Cameron Miranda
In 2017, Republicans used the budget reconciliation procedure to pass the TCJA, which included Trump's tax cuts. While Democrats have criticized many parts of the law, including the cut to the top individual tax rate, the corporate tax rate cut, and international tax provisions, they are unlikely to hold a vote to repeal the entire tax law. Instead, they may focus on repealing specific provisions, such as the cuts for high earners and expanding tax credits for working families. However, to have any chance of repealing and replacing the tax law, Democrats would need to retake the House and overcome a 60-vote threshold in the Senate. With Trump returning to the White House in 2025, the direction of tax policy remains uncertain, and businesses and individuals will need guidance to navigate potential changes to their tax liabilities.
| Characteristics | Values |
|---|---|
| Year | 2018, 2019, 2023 |
| Democrats' plan of action | Lay the groundwork to eventually roll back parts of the tax law, hold hearings to re-examine the law, and prepare bills for when they have a Democratic president |
| Democrats' opinion of the law | The law is a "tax cut for the rich", an "assault on the livelihoods and property values of millions of Americans", a "comical giveaway to the richest people in the country", and an "invitation to businesses to export jobs and to offshore their operations" |
| Bipartisan support | The law has bipartisan support, and the Democrats have been trapped by their own successful messaging campaign against it |
| Actionability | Democrats would need to retake the House to repeal the law, and they did not hold a vote to repeal it when they had the chance in 2019 |
| Hearings | Democrats have vowed to hold hearings, but it would be hard to get a revamp of the tax law enacted |
| Impact | The law cut tax rates for both corporate and individual taxpayers, and modernised the U.S. corporate tax system |
| Future | The law's provisions will expire and revert to pre-2017 levels if Congress fails to act, but it is unlikely that all provisions will expire |
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What You'll Learn
Democrats' cautious approach to Trump's tax law
In 2018, Democrats vowed to repeal parts of the GOP's tax-code overhaul, which they criticized as "tax cuts for the rich" funded by a middle-class tax hike. They opposed the cap on the state and local tax (SALT) deduction, the steep corporate rate cut, and the doubling of the estate tax exemption. However, their approach was expected to be cautious, with an emphasis on laying the groundwork for their own policies rather than holding a vote to do away with the entire tax law.
This cautious approach can be attributed to several factors. Firstly, Democrats recognized the need for bipartisanship in any enduring tax reforms. They also wanted to avoid the perception of raising taxes, which could be a liability in elections. Additionally, some parts of the law, such as tax cuts for the middle class and the Opportunity Zone program, had support among Democrats.
In 2023, it was noted that Democrats had left the 2017 Tax Cuts and Jobs Act (TCJA) intact, despite promises to repeal it. This could be due to their successful messaging campaign against the TCJA, which made it difficult for them to publicly acknowledge its merits. The TCJA was found to have made the tax code more progressive, cutting tax rates across the board and improving the American tax system, although it had an obvious flaw in that some critical provisions were set to expire.
Looking ahead to 2025, President Trump has called for a permanent extension of the 2017 tax cuts, including policies such as no taxes on tips, overtime pay, and Social Security benefits for retirees, as well as higher taxes on US imports through new tariffs. The Democrats, on the other hand, have used budget reconciliation to pass their own legislation, such as the American Rescue Plan Act (ARPA) in 2021 and the Inflation Reduction Act (IRA) in 2022, showcasing their cautious and calculated approach to tax policy.
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The need for bipartisan support
The 2017 Tax Cuts and Jobs Act (TCJA) was passed by Republicans using a procedure called budget reconciliation, which allowed them to bypass the Senate filibuster and push through the legislation without Democratic support. However, the Democrats have long promised to repeal the TCJA, criticising it as "tax cuts for the rich" funded by a middle-class tax hike. Despite this, when the Democrats took power, they left the TCJA intact, even keeping Trump's tax reforms.
This could be because the TCJA was, in fact, good policy with
However, the TCJA is not without its flaws. Some provisions will expire in the coming years, creating uncertainty for both corporate and individual taxpayers. The law also introduced a cap on the state and local tax (SALT) deduction, which has a disproportionate impact on high-tax states such as New York, New Jersey, and California.
To address these issues and ensure the long-term stability of the tax code, bipartisan support is needed. While Democrats have been critical of the TCJA, they have also conceded that it significantly improved the American tax system. They have expressed support for some parts of the law, including tax cuts for the middle class and the Opportunity Zone program.
By working together, Democrats and Republicans can find common ground and make necessary adjustments to the tax law. For example, Democrats could propose repealing the tax cuts for high earners while expanding tax credits for working families, an approach that could gain support across both parties. Additionally, bipartisan support is needed to address the impending expiration of certain provisions and to make the TCJA's key provisions permanent. This would enhance US competitiveness and encourage the reshoring of American supply chains.
In conclusion, while the TCJA was passed without Democratic support, the need for bipartisan cooperation is evident to ensure the stability and effectiveness of the tax code in the long run.
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The impact on high-tax states
The 2017 tax cuts, also known as the TCJA, were passed by Republicans using a procedure called budget reconciliation. This process allows for the fast-tracking of tax, spending, and debt limit changes outlined in a budget resolution. While Democrats have criticized many parts of the law, including the cut to the top individual tax rate and the size of the cut to the corporate tax rate, they are unlikely to hold a vote to repeal the entire tax law. Instead, they may focus on repealing specific provisions that impact high-tax states.
One of the most contentious issues for high-tax states is the cap on the state and local tax (SALT) deduction. Prior to the TCJA, there was no cap on SALT deductions, which allowed taxpayers in high-tax states to reduce their federal tax liability. The cap on SALT deductions has disproportionately affected states such as New York, New Jersey, and California, and Democrats have argued that it is an "assault on the livelihoods and the property values of millions of Americans."
Another issue for high-tax states is the corporate rate cut. While Democrats have long supported a reduction in the corporate tax rate, they disagree with the steepness of the GOP bill's cut. The corporate rate cut has also led to concerns about businesses offshoring their operations to take advantage of lower tax rates in other countries.
Democrats have proposed repealing the tax law’s cuts for high earners while expanding the earned income tax credit and child tax credit to help working families. They have also suggested offering an alternative tax plan that provides tax relief to the middle class and the working class. However, it is important to note that any tax reforms should be bipartisan, and some Democrats have left the door open for a low corporate tax rate.
Overall, the impact of the 2017 tax cuts on high-tax states has been mixed, with some taxpayers benefiting from the reductions while others have been disproportionately affected by the cap on SALT deductions. Democrats have vowed to repeal and replace parts of the law, but it remains to be seen what specific actions they will take if they regain control of the House.
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The future of the corporate tax rate
The TCJA, passed by Republicans in 2017, reduced the corporate tax rate from 35% to 21%, benefiting industries such as real estate and manufacturing. It also introduced full and immediate expensing for investments in short-lived capital assets, limited the business net-interest deduction, and moved to territorial taxation. These changes improved the competitiveness of American businesses and encouraged reshoring of supply chains.
Democrats have criticized the size of the corporate rate cut, arguing that it was too steep. They have also expressed concerns about the impact of the tax law on high-tax states, such as New York, New Jersey, and California, where constituents have been disproportionately affected by the cap on state and local tax (SALT) deductions.
While some Democrats have suggested repealing the tax cuts for high earners, they have also acknowledged the need for bipartisan support and the importance of tax relief for the middle class and working families. The Wyden-Smith bill, a bipartisan effort, aims to restore immediate expensing for R&D costs and expand the R&D tax credit. However, it has faced opposition from Senate Republicans.
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The role of the Ways and Means Committee
The House Ways and Means Committee is the chief tax-writing committee in the U.S. with jurisdiction over all revenue generation bills. It is one of 29 U.S. House of Representatives committees. The Committee was first established in 1789 and officially became a standing committee in 1802. Much of its power comes from Article I, Section VII of the Constitution, which states, "All Bills for raising Revenue shall originate in the House of Representatives." The Committee then has the responsibility of appropriations, banking, and, chiefly, raising revenue.
The Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. Early in the legislative process, the Ways and Means Committee often holds hearings on tax legislative proposals. The Joint Committee Staff generally prepares a hearing pamphlet examining the issues to be addressed. The hearing pamphlets typically describe present law and the proposals that are the subject of the hearing. The pamphlets also often provide an in-depth legal and economic analysis of the issues being considered. The staff also prepares several pamphlets every year that are not for specific hearings, such as the Tax Expenditures pamphlet.
The Ways and Means Committee also has the power to bring in people of great economic reputation, both Democrat and Republican, to talk about the tax bill. There could be hearings both on the broad economic impacts of the law and individual aspects. The Build Back Better Act (BBBA) also originated in the Committee. While the bill did not pass in the Senate, some of the provisions were eventually incorporated into the Inflation Reduction Act of 2022.
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Frequently asked questions
The Democrats can repeal the new tax law if they retake the House. However, they are unlikely to hold a vote to do away with the entire tax law.
The Democrats' approach is expected to be more cautious than the actions Republicans took on ObamaCare. They are focused on reforming tax breaks for lower- and middle-income households.
The Democrats want to repeal parts of the GOP tax law, including the cap on the state and local tax deduction, the cut to the top individual tax rate, and the size of the cut to the corporate tax rate. They also want to expand the earned income tax credit and child tax credit to help working families.
Democrats have been trying to repeal the new tax law since it was passed in 2017. They have held hearings in the House Ways and Means Committee and participated in events organized by liberal activist groups to make the case for the need to repeal the law.
The Democrats have not been successful in repealing the new tax law. In 2023, they left the 2017 Tax Cuts and Jobs Act (TCJA) completely intact, despite promises to repeal it.
