Senators Weigh Policy Priorities For 2025 Tax Debate

Lawmakers kept discussions high-level during a U.S. Senate Finance Committee hearing previewing the 2025 debate over the expiration of the Tax Cuts and Jobs Act and examining tax avoidance by wealthy earners, exploring how best to prioritize business and family incentives.

In advance of Congress' inevitable tax reform exercise next year, Finance Committee members from both parties advocated for a bevy of policy priorities lawmakers should look to balance in 2025 as a majority of the individual tax cuts and business incentives of the Tax Cuts and Jobs Act expire at the end of next year. 

While many Democratic members focused on taxing wealthy earners and strengthening family incentives such as the child tax credit, Republicans on the panel advocated to preserve many aspects of the TCJA that they argued have proved popular and successful. 

Sen. Elizabeth Warren, D-Mass., noted in her remarks that the wealthiest earners in the U.S. only pay a little over 3% of their respective wealth in taxes, while most Americans pay far more. She said the Biden administration’s proposal that those with a net worth of more than $100 million pay a tax of at least 25% on their income could help make the tax code more equitable.

“Next year Congress has a chance to unrig the tax code; Democrats have proposals to stitch up the loopholes to make sure the wealthy pay their fair share, but no surprise, the mega millionaires are whining that they cannot possibly afford to pay taxes,” Warren said. 

But Sen. Steve Daines, R-Mont., said that if Democrats succeed in the November elections, they could harm U.S. businesses’ global competitiveness, wipe out jobs and reduce domestic GDP, pointing to Vice President Kamala Harris’ support for a 28% corporate tax rate. Daines noted a 28% rate would put the U.S. higher than the European Union or China. 

Jeff Brabant of the National Federation of Independent Business said Harris’ economic agenda could cause two-thirds of small businesses to raise prices and nearly half to consider delaying or eliminating capital projects, based on a recent survey. 

A number of Democrats also inquired about the importance of certain business tax incentives. Sen. Maggie Hassan, D-N.H., said she was concerned that without a 100% immediate business deduction, known as full business expensing, for qualified research and development costs, U.S. companies could be at a disadvantage compared to Chinese firms, which benefit from an immediate $2 million business deduction. 

Daniel Bunn of the Tax Foundation said the current five-year R&D amortization schedule under Section 174 puts the U.S. at a disadvantage in that respect, and could dissuade companies from making those kinds of future investments domestically.

“I think it’s incredibly important to continue leaning forward on this issue, and to be able to make this permanent and restore those deductions for immediate write-offs for research and development,” Bunn said.

The TCJA, passed in 2017, included a permanent 21% corporate income tax rate, but the individual tax cuts and a number of business tax incentives — like a 20% deduction for qualified pass-through business income under Internal Revenue Code Section 199A — expire at the end of 2025.

The international tax regime passed in the TCJA will generally become harsher after 2025. For example, the deduction available for foreign-derived intangible income and global intangible low-taxed income under Section 250 becomes less generous, thus raising the tax rates on those kinds of income. The base erosion and anti-abuse tax, or BEAT, rate increases in 2026 to 12.5%, from its current 10% rate.

Senators referenced a report prepared Wednesday by the Joint Committee on Taxation in advance of the lawmakers’ meeting. In the report, JCT provided roughly 80 pages of background information on the tax practices of high-income earners and businesses, and included revenue estimates for extending the individual tax provisions in the TCJA.

Permanently extending those provisions — which include the individual rate reductions, doubling of the standard deduction, higher gift and estate tax exemptions, the $2,000 child tax credit and more — would cost roughly $3.37 trillion over a decade, according to JCT.

Sen. James Lankford, R-Okla., pointed to numbers in JCT’s report that indicate the 16,000 wealthiest earners in the U.S. were taxed at roughly 34% in total on their earned income in 2019.

The panel’s chair, Sen. Ron Wyden. D-Ore., said the only reason JCT’s report includes numbers indicating that is because it ignores the “funny math” associated with the practice of “buy, borrow, die,” where the wealthiest individuals are able to borrow against assets and, in many cases, avoid or pay significantly less capital gains tax.

“That’s what we’re concerned about … that analysis is based on junk math that you come up with when you ignore buy, borrow and die,” Wyden said.

—Editing by Marygrace Anderson and Katie McNally.