What Democrats Want to Do on Taxes If They Win the House

If Democrats win control of the House, scrutinizing the 2017 tax law and finding a way to force President Donald Trump to hand over his tax returns will be high on their to-do list.

Lawmakers and former congressional aides say the party is also ready to push for middle-class tax cuts and a tax on carbon emissions, setting the stage for 2020’s campaign messaging.

Even if the chances are low that such bills are signed into law—because Democrats would control only the House—public hearings on the issues would highlight priorities Democrats would push in 2020. Floor votes on Democratic tax priorities would put many Republicans on record as opposing those policies, and incumbent Democrats would go into the presidential election year able to show voters what they’re for instead of just the GOP legislation they voted against.

Here’s what to watch for in 2019.

2017 Tax Law

Democrats have vowed to scrutinize last year’s tax overhaul, focusing on how it benefits corporations and the fast pace at which it was passed without bipartisan input.

Rep. Richard E. Neal (D-Mass.), who would chair the Ways and Means Committee if Democrats win the House, has promised to hold hearings to dissect the overhaul. Those hearings could produce legislation to change the law, focusing on raising taxes on the wealthy, repealing the cap on the state and local tax deduction, and ending the tax break for carried interest.

Current Chairman Kevin Brady (R-Texas) has already said he would like to tweak parts of the law’s international provisions. Democrats could look at what provisions they think are and aren’t working, said Todd Metcalf, a former Democratic chief tax counsel for the Senate Finance Committee. The anti-base erosion provisions in the law could be examined because they are novel and complex, while the 20 percent deduction for pass-through businesses could be analyzed because it is a costly provision with little precedent, he said.

And although there is some talk about fixing unintended drafting errors in the law through a technical corrections bill in the lame-duck session, passing legislation might have to wait until 2019.

“My guess is that’s probably not going to heat up until after Treasury has completed its work on the regulations,” said Metcalf, a principal for tax policy services at PricewaterhouseCoopers LLP.

Middle-Class Tax Cuts

Much Democratic criticism of the 2017 tax law has been that “working Americans” aren’t seeing much benefit from it. To push the message, lawmakers could propose expanding the earned income tax credit and the child tax credit and establishing new education tax credits.

These credits could be part of the overall economic message lawmakers push out on economic inequality, said a former Senate Democratic aide who spoke on the condition of anonymity.

Democratic presidential hopefuls in the Senate are already rolling out their tax agendas, focusing on middle-class tax cuts.

Sen. Cory Booker (N.J.) introduced a plan that would create savings accounts for children at birth by raising estate and inheritance taxes, and Sen. Kamala D. Harris (Calif.) unveiled a plan to provide up to $500 a month—$6,000 a year—in refundable tax credits to households that make less than $100,000 a year.

Infrastructure

Democrats, including those on Ways and Means, want to pursue a transportation and infrastructure package, but there may be differences of opinion on how it would be funded.

Trump surprised a group of lawmakers earlier this year by saying he would support a 25-cent-per-gallon increase in federal gasoline and diesel taxes—an idea backed by the U.S. Chamber of Commerce and American Trucking Associations. But the president never endorsed the idea publicly, and prominent Republicans flatly rejected any tax increase.

Henrietta Treyz, a managing partner and director of economic policy research at Veda Partners LLC in Bethesda, Md., said in a September research report that Trump and the Democratic Caucus want to see a $1 trillion infrastructure bill. Proposals from the Democrats could include raising taxes for the wealthy, increasing the corporate tax by 2 to 5 percentage points and increasing the 18.4-cent federal gas tax.

That will be about it, with no expectation of anything actually becoming law, Treyz said. “Despite clamoring for infrastructure spending, Democrats will not be inclined to provide President Trump with a ‘win’ in the back half of his administration,” she wrote.

Rep. Peter DeFazio (D-Ore.), who would become chairman of the Transportation and Infrastructure Committee if Democrats were to win the House, said earlier this year that he and Neal want a select subcommittee to hold hearings on infrastructure issues.

Carbon Tax

Democrats could also use the next two years to set the table for a carbon tax push after 2020 by holding hearings and introducing legislation. But serious conversation about this issue wouldn’t happen until after 2020, said the former Senate aide who spoke anonymously.

With the individual tax cuts in the 2017 law expiring at the end of 2025, and pressure to shore up Medicare and Social Security, the hunt will be on for revenue raisers, Metcalf said. A carbon tax could be a “good intro consumption tax,” he said.

A carbon tax measure is on the ballot in Washington state—a direct fee on carbon emitters—for the November elections, and the results will be an early indicator of whether the tax has political support.

The idea of a carbon tax has corporate and bipartisan backers even though there might not be consensus yet on what it would look like. Rep. Carlos Curbelo (R-Fla.), a Ways and Means member, has floated a proposal, as have Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii). The Curbelo plan would tax carbon dioxide emissions at $24 per ton of CO2 equivalent while getting rid of federal excise taxes on gasoline and diesel, according to an analysis by Columbia University. The Whitehouse-Schatz plan would enforce a fee on fossil fuels and greenhouse gases at the rate of $49 per ton of emissions.

Trump Tax Returns

Earlier this month Rep. Nancy Pelosi (D-Calif.), who could become House speaker if Democrats take control, told the San Francisco Chronicle’s editorial board that a request for Trump’s tax returns would be one of the first things Democrats would do in 2019.

Neal would have to ask Treasury Secretary Steve Mnuchin to examine Trump’s tax returns under tax code Section 6103 (f)(1). The push to examine his returns gained steam after an Oct. 2 New York Times investigative story alleged that Trump “participated in dubious tax schemes during the 1990s.” Trump, who has bucked a decades-old precedent of U.S. presidents releasing their returns, has denied the allegations.

Democrats have also said they would take a closer look at the estate tax and issues raised in the Times article about undervalued Trump family assets and gifts.

With assistance from Shaun Courtney (Bloomberg Government), Dean Scott (Bloomberg Environment), Mark Niquette (Bloomberg), and Alan Levin (Bloomberg).