Tax policies similar to the ones recently repealed in Kansas have appeared in the blueprint for a federal income tax overhaul, though some U.S. House members pointed to the cuts championed by GOP Gov. Sam Brownback as a warning during a hearing Thursday.
Just weeks after Kansas lawmakers overrode Brownback’s veto to roll back his signature tax policy and increase taxes by $1.2 billion over two years, a U.S. House subcommittee is considering a reform package that would — like Kansas — cut individual income taxes, reduce the number of individual income tax rates and cut taxes on pass-through entities, like LLCs. The House plan reduces pass-through rates, but Kansas eliminated them entirely.
Members of the U.S. House Ways and Means Tax Policy Subcommittee heard testimony Thursday from three small business owners and a researcher on how the “pro-growth” proposals would affect small businesses. Chye-Ching Huang, deputy director for federal tax policy at the Center on Budget and Policy Priorities, and some representatives cautioned colleagues not to implement the Kansas-like policies.
Huang’s testimony called the policies “tax cuts for the wealthy,” and says the cuts on pass-through income would disproportionately help high-income earners and those looking to avoid taxes.
“Like the Kansas plan, the administration and better way tax plans propose large deficit-increasing tax cuts, mostly for the wealthy and large businesses,” she told the committee.
Rep. Lloyd Doggett, a Texas Democrat, also cautioned colleagues against reducing tax rates on pass-through entities. He quoted the Tax Foundation, which has said in testimony that Kansas’ tax cuts on pass-through entities has created “tax avoidance, not job creation.”
“This is a group here, I think, that is viewed as being a Republican group,” he said.
The foundation, however, supported a cut to the pass-through tax rate in a post before the Thursday hearing.
Doggett added that pass-through tax cuts will benefit high-earners, like Michael Bloomberg, who uses a pass-through entity for his income.
“We’re not just talking about mom-and-pop enterprises,” he said. “We’re talking about very wealthy individuals.”
Rep. Lynn Jenkins, a Kansas Republican and a certified public accountant, sits on the Ways and Means Committee, but not the subcommittee that met Thursday. She said the Kansas income tax plan made a mistake by eliminating the tax on pass-through entities entirely and that the U.S. House plan would broaden the tax base by eliminating tax exemptions that can be used to avoid paying taxes.
She said she didn’t think the House plan and Kansas’ tax cuts were similar.
“We have to get America out of this, 2 percent, 3 percent growth trajectory,” she said.
Other representatives urged tax cuts for businesses, saying they would be able to create more jobs and be more able to compete with foreign manufacturers. Three business owners who testified before the committee said a cut in the pass-through rate would help their business grow. They also argued Congress should end a tax on assets being passed on from a deceased person, and they pushed for a simpler tax system.
Rep. Mike Kelly, a Pennsylvania Republican, advocated lowering tax rates so businesses could hire more workers and increase the number of individuals paying taxes, rather than taxing businesses at higher rates.
“If we don’t get people back to work, where is this revenue going to come from?” Kelly asked. “And if we don’t allow you to be profitable, where is this revenue going to come from?”
The unemployment rate has declined nationally in recent years, but the rate of unemployed people actively looking for work has also declined.