Senate Finance Committee: Hearing on the President’s Fiscal Year 2025 Budget

Senate Finance Committee
Hearing on the President’s Fiscal Year 2025 Budget
Thursday, March 21, 2024


  • Democrats discussed various tax credits included in the President’s budget request and in the Inflation Reduction Act.
  • Republicans raised concerns about the looming expiration of provisions from the Tax Cuts and Jobs Act, as well as the impact of the OECD’s Pillar I and II Agreements.


  • Hon. Janet Yellen, Secretary, United States Department of the Treasury

Opening Statements

Finance Committee Chair Ron Wyden (D-Ore.)

In his opening statement, Wyden emphasized that the United States has the strongest major economy in the world and discussed how the economy under President Biden smashed forecasts made during the COVID-19 pandemic. He warned that there would be more tax hikes for working Americans and the middle class and tax breaks for multinational corporations and big handouts to those at the very top under a second Trump term. Wyden said that like President Biden, he is a capitalist who want people to be successful, but he also believes in fairness. He noted that tens of thousands of Americans have already filed with the new Internal Revenue Service (IRS) free-file system, which has led to significant savings. Wyden also highlighted his offer to remove the look-back provision from the bipartisan tax bill if that’s what it would take to get it passed. He warned that waiting until 2025 to pass the Smith-Wyden tax bill would cause significant damage to the economy and American innovation. Wyden concluded that there are more than 60 U.S. Senators who want to act on the tax bill in a bipartisan manner.

Finance Committee Ranking Member Mike Crapo (R-Idaho)

In his opening statement, Crapo said that as expected, President Biden’s budget is full of partisan tax and spending proposals that double down on his agenda. He warned that if the Tax Cuts and Jobs Act’s (TCJA) individual cuts are not extended, individuals making less than $400,000 would see a tax increase. Crapo noted the TCJA’s policies led to record low unemployment, wage gains, and reduced inequality for Americans. He also said that the TCJA reduced corporate inversions and record high corporate tax receipts. He criticized President Biden for proposing trillions of dollars in tax hikes on American businesses, explaining that a tax increase on American businesses will be passed on to the American people through higher prices and lower wages. Crapo said the Biden Administration uses the OECD global tax code to hike rates on companies at rates far exceeding those imposed by other countries. He concluded that the Biden Administration’s green energy tax incentives not only benefit China and foreign manufacturing but have ballooned to a total cost of $663 billion over ten years.


Hon. Janet Yellen, Secretary, United States Department of the Treasury

In her testimony, Yellen discussed how the Biden Administration enabled a historic economic recovery.

She noted that many American families still face challenges like high prices, and said the Administration is acting to bring down energy and healthcare costs. Yellen explained how the Administration is creating economic opportunities for Americans regardless of where they live or whether they have college degrees. She said the modernization of the IRS is enabling Americans to receive the support they deserve by driving significant improvements in customer service, while investments in the IRS are also enabling enforcement against tax evasion by the wealthiest Americans. Yellen urged Congress to act so the U.S. plays it part in the global minimum tax deal to end the race to the bottom on corporate taxation. She concluded by emphasizing the Administration’s opposition to misguided proposals that will raise the deficit by giving tax breaks to the wealthy and big corporations.

Question & Answer

Tax Cuts and Jobs Act

Crapo noted the President’s budget is silent on extending the individual tax cuts from the TCJA, which are set to expire in 2025. He asked Yellen if she was aware that the TCJA reduced taxes for all income groups. Yellen said yes and noted that the President has made it clear that he will oppose raising back tax rates for working people and families making less $400,000 when those provisions expire. Crapo asked if President Biden would support extending the individual rates from the TCJA. Yellen said yes.

Crapo noted that the TCJA also doubled the standard deduction and increased the Child Tax Credit, and asked if that would be included in an extension. Yellen said that she could not give any details but can say that no matter what agreement is reached, President Biden would not support any measure that raises taxes on households making less than $400,000.

Sen. Michael Bennet (D-Colo.) said he never hears his Republican colleagues talk about the impact of tax cuts for the wealthy on the deficit, or how the Bush and Trump tax cuts impacted the deficit. Bennet asked if it’s fiscally responsible to cut taxes for the very wealthiest people without paying for it. Yellen noted that before the TCJA, the Congressional Budget Office (CBO) was projecting revenues would be 18 percent of GDP. She noted revenues were just 16.5 percent of GDP last year, which is responsible for a significant part of the deficit. Yellen said the President wants high income people to pay their fair share. She said some of the very wealthiest pay on average eight percent of their total income in taxes, which should be remedied.

Sen. Steve Daines (R-Mont.) asked if Yellen was refuting the evidence that an increased corporate rate and letting the TCJA expire would increase taxes on those earning less than $400,000. Yellen reiterated that the President pledged that he would not raise taxes on those making under $400,000. She said that the President wants to ensure that taxes don’t increase, even with the TCJA expiration.

Sen. Robert Menendez (D-N.J.) said he was disappointed that the President’s budget did not restore the State and Local Tax (SALT) deductions, which he said are important to middle class families across the country.

Sen. Chuck Grassley (R-Iowa) noted that the President’s budget relies on rosy economic and interest rate assumptions along with other gimmicks, including the expiration of the TCJA, which would raise taxes on those earning less than $400,000. Yellen said that she would strongly disagree with that description of the budget.

Capital Gains

Wyden talked about “buy, borrow, and die” schemes and asked why it’s important for billionaires to stop avoiding taxes through this scheme. Yellen noted that under current law, some of the wealthiest Americans pay little in taxes because they are receiving unrealized capital gains that they may escape at death. She explained how the President’s budget would propose a minimum 25% tax on unrealized capital gains. She said that Wyden’s proposal for a billionaire income tax would address the same root problem through a different approach, marking-to-market assets every year and imposing a deferral charge.

OECD Global Tax Deal

Crapo asked if President Biden was considering corporate tax rates that would add to inflation and reduce wages for Americans. Yellen said the Administration does not want to see capital flee the U.S. for foreign shores, which is why they are supportive of the OECD’s tax pact, which many countries are implementing.

Crapo noted the proposed budget calls for raising the global minimum to 21 percent, not the 15 percent global minimum in OECD. He said this year’s budget estimates show a decrease in expected revenue from this proposal by half a trillion dollars from last year’s estimate. Crapo asked if the cause of this decrease was the result of countries adopting the Pillar 2 rules into law compared to last year. Yellen said in a sense it was.

Sen. Marsha Blackburn (R-Tenn.) said she was concerned that OECD’s Pillar One agreement would be a burden on American businesses. Yellen said the Administration is negotiating a deal that would bring significant benefits to American businesses that have been hit with unfair tax burdens. She said they also want tax certainty for American companies that see costly disputes about transfer pricing.

Sen. James Lankford (R-Okla.) asked if the Pillar One and Two agreements would be executive actions, or if they would come through the Finance Committee. Yellen said they would involve Congressional action, emphasizing that both need to be adopted by Congress.

Daines asked Yellen to provide justification for supporting the OECD deal, given that the Joint Committee on Taxation (JCT) said it would decrease revenue for the U.S. Yellen disagreed, and said Pillar One ends the race to the bottom and levels the playing field in corporate taxes. Daines asked if Yellen refuted the JCT data. She said the Administration estimates that Pillar Two will result in a big increase in tax revenue for the U.S.

Sen. Todd Young (R-Ind.) discussed his concerns with the President’s handling of the OECD tax negotiations. He said the Administration was rewriting tax laws without Congressional input. Young asked Yellen to provide more information about the resulting hypothetical legislation that the Administration will need Congress to pass. Yellen explained that countries understand that treatment of the R&D tax credit is critical to the U.S., and said the Administration believes there is an opening for us to negotiate in a way that is favorable.

Young cited Deputy Assistant Secretary Levine’s comments that depending on the negotiations, that we would resort to plan B, and asked what that would entail. Yellen said the Administration resolved a number of issues favorably through administrative guidance. She said there is not a detailed plan B but noted that refundable tax credits would not be penalized by the global minimum tax.

Young asked Yellen to provide the Finance Committee with updated revenue estimates for Pillar 2 and the proposed plan B legislative action. Yellen pledged to stay in close contact. Young asked if they could provide the updated estimates within the next sixty days. Yellen said she would let them know how the negotiations are proceeding but couldn’t provide estimates for a plan B that does not exist.


Blackburn discussed her concerns with appeasement towards China, who is engaging in genocide and intellectual property theft, coming from the Treasury Department. She said she was disappointed that Treasury has not fully enforced sanctions against Xinjiang Production and Construction Corps or issued new sanctions against them. Blackburn asked what actions Treasury is taking to ensure that this CCP entity is sanctioned to the fullest extent of the law, and how Treasury is identifying individuals and entities to be sanctioned for China’s ongoing genocide. Yellen said there is no appeasement on the matter.

Blackburn asked why Treasury hasn’t made recommendations for new actors to be added to the Uyghur Forced Labor Prevention Act entity list. Yellen said she would be glad to brief Blackburn on the matter, and noted the human rights violations are a serious concern.

Blackburn said U.S. agricultural exports have dropped and noted that China has not lived up to any of their purchases. She asked if Treasury had raised this discrepancy to Chinese officials. Yellen noted the USTR has tried to hold China to their agreements, but China has failed to honor them. She said Treasury is taking other actions towards unfair Chinese practices.

Sen. Sheldon Whitehouse (D-R.I.) emphasized that a robust international tariff on carbon emissions is crucial to solving the problem of pollution in the rest of the world. He explained that China is not going to reduce pollution out of kindness, and said the U.S. needs to send a powerful economic signal that gives China an incentive to lower their pollution levels.

Sen. Maggie Hassan (D-N.H.) noted that the Chinese government provides double the amount of an R&D investment as a tax deduction, while the U.S. only provides a ten percent deduction. She asked how this unlevel playing field harms our efforts to out-compete China. Yellen noted the Wyden-Smith tax bill would restore incentives to engage in R&D by restoring the tax incentive.

Lankford noted that just last week, an auto manufacturer testified before Congress that they are no longer producing a product because the Treasury gave a 30D electric vehicle waiver to a Chinese company. Yellen said she’s not aware of any waiver being given to Chinese companies. She added that the new foreign entity restrictions make it impossible for any electric vehicle to qualify for the 30D credit if they contain minerals or components that are extracted in China.

Tax Credits

Menendez said he was pleased to see a permanent extension of the New Market Tax Credit included in the President’s budget, and asked how making this credit permanent would lock in possibilities for low-income communities. Yellen explained that it is tremendously important to bring investment into communities, especially the poorest communities suffering from a shortage of investment.

Sen. Tom Carper (D-Del.) talked about hydrogen hubs and the importance of hydrogen production; he asked about how the proposed rule 45V will affect the domestic supply chain for clean hydrogen components. Yellen said that they worked very closely with the DOE and EPA to craft a rule that makes sure that companies qualifying for the credit are producing hydrogen in ways that would result in greatly diminished production of greenhouse gas.

Carper asked how Treasury is considering the impact of hydrogen tax credits on the viability and success of hydrogen hubs. Yellen said many of the hubs would be able to meet the requirements to qualify for the highest credits available. She noted there are a few issues where hubs are relying on nuclear power.

Sen. Sherrod Brown (D-Ohio) expressed his disagreement with the proposed treasury regulations that deal with hydrogen tax credits. He said that the treasury’s regulations work against the DOE supported program and undermine it. He explained that the regulations would disallow grandfathering of hydrogen hubs built by 2028 by requiring them to switch to hourly matching and said that this is something that you must decide from the start, you can’t just flip a switch. He asked Yellen if the Treasury would revise these regulations and allow taxpayers to continue operating in the same manner as before and after any transition date. Yellen said that the Treasury guidance on 45V was developed through consultation with external stakeholders and experts at the DOE and EPA and the objective was to advance the production of hydrogen and make sure that there are environmental safeguards. She said that many are moving forward with projects with the safeguards and that they welcome feedback about the hubs and how they will be treated.

Brown asked if Treasury would ensure that companies connected to foreign entities cannot take advantage of the 45X Advanced Manufacturing Tax Credit by importing everything and simply assembling it in the U.S. Yellen said Treasury will put rules in effect that benefit American workers and supply chains. She agreed that anti-abuse provisions are essential and will try to put in effect rules that will accomplish the goals Brown mentioned.

Hassan cited the strong bipartisan support for expanding the low-income housing tax credit to make home ownership more affordable. She asked how providing tax cuts to buyers and expanding these programs would make home ownership more affordable. Yellen noted there is a shortage of affordable housing, and explained how the proposals would address a longstanding problem by ensuring that rents for lower income individuals are affordable.

Sen. Catherine Cortez Masto (D-NV) said she was concerned with the proposed rule for the 45X advanced manufacturing production tax credit, particularly the omission of raw material and extraction costs in the rule. She asked Yellen to elaborate on the Treasury’s viewpoint on the issue. Yellen said expanding the full supply chain of critical minerals in the U.S. is a priority of the Biden Administration, and noted the proposed rule focuses the incentives on the cost of the value-added activity.

Wyden asked about the Employee Retention Tax Credit (ERC) saying that 95% of the applications that are received for the credit are tainted with fraud. He asked if Yellen expects fraudulent claims to continue if they are not cut off. Yellen said there are serious concerns about the ERC, as many applicant companies did not exist or did not have employees. She said that there are criminal investigations into the false ERC claims.

Social Security & Medicare

Sen. Bill Cassidy (R-La.) noted that while there’s been $4.9 trillion in new taxes for those making over $400,000, none of the revenue has been used to address the solvency of Social Security. He asked what the tax rate on Americans’ making over $400,000 would need to be in order to address the solvency of Social Security. Yellen said she didn’t have that exact figure but emphasized that the President has been supportive of raising the ceiling on what income is included, which would not affect households making under $400,000.

Cassidy asked why President Biden doesn’t have a plan for the 23-25% cut in Social Security benefits, which will double the rate of poverty among the elderly. Yellen said the President believes it is important to work with Congress on this issue. Cassidy asked when the people who rely on Social Security can expect the President to come to Congress to work on the plan. Yellen said the President has started with Medicare.

Cassidy said he hasn’t seen the President’s emergency plan for Medicare because we passed the threshold of public funds for this year. Yellen said the President laid out a plan that involves extending the trust fund solvency by increasing Medicare rates on incomes above $400,000 and closing loopholes.

IRS Direct File Pilot

Sen. Elizabeth Warren noted that the average American spends about $150 and nine hours on tax preparation because TurboTax and other big tax prep companies advertise their services as free, and then pile on fees and charges. She asked if taxpayers have found direct file accessible and easy to use. Yellen said yes, citing an interview with the first individual who used direct file. She told the interviewer that she was thrilled because she saved $400, and direct file gave her the confidence to do her own taxes.

Warren cited a recent report that expanding the direct file tool nationwide could save taxpayers $23 billion a year, a return of over $100 for every dollar invested in this program. She asked if the program would be expanded in 2025 if taxpayers continue to give direct file rave reviews. Yellen said Treasury would consider the feedback but said it would be natural to build on the program.

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