Yesterday, the U.S. Congress Joint Economic Committee (JEC)—led by Chairman Don Beyer (D-VA)—held a hearing titled “Building Back Better: Raising Revenue to Invest in Shared Prosperity” to examine the economic benefits of the revenue provisions included in the Build Back Better reconciliation and bipartisan infrastructure packages.
Currently, the United States raises insufficient revenue to make the necessary investments in physical infrastructure, the care economy, education, healthcare and innovation to maintain its leadership position in the global economy. Today, federal revenue makes up just 16.4 percent of total U.S. Gross Domestic Product (GDP)—nearly an all-time low—putting the United States in the bottom quintile among its peer countries for revenue raised relative to GDP.
The revenue provisions included in the Build Back Better plan will cut taxes for working families and small businesses while asking the wealthy and big corporations to pay their fair share by raising the corporate income tax rate for the most profitable companies and closing avenues for big corporations to avoid paying taxes. Together, these provisions will boost economic growth, enhance productivity, create jobs, lead to major long-term benefits for families and communities, help American small businesses compete with large multinational corporations and unlock innovation in the clean energy sector.
Passing Build Back Better and the Infrastructure Investment and Jobs Acts is expected to build economic resilience, sustain long-term economic growth, increase productivity and create jobs. The nonpartisan Moody’s Analytics projected that passing both bills would boost real GDP growth to 5.3% in 2022, and the Economic Policy Institute projected that together, the two pieces of legislation would create 4 million new jobs, including 556,000 manufacturing jobs and 312,000 construction jobs. In addition, analysis from the Council of Economic Advisors finds investments in physical infrastructure and care infrastructure are expected to reduce inflationary pressure and reduce household costs.
Witnesses included Dr. Kimberly Clausing, Deputy Assistant Secretary for Tax Analysis at the U. S. Department of the Treasury; Ms. Chye-Ching Huang, Executive Director of the Tax Law Center at New York University School of Law and Dr. Wendy Edelberg, Director of the Hamilton Project and Senior Fellow for Economic Studies at the Brookings Institution.
Chairman Beyer said:
“The Build Back Better plan will help provide American small businesses with a level playing field to compete with multinational corporations. The Treasury Department projects that 97% of small businesses will be protected from increased taxes and many will get a tax cut from reducing the corporate tax to 18% for income under $400,000.
“…For too long, the wealthy and big corporations have avoided paying their fair share. We have an opportunity now to rebalance the scale and invest in America’s future to create long-term, broadly shared economic growth.”
Read Chairman Beyer’s full opening statement here.
Dr. Kimberly Clausing, Deputy Assistant Secretary for Tax Analysis, U. S. Department of the Treasury, said:
“Current U.S. corporate and international tax reform proposals have the potential to end offshoring incentives found in current law and dramatically reduce profit shifting incentives for both U.S. and foreign MNCs [multinational corporations]. These measures will considerably reduce the tilt in the playing field that favors foreign business activity relative to U.S. business activity, encouraging U.S. job creation and investment.
“In addition to reworking the parts of our tax code that favor foreign business activity over domestic business activity, these proposed reforms would also reduce the ways in which our tax system favors large MNCs relative to small businesses. Large multinational companies have profit shifting opportunities that lower their tax burdens relative to those of purely domestic businesses, which makes it difficult for smaller businesses to compete with their larger competitors and further increases the market concentration of U.S. industry.”
Read Dr. Clausing’s full testimony here.
Ms. Chye-Ching Huang, Executive Director of the Tax Law Center, New York University School of Law, said:
“The ‘tax gap’ of taxes owed but not paid is an estimated $7 trillion over the next decade. More than a fifth of federal income taxes that go unpaid due to income underreporting (or, recent research suggests, more than a third) come from the highest-income one percent of filers. Even assuming the lower estimate (more than a fifth) is accurate, Treasury estimates the top 1 percent are responsible for $163 billion in unpaid taxes annually.
“Shrinking the tax gap can raise revenue by ensuring high-income filers and large corporations pay what they already owe. Tackling this issue requires adequately funding the IRS. Between 2010 and 2019, the IRS enforcement budget was cut by more than a fifth, the IRS lost more than a third of its expert revenue agents, and audit rates on America’s highest-income filers and largest corporations fell by more than half.”
Read. Ms. Huang’s full testimony here.
Dr. Wendy Edelberg, Director of the Hamilton Project and Senior Fellow for Economic Studies at the Brookings Institution, said:
“Instead, the effective expansion of the social insurance system, some right-sizing in tax revenues, and investments in social and physical infrastructure would make the economy more productive and resilient over the longer term and lead to greater well-being and more equitably shared growth.
“Moreover, the reconciliation package in combination with the bipartisan infrastructure package would not create notable inflation risk in the near term. The recent increase in inflation is largely attributable to the recent burst in consumer demand, which has outpaced supply, and also to various disruptions in global supply chains. Policymakers across many countries are rightfully paying attention.”
Read Dr. Edelberg’s full testimony here.