TO AMEND THE INTERNAL REVENUE CODE OF 1986 -- (Senate - December 08, 2006)
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Mr. KENNEDY. Mr. President, the outrageous manner in which this tax extender bill is being handled proves the Republican leadership did not hear the clear message that the American people sent on November 7. The Republicans are still concocting special interest deals behind closed doors. They are still pursuing their agenda to further enrich the wealthy few while neglecting the needs of working families. And they are still denying members a meaningful opportunity to debate and amend major legislation.
For months, the Republicans have been holding the extension of important tax provisions that benefit families and businesses hostage to their special interest agenda. Many of these tax extenders are essential to the continued growth of our economy and the well-being of American families. Unfortunately, most of these tax incentives have already expired. Unless they are reinstated before the end of they year, millions of individuals and businesses will face a substantial tax increase when they pay their 2006 taxes. That would be terribly unfair.
What do these tax incentives actually accomplish? The tuition tax credit helps more than 3 1/2 million families each year afford a college education for their children. The work opportunity and welfare-to-work tax credits encourage businesses to create jobs for economically disadvantaged workers. The research and development tax credit enables businesses to develop innovative new products and stay competitive. The new markets tax credit generates investment in underdeveloped areas across the country. If Congress does not renew these tax incentives now, real people who depend on the opportunities these tax benefits provide and the jobs they create will be hurt.
Let me describe the impact some of these tax provisions have had on my own State of Massachusetts.
Over 97,000 Massachusetts families have benefited from the tuition tax deduction. For some of these students, this provision makes the difference between being able to afford a higher education and being denied the opportunity to fulfill their potential. For all of them, it provides valuable financial assistance to cope with the rising cost of tuition and other school expenses.
According to the Associated Industries of Massachusetts, over 1,100 companies in our State--small and large--rely on the R&D tax credit. It helps provide the financial resources for them to become leaders in innovation, to create well-paying new jobs, and to compete more effectively in global markets.
In Massachusetts, investors like Bank of America and Citizens Bank are taking advantage of new markets credits to reinvigorate our communities. The revenue from these tax credits are used to turn vacant buildings into thriving retail developments and even to rehabilitate endangered historic buildings. The Massachusetts Housing Investment corporation has used its tax credits to finance the renovation of the historic Colonial Theatre in Pittsfield that will become a new performing arts center. And in downtown Holyoke, the corporation invested almost $19 million in the conversion of three historic buildings into a new community health center providing primary care services to the uninsured. These tax credits translate into real physical improvements in our communities and improve the lives of our citizens.
For nearly a year the Republican leadership has been holding the extension of these tax provisions hostage to their special interest agenda. First, the tax extenders were removed from budget reconciliation legislation to make room for capital gains and dividend tax breaks. Next, the extenders were tied to the virtual elimination of the inheritance tax on multimillionaires' estates. Republican leaders vowed that the tax extenders would never pass unless the Senate acquiesced in their irresponsible estate tax scheme. Fortunately, that did not work. Even now, after a decisive repudiation of their agenda by the voters in last month's election, the Republicans are still insisting on attaching special interest tax breaks to this ``must pass legislation.'' They are now demanding an expansion of tax subsidies for health savings accounts that only the wealthy can afford to use. These accounts do nothing to help struggling families that cannot afford health insurance. Instead, HSAs are just one more tax avoidance scheme for the wealthy created by this Republican Congress.
Had the leadership allowed a straightforward extension of these tax provisions for working families and businesses to come to the Senate floor, it would have passed with near unanimity months ago. But they would not.
Health savings accounts already have the most preferential treatment in the tax code today. Unlike most other types of accounts, contributions are not taxed, savings grow tax-free, and withdrawals are tax-free if they are used for health costs.
Health savings accounts largely benefit the healthy and wealthy. According to the Government Accountability Office, those using health savings accounts disproportionately have high incomes. The average income of those with HSAs was $133,000, almost three times the income of the average tax filer. GAO also found that those with higher incomes made larger contributions to their accounts. The majority of those with HSAs did not withdraw any funds from them and many opened the accounts because they were a good way to shelter money from taxes.
But apparently the current HSA tax break was not a big enough tax loophole. The Republicans want to let the wealthy shelter even more money under the guise of health savings accounts.
The new provisions demonstrate that the real purpose of these accounts is to give the wealthy yet another vehicle to avoid paying taxes. They allow people to ``overfund'' their accounts--to deduct more from their taxes than they actually pay in medical expenses. It takes away the provision under current law that limits HSA contributions to the annual amount of medical expenses the insured must pay before his health insurance coverage kicks in. It would actually encourage account holders to shelter more money than they expect to spend on medical expenses.
Deductibles for family health coverage that can be used in conjunction with an HSA today range from $2,100 to $10,500. A family can put funds up to the threshold of their insurance coverage or $5,450, whichever is lower, into their account on a tax-free basis. This bill delinks account funding from the amount of the health insurance deductible, making it easier for wealthy persons to shelter funds beyond what they need for health care. Under the new HSA language inserted in this bill, someone with a $2,100 deductible health plan will be able to put $5,450 in their account and let it grow on a tax-free basis.
The bill also will allow the one-time transfer of some funds from individual retirement accounts into a health savings account without any taxes or penalty owed. This will allow wealthy individuals to shift funds from retirement accounts whose distributions are treated as ordinary income and subject to taxes into a health savings account whose distributions are not taxed. This will offer another new tax break to the wealthy.
Health savings accounts may work well as tax shelters for the wealthy--and they will work even better with these new provisions--but they do not work for low- and moderate-income families. While these families may have a high-deductible health plan because it is all their employer offers or because it is all they can afford, they rarely have the means to fund a health savings account up to even the current limit.
Make no mistake about it, the HSA provisions are meant to help wealthy individuals and the banks and investment vehicles that make money off their accounts. These are the people who will gain from the expansions of HSAs, not the uninsured.
I also want to express some concerns I have about the trade provisions that are included in this package. While trade brings enormous benefits to our economy, we need to ensure that free trade is fair trade. A provision in this bill regarding the Andean countries severely limits the process for the free-trade agreements currently being negotiated and creates pressure to accept the inadequate agreements negotiated by the Bush administration.
Time and again this administration only requires countries to enforce their own labor laws and not live up to international standards. This is a serious problem where laws are weak. Peru has consistently denied workers the right to form unions and to enforce their rights. In Columbia, labor advocates are blacklisted and even murdered for trying to exercise their democratic rights.
Ensuring that all countries meet basic labor standards benefits our economy and American working families--it also strengthens the economies in developing nations. U.S. workers should not be undermined by unfair competition with countries that do not honor worker rights. And the working people of Columbia, Peru, Bolivia, and Ecuador deserve to have an agreement that is thoughtful and gives serious consideration to the significant issues of labor and human rights.
This is no way to conduct a trade policy. The United States can and must do better.
I am also concerned that this bill will expand the District of Columbia voucher program, which is a program that diverts resources for public schools and lacks accountability for student performance. Unlike public schools, which are subject to the No Child Left Behind Act's demanding accountability system, this program has little accountability for improving student performance. It was authorized under very specific guidelines designed to create a 5-year demonstration program for low-income students. A provision expanding eligibility for the program was inserted in this bill by the House at the last minute. This provision detracts from the program's focus on low-income families and should be rejected. At a minimum, it should be proposed in a context open to debate on its merits.
Because of the urgency of extending the important family and business tax benefits I discussed earlier, we must approve this legislation, despite the special interest provisions that the Republican leadership has attached to it. However, there will be a new Democratic Congress taking office next month, and the outrageous provisions added by the Republicans in the dark of night can be repealed in the light of day.
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