Providing for Congressional Disapproval Under Chapter 8 of Title United States Code, of the Rule Submitted By the Internal Revenue Service, Department of the Treasury, Relating to ``Contributions in Exchange for State or Local Tax Credits''

Floor Speech

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Mr. GRASSLEY. Mr. President, before I address the issues before the Senate right now, I would like to express some concern I have about whether the United States-Mexico-Canada Agreement will be able to get done this year.

I come to the floor today to express growing worry. The Democratic- controlled House of Representatives looks increasingly less likely to act this year on the United States-Mexico-Canada Agreement. That threatens passage of the trilateral trade deal this Congress, as next year is a Presidential election year.

It has been about a year since the updated trade agreement with Canada and Mexico was signed by the leaders of the three nations. It is a whole year, and Democrats have still failed to act.

Every day that passes, Americans are losing out on economic benefits of the USMCA. House Democrats seem to have no sense of urgency. For months now, House Democrats have said they are working on it, that they are making progress and that they are optimistic that they can get to yes.

But conspicuously absent from their pronouncements are any mention of a date or timeline. With every passing month, these seem less like good-faith assurances and more like stalling tactics.

The new Congress has been seated for more than 10 months now. How long is it going to take before this can come up?

Ambassador Lighthizer, more than any other Trade Representative I can recall, has gone above and beyond to accommodate the other party's policy demands. For nearly a year now, Lighthizer has worked with House Democrats to find solutions on issues of concern to them, like labor, environment, intellectual property, and enforcement.

I am beginning to wonder if Democrats are interested in reaching a compromise at all. It is looking more like they would prefer to deprive the administration of a victory, even if it comes at the expense of the American people. That should not stand.

Earlier this month, I wrote a column with Congressman Kevin Brady, the ranking Republican on the House Ways and Means Committee. We wrote that time would tell if Democrats cared more about undermining President Trump than helping the American economy and job creation as a result of it. Today, it is looking more like the former than the latter.

If the USMCA is not brought up for a vote in the House very soon, Democrats will have a price to pay next year when the American people have a chance to weigh in. There is little Americans dislike more in politics than zero-sum, oppose-the-other-party politics, no matter the cost.

The USMCA would create hundreds of thousands of jobs, protect American industries, and provide confidence to U.S. businesses and innovators to invest right here in America.

That is what Democrats seem willing to sacrifice by inaction on the USMCA. But Democrats are making the wrong political calculus. This underestimates the intelligence of the American voter and their ability to sniff out a phony.

President Trump has done his job. He has renegotiated a trade deal that nearly everyone besides a few congressional Democrats can agree is better than its predecessor we know as NAFTA.

It is now up to the House of Representatives to do their job and bring this deal to a vote. If they don't act soon, the American people will hold them accountable a year from now. S.J. Res. 50

Now to the issue before the U.S. Senate--the State and local tax deduction. This week, Democrats are using the Congressional Review Act to force a vote on a resolution that would effectively repeal an IRS regulation aimed at preventing millionaires and billionaires from exploiting a tax loophole. This loophole would allow top income earners to save billions of dollars in Federal taxes annually.

New York City hedge fund and private equity managers would most assuredly be some of the biggest beneficiaries under this loophole. At the same time, the taxpayers with incomes under $50,000 would see virtually no benefit.

In this case one might think my Democratic colleagues would be cheering on the Treasury Department and the Internal Revenue Service for taking decisive actions and shutting down this loophole for the wealthy. But this doesn't seem to be the case. Democrats--and only Democrats--including the Democratic minority leader, are arguing in favor of allowing wealthy taxpayers to exploit this loophole. Moreover, predominantly Democratic States have been promoting and bemoaning the loss of this loophole.

The loophole I am talking about is a concerted effort by predominantly only Democrat States to help their wealthiest residents get around the $10,000 cap on the deduction of State and local taxes, which has come to be known by the acronym SALT.

These efforts to get around the cap have been called blue State SALT workarounds. These workarounds are essentially State-sanctioned tax shelters where wealthy residents make payments to a State or local government-controlled fund in exchange for tax credits they can use to wipe out most or all of their State taxes.

These States then want the Federal Government to ignore this sleight of hand and recognize these payments as fully deductible charitable contributions when they are nothing more than State tax payments. Well, that is really too cute by half. It is cheating, and these States are encouraging it, forcing the rest of the country to subsidize these tax shelters for the wealthy.

The Treasury Department and the IRS have correctly determined that these workarounds are contrary to the Federal tax law and have issued sensible regulations to clarify this tax treatment. In doing so, they applied longstanding tax principles that deny a charity deduction to the extent the taxpayer receives something of value in return for their charitable donation. It is simply common sense.

Charity is by definition something done out of the goodness of your heart without expecting or getting something in return. That is certainly not the case with these workarounds. There is no charity involved. In fact, once taking into account both the State tax credit and the charitable deduction at the Federal level, a taxpayer could actually receive a tax benefit that exceeds the dollar value of their so-called donation. That is not charity; that is a tax scam.

Some have attempted to justify this tax scam by pointing to State tax credit programs that existed prior to the existence of the SALT cap, but unlike the recently enacted programs, these older programs were not specifically designed to circumvent Federal tax law when they were enacted. These preexisting tax credit programs were targeted at giving taxpayers the option of funding certain nontraditional governmental activities, such as providing underprivileged children scholarships or to set aside land for conservation.

My Democratic colleagues have painstakingly tried to defend these scams by claiming they are efforts to alleviate State tax burdens on the middle class; however, this argument doesn't even pass the laugh test. It is undeniable that these workarounds will overwhelmingly benefit the superwealthy, while the middle class will receive little or no benefit.

I was pleased to see that at least one Senate Democrat was willing to be honest about this last night here on the Senate floor. Senator Bennet of Colorado put it this way:

The vast majority of the benefits of repealing the SALT cap would go to high-income Americans. Repeal would be extremely costly, and for that same cost, we could advance much more worthy efforts to help working and middle-class families all over the country.

To illustrate this point, I have here a chart based on a nonpartisan Joint Committee on Taxation distribution analysis. They have made very clear through their chart showing who would benefit from repealing the cap on deductions for State and local taxes.

While eliminating these Treasury regulations wouldn't repeal the SALT cap entirely, it would effectively make the cap toothless, as more and more States would create workarounds. And let's not forget--the repeal of the cap is their ultimate goal.

As we can see here on the chart, the majority of the benefits from repealing the SALT cap--52 percent--would flow to taxpayers with incomes exceeding $1 million. Let's think about that just for a minute. Less than half of 1 percent of all tax returns report income exceeding $1 million. Yet, according to the Joint Committee on Taxation, these taxpayers would receive 52 percent of the tax benefit if this resolution of disapproval went through. Another 42 percent of the tax benefit would go to taxpayers with incomes between $200,000 and $1 million. When combined with those earning over $1 million, you can see that fully 94 percent of the tax benefit would go to taxpayers with incomes over $200,000. To put this into perspective, only 7 percent of tax returns report income exceeding this level.

Now compare this to taxpayers with incomes under $200,000, which is about 93 percent of all taxpayers. According to the Joint Committee on Taxation, this group would receive a measly 6 percent of the benefit from repealing the cap on State tax deductions, as the Democrats are proposing. Only a handful of taxpayers with incomes under $200,000--or about 3 percent--would actually see any benefit. Ninety-seven percent of these taxpayers wouldn't see even one penny of benefit from taking away the SALT cap.

So, very simply, there you have it. The same Democrats who have criticized the 2017 tax bill as supposedly benefiting only the wealthy--can you believe it?--are now actively pushing an agenda that would overwhelmingly benefit the wealthy. This goes to show how off- base Democratic criticism of tax reform really is, as we have heard it over the last 2 years.

Far from being a giveaway to the wealthy, the tax reform passed in 2017 was a concerted effort to provide tax relief for everybody. Republicans accomplished this tax cut for everybody primarily by lowering tax rates across the board, but we also did it by repealing or limiting certain regressive tax benefits, such as the deduction for State and local taxes, the SALT provisions we are talking about. We then used that revenue to increase benefits that better target low- to middle-income taxpayers. For example, we doubled the child tax credit from $1,000 to $2,000 and increased the refundability of that tax credit. We also nearly doubled the standard deduction, to the benefit of many lower and middle-income taxpayers. We likely couldn't have made those changes if we hadn't limited the deduction for State taxes that mostly benefited the wealthy.

Democrats who wrongly associate this SALT cap with a tax increase on middle-income folks simply aren't looking at the facts or at tax reform as a whole. Two years ago, Republicans created a tax cut for an overwhelming majority of Americans. This is true even for taxpayers affected by the deduction for State taxes.

Before tax reform, many upper-middle-income taxpayers--particularly those in the high-tax blue States--had to pay the alternative minimum tax. We refer to that as the AMT. For anyone who used to pay the AMT, after you struggled through the incredible complexity of the AMT rules, you realized an unfortunate fact: The AMT clawed back the deduction for your State tax payments. Therefore, many of these taxpayers saw little or no benefit from this deduction before tax reform.

Democrats don't like to admit this inconvenient truth, but it is true. They don't seem to let facts interfere with their political rhetoric. So, yes, these same taxpayers are likely now affected by the SALT cap, but because Republicans largely did away with the AMT--at the same time, lowering everybody's tax rates--they still received a tax cut. Let's not forget that these taxpayers no longer have to deal with the mind-numbing complexity of the AMT. Now a question: Do Democrats really want middle-income families to have to go back to the nonsense of figuring out the alternative minimum tax every year?

I have heard Democrats try to justify their efforts to undermine the SALT cap by claiming it was part of some nefarious plot against blue States. That is simply not true. Yes, more taxpayers in blue States are affected by the cap given the high State taxes those States impose on their residents, but the fact is, on average, every income group in every State saw a tax cut under the 2017 tax cut bill. This isn't just coming from this Senator, Chuck Grassley, but an analysis by the liberal Institute on Taxation and Economic Policy. In addition, recent filing season data released by H&R Block shows that, on average, residents of even high-tax States received a tax cut.

We have also heard fears that the cap will negatively affect blue State revenues, as higher income taxpayers flee to lower tax jurisdictions. But concerns about such an exodus aren't new and didn't start because of the cap; they started because of sky-high taxes in those very same States.

In November of 2017, prior to the enactment of this tax cut and reform bill, the Wall Street Journal wrote about ``The Great Progressive Tax Escape.'' This article focused on IRS tax return data between 2012 and 2015 that showed billions of dollars in taxable income leaving high-tax States for low-tax States due to taxpayer migration. Last time I checked, there was no SALT cap between 2012 and 2015. While there is some anecdotal evidence that taxpayer migration might be starting to increase due to the cap, it is not entirely clear at this point.

It Hasn't Happened'' be printed in the Record.

It Hasn't Happened (By Martin Z Braun)

To listen to New York Governor Andrew Cuomo, the 2017 Republican tax overhaul that limited state and local deductions to $10,000 was a devastating blow. The rich would flee, the middle class would suffer and blue state budgets would bleed.

Perhaps this will come to pass over time, but so far, there are almost no signs of it.

New York, in fact, saw revenue rise $3.7 billion in April from a year earlier, thanks to a shift in timing of taxpayer payments, a stock market that rallied through much of 2018 and a decade-long economic expansion that's pushed national unemployment to a 50-year low. Similar windfalls arrived in New Jersey, California and Illinois--states that, like New York, had warned of dire consequences from the law.

And it turns out that tax refunds across the U.S. in 2019-- those once-a-year checks from Uncle Sam that people use to pay credit card debt from Christmas or buy a washing machine--were roughly the same size as a year earlier. In all, about 64% of American households paid less in individual income tax for 2018 than they would have had the Tax Cut and Jobs Act not become law, according to the Urban-Brookings Tax Policy Center.

``Any comment that says this is an economic civil war that would gut the middle class is overblown,'' said Kim Rueben, the director of the State and Local Finance Initiative at the Tax Policy Center. ``If there's going to be any effect of the SALT limit on the ability of some states to have progressive taxes it's too early to know that yet.'' Taxable Income

In some ways, the $10,000 limit on state and local tax deductions--SALT--is saving states money by lowering their borrowing costs. That's because investors seeking to reduce their tax bill are plowing a record-setting amount of cash into municipal bonds, driving interest rates lower. The extra yield that investors demand to compensate for the risk of holding Illinois general-obligation bonds, for instance, has fallen to the lowest since May 2015, according to data compiled by Bloomberg.

States are also benefiting from a broader tax base because the law eliminated some exemptions and limited deductions, like mortgage interest. Since states that levy income taxes use federal adjusted gross income or taxable income as the base, they have more income to tax.

Still, the nerves of Democratic governors and their budget officers frayed in December when income tax collections plunged by more than 30 percent from the prior December. Cuomo was quick to call the tax law ``politically diabolical'' and an act of ``economic civil war'' against the middle class.

Then April came.

New York collected $3.4 billion more in personal income tax revenue last month than a year earlier, a 57% increase, according to Comptroller Thomas DiNapoli. California took in $19.2 billion in April, exceeding Governor Gavin Newsom's estimate by $4 billion.

New Jersey had a record April with tax collections up 57%, allowing it to boost forecasts for the year by $377 million and triggering a political battle over how to spend the windfall. Illinois individual and corporate tax revenue was $1.5 billion more than projected, allowing Governor J.B. Pritzker to scrap a plan to put off pension payments. Timing Change

April personal income tax collections in 28 states and Washington increased by $16.3 billion, or 36.2% year-over- year to $61.4 billion, Bank of America Corp. said.

``SALT caps do not appear to be a broad system risk to state credit quality at this point,'' S&P Global Ratings said recently.

A big reason for the sharp bounce-back after December's deep revenue declines in New York and other high-tax states: The SALT limits caused some people to change when they paid their taxes. Wealthy taxpayers in December 2017 accelerated big tax payments to take advantage of the unlimited state and local tax deduction before it expired. Then, with the SALT deduction capped, that incentive evaporated and taxpayers waited until this April to pay their 2018 taxes.

Also, some individuals failed to adjust their W-4s after the passage of the tax law. So people who underwithheld received more in their paychecks since then but had to pay more tax in April or received lower refunds. Trending Inline

Still, there are some indications that residents in high- tax states are fretting about the law. Thirteen percent of house-hunters in both New York and California said they have started looking for homes in states with lower taxes, according to a recent survey by brokerage Redfin Corp.

In Westchester County, where a typical property tax bill for a single family home is more than $17,000, the average sales price declined 7.6% between the first quarter of 2018 and the same quarter this year. Sales prices for luxury homes (average price $2 million) plummeted 22% during the same period, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

Almost half of income taxes paid to California, New York and New Jersey are from the wealthiest 1% of earners. If they were to move in large enough numbers, those states could be in trouble. New York, New Jersey, Connecticut and Maryland sued the Trump administration last year to invalidate the $10,000 cap, saying that it unfairly targets them. States have sought to pass loopholes around the limit and there's a push in Congress to reverse it.

But migration rates in high tax states most affected by SALT are below pre-recession levels, and generally in-line with U.S trends, Moody's Investors Service said in April. Jobs, housing and the weather influence migration more than taxes, according to Moody's analyst Marcia Van Wagner.

``Armageddon hasn't resulted from the changes to SALT, but it still may be too early to measure its impact,'' said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which manages $9 billion of municipal bonds. ``You see more mansions listed in New York. Manhattan real estate sales just had their worst quarter in a decade.''

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Mr. GRASSLEY. As this article highlights, revenue for blue States this tax season were up, not down.

The ratings agency Moody's released a report in April saying that there were no discernible signs that individuals were fleeing high-tax States as a result of the SALT cap. However, even if taxpayer migration were to occur as a result of the cap, the answer to the problem isn't repealing the SALT cap; it is for States to look in their own backyard at their own tax-and-spend policy.

The truth is, these State politicians aren't concerned about their own taxpayers. What they are really worried about is their continued ability to gouge those taxpayers with ever-increasing State and local taxes, which used to be subsidized by taxpayers from other States through the Federal Tax Code because there was no SALT cap.

In closing, I want to turn back to this very chart, the same one I discussed earlier. For Democrats still on the fence as to whether to vote to repeal the IRS regulations on the SALT work-arounds, you ought to study this chart very closely.

I ask a question to the other side: Could you, with a straight face, argue that a vote to protect these work-arounds is not a vote to provide a massive tax cut for the wealthy? This chart shows it is helping the wealthy.

For Democrats who intend to vote for this tax scam anyway, I don't want to hear any more long-winded speeches about how the tax bill of 2017 benefited the wealthy. The fact is, after tax reform, the wealthy now shoulder a larger share of Federal tax burden than they did under the prior law.

This was made possible by reforms to regressive tax expenditures, such as our capping the SALT deduction. What is more, these reforms allow us to target more tax relief to lower and middle-income taxpayers.

State work-arounds through the SALT cap are nothing more than State- sanctioned tax shelters. By voting to undermine that cap, Democrats are voting to enrich the wealthy taxpayers whom they persistently have vilified as not paying enough. Moreover, they put the tax relief provided to the middle class in jeopardy.

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