Tax Subcommittee Hearing on Your Paycheck, Returned: How the Working Families Tax Cuts Delivered for Americans
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House Ways and Means Subcommittee on Tax U.S. House of Representatives
Mike Kelly
More than 1 million Americans claimed the deduction for auto loan interest, averaging over $1,800.
That is real tax relief tied directly to how Americans earn a living. It means workers keep more of the tips they earn. It means employees keep more of their overtime pay. It means seniors get tax relief after spending decades paying into the system. It means helping families manage the cost of purchasing an American vehicle.
And those benefits translate into real savings. No tax on tips delivers an average tax cut of roughly $1,300. No tax on overtime delivers an average tax cut of approximately $1,400. Married seniors can now receive a $12,000 deduction related to their Social Security benefits. The working families tax cuts also strengthen supports for parents and children.
More than 34 million families have claimed the enhanced and permanent child tax credit. The credit was permanently expanded to $2,200 and indexed for inflation, ensuring it never loses value over time. The law also permanently doubled the standard deduction, increasing it to $31,500 for married households. That means 90% of tax filers benefited from the simpler filing process. The working families tax cuts reduce tax liability across every income quintile.
In fact, a family of four with two children earning $73,000 annually now has zero federal tax income liability. At the same time, the top 1% now pays nearly 40% of all federal income taxes. A typical family with two children is expected to see approximately $10,900 more in annual take-home pay. Annual real wages are projected to rise by roughly $7,200 per worker. From tipped workers and overtime earners to parents, retirees, young families just getting started, this law is reaching Americans across every stage of life.
These are people who are not asking for special treatment. They are asking to keep more of what they earn. The working families tax cuts reflect that expectation. It aligned the tax code with how Americans actually work and earn a living. It prevented a tax increase.
It delivered additional relief. And it gave American families the opportunity to keep more of what they own. Uh, and at this time, I'm going to recognize my colleague to the left of me, Mr. Thompson. We have a very good personal relationship. Politically, we don't agree on everything, but personally, we agree on the people that we represent, that we represent them the right way.
Mr. Thompson.
Mike Thompson
Thank you, Mr. Chairman. Mr. Chairman, I appreciate you having this hearing today and thank you to all the witnesses for coming in. But we can't ignore what's become one of the most disturbing abuses of taxpayer dollars and public trust that we've seen in recent memory. Many of our witnesses are here today to talk about their paychecks and their tax dollars. But on Monday, we learned that the President of the United States, President Trump, intends to take our tax dollars, your tax dollars, and hand them to his political allies, including those who rioted in our capital on January 6th.
$1.8 billion of the American people's tax dollars. That's right. While working families are struggling to pay their bills, powerful people connected with this administration appear poised to profit from taxpayer-backed settlements. That's outrageous and it's appalling. Americans are dealing with a real cost of living crisis.
Families are paying more for groceries, more for rent, more for healthcare, more for childcare, and more for basic necessities. At the same time, Republicans cut $1 trillion in healthcare funding that will force rural hospitals to close, put seniors out of nursing homes, and kick working families off their healthcare. They say we have to make those cuts because the country supposedly cannot afford healthcare for ordinary Americans. And at the same time, Republicans are telling the American people we can't afford Medicaid, food assistance, and healthcare for working families. Somehow, they've found $1.8 billion for a political payout fund for Trump allies.
This administration was elected on the promises to lower costs for the American people. Yet I don't recall any campaign promises to hand millions of dollars to people who beat the hell out of cops on January 6th. But that's what they're getting. A huge slush fund for Trump and his DOJ to hand out money to insurrectionists, rioters, and white supremacists, including those who sought to overthrow our democracy. This is a DOJ that pardoned January 6th rioters, targets the administration's political opponents, led by the president's former personal attorney.
And the silence from my friends on the other side of the dais is shocking. No, it's an, no outrage, no oversight, no concern about a breathtaking conflict of interest involving our taxpayer dollars. Instead, I can tell you what we're going to hear from them. Anything that will distract you from the elephant in the room. And that is the president is stealing your tax money.
But the American people are watching. This should be, this should not be partisan. Taxpayer dollars should never be used to reward political allies or personally benefit those in power. The American people are tired of watching politicians talk about fiscal responsibility and then sit by idly while taxpayer dollars are raided. That's why Democrats on this committee are demanding transparency and accountability.
Mr. Chairman, I ask unanimous consent to enter into the record the amicus brief submitted by Democrats on this committee and on the Judiciary Committee seeking to halt this settlement so that the Congress and the American people can see the illegality of this outrage. I also ask unanimous consent to enter into the record the text of the Slush Fund Act, legislation introduced by Ways and Means Democrats that would impose a 100 percent tax on any payments distributed from this fund and require Treasury to publicly disclose who receives the money. The American people deserve to know who is benefiting from this. And the American people should get every cent it's paid back to them. And I would ask my Republican colleagues, should our tax dollars go towards January 6th rioters and insurrectionists?
If not, then why not mark up the Slush Fund bill legislation tomorrow? Or at the very least, who on this committee would join us in co-sponsoring this bill? Why not stand before the American people and defend these payments publicly? Taxpayer dollars should never become a political slush fund for the politically connected. Can I get unanimous consent to include those things in the record?
Yes, without objection.
Thank you, Mr. Chairman, and I yield back.
Mike Kelly
Okay, well thank you, we're off to a really good start. This is not unexpected. So, but we're in a unique situation because really what we wanted to talk today is about the working families tax cuts and how it affected real people in real time with real issues. So, I was so impressed with your resumes. Mr. Saunders, you and your wife have two adopted children.
In the family, my wife is one of nine, I'm one of five, we have probably a half dozen adopted children. I have absolutely no idea which ones are adopted because they're all part of the same family. So thank you so much for being here. Mr. Sedeeto, your story, coming from Iran, your family in 2008.
Okay, well no, what do you mean? They didn't tell me. Okay, so I'll just recognize each one. Yeah. Okay.
So I'm trying to leap ahead and I don't want to do that. Mr. Saunders, why don't you do your opening statement, then we'll go through each of you, okay? I'm just so impressed with your resumes and the fact that you took time out of your lives to come here. This is critical. Thank you.
Mr. Saunders, please.
Clark Saunders
Chairman, ranking member, members of the committee, thank you for the opportunity to share my family's story. My name is Clark Saunders and I'm a high school business teacher in Texas, and my wife Brianna serves as a church children's director. Today, I'm honored to speak as a husband, father, and adoptive parent. Brianna and I were married in 2013 and like many couples we dreamed about a future family. Adoption was something we talked about early in our marriage, but we first tried to grow our family biologically.
What followed was a long and painful road. For about six years we went through fertility treatments, surgeries, multiple IUIs, medical procedures and heartbreaking loss. During that season we prayed often about what God had planned for our family. Over time the Lord began leading our hearts toward adoption. After years of heartbreak we felt like God was opening the door and giving us peace to walk through it.
In February of 2024, we welcomed our first son Lucas home through adoption. After years of waiting and wondering if we would ever become parents, we were finally holding our son. All of the waiting, praying and tears were worth it. We later adopted our second son Levi through New Life. Today Lucas is two years old and Levi is ten months old.
They are joyful, deeply loved boys and the greatest blessings of our lives. Adoption is not just part of our story, it is how our family was built. But adoption is expensive. Families often face agency fees, legal fees, home study costs, counseling expenses, travel, medical related expenses, court costs and many other costs along the way. For our first adoption through Gladney we spent shy of 60 grand.
For our second adoption through New Life, we spent close to 30 grand. In total our family faced nearly 90,000 dollars in adoption related costs. These fees are not just paperwork costs, they support a careful and ethical process including counseling for expectant mothers, caseworkers, home studies, background checks, legal work, birth parent services, post-placement supervision and court filings. Adoption involves many people working to protect the child, support the birth mother and prepare the adoptive family. For a teacher and a church children's director, nearly 90 grand is not a small number.
We're not wealthy, we had to save, sacrifice, fundraise, delay our financial goals and trust that the Lord would provide. That is why the adoption tax credit matters so much. For our first adoption we finalized Lucas's in 2024 and our 2024 tax return we listed 18,982 in qualified adoption expenses and claimed the maximum 2024 adoption tax credit of 16,810. That credit helped reduce our tax liability after a year of significant adoption expenses. We also benefited from the child tax credit for Lucas.
Our return shows that we received the full 2,000 child tax benefit through the child tax credit and additional child tax credit. We also claimed the child independent care credit, which helped offset part of our childcare expenses. These credits matter because adoption is not the end of the financial responsibility, it is the beginning of raising a child. Once Lucas came home we had all the normal expenses of caring for a baby, childcare, diapers, formula, doctor visits, clothes and everything else that comes with becoming parents. For our second son Levi, we finalized his adoption in January so we were not able to claim the adoption tax credit on our 2025 return, but we hope to use the credit in the 2026 tax return.
Knowing that relief is available gives our family financial confidence as we recover from two adoptions in a short period of time. There's also an important public policy point here, when Congress supports adoption it's not simply helping adoptive parents, it is helping children move into permanent, stable, loving families. When children do not have permanency, long-term costs can fall on state and federal systems through foster care, public assistance, Medicaid, housing support or other safety net programs.
By helping families adopt, the adoption tax credit is a modest investment compared to the potential long-term cost of a child growing up without permanent family support. Our sons are not a burden. They're blessings. Because they're adopted into our family, they now have two parents fully responsible for loving them, providing for them, educating them, feeding them, clothing them, and walking them through the rest of their lives. That is what adoption does.
It does not just change a child's legal status, it changes the child's future. The adoption tax credit does not make adoption inexpensive, but provides meaningful relief after families have made one of the largest financial commitments of their lives. It tells families like ours that the country recognizes the value of adoption and understands that cost should not keep a child from joining a permanent, loving family. The child tax credit also matters because adoption is only the beginning. Childcare, groceries, clothing, medical care, they add up quickly.
These credits help provide stability as we plan for our children's future. For us, these credits are not abstract policies. They're connected to real decisions around the kitchen table. They affect how we budget, provide for our boys, and move forward after the financial sacrifice of adoption. When Congress strengthens the adoption tax credit and child tax credit, it helps make adoption possible.
It helps children join permanent families. It helps parents recover from major financial sacrifice and helps families like mine provide a stable, loving home. We're grateful for our boys, we're grateful for adoption, and we're grateful that this policy is in place to support families. Thank you for allowing me to share my story.
Sina Sifo
Thank you, Mr. Saunders. Now, Mr. Sifo, you're recognized, but I think it's really important your family came here in 2008 from Iran, is that correct?
Iraq, sir.
That's right, sir.
And you're going to become an attorney?
Fingers crossed, sir.
Okay, well listen, we're glad you're here today. Please, you have five minutes.
Sina Sifo
Prom was approaching and I needed to figure out how I was going to pay for dinner. Thank you, Chairman Kelly. My journey in the restaurant industry began during my junior year of high school. Thank you, Ranking Member Thompson and members of the committee. I felt kind of weird having my parents pay for my date, so I got a job as a busser at a restaurant down the road.
And I immediately fell in love. I've been in the industry for almost a decade now. You see, that job ended up paying for a lot more than just my prom date. It's paid for my education. It's paid for my rent.
It's paid for my life. Everything that I have built today, I have built through tips. I put myself through college studying political science and I am now preparing to apply to law school. You can imagine how incredible this moment is for me. See, I'm here today because of the people who made my journey possible.
Servers, bartenders, and bussers, my friends. Everyone deserves a voice in rooms of influence like this one. And I may not be, I may not work as a tipped server forever, but I could not be where I am today without that opportunity. And that's why I'm here. I'm here today to advocate for those who make this a lifelong career.
The hospitality industry is uniquely empowering. It offers unparalleled flexibility that allows single parents to control their schedules, pick up their kids from school, still make it to soccer practice on mornings, and still provide a strong living for their families. It's an entrepreneurial environment where your hustle directly dictates your success. You see, to understand the impact of no tax on tips, it's vital to understand the nature of tipped income. It's highly variable.
During a slow week, I might earn $400 in tips the whole week. On a busy night, I might earn that same $400 in a single shift. You see, that variability is the reality every tipped professional embraces. We like to say we don't get salaries, we get Saturdays. Yet we succeed based on our drive, our expertise, and our delivery.
We learn to manage the great weeks so that they carry us through the slower ones. This past tax season, because of a no tax on tips deduction, I received approximately $4,000 back.
That money for me went directly towards a budget for law school applications and campus visits. It became real savings that I would not have had otherwise. That refund kept the door to my future open, and I wouldn't have these opportunities without it. You see, I'm fortunate to work at a busy establishment where the tips are strong, but there are thousands of professionals working in areas where the margins are tighter. And for them, this relief is even more helpful.
You see, my colleagues and I carry responsibilities that don't show up on a shift schedule. Change, that's the norm. But this time, it was different. When these refunds began reaching our mailboxes and our bank accounts, even the atmosphere on the server floor shifted. It was honestly pretty cool.
There were times in the middle of a dinner rush, food needed to be ran, sorry to the managers watching this, where we started talking about Roth IRAs. Where we said, should we take a Vanguard and go VOO, or what should we do to optimize our income? We were discussing the mechanics of Roth IRAs and exploring how to optimally invest. These conversations happened because my colleagues and I had the capital to look ahead. That is transformative.
See, I've talked to my coworkers about how they used their refunds before coming here today. A mother, who's the sole provider for her family right now because her husband recently lost his job, she told me that she didn't know how she would have stayed afloat without it. A bartender, who was recovering from an autoimmune condition, used hers to stay current on her medical bills and her car payment. A father used his to open a college fund for his six-year-old. You see, these aren't fairy tales.
These are my coworkers, and they're your constituents. They are proof of a policy functioning exactly as it should. No Tax on Tips acknowledges the real circumstances of tip professionals. You see, every tip that we earn is a direct reflection of our effort and our connection with the people that we serve. Nothing could be more American.
See, this policy allows the working families of the service industry to keep more of the money they have earned directly through their hard work. Members of the committee, if you would have told that 16-year-old busboy who got a job to pay for a dance that he'd be sitting here before all of you today, he would have laughed. I want to thank you all for this opportunity and your time today, and I want to leave you all with this. A tip isn't a wage. No corporation sets that rate.
There's no negotiation that determines that number. It's one human being looking at another one in the eye and saying thank you. You deserve this. No Tax on Tips honors that distinction. And when you honor the way that people earn, you change what they're able to build.
Thank you.
Speaker 7
Thank you, Mr. Stipo. Ms. Mihalic, you're now recognized. I think it's important people know you're the owner of Garbo's Salon and Spa, and you have a number of Subway franchises in Omaha, Nebraska. We talked before this meeting started. I am so impressed with what you've been able to do, you and your husband, it's incredible.
Please.
Darcy Mihalic
Thank you so much for having me. My name is Darcy Mihalic, and together with my husband, I own and operate four Garbo's Salon and Spa locations, 21 Subway franchises, one Taco John's location, and two Basecamp Coffee and Wine Bars in Nebraska. Across our businesses we employ approximately 289 people, and more than 90% of our workforce earns tips as part of their income.
I am proud to testify today on behalf of the National Retail Federation, which represents an industry that supports one in four American jobs. We are a family-owned business and our salon business is majority woman-owned. Like many small business owners, we are deeply invested not only in our companies, but in the people who make them successful every single day. I want to say thank you to this committee for the inclusion of the no tax on tips provision and the decision to preserve a competitive corporate tax rate in the one big beautiful bill. For our employees, tips are not extra income.
Tips are part of how they pay rent, buy groceries, support children, care for aging parents, and build a future. In our salons and restaurants, every tip represents a customer choosing to say thank you for excellent service. These are not automatic service charges added to a bill. They are earned one interaction at a time through hard work, professionalism, and personal connection. The no tax on tips provision has made a real difference for many of our employees.
One employee shared with me that the additional refund she received allowed her to finally pay off more than $4,000 in high-interest medical debt that she had struggled with for over a year. Another employee told me this was the first year in a long time that she did not have to worry about how she would pay an unexpected tax bill while still caring for her children. One of our long-time employees going through a difficult divorce explained to me that the tax relief prevented what he described as a financial bloodbath after being forced to liquidate assets during a divorce settlement process. These are not abstract policy discussions for our workforce. These policies are affecting real people in meaningful ways.
We saw a noticeable improvement in morale as employees began receiving larger tax refunds this year. Employees felt seen. They felt valued. And they felt like Washington understood the realities of working Americans who rely on tips to support their families. Importantly, preserving a competitive business tax environment also matters.
Small businesses need certainty. We need confidence that we can continue reinvesting in our operations, updating facilities, retaining workers, and serving our communities without facing unexpected tax increases that make growth more difficult. I also want members of Congress to understand the character and the work ethic of tipped workers. A hairstylist spends long hours on their feet while balancing technical precision, customer service, and creativity. I often tell our salon team they have to be part artist, part chemist, and part counselor while bringing their very best attitude whether it's at 9:00 in the morning or late in the evening.
Our restaurant employees are no different. Many of our Subway employees know customers by name and remember their regular orders even before they reach the counter. They go out of their way to brighten someone's day. The connection is why customers choose to tip. These workers earn those tips through effort, personality, consistency, and care.
I believe the no tax on tips provision recognizes the dignity of that work. It is good policy because it rewards work, supports families, and strengthens local businesses and communities. I will close with something personal. Recently, I read a devotional that said, let the daunting size of your task and the sheer weight of your responsibility keep you daily at the feet of God. My husband and I think about that often.
We have nearly 300 employees depending on us to navigate an increasingly difficult environment for small business. We take that responsibility seriously. That is why I agreed to testify today. When we see a policy directly helping hardworking Americans, not in theory but in real life, it's important to say so. The Working Families Tax Cut Act, especially the no tax on tips provision, is making a positive difference for our employees, our businesses, and our communities.
Thank you for the opportunity to testify today.
Jason Alexander
Thank you, Ms. Molix, that's very impressive. Mr. Alexander, who lives in Texas but makes steel in my hometown, the main employer is Cleveland-Cliffs, they make steel. We make steel for the, that goes inside the transformers, and it's essential. So, Mr. Alexander, thank you for being here today and please, your testimony.
My name is Jason Alexander. I'm a millwright at Optimus Steel, a small family-run steel mill in Beaumont, Texas. I feel blessed with the opportunities the steel industry has provided me and my wife. Steel has built this country. The work we do every day continues to strengthen everything from our national defense to the next generation of manufacturing.
Good morning, thank you for the opportunity to appear today.
Over the past year, actions taken by Congress and the administration have made a meaningful difference, strengthening both our industry and people who depend on it, helping workers like me build a family and pursue the American dream. As a millwright, I inspect, repair, install, align, and maintain the equipment that keeps our mill running. That means welding, brazing, cutting, precision assembly, whatever it takes to keep production moving safely and efficiently. It's demanding work and the hours can be long, but it's work I'm proud of. Steel is essential and downtime isn't an option when the country depends on a steady supply of American-made materials.
That's why policies like the Working Families Tax Cuts have mattered so much. When my wife and I filed our taxes this year, we saw the impact firsthand. The year before the Working Families Tax Cuts, I actually had to write a check when I filed my taxes. This year, instead of owing money, we received an incredible refund of more than $10,000. This money I earned through hard work, often through long overtime hours, and for the first time it felt like the system recognized our effort instead of punishing us for it.
It's not a handout. That's our money, back in our pockets. My wife and I are planning to start a family, so this refund feels like a meaningful head start, a nest egg that will help us take the next step with more confidence. It's something that would have been harder for us to do before. We don't talk much about policy where I work, but we do talk about this.
I've heard the same from my coworkers. Many of us say it feels like we got a raise with the no tax on overtime. In Washington, policies can sometimes feel distant, but this one impacts all of us who work at the mill. At the same time, we need to make sure American companies can keep investing here at home. I'm thankful for the provisions that have helped companies like mine grow and stay competitive.
Full expensing of capital equipment, for example, has helped Optimus Steel expand and modernize. As a result, we've been able to install equipment that drives measurable gains in both quality and output, strengthening our ability to serve customers more efficiently. I would also like to take the opportunity to talk about another policy that has been crucial to support steelworkers across the country. I can't emphasize enough how important the 232 steel tariffs are for us. Steel is foundational to any nation's economy and security, which is why countries like China continue to target our industry.
American steelworkers produce the world's cleanest steels, made to the highest quality standards, in the most efficient way possible. The 232 tariffs have revitalized our industry and protected jobs in communities like Beaumont and across the country, communities that have grown up around steel mills and they depend on them. I'm thankful to the Lord for putting me in a place to tell my story and the many blessings.
And thank you again for the work that you do and for the opportunity to speak today. The policies you're shaping have real impacts on people like me. My wife and I are grateful for the ways the Working Families Tax Cuts have helped us build a better life. Steelworkers helped build this country, and we're ready to keep supplying the materials that will carry it forward. All we ask for is a chance to compete, and if we have that, I'm confident we will win every time.
Thank you.
Alex Snyder
Thank you, Mr. Alexander. Mr. Schnieder, Deputy Head of the US Policy for Piper Sandler, you're recognized for five minutes, sir, and thank you for being here today.
Thank you, Mr. Chairman. So, Chairman Kelly, Ranking Member Thompson, and members of the Ways and Means Committee, thank you for the opportunity to testify on the Working Families Tax Cuts Act, also referred to as the One Big Beautiful Bill Act, or OBBA. It's an honor to be back before this committee, albeit in a different capacity, as I previously served on the staff of this committee under Chairmen Ryan and Brady. In my current role, I'm Deputy Head of US Policy at Piper Sandler, an investment bank. My job is to conduct macroeconomic research to help our clients, institutional investors, to navigate how US policy affects markets.
It's important to note that I'm here today representing my own personal views, and the comments I express today and in my written testimony do not reflect the views of my employer. The OBBA contains sweeping tax reforms. First, it prevented an over $400 billion annual tax increase, which translates to over $2,000 per return, on individuals by permanently extending the reforms made in the Tax Cuts and Jobs Act. In addition, many provisions were created or reformed, including on a retroactive basis, to provide tax relief to working families. These provisions are the subject of my testimony today.
Specifically, the law built on TCJA by expanding the child tax credit to 2,200, indexed for inflation, increasing the standard deduction by $750 or 1,500 for joint filers, and expanding the SALT cap from 10,000 to 40,000 with a 500,000 income limitation. Several other new provisions were enacted retroactively as well, including deductions for up to 25,000 of overtime income, 25,000 for tipped income, a $6,000 deduction for senior citizens, an auto interest deduction of up to 10,000, a $1,000 deposit for tax-advantaged savings accounts for newborns, and much more. Using a range of estimates from JCT and other nonpartisan groups, I find tax relief was estimated to be between 124 billion and 156 billion during this filing season. It's one thing to describe the estimates of tax relief. It's another to see the results in practice.
Using data from the Treasury Department, we can track this relief as it is dispersed through a combination of tax refunds as well as lower tax payments when filing. According to my analysis, the tax changes in OBBA provided over 148 billion in tax relief to individuals during this filing season, right in the middle of the range predicted by revenue estimators. I find that OBBA increased tax refunds by 48 billion and lowered tax payments by 100 billion relative to what would have otherwise occurred. To put these figures in context, there have been 145 million returns filed as of May 1, so this means OBBA provided about $1,000 in tax relief per return filed. Tax refunds increased from 282 billion last year to 330 billion this year, a 48 billion or 17% increase.
At the same time, the average tax refund increased from about $3,000 to about $3,300, an increase of 11%. The difference between these two numbers tells you something very interesting. Consider the fact that last year 63% of people received a refund. This year about 68% did, a nearly 5% increase. That means that over 6 million households went from owing taxes when they filed to receiving a refund.
The fact that so many households flipped from owing to getting a refund not only increases the total amount of refunds paid but reduces the average refund. That's almost definitionally true as someone goes from owing to getting a below-average refund.
In other words, the average tax refund statistic, the 11% increase is a victim of its own success as more people got refunds for the first time and lowered the average. As for the distributional implications of these retroactive provisions, the fairest way to look at it is looking at the percent change in after-tax income by income group. What we find is that there is modest relief for the bottom two income quintiles, robust relief for middle income groups, and virtually no benefits of the retroactive provisions at the very top. According to an analysis of the Tax Policy Center, um, the law would boost after-tax incomes by about 35 basis points in the bottom two quintiles, about 90 basis points on average between the 40th percentile and the 95th percentile, and virtually nothing in the top 1%. This pattern is understandable.
First, very low income households typically do not pay income taxes, so they do not benefit from deductions. At the high end, um, people do not tend to benefit from these provisions because they each have income limitations ranging from 75,000 to 500,000. Thank you, and I look forward to your questions.
Thank you, Mr. Snyder. Dr. Edwards, you are now recognized.
Kathryn Edwards
Thank you, Chairman Kelly and Ranking Member Thompson. The purpose of the US tax system is to raise revenue to fund government. National debt has surpassed 100% of GDP and the deficit is $1.7 trillion, clear indications that the tax system is categorically failing at its job. The solution is simple: you need to raise taxes. That simple solution is complicated by the concern that raising taxes hurts the economy, a concern born from the belief that lowering taxes helps the economy.
In my testimony today, I offer my lens as an economist to explain why that belief in the economic power of tax cuts is misplaced and incomplete. I say misplaced because the ability of tax cuts to influence the economy is limited. Tax cuts are a margin off a margin of income. To be effective as a national economic policy, households must respond the exact right way: to spend when we want them to spend, to save when we want them to save, when the right way is determined by broader conditions in the macroeconomy and not the needs of their own household. In this, the One Big Beautiful Bill Act was exemplar.
I testified in front of this committee two years ago, and a primary topic of the day was the year 2018, a year in which the economy grew, unemployment fell, wages grew, and members were proud to attribute the strength of the economy in 2018 to the tax cut the year before. Here we are in 2026, a year after a tax cut three times the size, and we have an economy that no one is taking credit for. Unemployment is up, wage growth is down, and 55% of Americans said in a Gallup poll that their financial situation is actively getting worse. Before and after are not the same thing as cause and effect. Tax cuts didn't cause a windfall in 2018 and similarly didn't create one in 2026 because tax cuts are simply no match for broader headwinds and tailwinds in the economy.
Now, that's not to say that the One Big Beautiful Bill Act didn't have an effect, but having an effect and being effective policy are not the same thing. Instead, the only thing tax cuts are guaranteed to do is lower revenue, which is why I say tax policy as economic policy is incomplete without consideration of its cost. Debt financing a permanent reduction in revenue has growth consequences. The Penn Wharton Budget Model estimates that the One Big Beautiful Bill Act requires so much borrowing it will make the economy smaller: $4.5 trillion in tax cuts to boost the economy 1% in the first few years, decrease it within 10, and make it 4 to 5% smaller in the long run because of borrowing. Now, I don't put weight or too much weight on these exact estimates, but rather what they illustrate: that the growth that you have purchased through the One Big Beautiful Bill Act in the short term is lost and then some in the long term because of borrowing.
Raising taxes will occur some pain, but I promise you the alternative is not pain-free. I draw two conclusions from this. The first is the choice is not between raising taxes or lowering taxes, but between raising taxes and giving over our fiscal autonomy to debt servicing. As Moody's wrote last year when it downgraded US credit, the third such downgrade in a decade, federal interest payments are likely to absorb 30% of revenue by 2034. Our largest public program will be debt servicing.
The second is giving up tax cuts doesn't sacrifice much for the economy or economic policy. Outside of recession response, the One Big Beautiful Bill Act was the ninth major tax action this century, whose collective 10-year budget costs are over $12 trillion. If there were a problem in our economy that tax cuts could solve, they would have solved it by now. If tax cuts were the key to job growth, if tax cuts were the key to wage growth, if tax cuts were the key to income growth, if tax cuts were the key to affordability, if tax cuts were the key to the lynchpin of Americans' economic security, we would have that evidence in hand because we have been collecting it for 25 years, and we don't. Again, it is not that tax cuts can have no positive effect, but they have failed to grow the economy enough to justify their enormous cost.
I will end by noting that there is reason for optimism because there is so much that we can do when we stop using revenue collection as economic policy and instead use revenue collection to fund economic policy. Policy that is a fraction of the cost. Policy that has clear proven returns. Policy that directly invests in families, in workers, rather than hope they'll respond the right way to a marginal change in tax liability. We are not out of options, but we are out of tax cuts.
Thank you for your attention, I yield the remainder of my time.
Mike Kelly
Thank you, Dr. Edwards. So, and again, a lot of us have come from the private sector, then ran for election, got elected, and are here. I really place a lot of what I listen to and what I look at as being with people who do these things. And so the overtime story is always incredible to me. Whenever people don't want to work overtime because it doesn't benefit them, that's hard to sit and listen to somebody who's running a business.
Mrs. Mihalik, you have that. Mr. Alexander, you work with guys every day. Mr. Tifo, you do that. Mr. Saunders, everybody works their, I will use terms that are not, but work their rear end off in order to just break even. So Mr. Alexander, when you're making steel and the people that are there with you making steel, how has this changed your attitude whenever the managers come out and say, you know what guys, we're behind and we have an order we have to fill, we're going to do some overtime, but it's going to benefit you.
Now in the past, before this bill, it really didn't benefit you that much to work overtime. Tell me now, the people that you work with every day, when they hear they have a chance to work overtime and make some extra money, how do they feel about that? Is it I don't really get to take it home, so why should I do that? You work overtime and it benefits you and your fellow workers. So just share a little bit of what happens on the floor of that steel company, real people making real steel in real time in a real country.
Jason Alexander
Yes, sir. Thank you, Mr. Kelly. Yeah, so my shift partner, his nickname is Road Rage. He's a big car guy. And so we always say, "Hey, you get some overtime and that's car money, that's parts, man." So he's constantly got extra parts sitting around the house, man.
So it's appreciated, very much so.
Mike Kelly
Ms. Mihalik, you have employees. Mr. Stefo, you talk about how you work. Mr. Saunders, because you go through the adoption process. Tell just a little bit of the people that actually are out there and who this bill was designed to help. This is the Working Families Tax Act.
So just tell me what it comes down to working families, what do these policies mean to them in real time with real wages that help them pay really big bills?
Darcy Mihalic
For our employees, we noticed a huge uptick in just employee morale in the first quarter. Typically our business is slower first quarter, January, February, and March, just in both of our industries, oddly enough, we're pretty weather-driven. And when we were able to see those refunds coming back at that time, it really changed employee morale. Sometimes it's hard to keep people motivated to come when business is slow. And it made it easier to do that, honestly.
It made it easier to look them in the eye when the books aren't as full as they need to be, or maybe when you have to send someone home a little bit early in order to make labor. It made it easier for everyone and it changed the way they thought about work. And it was very, very helpful to owners. It was very, very helpful to our employees and we're just grateful for it.
Mike Kelly
Everybody has a story. Mr. Stefo, if you'd share with us the people that you work with every day and whenever we came up with this big beautiful bill, our Working Families Tax Cuts, what was the feeling? I mean, the whole idea of when you go to work to work and you get paid for going to work. My son, by the way, is a laborer in construction. He mixes cement, he carries cement blocks, he builds scaffolding.
And he tells me that everybody he works with looks for overtime. They look for overtime and they really and they look at it and and I think I don't think everybody realized how the tax positions changed and they get to keep more. But I know when you guys talk about how you figure it out, if you could share that story with us because I got to tell you what, it's so personal and it's what this bill was about.
Sina Sifo
For servers specifically, Chairman, thank you for the question. The tip part of it, the fact that we got to keep more of our tips because when tips are meant to be a thank you, getting to keep a little more of that thank you and not having to be taxed on that was helpful. And no matter where you were down the diocese, it was a bipartisan approach, honestly. Everyone liked it and they were very, very happy with it. So I think on behalf of all the servers, thank you all and we're very, very grateful to have that no tax on tips.
Mike Kelly
Well, thank you. And Mr. Saunders, I sit beside a gentleman who also is has a family like your family. The ability for people to actually adopt children. The costs, you shared those early on in your testimony. I don't think if you haven't been through that process, you have no idea how much it costs to take on a child, to give a child a loving home, to give a child a future.
How did it affect you? How does it affect the way you when you and your wife when you wake up in the morning and you look at those two children you have right now? The ability to do that, first of all, thank you for doing it. That's the most important part of our society is the 25% which are youth because it's 100% of our future. Thank you to you and your wife for what you're doing.
So if you could just share that feeling of saying, "You know what? We can actually do this."
Clark Saunders
Absolutely, Chairman. You know, even going through fertility and dealing struggling with infertility issues is a very emotional process too. And IVF's expensive as well. It's hard to to look at your wife and not necessarily know if you can have a family, right?
And through support, through donations and and grants and everything that we could find, we were able to adopt. And the costs matter. Like I said in the testimony, it's expensive to adopt, but the two agencies we worked with are amazing organizations and they care about the birth families, they care about the children. They counsel these people, the children for the rest of their life, the mothers for the rest of their life. These costs that we incur as adoptive families are necessary and and I understand that.
But it's a really expensive process and painstaking process and a lengthy process and just being able to see, you know, what we're going to get some money back through this whole process. Like and be able to continue with our family and think about another one, you know, and adopting a second. When I look into Lucas and Levi's eyes, I just I see pure joy. And we're just so blessed as a family to be able to call those our sons and uh we're just extremely grateful and any kind of financial benefit for families is is totally worth it.
Mike Kelly
Lucas and Levi are blessed to have parents that love them the way you and your wife do. I got to tell you, sometimes these things are really emotional that we go through. Uh and when we talk about tax policy, I I I want to make sure that we concentrate on what it is that we're talking about. Your stories are all so significant. Uh it it concerns me because we get too far away from policy and we get into politics.
I and I got to tell you, because of my family and I understand what it's what people go through to adopt. But I also understand the effect it has for a child. Your kids are very very fortunate. You and your wife are very fortunate. Thank you for being here today.
Uh Mr. Schneider, what does the distributional data say and did we succeed in the goal that we attempted to get to in in this working families tax cuts?
Alex Snyder
Yes, as the the name of the bill, Working Families Tax Cuts Act, by the distributional tables focused on the retroactive individual income tax provisions, yes, you did succeed. There is about a 35 basis point increase in after-tax income for the bottom two quintiles from the 40th percentile on through the 95th percentile, which is covering, you know, roughly 40,000 in income up to about 500,000. You see nearly a full percentage point boost in after-tax incomes. And above that, there's virtually no relief given that all of the income limitations in place are at 500,000 or less.
Mike Kelly
I want to thank you all for sharing your your stories. Uh Mr. Edwards, uh after what you've heard and what you've looked at, does it make any sense of what it we tried to do? I know that we call it the one big ugly bill, the one big this, the one big that, but at the end of the day, did we actually do something, put something together that helps hardworking American families? And I know we're concerned about the debt. I'm very concerned about the debt.
But what I'm concerned about more than anything else is that we forget who pays for all this spending that we have. We we have an addiction to spending and it really causes a lot of pain. Uh what can you add anything else? In your testimony you talked about it and and Mr. Schneider talked about it. The math is really difficult to look at right now and feel good.
Anything else that you'd like to add?
Kathryn Edwards
I don't bring up the cost of the bill to in any way slight my, you know, fellow witnesses here today. You said in your opening remarks, Mr. Kelly, that this is about 13 to 1400 dollars going back to every server or every person who takes overtime. This bill costs 450 billion dollars a year. Uh if you, I think as you said, there was roughly 10 to 20 million workers that were affected by that. That's around 28 billion dollars.
My fellow witnesses represent less than 6% of the bill's intentions.
And I, I applaud your effort to, you know, further remunerate workers in a society, in an economy that can be very tough to get by. But I wonder if overtime is so expensive, you didn't amend the Fair Labor Standards Act so that every worker would get more from overtime, no matter what they paid in taxes. My concern is that the tax code has become so cripplingly complex that it costs so much money to prepare your taxes that whatever you are remunerating through deduction is being eaten up by preparation services, which are running at least two times faster than inflation over the past 25 years.
Mike Thompson
Thank you, Mr. Chairman. I think we can say with certainty that a lot of people were helped, as we've heard from the witness today. But you can help people, you can help families like the folks who were represented today without providing a huge windfall for corporations and for billionaires. Windfall, a windfall because of this bill that added four and a half trillion dollars to our national debt and took a trillion dollars away from healthcare for the American people. Dr. Edwards, my Republican colleagues are talking about how this bill was written to help working families.
We knew that that claim was a bit misleading when the bill was first drafted, and the Joint Committee on Taxation's own distribution charts point that out. And Mr. Chairman, I'd like unanimous consent to add the distribution charts to the record because they show a different story than what we've heard from one of the witnesses today.
Without objection.
Speaker 16
Ms. Edwards, can you explain who receives the largest benefits under this bill compared to a working family making, say, $50,000 a year?
Kathryn Edwards
Well, your distribution, I'll take your distribution tables and raise you mine from the Congressional Budget Office. They estimated that the top 10% of households will see an annual reduction of taxes of $14,708. At the median for the fifth percentile or the fifth decile family, they will see $992. Now, I don't mean to sound like a snob, like $900 isn't a lot of money, because it can be a lot of money. But of course, that works out to around $82 a month.
If you're paid biweekly, that works out to $38 a paycheck. That's not paying for healthcare, that's not paying for childcare, that's not paying for eldercare, that's not paying for rent, and it's surely not paying for gas.
Mike Thompson
Well, Dr. Edwards, you don't have to sound like a snob. The fact of the matter is, this is a tax committee. We can write tax policy that benefits the people who are here as witnesses today and the families that they represent across the country without providing a huge windfall to the corporations or to billionaires. Isn't that correct?
Absolutely.
Kathryn Edwards
This bill poured $450 billion a year into an economy with not much to show for it in terms of aggregate growth.
Mike Thompson
So is it fair to say that the largest benefits overwhelmingly flow to millionaires, wealthy investors, venture capitalists, etc.?
Kathryn Edwards
Yes, we have a protective progressive tax system. It does most of the work of rewarding working families for us. They don't need a small tinkering around the margins. The progressive tax system does its job. So when you cut taxes, you're going to reward people at the top far more than you can reward people at the bottom.
Mike Thompson
And you agree that to help finance these outrageous tax cuts to people who didn't need a tax cut in this environment, that the Republicans cut nearly a trillion dollars from healthcare and hundreds of billions of dollars from nutrition assistance?
Added four and a half trillion to the debt?
Mike Thompson
Can you explain what happens to communities, rural and urban, when hospitals close, food assistance disappears, and millions of Americans lose their healthcare coverage?
Kathryn Edwards
I struggle to put into words the type of devastation to not have a primary care doctor in your county. To not have a grocery store in your county. To not have the ability to seek health or seek healthcare or to purchase food without driving a considerable distance the way that gas prices are today. We are putting a tax on Americans that way, but you know, there are many parts of the country that private businesses simply do not find profitable.
Mike Thompson
And I can't imagine that my district is the only district in the United States of America where healthcare providers are telling me that hospitals and clinics are either going to close or have to lay people off, reducing services. Skilled nursing facilities are going to have to close or lay people off where they won't be able to deal with the needs of the community. Or diversion programs like domestic violence programs or addiction programs are going to have to close, leaving those folks to much more expensive treatment, incarceration, or healthcare costs going out the going through the roof. And those hospitals, if the Medicaid dollars go away, if someone is injured or becomes ill, those hospitals are still going to serve those people, which is just going to run up the cost on everyone. Thank you, and I yield back.
Speaker 21
Thank you. Now recognize the chairman of the Ways and Means Committee, Mr. Smith, for any questions he may have.
Jason Smith
Thank you. Thank you, Chairman Kelly. I want to thank the witnesses for for being here today. From day one of becoming chairman of this committee three and a half years ago, I told my colleagues that my focus would be to pass legislation that had the fingerprints and benefits for working families, small business owners, and farmers. Because so often you hear folks in Washington, D.C. only listen to economists.
And I want to say the first four witnesses, thank you so much for being here because you're what I refer to as real Americans. I'll tell you, I had a young lady that came up to me in a small town of less than 3,000 people in Fredericktown, Missouri, just less than two months ago. She's like, "Congressman, I want to say thank you." "I just got my refund back." "I'm a single mother, waitress, who works overtime with three kids."
Her refund was over $10,000. $10,000. The median income for a family of four in Southeast Missouri is $42,000 a year. She told me, "Congressman, because of that refund, I will be able to pay for my rent for a whole year." We heard testimony saying 900 bucks wouldn't pay rent.
This young lady told me $10,000 would pay her whole rent for a year plus groceries. That is an impact. And every single Democrat in the House and the Senate voted against these proposals because it they said it was helping billionaires.
Speaker 20
So I want to ask a question. Raise your hand if you're a billionaire. There's what? Mr. Sanders, you're not a billionaire?
No, no I am not.
Yes sir.
Yeah.
Speaker 19
Wow. Ms. Michalik, are you a billionaire? You own a bunch of restaurants.
Thank you, likewise.
So, are you a billionaire?
Jason Alexander
No sir, not yet, I'm working on it. No, not even close. I've got a ways to go.
So did the one big beautiful bill benefit you?
Yes sir, very much so.
Jason Smith
So that's powerful. These are four Americans, Mr. Chairman, that are what I call real-blooded Americans that are just trying to put food on their table, clothes on their backs, and gasoline in their cars. And we drafted this proposal. We drafted this bill by traveling to 32 different states. The first committee hearing that I held as chairman was not in this beautiful room.
It was in a lumberyard in West Virginia, Petersburg, West Virginia, where we heard from coal miners, farmers, working moms, and small business owners. The title of that hearing was State of America's Economy Appalachia. We wanted to hear from real people because we wanted to craft a tax bill that delivered for real people. Is it perfect? Is anything that Congress does perfect?
Absolutely not. But it is the largest tax cut in US history. And it is the first time we've had no tax on tips. We've had members of this panel that has fought for a long time to pass no tax on tips, but when they had the opportunity to vote for it, they didn't vote for it because they wanted it to be different. It's the same way with no tax on overtime.
That's a new policy. Can we improve it? You absolutely bet we can improve it. The adoption tax credit, it was great to improve that, but we can still improve it even more. And that's what our intention is in this chamber, is to help continue for those working families, those small businesses, and those farmers.
Mr. Stefo, I would like to ask you a question. Super impressed with your story, your testimony. I'm glad I was out here to hear it. I'm a lawyer, so I don't know why you would want to be a lawyer to be honest, but I appreciate that you're moving that way. But I heard testimony amongst one of the six of you that said the solution, this is the quote, "the solution is simple, you need to raise taxes."
That was a statement. What's your reaction of telling members of Congress we should raise taxes?
Sina Sifo
I think as an American, the term raise tax is always going to cause some form of conflict between people. And I think that's a conversation and something way more complex than I can give you the answer to right now. I wish I could come here and tell you this makes me feel this way, this makes me feel this way, I just don't know yet. But what I do know, Councilmember, is that the no tax on tips part of that bill, that has helped us a lot.
That has changed a lot of lives. That has given security cushions for a lot of people. And that is something that I think has bipartisan approach and is something that I think we can work on and hopefully have for the rest of our time as a country. Thank you.
Jason Smith
Appreciate it. Mr. Chairman, I just think it's also important for the record before I yield back. We heard a statement that wages have not increased. In fact, that's not a truthful statement. Wages in the first year under President Trump has increased more than all four years combined under President Biden.
Do they need to increase more? You betcha they do. But to say that they haven't increased is simply not true. I yield back.
Suzan DelBene
Thank you, Mr. Chairman. Thanks to all of you for joining us today. Today's hearing is supposed to be about whether the Republicans' big ugly bill actually delivered for American families. And the evidence makes one thing unmistakably clear. The bill was never designed to help working families.
It was meant to help the wealthy and the well-connected. Middle-class American families saw hardly any tax benefits from the law and any benefit that they did see was quickly erased by Trump's illegal tariffs, by higher healthcare costs, and now the President's war in Iran jacking up gas prices. At the end of the day, the average working family is paying more for healthcare, for housing, for childcare and gas because of Republican policies and it's that simple. And you can talk to people all across the country. Meanwhile, people making over a million dollars will get a tax cut of nearly a hundred thousand dollars.
And Republicans paid for those giveaways in part by gutting the very programs that families rely on, including nearly a trillion dollars from Medicaid, putting care for more than seventy million children, seniors, and people with disabilities at risk. Yet the bill is estimated to add more than four trillion dollars to the national debt. Democrats by contrast have advanced proven policies that actually help families afford the basics. For example, the expanded child tax credit that we put in place in 2021 gave families monthly payments of up to three hundred dollars and cut child poverty nearly in half all across the country. Republicans have repeatedly rejected our amendments to make this bill better for families.
And this hearing really is about trying to sell a bill that is failing working families across the country. Dr. Edwards, knowing that tax returns are not the only way to help Americans, could you discuss some of the alternative policies that more directly help working families and deliver a better economic return, things like the expanded child tax credit or universal paid family and medical leave program or other examples that you may not have included in your testimony?
Kathryn Edwards
Doesn't matter what my profession, I don't have to sit here and list that I have kids or that I have a business or that I have a job or that I have workers. I am just an American. And I don't necessarily appreciate having to tell you a hard truth about how indebted our country is and how much it will cost. You have created the largest program in US history is our debt service for someone to tell me I'm not an American just because I have to tell you the unfortunate reality that this can't go on for for forever. Thank you for letting me correct the record.
Thank you, Congresswoman. I'm going to quickly correct the record. It doesn't require any adjective afterwards. I am a real American. My profession does not disqualify from being from being any less American than the other person.
Investments in children and family tend to have a much larger return than tax cuts because they're directed to people who will immediately use the money and for whom the market cannot provide the good. So for example, childcare is something that costs considerable money out of pocket for families that use the service, something around two thousand dollars a year.
Something like paid family and medical leave on the other hand, which has a much smaller ticket price than child care, that costs the federal government almost nothing relative to the size of something like the big beautiful bill, which costs $450 billion a year. Child care would cost close to 22 or 23 to set up through the Family Act. That has a 10 to 1 return in net social benefit because it improves the health of especially infants and children in the first six months of their life so that they, you know, use fewer services in the future and it also improves the health of families. These two types of bills make direct investments that the market and tax cuts cannot, which is why they have such a high return. And a return is critically important and sometimes when you invest a little you get a great return and I think unfortunately something that wasn't thought through in this bill, you know, the reality is that it continues to biggest benefits go to the wealthy and the powerful at the expense of American families struggling to get through the day.
Dr. Edwards, in your testimony you also described the tax code as bloated with 271 tax expenditures including nine new ones from the big ugly bill. How does growing complexity of the tax code hurt taxpayers, particularly working families?
Tax preparation services according to Intuit accountants, which develops the software that tax preparers use, estimate that people who pay for tax preparation costs them $200 to $500 a year. That's going to cut a fourth to a half of the average tax cut you gave Americans because of how expensive it is to prepare their own taxes. The more complicated the tax code gets, the harder this gets. Thank you. I yield back, Mr. Chairman.
Thanks, Ms. Tlaib. Mr. Schweikert, you're now recognized. Thank you, Mr. Chairman. Mr. Stepto, what store do you work at?
David Schweikert
Congressman, I used to work at White Chocolate Grill and now I'm at Buck & Rider in Camelback. Oh, wonderful. And now I'm at Buck & Rider in Camelback. Okay, so I've been in your, I next time I'm in there I will look for you. I'll see you there.
My brother's actually a manager at the Cheesecake, so, oh yeah, it's the family. Really? Okay, so you're a fellow Arizonan. We were one of the, I think we ultimately came in number two in the Biden years of inflation. When we were working on this tax bill, the math was working families in our community were actually poorer because you did the adjustment of where your wages were compared to your purchasing.
Um, you know, for us in Arizona, if you actually walk through some of the math, real take-home pay, $7,400 to $10,600. That's a, you know, when you've had people who've gotten their heads kicked in because of the cost of living in our community, that's a big deal. And I'm often concerned that when we're having the debates of our economists, and I love my economists, you know, we start to work through the actual math. Um, there's some tough things going on, particularly for us in Arizona. Last month, we lost what, 10,800 jobs.
And if it weren't for some of the things we've done in these tax provisions, I'm really concerned what our community would look like. So, Mr. Snyder, I actually want to do some geek out with you, forgive me. It's always one of my frustrations, you'll notice there's a verbal game we all play here. When we don't like the percentages, we'll use the number, the dollar amount.
But I've been looking at some of the tables from your testimony and the distributional effects. Can you actually speak to the reality of those with very high income, the percentage they received compared to those truly in that sort of hardworking middle class on the distributional effects?
Alex Snyder
Yeah, absolutely. There's a number of ways in which we're kind of talking past each other on the distributional effects. Number one, if we're focusing on 2025 policies, we're talking about all of the new things that just happened. That's not a TCJA thing. TCJA is law.
All of these provisions have income limitations, so it's definitionally impossible for relief to be accruing at the high end of the spectrum if we're talking about what just happened.
Alex Snyder
Correct. So there is no tax relief at the high end of the income spectrum in this bill for 2025. A difference between, you know, the ranking member mentioned some of the distributional tables, JCT, we're talking about current law versus current policy. I don't want to go down that path and complicate things, happy to do so. But when you spoke to percentages versus dollars, I think what confuses a lot of people is we'll use dollars when it suits us and percentages when it doesn't.
If you cut everyone's taxes by one percent, people might say that's very fair, but people who pay more taxes will see a bigger dollar relief than others.
Speaker 31
And look, for everyone, would you agree that United States probably has the most progressive income tax system in the industrialized world now?
David Schweikert
And so folks don't understand that how radically, because we also don't use a value-added tax. So in many ways, it creates an even more progressive tax system of what the taxes paid by, you know, the working class and how we push it off onto this side. One of the things we're trying to take a look at in the Joint Economic Committee, one of my other hats I wear, is did we have any behavioral changes? Did we see, because we think we're seeing some substantial participation in working overtime, labor force participation? We actually see just the demographic clicking down, but we're thinking are we seeing some of our brothers and sisters choosing to stay in the labor force even if they may be eligible for retirement?
Where would you go to find that data and are you starting to see what we're looking for?
Alex Snyder
Yeah, you would look at it in a number of directions. Overall hiring, so these provisions will drive economic growth that drives hiring, that creates more opportunity for people to enter and remain in the labor force. You would look at spending patterns like credit card data, savings patterns, all of those things are things that you would look at to support exactly what you're looking for.
David Schweikert
All right, thank you, Mr. Snyder. We will talk some more on this. One last thing, Mr. Chairman, is it Mr. Saunders? Thank you for adopting some kids. Been through it.
I have a three-year-old and a ten-year-old. I want to have a real examination, though, in some of the costs. When we've made it so expensive that a middle-class family cannot adopt a child, something's wrong in the way the adoption fees and the fees being charged by some of the adoption service providers. And it's one of my commitments that that's one of the things we're going to examine. And with that, I yield back.
Gwen Moore
Let me join committee members in thanking all of you for appearing here today before us. I just want to thank you, Mr. Saunders, and your wife for adopting these beautiful children. And Mr. Stefo, I would tip you, tip you, tip you. I'm a good tipper and just with your personality, just like you said, it's the hustle that makes it.
And and so thank you all for coming here. I I'm a Democrat, so I am very opposed to this bill. And maybe I should start with you, Dr. Edwards. I just don't know where they get some of these numbers from. Because according to the research that I've done, is sort of the average that someone who makes $50,000 a year gets as a tax refund this year will be $247.
And as you indicated, we paid $450 billion a year, had no growth in our economy. And what we have provided for these outstanding Americans here, and you are and I are also Americans, is crumbs from the master's table, basically. And we've robbed Peter to pay Paul in order to do it. We this is $4.7 trillion of debt that was unpaid for. And what we have done is thrown people like Mr. Stefo, who fortunately for him, will not be a wait person forever depending on tips, because these will expire and they they were not made permanent like some of like the moneys that we gave to the billionaires and millionaires.
This is temporary. So I guess I want you to respond to try to help me understand a little bit about these numbers.
Kathryn Edwards
We're we're a little bit talking at cross purposes because the way that the Joint Committee on Taxation and the Congressional Budget Office came up with the impact of the legislation was to compare it to current law. There was a tax cut passed in 2017, its provisions were going to expire, this bill extended those provisions. Therefore, the impact of the bill is the extension and the change to law. What my esteemed colleague is talking about is comparing instead the change to policy assuming that they hadn't expired at all. So it's it's not both being right and wrong at the same time, comparing thinking of whether or not you you think this law doubled down on one or it wrote a new law.
So I the JCT and CBO have always looked at current law as opposed to current policy, which is where they come up with their distributional effects. So for example, the distributional effect is a 0.3% increase in resources for the bottom 10% of households and a 2.9% increase in resources for the top 10% of households. I realize Mr. Schweikert left, I thought he would have liked that I used percentages instead of dollars, that I can do both. But that, you know, the original legislation in 2017, you know, as I said before, we have a progressive tax system. If you cut taxes, the the people at the top will get the biggest check.
They don't necessarily have to get the biggest reduction, but they did over these two pieces of legislation.
Gwen Moore
Well, thank you so much for that. You know, here's here's what I want would like to know. The Yale Budget Clinic, it depends on who you believe, they said that tariffs cost people about $2,500 a year. We cut the I'm wondering from Ms. Mehalic, of all your employees, how many people lost healthcare because they couldn't afford the ACA? A lot of tipped workers, for example, rely on Medicaid because they don't make that much money.
I mean, if someone worked 40 hours a week at at minimum wage, they would only make $15,080 a year and they wouldn't qualify for the full child tax credit. SNAP, $900 billion cut. A lot of people who work, who qualify for tax on tips, also relied on the ACA, the Obamacare, and relied on Medicaid. And so I guess the question that I have for you, Dr. Edwards, is the squeeze worth the juice?
Kathryn Edwards
If you wanted to help working families, you could have amended the Fair Labor Standards Act so there's no complicated tax process for getting more overtime, you could have just raised overtime.
If you wanted tipped workers to take home more money, you could raise the federal tipped minimum wage above, you know, the $2 and I think 13 cents that it is now. We don't have to move every reward to working families through the tax code. We could just make our labor market better. It would be more efficient and more remunerative for them. And I will once again bring up that the fellow witnesses at the table, the credits and deductions that they are talking about represent less than 6% of the spending from the legislation.
Gwen Moore
Ms. Mehalic, can you tell me how many of your employees rely on the ACA, Obamacare, or Medicaid? Because, or do you pay healthcare to your employees?
Darcy Mihalic
We do offer healthcare through our companies, yes. I can't tell you off the top of my head, ma'am, how many of them are participating in the ACA, but I do not feel like a large number of our employees are in a situation where they've said that they are out of healthcare coverage to me, at least.
Gwen Moore
That's to you. Okay, Mr. Schneider, it's nice to see you. Say hello to Paul for me. We were very good friends. Mr. Chairman, I will yield back.
Mike Kelly
Thanks, Mr. Moore. Now, consistent with committee practice, we're now going to go two to one on the questioning. Mr. Arrington.
Jodey Arrington
Thank you, Mr. Chairman, witnesses. Mr. Schneider, good to see you. With respect to the tax code being progressive, do we have a progressive tax code and relative to the developed world and developed economies, is ours one of the most, if not the most progressive, or one of the least, if not the least progressive? Where are we on that?
Speaker 36
It is very high and is one of the most progressive in the industrialized world.
Speaker 38
One of the most progressive in the industrialized world. Before the Tax Cuts and Jobs Act, which was the base, base, the base and foundation for some of the improvements made in the Working Families Tax Cut, prior to the Republicans, President Trump 2017 tax cuts, where were we in terms of taxing businesses? Just take the corporate tax rate, for example. Were we at the higher end of the spectrum of how we taxed American competitiveness, investment in jobs through the corporate tax rate, or were we on the lower end? Where did we rank in terms of how the people's government in these United States taxed our job creators?
In that example, where were we?
Alex Snyder
We had the highest rate at 35%. When we lowered it to 21%, when you add in state and local tax, about 4%, we had the average rate in the OECD afterwards.
Jodey Arrington
Okay. So we had the highest tax rate, corporate tax rate in the free and developed world. And the not-so-free world, my understanding is it was higher than communist China. That's, that's crazy. I just think people need to just reflect on that a little bit.
The great free enterprise system that has unleashed prosperity and a middle class and a quality of life and keep going like no other nation, no other people have ever experienced, now finds itself having the highest tax rate among developed nations and even communist China. And when we reduced it, that reduction was when you take the effective rate with all levels of government, we were at the average. We weren't the lowest, we weren't the bottom quarter, we were average OECD in terms of how we taxed our job creators. Is that correct?
Yep, absolutely.
Jodey Arrington
Okay. Seems like a good thing to do for Team USA, but let's look at the results to make sure that they correspond with our philosophy of less taxes. What happened after that? Did corporate, did capital investment and job creation go up or down as a result of the 2017 tax cuts?
Alex Snyder
It went up. I mean, a great example you can use CBO's 2018 forecast and their June 2017 forecast. CBO before the law was enacted asked what would happen, look at what they produced, exactly that happened. You saw faster GDP growth, faster investment, faster hiring, more wages.
Jodey Arrington
With our minority Americans and female, it was record lows. And what about poverty, poverty rates, where did they go?
It was one of the lowest in decades.
Speaker 38
It's the lowest in recorded history. Okay, so that's what we got. And by the way, just to dispel this notion that these were tax cuts for the rich, let's say it again, I wish we could say it all together in unison or sing it in a round, that'd be fun too, but maybe some, I'm just looking for a way for it to absorb because it's just a fact. I mean, we can debate philosophy, but I don't think we should be able to debate the facts. Did the top 1% of income earners pay more in taxes after the Tax Cuts and Jobs Act or less?
Alex Snyder
Yeah, they certainly paid less in taxes after the tax cuts in the law in under TCJA.
Jodey Arrington
It went up. And so the tax code in some respect became more progressive. I'm not sure, I think everybody should have benefited and should have benefited comparably, but nevertheless, it became more progressive. What we do is we take that base of tax breaks that created all these wonderful things and we supercharge those provisions that help working families. Why?
Because working families lost $3,000 in wages, they were paying over 20% in increased prices, they had record interest rates on borrowing, and so they were stuck. And so what we did was we took fixed-income folks, middle-income folks, and we said let's put it a little more to cut their, you know, burden so they can have more take-home pay to deal with the cost of living crisis. I think that was a laudable thing. I think it was exactly what was needed. Mr. Chairman, I thank you for being, for indulging me, and I yield, I don't have to yield, I went over my time again.
Speaker 39
Thank you, Mr. Arrington. Thank you, Mr. Schneider. Thank you, witness. Mr. Hern.
Kevin Hern
Thank you, Mr. Chairman, for having this very important meeting. Thanks everybody for being here today. Appreciate the dialogue. In addition to us allocating $90 billion in tax cuts for the no tax on overtime and $32 billion for no tax on tip workers, we had an additional $63 billion tax cut to our seniors not having to pay wages or taxes on those Social Security income. It's estimated it went from 63% of Social Security age to 88% now that they're not paying taxes on Social Security income.
But I'm also proud of what we did inside the bill with the 529, the ability to use that to get certificates to, you know, to make sure we have people that can actually get jobs. And I spent 35 years in the restaurant business, so I know it very, very, very well. I know how impactful this has been to people that own restaurants, as you both have testified to, the people working in the restaurants, helping the working families and the things you're doing. But the, my bill was the Education Workforce Freedom Act, which expanded 529 accounts to make K through 12 education more affordable and meet the needs of American workforce. And it also allowed students, including public, private, and religious school students, to use 529 savings accounts to cover eligible education expenses such as tutoring, standardized testing fees, educational therapies, and among other educational expenses.
And you know, as we work through this tax code issue, and and Dr. Edwards, I I really appreciate everything you're saying, but I wrote down because I kept waiting to the very, very I listened to every word. I don't always do this with every minority witness, but I listened because as as Mr. Schweikert said, I I really love economists as well. I love to hear what you have to say. But nowhere in your testimony did you ever say that we should ever cut a single dollar of spending. Not one.
An economist that has no political bias would say, friends, you have the ability to make legislation. Let's look at how we balance this revenue and expenses. Not once in five minutes did you say that. And if I missed it, I I apologize, but I listened very intently. And so, you know, when I when I hear my it's rich to hear my Democrat colleagues, because I sit in here the long hours.
I worked on the tax policy. I grew up extraordinarily poor. I I appreciate everything the government does for those who need the most. There's no more benevolent country in the world than America. None.
Zero. That's why people kind of get here at any means. But it's rich for my friends across the aisle to say that, oh, you know, we're spending on big business. I remind everybody about two years ago, we passed out of this committee 40 to 3 to get immediate R and D expensing, to get immediate expensing on capital purchases and interest deductibility. 40 to 3.
Now, I don't know if anybody's in this room, I don't see anybody over there that voted against it. I know who they were. 40 to 3. And but not for the Senate not passing it, it would have passed. It would have passed.
Democrats supporting the idea that giving businesses the opportunity to immediate expense would create jobs and put Americans to work. So it's it's really rich that they say that they don't care about that. Mr. Alexander, I'm sure you're aware of this, but you know, we need more people like yourself that go out and create businesses and work with their hands and skilled workforce. There's some 300,000 new welders needed in the next few years. So can you talk to me or talk to this committee or talk to America about why it's so important to have this ability to use the 529 programs to go out and get these certifications so that you can go and come out of these with no student debt and be able to do that?
Jason Alexander
Yes, sir. Thank you. I know in my circumstance, I would have definitely appreciated that 529 early on. I would have used that, and I I'm sure other people coming out of high school see that as another opportunity rather than maybe going to college, they can enter into a trade and have that benefit.
Kevin Hern
I appreciate that. Dr. Edwards, I listen, this is not picking on you, because I just really I just think that we need to talk to more American people. Because I think the American people are frustrated with sending trillions of dollars to America to the to the United States government every year and seeing deficits and debts rise. Listen, I'm there is no stronger budget hawk on this dais than me. As the chair of the Republican Study Committee Budget Committee for two years and as the chair, I signed four balanced budgets in a row.
You're exactly right. It's not getting easier under Democrats or Republicans. But the American people want accountability. They want accountability. And if you look at what's going on, it's crazy.
We invested in this bill, I'm looking here at the Tax Foundation, 700 billion dollars inside of this thing that the Democrats and yourself are demonizing to child tax credits. To child tax credits. Nobody's mentioned how important that is so people can have a little bit more money that was built upon the TCJA child tax credit to give working families the ability to have child care for their sons and daughters as they go to work. 700 billion in this.
We talk about the 4.5 trillion. I say this in chambers because there are Democrats and Republicans and I have yet, I'm traveling the state today, not today, but in this in my current process of what I'm trying to do. I've not had one Democrat come to me and say I wish you'd raise my taxes. And please, if they're in this room, I'll I'll meet you out back. Just tell me who you are and we'll write a bill for you, but not one single Democrat said raise my taxes.
And you can say well we'd expect that, we've got to be the adults in the room, but the American people are tired of this experiment of us never doing anything to balance the budgets. They really are. And when I look at this, of the 4.5 trillion over this time period, the Tax Foundation says just to keep your rates, everybody in this room, everybody in America's rates the same is 3.2 trillion of that 4.5 trillion. So what we're saying is is the American people are dumb, that they're better off to send that 3.2 trillion to us because we're better stewards of that money. That is never proven to be true.
So with that, I I really appreciate the opportunity, Mr. Chairman. I'm I'm this is something that's really frustrating to me that we don't acknowledge that we're doing everything possible to keep as much money in the pockets of the American people as possible so they can spend it the way they see fit, not the way Congress does. I yield back.
Speaker 9
Thank you, Mr. Hern. I think we all get wrapped around the axle on some of this stuff. Mr. Schneider.
Speaker 42
Thank you, and I want to thank the witnesses. Mr. Schneider, you know we sit here and we wait for a name to be called and every time your name is called you say wait, I'm not ready, so thank you all for being here. Before I come to the witnesses I want to touch on a couple things. One, this idea that we haven't had a conversation about balancing the budget, and we have and we need to and I agree with my colleague, but I'll tell you when the Democrats put forward the IRA a few years ago, we took efforts to to lower the debt. And that bill that was mentioned that passed here 40 to 3 that made investments in American innovation and American businesses also had a major investment with the child tax credit that the Republicans let expire as we want to see it go forward.
And I'll come back to that in a second to talk about where there's agreement and where there's need to be fiscally responsible, but let me again just thank our witnesses. I appreciate all of you being here and I'm grateful that you're able to come here and share your personal stories. It's really important for us to hear about them. From building a family to pursuing an education to building a career or a business employing hundreds of people, you all represent every one of you all six represent the American dream. Despite what we've heard from some on the other side, there is broad bipartisan agreement and support for helping working families, small business owners, and farmers succeed.
We don't just want you to make ends meet, we should be talking about how do we help working families get ahead. How do we help more people realize the American dream? We want all Americans to feel secure in the present, hopeful in the future, and confident in their prospects of reaching their goals and realizing that dream. And too often we make it more difficult. Let me ask, we did the chairman had you raise your hands earlier, let me do the same exercise here.
Let me ask to the six, raise your hand if you know anyone who today worries about healthcare and their ability to pay for healthcare for their family. I see most people raising their hands. What about, and I don't mean to pick on you Mr. Stefo, but I know my son just finished law school, I know how expensive education is, my other son's about to start his MBA. What about people who are worried about paying for education for themselves or their children? Anyone know anyone worried about the expense, increasing expense of those things?
I think we're seeing most raise their hand. I'll be 65 this year, a lot of my friends are beginning to look at retirement. Do you know people who are worried about having a secure and dignified retirement in the future? Again, raising the hand. And how about the debt?
Anybody know people who worry we're now sitting at 40 trillion, Mr. Stefo I wish you had a longer arm, right? We worry about that and as I said, I'm 65, my kids are probably closer to your age and I am terrified that we're leaving the next generation with the inability to tackle the opportunities they want and deserve because we're loading so much debt on you.
So here we are one year after passage of HR 1 and a year and a half into the Trump administration and the economy is anything but secure. Grocery prices are up, energy prices are up, healthcare premiums are up, education's through the roof. My Republican friends are here today taking a victory lap for literally kicking millions of people off of healthcare, taking SNAP benefits away from people just wanting to put food on the table for their children and adding approximately 5 trillion dollars to our debt. I can't overstate my frustration with the decision to hand over trillions of dollars in tax cuts to the most fortunate Americans while adding that 5 trillion dollars of debt to the next generation. I'm sure those who received the tax cuts at all levels of income are grateful for it.
We don't blame them, nobody likes paying their taxes. But I bet if they knew what it was going to cost their future, they'd have second thoughts. Four and a half trillion dollars could have been spent to address the needs of communities, working families, children and seniors in need. We should be making sure that all Americans can afford their basic needs and pursue their dreams, take care of their family, put a roof over their heads, put food on the table, pay for education and healthcare and secure their retirement. But it also means helping everybody know that that future's going to be there for them.
It means addressing Social Security and Medicare for the future as generations of folks in this body did more than 30 years ago. I think it's a disgrace that this bill became law and even more of a disgrace that people are trying to celebrate it. HR 1 handed trillions of dollars to the most comfortable among us at the front end, but leaves those reaching for the future holding the bag tomorrow, driving us into insurmountable debt and pulling the rug out from the most impoverished and vulnerable families who depend on Medicaid and SNAP. If the Republicans on this committee actually wanted to help, their tax bill would have invested in the future of growth, would have added the child tax credit, would have invested in all Americans and the American families for the future, long into the future in a responsible way. I'm out of time, but I wish we could come back and look at this and do it in a way that lowers our debt, secures our future and makes more families confident that they'll achieve the American dream.
I yield back.
Ron Estes
Well, thank you, Chairman Kelly and thank you, Chairman Smith for helping bring us together this morning. You know, as I look at the witnesses today, you know, I'm reminded that we aren't here just to talk about economic theory or about lines on an IRS spreadsheet. We're here to talk about tangible real-world relief. The title of today's hearing says it all: Your Paycheck, Returned. For the past few years, everyday Americans have watched their hard-earned paychecks get absolutely eaten up by inflation caused by runaway spending by my Democrat colleagues.
But thanks to the leadership of this committee and the passage of the Working Families Tax Cuts, the one big beautiful bill, the tide has officially turned. This past tax season, American people just didn't file their taxes, they finally felt some of the historic relief that we promised them. Look at the data that's come in from this spring's filing season. The average tax refund broke records, coming in over 3,300 dollars per filer. That's an 11 percent increase from last year.
This isn't just a statistic, that's real money back in the pockets of people who build this country, helping them pay off credit cards, buy groceries and repair their cars. How did we do it? By listening to the forgotten men and women of America. We delivered common-sense policies that reward hard work and innovation, not government bureaucracy. One Kansan in my district, Deborah, shared with us that when she filed her taxes this year, she was surprised to receive a larger refund compared to last year and that was thanks to the new 6,000 dollar senior tax deduction.
Additionally, millions of service industry workers, our waiters and waitresses, barbers, drivers, and so many others, see the benefit of no tax on tips. Over 25 million hourly workers who stayed late and worked hard kept more of what they earned through no tax on overtime. We permanently boosted the standard deduction, brought back full immediate expensing for our Main Street businesses, and ensured that 88% of our seniors pay zero tax on their Social Security. This hearing is our opportunity to look at the undeniable success story of the tax season. I want to thank our witnesses for being here to share some of their stories today.
Mr. Snyder, I will start with you. You know, as you look at the effect of the Working Families Tax Cuts, can you give your perspective on the importance of the permanence and stability in the tax code? And can you tell us how businesses and families are reacting and how that translate into higher investment, higher wages, better opportunities for people and their families?
Alex Snyder
Yeah, of course. Permanent policy is very important. Tax salience is also important. So if you have a permanent system, people are more likely to understand the benefits they're receiving, respond to them the way we hope, whether that's working more in the case of, say, overtime and the like. So, you know, permanence provides that certainty, especially for businesses that they know in the case of full expensing for equipment is now permanent, full expensing for R&D is now permanent, the EBITDA interest limitation is now permanent.
All of those are really helpful for long-term planning and for investment and growth.
Ron Estes
Yeah, thank you. Mr. Stefo, and Ms. McCollick, and Mr. Alexander, all of you work in industries where either you or your colleagues actually benefit positively from no tax on tips or no tax on overtime. You know, you have more of your money for, you know, to spend on the things that you and your family need. Can any of you talk about opportunities that you have to see, to utilize that money for education, for homeownership, for family life, or your regular day-to-day businesses or regular everyday expenses?
Jason Alexander
Sure, thank you, sir. Yeah, so whenever this bill first passed, some of our coworkers were talking about how we may get a hammock and a pantry and stay up at the mill all the time for the opportunity to get a lot of overtime. But personally, my family, me and my wife, we plan on having children soon and working on that, and it'll be very helpful moving forward.
Darcy Mihalic
For me, one of the things that you mentioned was providing housing and being able to pay rent, having consistency in knowing that you're able to do that. I think one of the things that resonated with me, one of our stylists who I didn't mention, told me that he saved every tip that he had for one year for a down payment on a condo. And a year later, he was able to be successful in and to be able to purchase that. So I think the tip portion of this bill was really important, and I think just allowing them to keep more of that allows them to make those investments in themselves, which is critically important.
Sina Sifo
Thank you. The nature of the restaurant industry for tipped workers at least is one that's kind of variable. Growing up during, like, going to restaurants and working at restaurants during school, I would oftentimes have conversations with my managers where I go, "Hey, I have this final coming up, I can't work this next week and a half," and they give me that flexibility. Having this refund come around mid-March, early, I think it was like February, in the middle of my preparation for the LSAT exam, meant that I could take a little breathe, like a breather. I could go, "Okay, I'm going to actually study, not have to worry about work for a little while because of that refund coming back to me."
Ron Estes
Great. Well, thank you all for being here, being able to talk about your stories and the positive success you've seen. Thank you. I yield back.
Lloyd Smucker
Thank you, Mr. Chairman. Thanks to each of the witnesses for being here. Dr. Edwards, appreciate you being here. I want to respond to just a few of the things that were said here and some of your comments. So first, glad you're here, glad that you're participating in this debate.
Your opinions are important. We're glad you're an American, and we hope that this tax bill works as well for you as everyone else here and as well as for everyone else in your income bracket, and we expect it'll do just that. I do want to say just a couple things.
One, you talked about the impact of the bill on rural hospitals and access to care. We want everyone to have access to care. We want hospitals to work. That's why there's a fund that provides additional resources for rural hospitals. But I want to push back on your characterization of Medicaid.
Medicaid, after the provisions, the changes that we made in this bill, will increase from an annual reimbursement to the states of 691 billion to a trillion within the next 10 years. That's not a cut in Medicaid. In fact, what we are trying to do, and CBO backed this up, is trying to ensure that Medicaid dollars go for Americans who deserve it and are qualified for the program. Do you think that's important? That Medicaid goes to individuals who are qualified for the program?
Speaker 48
I do not think that you should make people work to get health insurance.
Lloyd Smucker
Do you think we should ensure that states require Medicaid recipients to comply with the qualifications before they're given Medicaid?
Speaker 47
Well, I would never tell a state to violate federal law or order, but I would also not seek to ensure low-income populations by making them work if, for example, their health condition prevents them from working.
Lloyd Smucker
Okay, I need to get back to another. You agree, there was a conversation about who is benefiting from this bill. You agree that lower-income workers in the lower brackets, or maybe let me put it this way, income workers who are tip workers, because it may not always be lower-income brackets, or overtime, are going to pay less this year or pay less after the first year than they did before. Do you agree with that? They'll pay less in taxes.
Lloyd Smucker
Yes, so they'll pay less. And an individual who is on the higher brackets will pay the same as he was paid the year before. The answer is yes, because we simply extended those tax rates from 2017 that were in effect. So the answer is yes. So the, you know, when you say that this benefits higher-income earners more than lower-income earners, it's just not true.
The facts are what they are. Do you think we have a progressive tax system?
Less than it used to be.
Lloyd Smucker
What percentage do you think the lower, if you divide into quintiles, what does the lowest quintile pay in taxes?
Of households or filers?
Households.
Kathryn Edwards
Households, the bottom quintile, you'll have mostly non-filers. So they don't earn, they...
They pay less than zero, right?
Lloyd Smucker
What percentage do you think the top 20 percent quintile earners pays?
Speaker 52
All right, the top 1 percent pays about 45 percent of all taxes. The top...
Kathryn Edwards
Oh, as a percentage of income. The bottom 50 percent of filers, it's roughly 3 percent.
The top is going to be around 23.
Lloyd Smucker
I have a chart, that's right. And I specifically want to address this because some of the rhetoric that you've put forward and the Democrats put forward paint an entirely different picture.
And I had someone come into my office just last week who actually believed some of the things that Democrats are saying, who believed that higher income earners were paying less as a percentage of their taxes than lower income earners. This chart shows, of course, exactly the opposite. This shows the bottom 20% over here pay minus 3.6% dollars. When they file taxes, they get money back. And the top 20% pay 25 and a half percent.
That's a very progressive tax system. That doesn't mean that they're only paying more dollars, which of course they are because they're earning more, but they're paying a much higher percentage of their total income. Based on the rhetoric we hear, people don't think this is true. My constituent literally did not think that this is true, and I've had to produce something like that to prove it. The other point, your point you just made, the higher income earners pay most of the federal dollars.
You're concerned about the debt, I appreciate that concern. Three and a half trillion dollars of the dollars coming to the Treasury was paid by the top 20% last year. And you want to know something? After 2017, as a percentage of total revenue coming in, that went up. Because their income went up, sir.
So not only did we make it more progressive in 2017, we made it even more progressive in the tax bill that we just did. And I'm sorry I'm out of time, I hear the gavel, I'd love to talk more. Thank you.
I'd like to hear more, but we're on a time base here. Mr. Gomez, you're recognized for five minutes.
Jimmy Gomez
Thank you, Mr. Chairman. My Republican colleagues, just say it with me: if you're rebranding, you're losing. And that's what you're trying to do when it comes to having these hearings and these dog and pony shows when it comes to what is actually called the one big beautiful bill. You're rebranding, you're losing, because that bill is so unpopular because of what it did to the American people, who it favored, who it favored, who it favored at the expense of the working class. One trillion dollars in Medicaid cuts.
200 billion in SNAP cuts. Tax cuts that favored the wealthiest Americans and the largest corporations in this country at their expense. And let's not forget, when you guys were cutting the money in the Energy and Commerce Committee, your Republican colleagues were doing all that slashing to those programs. And the gentleman who, Mr. Alexander, who said him and his wife want to have babies, great, I love it. But a lot of the births in this country are actually people who are on Medicaid.
So all of a sudden they're not going to be able to, they might not be able to get the kind of care and the treatment that they need to have that family. So if you're rebranding, you're losing. And that's one of the things we want to kind of focus on. And I know the people, my Republican colleagues talked about what are people feeling in real life, what kind of impact real life. Well, let's talk to the American people and what they're feeling in real life.
A CBS News poll said that asked the question: is your income keeping up with inflation? 77% said no, it isn't. No, it isn't. And that's because if you add into the cuts to those programs, there's another 2,500 every family is paying because of Trump's reckless tariffs, increasing the cost of goods, baby shoes. 99% of baby shoes are made outside of this country.
Cribs, most are made outside of this country. Car seats, most made outside of this country. You go on and on and on. Those costs, those tariffs are going to impact how you'll be able to raise that child. And I know because I have about a three and a half year old.
So this is not a working family agenda, this is a squeeze the middle class agenda. And so what else is going on? Rent is going up and up and up. Paying for groceries, up. Childcare, up.
Everything is up.
And now families are actually in a worse situation. One in eight families is now, or one of eight credit card holders are behind on payments, behind on payments. Auto loan delinquencies are reaching a record, a record highs not seen in over 30 years. As like coming from a working class background with my family, you know, my mom worked four jobs a week to make ends meet, we never had health insurance, my dad worked two jobs a week to make ends meet. I know the cars are something that is just crucial to get to work, to take your kids to school if you have time, to provide for your family.
So when auto loans are reaching super high rates, it is a signal that the economy is not doing well. The American people are not doing well because they need that, that's life, that's the lifeblood of being able to provide for their families. It is a big deal. And we keep, and we started seeing this last year and it's continuing and getting worse. So we want to talk about real life consequences, how this is, like how the American people are feeling.
My Republican colleagues don't want to look at the entirety of people's experiences. People don't give a damn about their one big beautiful bill and how it benefits X person. They're thinking, can I make ends meet this month? Can I, can I pay down a little bit of debt if I have any money left over? Is the war in Iran that was a war of choice by this president going to drive up gas prices higher and higher and when is that going to abate?
That's what they're asking themselves. So when the Republicans are rebranding, they're trying to fool the American people of the damage that they actually caused to the American worker and the American family. And yes, things will get worse when it comes to gas prices. They just want to make, they're trying to rebrand and hopefully survive the midterms. That's their, that's their approach, that's their goal and they're not going to do anything to help the American people actually get by.
With that I yield back.
David Kustoff
Thank you, Mr. Chairman. Thank you for the witnesses for appearing today. Ms. Mihalik, if I can with you, I was impressed when Chairman Smith talked about the very first hearing he had was a field hearing. We've done a number of field hearings in this committee where we've gone outside of Washington, D.C. and really gone to the witnesses. And we had a hearing a few weeks after we passed the one big beautiful bill last year in July.
And one of the witnesses I remember was a man who owned convenience stores and office buildings. He talked about how that model was really affected after COVID when people wouldn't go back to their offices for a while. But then how the Section 199A, which gave the tax break for the deduction for small business, was really able to help him in terms of growing his business.
You've got a lot of varied interests from your salons to your Subway stores. Can you talk about the section 199A and the permanency in that 20% deduction, what that's meant for your collection of small businesses?
Darcy Mihalic
Thank you so much. Some of our businesses eventually will really benefit from that section. We currently have been in a growth mode and have been able to take advantage of bonus depreciation, which we have done. Obviously, that will eventually run out and we are always ready to pay less taxes. So if there's anything that's going to help us flow through more income to the bottom line to help us reinvest in our employees and our businesses, it would be a good thing for us.
David Kustoff
Well, with section 199A putting more money back in the in the pockets of small business, that does allow you to hire more employees, I would suspect, right?
And pay increased wages.
Absolutely.
Thank you.
David Kustoff
Mr. Saunders, if I if I can with you, you talked about the the financial challenges, if you will, with with adoption with your first and second child. Can you talk about the child tax credit and what that's what that's meant and how that how that figures into all the expenses that you you and your wife outlaid to adopt your two children?
Clark Saunders
Absolutely. Any benefit that we can get for having a child is going to be helpful. You know, again, we're I'm a school teacher and my wife works at a church, so our income is is not super substantial. Just being able to have that money to be able to spend even on them, just having money to put towards college, put money towards their future, every little bit is beneficial.
Speaker 58
You also talked about the I think the second child you adopted was last year in 2025. Is that right?
Clark Saunders
Yes, sir. He was born in July and so he finalized we finalized his adoption in January. So we didn't quite make the cut to take advantage of the adoption tax credit. It'll have to be in 2026 for that one.
David Kustoff
Right. When when you were working on your taxes for last year, you did get a fairly substantial refund as it relates to that adoption. Is that right?
For the 2024, yes.
Yes, sir.
David Kustoff
Is that that correct? In terms of other parents who are looking at adopting, this new tax law does provide incentive, doesn't it?
Clark Saunders
Yes, sir, it does. It makes it where it feels like it's it's something that can be afforded to a family because the financial if you're talking about $20,000, $30,000 to invest in your family, not a lot of people that's a car that's that's paying for an entire car, right, just to start to have a child. And and even that comes with risks where sometimes placements don't happen and sometimes you incur even more costs. So just being able to not have to just having the ability to not have to sacrifice as much to have that standard of living for your family is super helpful. And and having that money coming back in our pockets in 2026 tax year, being able to apply that adoption tax credit for our second son will be a huge benefit to our family.
Thank you, Mr. Saunders. Thank you again to all the witnesses for appearing and, Mr. Chairman, I'll yield back my time.
Speaker 59
Thank you, Mr. Kustoff. Ms. Van Duyne, you're recognized for five minutes.
Beth Van Duyne
Thank you so much, Mr. Chairman. I want to thank all the witnesses for joining us here today from all around the country. You know, I know members of this committee really appreciate the sacrifices that you're making to just be here today. Um, as the, uh, Chairman Jason Smith mentioned, you know, none of you are billionaires. I, I'm assuming you didn't fly here on private jets.
That you actually had to pay, you know, pay the, the cost for to get here and we really appreciate you being here today. Um, I think this filing season has proved beyond a doubt that Republicans, when we're in control, um, control the levers of power, we really deliver real results for American families and workers. And like the ones that you see in front of us today. And let's be clear. I, I've heard the, the comments from my, um, colleagues on the other side of the aisle who really don't care about your stories.
They, they really don't care about what, what you have to say. They don't want to hear about the positive, um, benefits that you've gotten from policies that have been passed. I mean, you just heard it. Nobody cares about it. Nobody wants to hear about that.
I disagree and I really appreciate you being here. But let's be clear, if Democrats had their way in the past year, the tax bill on the average American family would have increased by an average of $1,700. That's on the average American taxpayer. But in the Working Families Tax Cuts, one provision that really struck out to me is making the boosted standard deduction. So, this is for everyone.
This is not just for billionaires. This is not just for millionaires. But this is for the majority of people who actually file their taxes. That they boosted the standard deduction. IRS data shows that up to 90% of filers opt for the standard deduction after it first doubled in the TCJA.
But for the tax year of 2025, the standard deduction was $15,750 for single filers. It was $23,625 for heads of household and $31,500 for married couples filing jointly. In, in addition, it was adjusted for inflation each year in perpetuity to ensure that Americans continue to fully reap its benefits. If that is not helping hardworking taxpayers, hardworking Americans, I don't know what is. Provisions like the boosted standard deduction contained in the Working Families Tax Cuts have provided critical help to many middle, middle-income families that no longer pay a dime in federal income tax.
So a family of four with two children earning up to $73,000 now owes zero federal taxes. And that is real relief for working parents, for Main Street, and for the backbone of our economy. Mr. Alexander, I want to thank you for being here today and for the critical work that you are doing for the American steel manufacturing. And as you know, the Working Families Tax Cuts significantly expand, expanded the 529 savings plans so that they can now be used by not just four-year universities and colleges, but for registered apprenticeships, for trade school certifications, welding programs, and for tools and equipment that are needed for skilled trades. I have long been a proponent of this approach to help people find new careers or to support North Texans hoping to break into these types of jobs.
From your experience working in a steel mill, how do you think this benefits the next generation of steelworkers in your mill or even current workers like yourself?
Speaker 61
Yes, ma'am, thank you. Um, I know for me personally, this would have been a great opportunity to, uh, as starting out as a welder to have these, uh, options. And so, uh, younger people coming into the mill now, they have those options. And I believe they will take advantage of it, especially having, um, the overtime tax breaks along with it, along with the industry, it would be a great benefit.
Beth Van Duyne
Um, in this job, I hear over and over again that we are not replacing enough retiring workers in the manufacturing sector. Do you think that more people would go into welding or the trades and bridge that gap if families could use education savings account dollars to help cover the cost of training?
In your expert opinion, how beneficial is the permanent boosted standard deduction for middle-class workers in terms of things like reporting requirements from itemizing and keeping their hard-earned income?
Alex Snyder
Yes, ma'am, absolutely, and I would have too earlier on.
Great question. It benefits about 90% of tax filers. It's about 12 billion to 18 billion in tax relief.
Good to know.
Alex Snyder
90% of tax filers, roughly. So the vast majority of the country takes the standard deduction. It used to be about, before TCJA, it was about 70% would take it. So it's dramatically simplified filing for a majority of tax filers and provides about annually about 12 to 18 billion in tax relief for all of those individuals.
Why do you think that they take that now versus in the past? More people take it now.
Speaker 65
A larger, well, when the SALT deduction was capped at $10,000 and mortgage interest was reduced, while SALT, the standard deduction was dramatically increased, it made the standard deduction just simpler, easier, and better than itemizing.
Alex Snyder
So wait, you're telling me that we're actually simplifying filing of taxes?
And that was as a result of this bill?
Correct.
Mr. Beyer, you're recognized for five minutes.
Donald Beyer
Mr. Chairman, thank you very much, Madam Ranking Member, and thank you all very much for being here. I just want to say that I like and appreciate my Republican friends talking about all the tax breaks. I am concerned that aside from this meeting, most of the rhetoric is about the debt, which I very much care about, $40 trillion now equal to our national GDP, and we're hearing very, very little about that right now. We're just talking about giving money back, not where the money's coming from. I also don't think it's fair to say that we don't like hearing about it.
As the father of two adopted children, I wish we had that back when I was a young man. I love hearing about overtime workers not having to have taxes on it. I do object to the fact that so many people have to work overtime just to make ends meet, that 40 hours isn't enough for many, many people to get by in this country. And I do think that what I'd like to talk about is the tax on non-working families. Because one of the things that really upsets me about this bill is not the people that worked hard and built a business and invest over the years, their taxes, they've paid taxes on it, but rather our tax structure very much benefits children born into that family.
My Republican friends and the president chose to give a few thousand heirs of multi-million dollar fortunes a $200 billion tax break by making the previous cuts to the estate tax permanent. Chris Van Hollen, the senator from Maryland, and I have a bill that reduced the income taxes for every American making less than $135,000. We don't want to touch a $200 billion tax break for the richest people in America. This was originally given in 2017, and it's made our debt worse, and it's moved so much of our country in the wrong direction, especially when you consider the war of choice in the Middle East weighing on working middle-class Americans. Why on earth give the wealthiest people in the country, who've done nothing except being born to a rich mother or father or grandparents or great-grandparents, a gigantic tax cut when ordinary Americans are struggling?
We hear every day from the young people, the kids under 40, under 35, under 30, that they can't afford to buy a house, maybe will never be able to. That they can't afford a car, that they're postponing having children, that they're postponing marriage, all while we have a handful of people, it's a really small number, that are taking this huge $200 billion tax break. And how do we pay for it? Well, we've talked before about slashing funding, we cut Medicaid, it looks like it could be a trillion dollars out of Medicaid. 35,000 people in Virginia have lost their health insurance just this year because of the cuts to the Affordable Care Act tax credits.
Vulnerable Americans with disabilities. If the goal is to cement the dominance of a new class of American aristocrats, we've done a really, really good job. And given that since the 2017, we've seen the number of billionaires in America quintuple over these last eight years. Yes, they're paying a greater, more dollars per person, not a greater share of the tax burden, but they're doing it because we have this explosion of the very, very wealthy.
I don't begrudge them that. What I do begrudge is that they can then make sure that their children and grandchildren and great-grandchildren never have to work again. Add to this the step-up in basis, which means that they're never going to pay capital gains on it as long as you hang on to it and pass it on to your kids, the capital gains is completely gone. And the whole notion that, yeah, I paid taxes on it, but my kid didn't pay any taxes on that. Right now, look at the numbers.
Some people say, what about farms and small businesses? Right now, two-tenths of one percent of operating farms would be subject to the estate tax. That's two out of every one thousand farms. The share of estates worth more than half of their assets in businesses is nine out of every ten thousand businesses that are doing that. So it's a relatively small group.
And so we've got the new Gilded Age, and I'm just really concerned about it. So, Dr. Edwards, you have a minute, I'd love for you to think about what this means to our culture and this division between the very rich and the very poor, which by the way is incredibly destabilizing for a society.
Kathryn Edwards
Yes, Mr. Smucker has left, but the reason why the top one percent is paying so much in taxes despite having a lower rate and paying a smaller share of their own income is because their own income has exploded so much. We have actively reduced their tax rate, but their income is climbing so quickly that they're paying more in taxes, making it look like your tax efforts are in fact increasing taxes on the rich, but really it's increasing income in the rich that has resulted in higher tax collections from them. Myself and others have proposed to bring the estate tax down from thirty million dollars, to remove the step-up basis, and to use the proceeds from the estate tax to establish a children's trust fund so that every child in the United States can be apportioned from the fund, something like a basic income that we had briefly through the child tax credit, child care, Medicaid, school meals, extra money for kids who have developmental delays, so that we are taking from the very wealthiest children a little bit off the top to give children who were not so wealthy more of a chance and to relieve the burden that the cost of children put on so many working families.
Speaker 69
And maybe that would get us to have babies again. Thank you very much, I yield back.
Randy Feenstra
Thank you, Chairman Kelly. Thank you each one of you for coming today. You know what, I just want to thank President Trump. I want to thank him for what he has done for families and for workers. Promises made, promises kept.
No tax on overtime, delivered. Think about what has happened. Going to do double the child tax credit, delivered. Promises made, he said no tax on tips, delivered. Adoption tax credit now refundable and increased, delivered.
Take-home pay raising ten thousand nine hundred dollars per employee, delivered. Seven million new jobs, delivered. It goes on and on. And what does this do? Think about it, everyone.
It helps every worker, it helps every single family reduce their costs and have more money in their pocket. More money in your pocket. What does that mean when you have more money in your pocket? That means you can buy more things. That means you can create your budget.
That means you can cash flow things. Right, I hear all this BS, oh what it did to the rich, whatever. What did it do for the businesses, what did it do for families, what did it do for the worker? It was incredible. And I'm so proud to be a part of writing that bill and delivering it and getting it done and working with President Trump.
I want to just talk to you, Mr. Alexander. I'm proud of what you do, steel mill worker, mechanical worker.
We have a lot of skilled tradespeople in Iowa also. Just like you, they work hard. Right, they work hard every day. They create overtime. So what does this mean to you when you have no tax on overtime?
How does that help you? How does that create financial relief for you?
Jason Alexander
Yes, sir, thank you. I don't actually need the overtime, but it's there when I do need it. And I'm thankful for those opportunities that have been made available through those tax cuts. And so I can, if I want to save up for something, I can pick up some overtime and it's there, it's available.
Yes, sir, that's right.
Randy Feenstra
More money in your pocket, absolutely. Mr. Stefano, you work in a restaurant, server. Same thing, you work hard. I'm sure you work hard. So what does it mean, no tax on tips?
What does that mean to you? How does that help you? And I know you're pursuing education and you're pursuing a future career. So what does this mean to you to have a little bit more money in your pocket?
Sina Sifo
I think what it means for me and everyone else who's a tipped worker in my field is that there's opportunities that are opening for us that weren't there beforehand. There's a little bit extra money that we have at the end of the day that we can use for future retirement, investment, things like that, which is new for this kind of field.
Randy Feenstra
Yep, thank you. And then also, Mr. Saunders, public school teacher, you adopted kids. Thank you for doing that, awesome. That is awesome. So what did that adoption credit, the extra dollars, how did that benefit you?
Clark Saunders
Well, just it gives us the freedom to have a lifestyle and a life that is enjoyable and comfortable. We don't have to struggle to make ends meet when we can have something like adoption that costs so much to be able to be funded or at least partially funded by that refund. And again, I just implore Congress to continue to explore whatever opportunities you can to help finance more adoptions so that these kids have better families, better futures, and are actually a less tax burden on other programs.
Randy Feenstra
Yes, thank you. You guys are great Americans. Right, you work every day, you get paid, all right, you're real. You've been affected by this Families Tax Cut Act by putting more money in your pocket. It's helped all of you.
And I just want to say to all of America, that's what this bill does. I want to thank President Trump again. I want to thank all of us that wrote the bill and got it done, delivered the result for the American people. Thank you and I yield back.
David Schweikert
Thank you, Mr. Chairman. Thank you to the witnesses. We really appreciate you taking all the time to be here today. It's a great service that you are and like Mr. Feenstra said, you're all great Americans. We really appreciate you being here today and taking this time.
I want to ask a couple of you a couple different questions. Mr. Saunders, congratulations on your adoption. Would you say the economy's in good shape right now?
Speaker 70
I would say that costs have increased a bit in a lot of different areas of our lives.
Costs have increased for sure.
Sina Sifo
Costs have increased, but there's also some money going back into workers' pockets. I don't know.
It's Mahalik.
David Schweikert
Ms. Mahalik, what would you say? Is the economy in good shape right now or is it kind of tough?
Darcy Mihalic
I can speak just from my perspective, first quarter was a little soft for us, second quarter really has started to become better for us as far as sales increases over last year.
David Schweikert
I saw you have like 21 Subway stores and some other franchise, aren't the cost of goods going up pretty dramatically?
Yes, sir, as is labor.
Speaker 73
Yeah, why do you think the costs are going up so much for the cost of goods that you purchase for your Subway shops and other franchise?
Darcy Mihalic
Certainly supply chain affected it after COVID, and I think, you know, we continue to feel the impact of that.
David Schweikert
And they keep on going up a little bit now, right, because of fuel costs and because of the tariffs?
Darcy Mihalic
Our buying group does a really nice job, actually. We've actually had some decreases because of their hard work in trying to source different things.
Speaker 77
Well, when I talk to economists throughout the country, they say that the war's caused everybody's gas prices. Mr. Saunders, do you drive a car?
I do drive a car.
It's gas-powered.
It's been kind of pretty high, right, recently?
Yeah, what, how much, do you know how much you're paying a gallon?
David Schweikert
Oh, there was some report the other day that every state's over four dollars a gallon now. My state, I'm paying 4.57. How about you, Mr. Stiffo, do you drive a car?
Gas prices going up?
Sina Sifo
I drive electric, but yeah, you don't have to drive a gas car to know gas prices are definitely going up.
Speaker 77
Yeah. Mr. Alexander, welder, right? Is a millwright the same as a welder?
David Schweikert
Yeah, how is the economy, how do you think the economy's doing generally?
David Schweikert
Just right now, how do you think the economy's doing? Is it doing well, is it doing poorly?
Jason Alexander
Um, I would say in comparison to the previous administration, it's okay for me.
It's okay for you? So gas prices are not up where you live?
Well, like I said, in comparison.
How about the grocery store?
Yeah, it's better.
David Schweikert
It's better? Oh, that's not what people are saying throughout the country. Mr. Snyder, I know you're an expert, used to be on this committee. How would you say the economy's doing right now?
Alex Snyder
I'd say it's in modest shape. It's got unemployment around four, four and a half percent, which is low, robust growth, 2.6 percent year over year.
David Schweikert
Yeah, 72 percent of Americans are saying the economy's in bad shape, just so you know. They're not happy with the economy. Dr. Edwards, how would you say the economy's doing right now?
Speaker 82
The economy has been slowly slowing for the past six quarters, and if we do not turn that around, we will slowly enter a recession.
David Schweikert
Yeah, so most experts and even the general public is saying the economy's in very bad shape right now. Affordability is the number one issue in America. And, you know, I think that anybody would, you know, you guys were chosen as witnesses because you benefited from the tax bill. I heard someone say earlier, I don't know if it was Dr. Edwards or one of the people up here, said you represent six percent of the people that receive tax benefits. Most of the tax benefits went to people much wealthier than you.
I mean, Ms. Mihalik is probably doing pretty well with 21 stores. But the, we can't begrudge people for getting relief on overtime. Do you know what the cap on the amount of overtime you can claim, Mr. Alexander? What's the cap on the amount of overtime you can claim this deduction for?
David Schweikert
I think it's 25,000 if you're married. It's 12,500 for. Do you have to pay social security on your overtime still, though?
Yes, sir.
David Schweikert
And Mr. Stiffo, you do the taxes, it's the same type of thing, 25,000 dollar cap. Do you have to pay social security taxes on your overtime still?
I've heard 25,000, yeah.
David Schweikert
Yeah, and you have to pay, you have to pay social security on even that 25,000. You still have to pay taxes, social security taxes on those things.
Sina Sifo
I mean, I want to be clear, that's a very good thing. We need to make sure we have a social security net for us in the future, but it's good to also have the deduction from the taxes so that workers get to keep more of what they earn.
David Schweikert
Yeah, deduction's a great idea, it's wonderful, people save, put more money in people's pockets, we all, that's a great thing. There were some bad things in that bill, though. So right now, we see prices going up from tariffs. We see prices going up from the war. We see prices going up from having so much debt, the most amount of debt in the history of our country, which causes upward pressure on interest rates.
As a result, it's harder to borrow money to buy a home or to lease a car. We see upward pressure on health insurance costs, and we see upward pressure on energy costs in our country. All these things are going up specifically related to policies of this administration. But thank you so much for your time, we really appreciate you being here.
Steven Horsford
Thank you to the chairman and to the ranking member. I want to continue on the line of questioning from my colleague Mr. Suozzi to talk about the other added costs that workers are experiencing and to step back and really discuss the full household budget that workers, particularly tip workers, face. They rely on Medicaid and they rely on the Affordable Care Act as well. So even if a worker receives a temporary tax benefit, that benefit can be wiped out with their monthly health insurance premiums that are at risk and if nearby hospitals and clinics face new financial pressures and aren't even available. In fact, because the enhanced premium tax credits were allowed to expire and Medicaid is facing new cuts, some working families could see premiums rise by up to $180 every single month.
That's over $2,000 a year. So, Ms. Mihalik, would you agree that working families, for working families, a tax refund is only meaningful if they're not losing more on the other side of the ledger through higher healthcare costs or reduced access to care?
Darcy Mihalic
Sir, I really was just coming here today to speak about the benefits of no tax on tips, not more of a global conversation.
Steven Horsford
Right, but healthcare is in this bill. They call it the one big beautiful bill. I call it a betrayal of a bill. In that bill, it cuts a trillion dollars out of our healthcare system. So just from a business standpoint, wouldn't you agree that if your workers have to pay more in cost through healthcare, that that doesn't equate to some temporary relief that they might be getting on this side?
Darcy Mihalic
Having access to affordable healthcare is certainly something that we always have to be focused on and certainly making the healthcare system more efficient in that regard.
Steven Horsford
Agree with you there. So I represent Las Vegas, large percentage of tip workers. And Mr. Stifo, correct? In your testimony, I commend you for what you've done, your story, your pursuing your legal degree potentially in the future. And it's a powerful story and I've heard a lot of other stories just like yours in the with the constituents that I represent.
One of those constituents that I met recently, her name is Leslie, she's a bartender in Las Vegas. She discovered that because she and her husband, who's also a tip worker, file their taxes jointly, they face what amounts to a marriage penalty under the current law. And for workers who are paid through service fees or automatic gratuities, those earnings don't count as tips under this bill that was passed by the other side. Would you agree that if Congress is going to say no tax on tips, that the policy should actually work for the workers who rely on tips, including married workers and workers paid through automatic gratuities? Shouldn't that be something that the bill should accomplish?
Sina Sifo
The automatic gratuities I'm not 100% certain on along with surcharges, service charges.
Sina Sifo
Yeah, but I can agree with you 100% that the no tax on tips right now for the service who are getting the voluntary tip, if you're filing jointly and the amount is 25,000 for an individual, that if you're filing jointly with a married couple, it should 100% be 50,000. I agree with you there.
Steven Horsford
And so that's something that was promised, but because they didn't take the time to write it correctly, it amounts to a marriage penalty. That's why I've introduced the Tips Improvement Act to correct this issue so we don't have this marriage penalty and so that we address the automatic gratuities not counting as well. Well, Congressman, if I may, I'm reclaiming my time.
Just yes or no, Mr. Schneider, are you aware that the sub-minimum wage, which is $2.13 an hour, has not been increased since 1991? Are you aware of that?
Steven Horsford
So it's a fact, the sub-minimum wage, which is the basis by which tipped workers are paid in many states overwhelmingly, is $2.13 an hour. And it hasn't been raised since 1991. That to me speaks to not putting more of the money in the pockets of the people who earned it, and that's another thing that my bill, the Tips Improvement Act, addresses. Finally, Mr. Alexander, on the issue of this overtime, Representative Malliotakis and I introduced the No Tax on Overtime for All Workers Act to ensure that millions of the workers who are left out of this bill are actually included. So Mr. Alexander, if two workers both give up nights, weekends, and time with their families to work overtime, should one get tax relief while the other is left out because of a technicality in the statute?
Jason Alexander
Thank you, sir. I believe that they should both benefit from however they see fit.
Steven Horsford
So under the Republican bill that was passed, millions of workers are excluded because they didn't write it correctly. Millions of workers who work overtime like the ones that you referenced should be able to get that benefit. And Representative Malliotakis, who is a Republican, and I are working to try to fix that. So this is why I would just prefer us to work on getting the policy right. I commend the workers who are here today.
You are the people that we should be fighting for. And I'm working to make sure we actually have a working tax cut plan that works for working people, not for the billionaires and the big corporations who benefited from this betrayal of a bill. I yield back.
Danny Davis
Well, thank you, Mr. Chairman, and I certainly want to thank all of the witnesses for the long time that you've been here and for the excellent experiences and testimony that you've given and shared with us. I want to thank you, Mr. Saunders, for highlighting the importance of a fully refundable adoption tax credit to ensure that every eligible family receives the full value of the tax credit. So thank you very much for your explanation and your experiences and what you and your family have done and are doing. I'm proud to co-lead the Adoption Tax Credit Refundability Act that would remove income as a barrier to adoption. I'm also pleased that the law now allow partial refundability of up to $5,000.
I've heard about many families who adopted in 2025 receiving the $5,000, but I'm still working with the Internal Revenue Service to make sure that families who adopted prior to 2025 receive the $5,000 for their outstanding adoption credit. Dr. Edwards, I recently received data from the Internal Revenue Service about where the 3.4 million taxpayers who had delayed refunds live. Alarmingly, 110,000 Illinoisans had delayed refunds, 440,000 in California, 250,000 in Texas, 230,000 in Florida, and the list goes on.
For months, Representative Sewell and I have asked the administration for basic information to determine if the 3.4 million taxpayers with delayed refunds have received their funds. We haven't gotten any information yet, and I'm worried that the reduced resources and staff at the Internal Revenue Service could be delaying these refunds for taxpayers who likely need the money the most, like the elderly, the poorest, people who are unbanked. So Dr. Edwards, given your expertise, can you talk about as we close how delayed refunds and returned Internal Revenue resources mean to vulnerable, the most vulnerable taxpayers?
Kathryn Edwards
Thank you, sir. The share of loans for auto loans and credit cards that are in 90-day delinquency are at rates that we have not seen since the financial crisis. That type of acute squeeze on credit is occurring in an economy where consistently for about seven years, 40% of Americans will say they do not have enough cash on hand to meet a $400 expense without going into debt. That number's hardly budged throughout the, you know, twists and turns our economy has taken over the past seven years. So we have a permanent, you know, large class of Americans who are right at a knife's edge.
Now, that's not to say that they would necessarily fall into financial ruin, but they're in a position to have to borrow when they're already borrowing too much, likely. They're in a position to have to borrow when if they are unbanked or underbanked, they're going to have to go into alternative financial services that charge much higher rates of interest. You know, debt is not free, interest is not free, even for low-income Americans. And it is of incredible concern if someone is owed money who is incurring debt in order to wait for it to come.
Blake Moore
Thank you very much, and once again, I thank all of the witnesses for your endurance and for a great hearing. Mr. Chairman, I thank you and the ranking member, and yield back the balance of my time.
Thank you, Chairman Kelly, for hosting, for holding this important hearing today. Also to Representative Davis for his remarks on the adoption tax credit, which I'll speak to some of that, he and I co-led that effort. I want to begin sharing a couple of real-world stories of how this committee specifically delivered relief for American families and potentially changed their lives. Matt from Logan, Utah, northern part of my state, has a four-year-old son who isn't old enough to go to school. He and his wife both work and pay approximately $7,700 each year for him to attend a local daycare.
Mr. Moore is recognized. Thank you, Dr. Davis.
Blake Moore
The expanded child tax credit of $2,200 covers nearly a quarter of his yearly daycare costs. Second, young newlyweds who are in the process of adopting a little girl told my office that the Working Families Tax Cuts, making $5,000 of the adoption tax credit refundable, relieved some of the financial barriers for them to start their family. I'm proud to have led out on this effort again with my colleague, Representative Davis. I'm proud that I can go home to Utah families and tell them not only did we prevent the largest tax increase in American history, we focused the benefits on low- and middle-income families and set our next generation up for success.
Can you speak to how Trump accounts will help your two children?
Clark Saunders
Yes, sir. So, I just recently read about the Trump accounts and I think that's a cool unique opportunity to create a retirement fund for the kids. So Levi would actually benefit from that because he was born in 2025. He would get the additional thousand dollar seed money, which would be a huge blessing to start not only funding him through a college fund, but also this fund to help him just understand just the necessity and the realization that you should save up for retirement and you should save up for bigger things in your future. And so we're both, me and my wife, are looking at the Trump accounts that will start in July and we'll probably consider putting money towards them.
Blake Moore
The Invest America initiative that started several years ago that has broad support, we culminated it, we got it done last year. It's even more than that. Mr. Saunders, I'll add to your experience with it. Can you think of an initiative, this is rhetorical, but can you think of an initiative that has drawn already so much additional private capital? So the thousand bucks that you mention about your son, it's your daughter, that's amazing, it's great, it's going to set them on a new footing.
But we're talking six billion dollars from one family foundation, private foundation. Other companies have come on board, they're going to start matching this. This is galvanizing the private sector, the non-profit sector to be able to get in and to go support our next generation knowing what they have ahead of them. It's simply fascinating and it will change the mind frame from this next generation to say, hey, investing is easy for me. I now have a place to put it.
I can go put fifteen dollars that I made from mowing that lawn and I can watch it grow in the next ten years, twenty, thirty, and hopefully fifty years as they keep these accounts to hedge against what we're seeing and to prepare them for retirement. So I love that you're being able to see this directly impact your own family and we're seeing it as a macro, macro issue. I'll just end with Mr. Schneider, quick question for Mr. Schneider. One of the Democrats' favorite lines is that the Working Families Tax Cuts was a handout to the wealthy. You and I both know that that's just not true.
Can you quickly give some examples of how this bill is targeted to benefit the working class?
Alex Snyder
Yeah, thank you. So I do agree that a lot are talking past each other and specifically in 2025, current law is current policy, they're the same thing. So in this bill, all of the provisions that affect individuals have income limitations. Whether it's 150,000 for seniors, whether it's 300,000 for tipped or overtime workers, or 500,000 for SALT, every single benefit has an income limitation. So necessarily any retroactive relief that benefits individuals during this filing season, of which there's about 150 billion spread across 145 million returns, all of that is going to people earning below 500,000.
Blake Moore
I can't add anything more to that. That's a great summary and I appreciate your input. Thank you all to our witnesses for being here and I yield back.
Mike Kelly
Thanks, I want to thank our witnesses for appearing before us today and the staff for all their work they do to put this together. Please be advised that members have two weeks to submit written questions to be answered later in writing. Those questions and your answers will be made part of the formal hearing record. With that, the subcommittee stands adjourned.
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