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Democrats, GOP spar over Treasury rules on Trump tax law

Democrats, GOP spar over Treasury rules on Trump tax law
© Greg Nash

Lawmakers at a hearing on Tuesday debated regulations meant to implement provisions for businesses in President TrumpDonald John TrumpHillary Clinton responds to Chrissy Teigen tweet: 'I love you back' Police called after Florida moms refuse to wear face masks at school board meeting about mask policy Supreme Court rejects Trump effort to shorten North Carolina mail-ballot deadline MORE's 2017 tax-cut law, the latest round in the messaging battle between Democrats and Republicans over the president's signature legislative accomplishment.

Democrats argued that Treasury Department regulations were overly favorable to businesses as a result of lobbying from corporations.

"Unfortunately, Treasury gave away the store by issuing some regulations that give even more tax breaks to corporations, and that are likely to further the deficit," said Ways and Means Committee Chairman Richard NealRichard Edmund NealLawmakers offer bipartisan bill to encourage retirement savings Democrats express concerns about IRS readiness for next year's filing season On The Money: Kudlow confident that Trump can 'round up' Senate GOP behind coronavirus relief deal | US deficit spikes to record .1T MORE (D-Mass.), whose committee held the hearing.

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Republicans, however, defended the Treasury Department's rule-making process and pushed back against the idea that the regulations will lead to additional increases in the deficit.

"We heard some criticism about Treasury here today. It seems to me, that when you rewrite the tax code as we did, it's a major undertaking," said Rep. Kevin BradyKevin Patrick BradyLawmakers offer bipartisan bill to encourage retirement savings On The Money: GOP cool to White House's .6T coronavirus price tag | Company layoffs mount as pandemic heads into fall | Initial jobless claims drop to 837,000 GOP cool to White House's .6T coronavirus price tag MORE (R-Texas). "Rules and regulations have to be drawn to both implement and interpret what Congress intended."

Trump's 2017 tax law cut the corporate tax rate from 35 percent to 21 percent, created a 20-percent deduction for income from noncorporate businesses known as pass-throughs, and made significant changes to the taxation of U.S. corporations' foreign earnings. No Democrats voted for the measure because they thought the law was too generous to corporations and wealthy individuals.

The Congressional Budget Office (CBO) earlier this year reduced its projection of corporate tax revenue related to certain provisions of the GOP tax law by $110 billion over the 2020 to 2029 period. CBO Director Phillip Swagel said in a blog post on Friday that most significantly, the office reduced its projections of the amount of income that will be taxed under certain international provisions, in part because of Treasury and IRS rules.

"More than two years following enactment, taxpayers have had time to better understand how the new tax rules interact and have more information about the implementation of the law, including regulations announced by the Internal Revenue Service over the past year," Swagel wrote.

Rep. Bill PascrellWilliam (Bill) James PascrellDemocrats express concerns about IRS readiness for next year's filing season Obama hits trail to help Biden, protect legacy Trump's COVID-19 case draws new attention to handling of pandemic MORE (D-N.J.) noted the CBO's downward projection, saying "this is money that could have been spend on health care, roads, bridges."

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He also argued that Treasury "has gifted large multinational corporations even more money through the rules to implement the scam law."

One of the witnesses Democrats invited to the hearing, Fordham University law professor Rebecca Kysar, said in her testimony that the Treasury Department has weakened international provisions in the 2017 tax law "in the face of intense lobbying ... which will further erode the U.S. tax base."

"Troublingly, many of these regulatory giveaways have no statutory basis," she said. She also argued that regulations on the pass-through deduction and opportunity zones were overly generous to lobbyists demands.

But Republicans argued it is typical for Treasury to receive stakeholder feedback as it writes tax regulations.

Brady asked the Republicans' witness at the hearing, American Action Forum President Douglas Holtz-Eakin, if it was normal for stakeholders to interact with Treasury as it drafts regulations.

Holtz-Eakin replied that it was "very normal."

"I think it's underestimating the current Treasury staff to somehow suspect that they can't make up their own mind, that they're just going to take meetings and be told what to do," he said.

Holtz-Eakin, a former CBO director, also said that there's no way for CBO to assign $110 billion less in projected corporate income tax receipts to international tax rules in particular.

"There's not one tax return that they've seen post-rulemaking, there's no score of a rule," he said.

A Treasury spokeswoman has said in the past that the department met with stakeholders during the rule-making process but wasn't influenced by any specific company.

The debate over the tax regulations was part of a broader discussion in the hearing over Trump's corporate tax cuts. 

Democrats argued that the corporate tax cuts aren't benefiting workers and that data does not show significant economic benefits due to the 2017 law. They also expressed concerns that the IRS doesn't have enough resources to ensure that corporations pay what they owe in taxes.

But Republicans argued that their tax law has made U.S. businesses more internationally competitive and said that the economy has made strides since Trump has taken office.

The hearing took place on the same day as New Hampshire's first-in-the-nation presidential primaries for 2020. The tax law and the economy are likely to be topics of discussion during the presidential race.

During his opening statement, Brady mentioned several Democratic presidential candidates by name and said that fact-checkers have determined that some of the claims the candidates have made about the tax law are misleading.