Congressional Budget for the United States Government for Fiscal Year 2009 -- Continued

Floor Speech

CONGRESSIONAL BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL YEAR 2009--Continued -- (Senate - March 11, 2008)

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Mr. GREGG. Mr. President, this amendment is a game. Last year, we saw the same game. Last year, the Democratic Congress was in its first year of having the majority in both the House and the Senate, so people gave it the benefit of the doubt. They said: OK, you claim you are going to do something, we certainly hope you will.

So last year they once again set up a false surplus and then they cut taxes and then they brought forward the Baucus amendment to pick up all that surplus as part of the tax cut, claiming both a surplus and a tax cut, which was good talking but a little inconsistent.

Their tax cut last year, the Baucus amendment had in it the extension of the 10-percent bracket, the extension of the $1,000-per-child tax credit, and the extension of the marriage penalty. I believe it had some estate tax language in it. It might have. But I know it didn't have this property tax itemizer in it. It had those four items in it for sure. So all the Members voted for it and took credit: Oh, we are for these tax extenders because we think they help middle Americans, which they do, obviously, which is why President Bush proposed them originally, and that is why it passed under a Republican Congress.

So what happened after this amendment was voted for and everybody sent out their press releases from the other side of the aisle saying: My goodness, we are for these tax cuts, we are going to vote for them right here on the floor of the Senate--even though they could have put them in the original Senate bill, which they didn't do because they wanted to have a bill reported out of committee with a big surplus so they could talk about that, knowing when they got to the floor they were going to eliminate these surpluses for the tax cuts--what happened after they put out all their press releases? Where are these tax-cut extenders they claimed they were going to pass last year? They don't exist. They never marked them up. They never voted on them. The real action of extending these tax cuts never occurred, even though they took credit for them last year.

They said: My goodness, that is a great idea, we get a press release out saying we are for cutting taxes; let's do it again. They did not cut the taxes because the taxes are still there, so they say let's do it again. So we see the same cynical action brought forward in this amendment. They are offering this amendment to cut the same taxes they cut last year--at least they took credit for cutting last year but they actually didn't cut.

It is to say the least a game--a game. That is why I call this the ``fudge it'' budget because so much of it is built around this gamesmanship in language and setting up false hopes and then proceeding with the press releases and then proceeding with not following through on what they claim they were going to do.

It also should be noted that left out of the Baucus amendment are a lot of fairly important issues of tax policy. For example, the present rate on capital gains and dividends is not in the Baucus amendment. So they are presuming it will go back up. That is a pretty stiff hit for a lot of Americans, especially senior citizens. Ironically, senior citizens benefit uniquely from capital gains rates being at their present level. Senior citizens benefit uniquely from dividend rates being at their present level because much of a senior citizen's retired individual income is capital gains income or dividend income to the extent they have some income beyond their basic pension, and many of their pensions are, of course, based off capital gains and dividends. So they are going to raise those rates. They are going to double the capital gains rate, essentially. The dividend rate will not only double, it goes up by 2 1/2 times for some Americans under their proposal.

The deduction for qualified education expenses is not extended. Small business expensing--that is a pretty important item, especially in an economic slowdown that should be extended--is not extended in this bill.

Other extenders that are left out of the Baucus amendment include the research and development tax credit, that is pretty important; the energy tax credit, that is pretty important; State and local tax deduction, some people think that is important. AMT relief is left out.

The practical effect is even though they make this representation they are going to reduce taxes, the exact same representation they made last year on these ``motherhood'' tax extenders, let's call them, which they never followed through on last year, they leave on the table massive increases in taxes--massive increases in taxes--which will fall on working Americans.

We hear all this gobbledygook from the other side of the aisle that they are just going to tax the rich, we are taxing the rich, we are taxing the rich. I bet I heard their Presidential candidate, Senator Obama, use that term to justify his spending policies probably 15 times in the last debate I listened to in which he participated. We are just going to tax the rich, the wealthy Americans. Well, fine, OK. The only problem is they cannot raise enough money to pay for their budget by just taxing the rich. If you take the basic rates and you move them back to the Clinton days, when we had high tax rates in this country, you take the top rate on the high-income individual, 35 percent, and you raise it back to 39.6 percent, what do you generate in income in an annual year? About $25 billion.

Mr. GREGG. What do they plan to spend? Senator Obama plans to spend $300 billion under his plan. In order to reach the numbers they want to spend in this bill, there is a lot of spending in this bill. There is $200-plus billion in discretionary spending increases.

There are $400-plus billion entitlement increases in this budget. There are big holes that we know are going to have to be filled, or at least we hope they will be filled, because otherwise you are going to end up with our troops stuck overseas without being able to get home, because their budget does not fund the cost of bringing them home, much less supporting them while they are in the field.

We know these expenditures are going to occur, and those expenditures have to be paid for, and the way they are paying for them is by increasing taxes, not on the wealthy--they do on the wealthy too, but on every American. The average American's taxes will go up about $2,400 under this bill. Senior citizens' taxes will go up about $2,100; small business taxes will go up about $4,700; $2,400 for an individual family with $50,000 of income. That is what their tax increase goes to: for seniors, about $2,100; for small businesses, about $4,700.

That is a lot of money. You can buy a lot of groceries and at least get some relief from the cost of energy if you get to keep that money rather than have it taxed away as is proposed in this bill. It should not come as a surprise to people that they are doing this in their budget, because that is what they do well; they like to spend money and they love to raise taxes.

Then they claim, well, we are going to tax the rich. It turns out they are not only taxing the rich, they are taxing senior citizens, working Americans, small business Americans, Americans who get their income from small businesses, they are taxing R&D, they are taxing energy, the production of energy.

In addition, there is a little game being played here on their own rules. We hear the sanctimonious discussion about how they are going to use pay-go to discipline the budget. They are going to use pay-go to make sure we stay within our spending priorities, and that we do not raise taxes without offsetting these taxes.

Well, this amendment is set up to game pay-go. Pay-go is not going to apply when this amendment is passed or, if it does apply, it is going to be structured in a way that it can be waived. There is no expectation that there will be any pay-go applied to the Baucus amendment, should it ever actually be brought to the floor.

It is a game. It is, of course, one of the reasons why I think the American people get a little cynical about their Government. Here is the second year in a row that we are going to have press releases flying out of the Democratic Senatorial Committee claiming that they voted for these tax cuts. And then what happens? The tax cut never gets passed. This is a nice charade; that is all it is. We wish they were sincere when it came to cutting taxes.

I yield the floor.

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Mr. GREGG. First, let me thank the Senator from North Dakota for his kind comments relative to our efforts to make sure that the unfortunate situation with one of our members did not inappropriately impact the majority position on the committee. We were happy to do that as a courtesy, because it is part of the proper comity of the Senate, quite honestly.

To move on to the substance of his comments, his actual praise of me was not inconsistent; I thought it was brilliant. But there is such inconsistency in the substance of what he said that I am amazed. I mean, first, the argument is made: Well, the reason the Baucus amendment did not have to be actually executed is because we did not need the money or we did not need to extend those tax cuts because they do not lapse until 2011 or 2012.

Well, why did you offer the amendment then? To put out the press release? It appears that is the only purpose of the amendment. Why are you offering the amendment this year? To put out the press release again? It appears that is the only purpose of the amendment.

What he is basically saying, if you read between the lines, is last year we did not execute on that, we did an amendment here, we got a press release--in fact, I have the press release here from last year: March 10, 2007. Baucus budget amendment funds children's health, tax relief for America's working families. That is the title of the release that was put out last year when this amendment was offered.

Of course, it never happened because the tax relief never occurred because the amendment was never passed.

This year, I guess we will get another press release from Members on their side saying: Senator so-and-so voted for tax relief for American families and for health care for American families by voting for the Baucus amendment which will not ever be executed on. It is a touch inconsistent, to be kind, to first claim that you didn't need to do the extensions until the year 2010 or 2011 or 2012, and therefore, last year, when you passed the amendment, it didn't mean anything, and then to bring the amendment forward again and take credit for cutting taxes. At what point does the American public simply shake their heads and walk away?

Mr. CONRAD. Will the Senator yield for a question?

Mr. GREGG. I will finish my statement, and then I will yield.

Mr. CONRAD. I thank the Senator.

Mr. GREGG. The second point the Senator makes is that there are no tax increases in this budget. That is true if you look at this year. But this is a 5-year budget. It assumes revenues over 5 years and takes credit for those revenues which exceed the President's number and which reflect an increase in taxes of about $400 billion. That is their number. I actually believe it is higher.

Giving them the benefit of the doubt, they have a $400 billion tax increase built into their budget. That tax increase is built in on the assumption made by OMB that the capital gains rate will go back up, that the dividend rate will go back up, that the basic rates will go back up, that other expiring tax provisions will go back up, R&D, energy, qualified education spending, that those tax extenders will go back up. So you won't see a dramatic increase in taxes as a result of this budget because they turn around and spend the money. It is not that they not only increase the taxes and presume those tax revenues will come in, they spend the money.

Then the argument is made: But we don't really have to do it by allowing those provisions to expire. We can raise it all from this infamous tax gap, which last year they also took credit for for $300 billion, or claimed they would, if they were successful. Then they ended up cutting the IRS accounts. So the IRS not only did not collect this additional money, they didn't even have the resources to collect what they were supposed to collect the first time around.

So the tax gap is mythical. It is virtual. It may exist. It does exist. But the collecting of it has been proven to be a lot more difficult than just putting it in a budget and claiming you will get it. In fact, the IRS Commissioner, when he testified before our committee, made it very clear that he felt the maximum amount, even with all the resources he asked for, which he never got, that we would be able to collect out of the tax gap was somewhere between $20 and $30 billion. That is over 5 years, as I recall.

So if the Senator's position is that we don't need to raise dividend taxes to get the $400 billion, we don't need to raise taxes on capital gains to get the $400 billion, we don't need to raise taxes on the estate and death tax to get the $400 billion, we don't need to raise the brackets back up in order to get the $400 billion, I know that in order to stand behind that position, he is going to want to vote for the amendment which Senator Cornyn or I will offer which will do exactly that. It will say: Don't raise the dividend rate. Don't raise the capital gains rate. Don't raise the brackets. Because the Senator from North Dakota said we don't need to do that, he will want to be with us on that.

I am happy to yield to the Senator for a question.

Mr. CONRAD. I would just ask the Senator----

Mr. GREGG. My question is, You will be with us on that amendment, won't you?

Mr. CONRAD. I have not yet had a chance to study the amendment. I would be happy to do so and give you an answer after I have had a chance to review it.

Let me ask the Senator, did your budget resolution in 2006 extend the middle-class tax cuts?

Mr. GREGG. They didn't expire within the budget window.

Mr. CONRAD. You mean the same argument I have just made with respect to ours?

Mr. GREGG. Reclaiming my time, the point is, there is a 5-year budget window. They start to expire in 2010, not in 2007; therefore, your budget has to deal with that expiration. My budget didn't have to deal with that expiration because it was not within the 5-year window.

Mr. CONRAD. Did you not assume in your 2006 budget resolution the extension of all the President's tax cuts?

Mr. GREGG. I would certainly hope I did, but I don't recall.

Mr. CONRAD. Well, the answer is, you did. And the second question would be, Did you then execute on extending those tax cuts in 2006?

Mr. GREGG. I would certainly like to have. But unfortunately, at the time, again, we were not within the budget window. But you are within the budget window, and you are taking credit for those tax extenders lapsing. Are you not taking credit for $400 billion under the baseline? That number is reached by CBO by presuming that the tax extenders on

cap gains, dividends, and rates will expire? Are you not taking credit for that in your budget resolution?

Mr. CONRAD. For precisely the same reason that the Senator has given for his including extending the middle-class tax cuts when he last wrote a budget resolution in 2006. It would have covered the years 2007, 2008, 2009, 2010, 2011. The Senator included the extension of those middle-class tax cuts, just as I have done, because it was a 5-year budget resolution, and then the Senator's side did not execute, just as we did not last year, because there was no necessity to do it because those tax provisions do not expire until 2010.

This is a case of the pot calling the kettle black. You extended the middle-class tax cuts in your 2006 resolution and then did not execute because there was no need to do so because those tax cuts don't expire until 2010. That is precisely what we have done.

Mr. GREGG. Mr. President, reclaiming my time, there is a pretty significant difference. We are talking about 3 years, which is massive amounts of revenue. Secondly, you spend the money. The difference is pretty significant. We are talking about this budget at this time, and you can try to go back to other budgets, which I am happy to do. We can obviously debate old budgets. But the budget that is on the floor right now--and it appears the Senator is agreeing with my assessment--has a $400 billion tax increase, which tax increase CBO assumes will be accomplished by not extending the rates on dividends, capital gains, and the basic rates, along with research credit, energy credit, the qualified educational expenses, and the small business expensing. That is where you generate your revenue from. That is a tax increase. That translates into $2,400 per family. That is your budget. You are in charge of the budget. You brought the budget forward. You have a $2,400-per-family increase in here.

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Mr. GREGG. Mr. President, CBO scores zero in this budget for money coming from the tax gap that is represented by Senator Conrad as existing. The point being, of course, that you can talk about the tax gap all you want; it would be nice if we could generate some money from the tax gap. But IRS gives us no credit for generating money. They claim you can't generate the type of dollars the Senator has been talking about, and CBO doesn't give us any score for tax gap unless we significantly increase IRS funding, which we do not do.

Mr. CONRAD. Will the Senator yield?

Mr. GREGG. Just a second. Furthermore, what you have to recognize is CBO does score the $400 billion, which the Senator refers to as revenue, I refer to it as a tax increase--I mean, it is a tax increase--and CBO gets that $400 billion number because they assume the tax rates on capital gains, dividends and the personal rates, along with the other items I have listed, will go back up when they expire. That is how the number comes about. It doesn't come about from the tax gap.

You can say: I am going to get money from Liechtenstein as a way to cover the American tax gap, and therefore no Americans are ever going to have to pay any more in taxes. You can make that statement, but that is not the way the budget works. CBO tells us how they are going to score it. We all work off of the CBO baseline. The CBO baseline assumes, under the Democratic budget, that taxes will go up above what the President asked for. That is clearly because they want to repeal the tax rates that are in place today and were put in place by President Bush. I don't know why they resist so aggressively admitting to this. Their Presidential candidates, that is all they talk about. So clearly, that is the game plan. Why try to obfuscate it with this tax gap debate?

In addition, we have this issue of what happened under our budget versus what happened under their budget. This is their budget. It is not our budget. They are responsible for this budget. The U.S. Congress has to pass a budget. The President doesn't sign it. Congress passes it. This is what they have brought forward. Their budget assumes, takes, and spends--and that is the important part--a tax increase which results from basically raising the tax rates on capital gains, raising tax rates on dividends significantly, which will dramatically impact all Americans, raising rates, raising a variety of other taxes such as R&D and energy. That is where they get the revenue which they then turn around and spend. We didn't do that in our budget. We accepted a higher deficit and didn't raise the tax rates. So there was a difference. It is substantive between the two. The core of it goes to the fact that they need revenue to spend, and to get that revenue, they are going to aggressively raise taxes $2,400 on working Americans.

The tax gap is a smokescreen for what is really going on. I don't even know why they put it up because there is no contention out there in the public arena about what the game plan is.

Senator Clinton and Senator Obama have said over and over and over again they intend to raise taxes. They claim it is just going to be on the wealthy, but they cannot get where they want to go by just raising taxes on the wealthy because, as I pointed out before, if you raise the marginal rates on the highest earners from 35 percent to 39.6 percent, you do not generate anywhere near the amount of money you would have to generate to cover all the spending that is proposed in this budget and has been proposed for new programs by Senator Obama and Senator Clinton, as they have been campaigning.

It will be, and this budget is, a general increase on the taxes of working Americans--to the tune of $2,400 for most families in the $50,000 range, to the tune of $2,100 for 18 million seniors, and to the tune of $4,700 for 24 million small businesses. There are no two ways around it. That is what is going to happen if this budget is extended throughout the 5-year experience it is planning to budget for.

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Mr. GREGG. Mr. President, I appreciate the chairman outlining for the body the initiative which he and I have pursued in the area of entitlement reform. I appreciate his leadership on that and I look forward to continuing to work with him on it. I certainly hope we can pass it. It is one way to get at the fundamental fiscal imbalance our country is facing and the threat it represents to our children having an affordable government. But that should not mute or sideline legitimate efforts to try to begin the process of controlling entitlement costs in a way that is fair and does not unfairly impact beneficiaries.

The President did make suggestions in this area. The President's budget is not on the floor. I would note that the reason we don't offer a budget is for the same reasons the Senator from North Dakota didn't offer a budget when I was the chairman and the Republicans controlled the Senate. In fact, I will quote him. He said:

The chairman--

At that time he was referring to myself--

well knows the majority has the opportunity to offer a budget, and our responsibility is to critique the budget.

That is the way the Senator from North Dakota viewed the budget process and it is the way I view this budget process. But independent of that, the President's budget, as he sent it up, at least had guidelines which I thought were very constructive in the area of trying to control our costs in Medicare specifically. He had three different proposals.

The first suggested that people with high incomes should pay a larger burden of the cost of their drug benefit, Part D premium. Today, if you are Warren Buffett--we use Warren Buffett because he is nationally known, obviously, and is extraordinarily successful--if you are Warren Buffett, you qualify for the Part D drug program, but you don't have to pay the full cost of that program. You don't pay a full premium. You pay about 25 percent of the cost of that premium. That means that John and Mary Jones, working at a restaurant in Epping, NH, or Sally and Fred Upton, working in a real estate firm in Concord, NH, are paying 75 percent of the cost of the drug benefit which goes to wealthy Americans, and specifically the example I used would be Warren Buffett. That seems totally inappropriate to me.

So the President sent up a proposal which said if you make more than $80,000 as an individual--which is a good deal of income for an individual, a single individual, especially a retired individual--or if you make more than $160,000 jointly, you and your spouse, if you are retired and you qualify for the drug benefit, then you have to pay more. You don't have to pay the full cost even, you just have to pay more. It was a reasonable proposal and it would help with the imbalance of the Medicare accounts.

He also suggested we should improve our use of technology within the health care industry, making more information more available to more people so they can make better decisions. That scores, interestingly enough, as a savings, not surprisingly, because if more people have more information about, first, the cost of a medical procedure and, second, the outcomes of a medical procedure at A hospital versus B hospital or at an A group of family practitioners versus a B group of family practitioners, they can make a thoughtful, intelligent decision as to which group they use, especially if they are a corporation with a fair number of people they are insuring or self-insuring. So that proposal was a step in the right direction toward cost containment and scored in a very positive way.

The President sent up ideas--ideas that made sense--and they didn't impact ordinary beneficiaries. The only beneficiaries who were impacted under the President's proposals were high-income beneficiaries who would be asked to pay a fair share of the cost. I do think that type of reform should have been carried in this bill, and we will offer an amendment--I will offer it or Senator Ensign, I suspect, will offer it because he offered it last year, Senator Ensign from Nevada--asking that high-income individuals pay a fair share of their drug benefit costs, and that is only right. Hopefully that will be approved and put into this budget.

So there are initiatives that can occur here which I think should occur and we should not simply leave this massive fiscal imbalance which we are facing in these entitlement accounts to be fixed by this task force which hopefully we will get in place, but we should start the process now. This budget unfortunately punts that issue and has zero--zero--savings in the area of Medicare--net savings in the area of Medicare. In fact, it ends up with an expansion in entitlement costs of about $466 billion.

Mr. President, at this point I yield the floor.

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Mr. GREGG. Mr. President, I appreciate that explanation on Warren Buffett because I think it confirms my prior representation, which is that this proposal increases capital gains and dividends. It is assumed by CBO that it does that. Language he has used relative to the view of the Senator from North Dakota would imply the same also. I think it is important to know--not important, but I think the record ought to show the charts that reflected the savings that were reflected in the President's proposals on Medicaid and Medicare were not reflective of the proposal that came up on Medicare in this budget. They were a prior proposal.

Second, I think the proposals that came from the President involve the Part D premium, IT, malpractice reform, all of which were reasonable, all of which could be accomplished, in my opinion, without having any significant impact on beneficiaries. Yes, they would impact providers because, as a practical matter, the IT improvements would put more pressure on providers to basically deliver good-quality services. Essentially what the administration proposed was to take savings that occur from significant improvements in IT and those savings which basically end up in the pockets of the providers and say to the providers that we will split the difference; you get half and we get half, but you are still going to get half of the savings you create out of IT. I don't think it affects the actual providers. It affects how much they save.

At this point, I see the Senator, the ranking member of the Finance Committee, the former chairman, so I will yield the floor.

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Mr. GREGG. In order to accomplish the goals the Senator wishes to accomplish and which have been subscribed to by the chairman of the committee, you wouldn't need reconciliation to accomplish that, would you?

Mr. GRASSLEY. No, you would not. In fact, it detracts from it. Because too often reconciliation tends to be a partisan issue, and we will never get SCHIP through here that is not bipartisan. I think you are making the case that I have taken a long time to make, that reconciliation is not a process we need to accomplish most of the major goals in some of these areas that there is bipartisan agreement to reach.

Mr. GREGG. That was my point. I think the Senator from Iowa has made an excellent case for why this reconciliation, I think he called it a stealth vehicle floating around here, should not be used. It is inappropriate and certainly undermines the integrity of the process to use reconciliation for this type of an issue.

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