(Bloomberg) -- A Senate hearing Tuesday indicated the politics of the tax overhaul haven’t changed since it passed in December, with Republicans singing its praises as an economist booster and Democrats torching it as a broken promise that mostly benefits the wealthiest.
Senator Ron Wyden, the ranking Democrat on the Finance Committee, zeroed in on a new report by the nonpartisan Joint Committee on Taxation which found that almost half of the benefit of the 20 percent deduction for "pass-through" businesses like partnerships and LLCs would flow to those making $1 million and up.
In 2018, almost $18 billion of the $40 billion tax break would go to $1 million-or-more entities, the JCT said. By 2024, the figure for those earners rises to almost $32 billion of the $60 billion in pass-through tax breaks that year under the Republican law.
“People don’t think millionaires are the regular garden-variety small businesses on Main Street,” Wyden said, asking witnesses to explain that finding.
The GOP tax law created a 20 percent deduction for pass-through businesses, whose income is reported on their owners’ personal tax returns. Congress tried to bar wealthy owners of service businesses from getting the break -- leaving out many doctors, lawyers and hedge fund managers, but tax experts have said there are loopholes in the legislation that could allow for workarounds.
Doug Holtz-Eakin, an economist at the Republican-aligned group American Action Forum, which supports the tax law, defended the provision during the hearing as improving incentives to save invest and work. He said it would have been incomplete to stop at simply a corporate tax cut and not lower pass-through taxes as well, and added that benefits to pass-through owners will trickle down to workers.
"This is the foundation of the economics of the bill, which is improved incentives to save, invest and work," said Holtz-Eakin.
Wyden of Oregon said the law was “shaping up to be one of history’s most expensive broken promises. Probably go right up there with ‘we will be greeted as liberators’” -- a reference to how some Iraq war proponents previewed the mission before U.S. forces invaded in 2003.
Senator Orrin Hatch of Utah, the Republican chairman of the panel, said "every member who actively participated in drafting the bill should be proud of the new tax law."
“We were proud when we passed it, and we are even prouder now as all across the nation, evidence affirms that the new law is tangibly benefiting millions of Americans,” he said. “More than 500 companies have announced wage hikes, increased benefits, more jobs, and increased investment or expansion in the United States thanks to the new law.”
Hatch indicated that Congress should make technical corrections to the law, calling that “par for the course for any major tax bill.”
Legislation to make any tax rule fixes would require Democratic support -- so far, Republican leaders have signaled they won’t vote on a stand-alone bill before congressional elections in November.
Numerous Democrats up for re-election in states that President Donald Trump carried -- including Senator Claire McCaskill of Missouri and Senator Sherrod Brown of Ohio -- also criticized the law, which Republicans are hoping will help their candidates.
McCaskill, a top GOP target who faces re-election in a state Trump won by almost 19 points, knocked the tax law as a deficit-raiser that will disproportionately benefit top earners.
“It’s truly stunning, this kind of fiscal irresponsibility,” she said.
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