Tax Policy to Support Shared Prosperity and Economic Opportunity

Chair Heinrich, Vice Chair Schweikert, members of the Committee, thank you for the opportunity to testify before you this morning at this important hearing. I am Samantha Jacoby, Deputy Director of Federal Tax Policy at the Center on Budget and Policy Priorities, a nonpartisan research and policy institute in Washington, D.C.

In my testimony, I will make three main points:

• First, tax cuts enacted in the last 25 years — namely, the tax cuts enacted in 2001 and 2003 under President Bush (most of which were made permanent in 2012) and those enacted in 2017 under President Trump — gave windfall tax cuts to households in the top 1 percent and large corporations. In particular, the 2017 tax cuts have failed to produce the economic benefits that proponents promised. Research shows that most workers saw “no change in earnings” from the corporate tax rate cut, while top executive salaries increased sharply. Similarly, rigorous research concluded that the tax law’s 20 percent pass-through deduction, which was skewed in favor of wealthy business owners, has largely failed to trickle down to workers.
• Second, these large tax cuts have eroded our revenue base, undermined our ability to finance high-value investments, and driven up deficits and debt, increasing future economic risks. Extending the 2017 tax law’s expiring individual income and estate tax cuts, which disproportionately benefit high-income households, would cost around $4 trillion over ten years (2026-2035), further raising the debt ratio. Additional revenue efforts are needed and should focus on those who have gained the most over the last four decades.
• Third, the United States underinvests in people, communities, and the building blocks of the economy in ways that shortchange opportunity, exacerbate inequality, widen racial and ethnic inequities, and limit the nation’s potential. Instead of doubling down on the failed trickle-down path of the Bush and Trump tax cuts, policymakers should prioritize investments that would yield significant short- and long-term benefits to people, communities, and the economy as a whole.

Trickle-Down Tax Cuts Failed to Deliver Promised Economic Benefits

The tax cuts enacted under President George W. Bush and President Trump disproportionately flowed to households at the top and cost significant federal revenues, adding trillions to the national debt since their enactment.^[1] Extending the 2017 tax law’s expiring provisions would provide further windfall benefits to high-income households. By shrinking revenues, these tax cuts limit policymakers’ ability and willingness to make public investments that pay off in tangible and important ways for individuals, families, communities, and the country as a whole.

2017 Trump Tax Law Was Skewed to the Top

Like the Bush tax cuts that came before it,^[2] the tax cuts enacted in 2017 under President Trump benefited high-income households far more than households with low and moderate incomes. The 2017 tax law will boost the after-tax incomes of households in the top 1 percent by 2.9 percent in 2025, roughly three times the 0.9 percent gain for households in the bottom 60 percent, according to Tax Policy Center estimates.^[3] The tax cuts that year will average $61,090 for the top 1 percent — and $252,300 for the top one-tenth of 1 percent. (See Figure 1.) The 2017 tax law also widens racial disparities in after-tax income.^[4]