Republicans and Senate Republicans want to move quickly on including in the budget reconciliation proposal these tax cuts. | ||
| Jack in Washington, Pennsylvania, Republican, your turn. | ||
|
unidentified
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I'm in favor of renewing the tax cuts. | |
| Actually, it's been shown, though, that the tax cuts or tax raises really don't change what's going to determine the deficit in the government. | ||
| Back in the late 50s and early 60s, we had 20-some tax brackets. | ||
| The highest rate was 91%. | ||
| And we still ran deficits in some of those years. | ||
| The last fiscal year of 2024, government spending was 23% of the GDP. | ||
| And it's been shown historically that the way to balance the budget is to get government spending down to about 17 to 18 percent of GDP. | ||
| So until that happens, it doesn't make any difference whether you raise taxes or lower taxes. | ||
| You can't control what people are going to spend on the things they want and the things they need, which is what determines the GDP. | ||
| All right, Jack, let's get a response from Erica York. | ||
| Hang on the line, Jack. | ||
| Yeah, so if we look at like 50-year historical averages, spending is significantly above its 50-year average. | ||
| Revenues are slightly below their 50-year average. | ||
| And, you know, it's kind of like a pair of scissors. | ||
| Both sides matter. | ||
| If we and lawmakers want spending to stay at about 23 to 24 percent of GDP, they need to find a way to finance that. | ||
| Historically, though, we have seen American taxpayers not really be in favor of taxes going too much above 18 or 19 percent of GDP. | ||
| So it really comes down to tough trade-offs. | ||
| Are we going to continue spending this high? | ||
| If so, how are we going to pay for it? | ||
| Or are we willing to bring spending back down and get it in line with where tax revenues are now? | ||
| It's a math problem and it's a tough one because it either means people see benefit cuts if spending goes down or people see tax increases if spending goes up and both of those are tough pills to swallow C-SPAN's Washington Journal, our live forum inviting you to discuss the latest issues in government, politics, and public policy from Washington and across the country. | ||
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unidentified
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Coming up Saturday morning, Matt Gertz of Media Matters and Tim Graham of the Media Research Center will talk about recent news media coverage of the Trump administration and Republican calls to defund public media. | |
| Then, Aisa Canchola-Banez of the Student Borrower Protection Center talks about a proposal to move federal student loan programs to the Small Business Administration. | ||
| C-SPAN's Washington Journal. | ||
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| Former Wyoming Senator Alan K. Simpson recently died at the age of 93. | ||
| On Saturday, the Simpson family is hosting a public celebration of his life at the University of Wyoming. | ||
| Mr. Simpson served three terms as a U.S. Senator from 1979 to 1997. | ||
| He became Republican Whip in 1985 and held that leadership position for 10 years. | ||
| Watch his memorial service live starting at 1 p.m. Eastern on C-SPAN. | ||
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| Up next, witnesses describe their experiences with anti-Semitism on college campuses and its impact on free speech. | ||
| They also touch on the conflict in Gaza and how staffing cuts at the Department of Education's Office of Civil Rights are affecting Jewish students. |