Small Business Jobs and Tax Relief Act--Motion to Proceed

Floor Speech

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Mr. KYL. Mr. President, ``fairness'' has become one of the watch words in this year's political debates, both at home and abroad. The term echoes throughout Europe, where German Chancellor Angela Merkel is under pressure to come up with billions in bailouts for troubled eurozone countries. Her insistence on reasonable reforms is considered unfair by many in those countries, even though Germans have sacrificed to live within their means, for example, by forgoing wage increases to avoid the problems of their neighbors.

In the United States, President Obama and his supporters have used fairness as a justification for various redistributionist policies, including a massive tax hike, a government takeover of health care, complex financial regulations, and new government spending programs.

The President and his supporters believe the Federal Government should pursue policies that will result in economic equality. But forced equality is inherently unfair. It necessarily relies on the wrong incentives that penalize success. More fundamentally, it is based on a shallow, materialistic definition of ``fairness.''

Aristotle wrote: ``The worst form of inequality is to try to make unequal things equal.''

Contrary to the goal President Obama pursues, the key determinant of lasting happiness and success is not whether you have as much money as your neighbor, regardless of the differences between you. Rather, it is what American Enterprise Institute president Arthur Brooks calls earned success and meritocratic fairness.

Much research shows people are happiest when they have the opportunity to succeed and earn their rewards. Sometimes we take risks and succeed. Sometimes we fail. Sometimes we defer gratification by saving our money. Maybe our neighbor does not. Some of us are better at making money than others. Some deliberately earn less to enjoy other pursuits in life. Decisions about families result in very different economic circumstances.

When the government tries to equalize everyone or take all the trouble out of life by taking care of our every need, it makes earned success and meritocratic fairness that much harder to achieve. When government aims to smooth over every rough patch, it eliminates the experiences that make us resourceful and resilient--the experiences that teach us how to work harder or smarter for our rewards.

Those of us who believe in earned success and meritocratic fairness believe the best way to promote these concepts is through the free enterprise system, a system in which opportunity is sacred and excellence is rewarded. We reject the notion that it is fair to impose interventionist and redistributionist policies to guarantee material equality. As Brooks notes: ``For the overwhelming majority of Americans, fairness means rewarding merit, not spreading the wealth around.''

In his new book, ``The Road to Freedom,'' Brooks asks some fundamental questions related to the future of earned success, the pursuit of happiness, and meritocratic fairness:

First, ``Will we see a growing bureaucracy or more entrepreneurship?''

Second, ``Will we be a culture of redistribution or a culture of aspiration?''

Third, ``Will we be a nation of takers or a nation of makers?''

These are serious questions that will be answered in the long run--not in 1 day or 1 year or in one session of Congress. But for now, I would like to focus on the short term. How do recent government policies help answer these questions about what is fair?

How does government spending, and the staggering debt that comes with it, affect bureaucracy and entrepreneurship? How does a redistributionist tax policy affect the aspirations of job creators and innovators? And how does our burdensome regulatory regime affect the so-called ``makers'' in American society?

Let's take these Brooks' questions one at a time. First, will we see a growing bureaucracy or more entrepreneurship? We all know entrepreneurship requires opportunity and private investment. But a burdensome Federal Government reduces opportunity and it crowds out private investment. Let's take a look at the growth of government under President Obama. Since his inauguration in January of 2009, the Federal debt has increased by more than $5 trillion, and it is rapidly approaching $16 trillion in total.

Meanwhile, the Federal budget deficit has exceeded $1 trillion 4 years in a row. The highest deficit before President Obama was less than half that
amount. How did our deficit and debt skyrocket so quickly? Well, for starters, President Obama's economic policies have resulted in slower GDP growth, which means less tax revenue flowing to the Treasury and more Americans requiring government assistance. So government income is down.

Second, the President has dramatically increased government spending. Prior to the 2008 fiscal crisis, the 40-year average for Federal outlays was less than 21 percent of our gross domestic product. But under President Obama, spending soared over 25 percent of the GDP in 2009. It has remained above 24 percent since then. This new spending has grown the Federal bureaucracy and it has increased the regulatory burden on families and businesses.

For example, the President's 2,700-page health spending law created or codified at least 159 new boards, bureaucracies, and programs, along with thousands of new pages of government regulations and more than 20 new taxes. A recent Bloomberg News report notes that the President's health care law imposes $813 billion in taxes on middle-income families and job creators, according to the Congressional Budget Office. In total, it has imposed $24 billion in new regulatory costs on the private sector and States, as well as almost $59 billion in annual paperwork hours on the economy.

The 2010 Dodd-Frank law is a similar story. It is still creating countless new rules and its direct compliance costs have already exceeded $7 billion. Indeed, according to the Financial Services Roundtable, Dodd-Frank will force more than 26,000 employees to comply with the law.

Other Obama initiatives have failed to pass the Congress, but likewise would have expanded the bureaucracy and funneled resources from the private sector to the government. These initiatives include cap and trade, the deceptively named Employee Free Choice Act, and the more recent Paycheck Fairness Act. We need to get back to basics.

As Congressman Ryan has said, we need to make it easier for people to employ their ``right to rise.'' That means leaving more money in the private sector and reducing the size of the Washington bureaucracy. We can start by stopping tax hikes and bills such as ObamaCare that suck needed resources out of the economy and give unaccountable regulators immense power.

Let's consider Brooks' second question. Will we be a culture of redistribution or a culture of aspiration? Public policy has a direct impact on economic aspiration and economic mobility. America has traditionally been an aspirational society with high levels of mobility. Although President Obama has made class warfare a central campaign tactic, we do not have a class system here in America. We do not have an American aristocracy or noble bloodlines. Because of our meritocratic system, people in America can and do jump from one income level to another throughout their lifetimes, from the one place to another. But with unemployment stuck above 8 percent now for 41 consecutive months, and the Obama administration's preference for redistributionist policies, there is real concern that America's culture of aspiration may gradually be replaced by a culture of redistribution.

Look at the tax issue. President Obama wants to increase the top marginal income tax rates in order to expand the entitlement state and promote what he calls greater ``fairness'' in society. But what about the economic consequences of taking more money from successful people as the economy continues to struggle? The Joint Committee on Taxation has told us that allowing the top two marginal income tax rates to rise from 33 and 35 percent to 36 and 39.6 percent, respectively, will hit 53 percent of net positive income and just under 1 million business owners overall.

Raising marginal tax rates is no way to encourage aspiration or job creation. It certainly imposes a wet blanket on the kind of risk taking that has helped build America. It is merely redistribution under the guise of social justice. The President's approach to investment is also hostile to aspiration and risk taking. He has endorsed raising the top capital gains rate from 15 to 23.8 percent, and he also wants to raise the top rate on dividends from 15 to 43.4 percent.

The so-called ``Buffet tax'' is yet another method of hiking taxes on investment. All of these taxes on investment reduce the value of the asset by reducing the aftertax return. Our private economy runs on business investment, which is highly sensitive to tax rates, especially on capital gains and dividends.

Some of those who prefer higher taxes have argued that if taxes do not go up, those in the top brackets will invest and save more, but that will not do much for job creation and economic growth. Well, that is factually incorrect. Saving does not mean throwing your money under a mattress or burying it in your backyard. Anyone who saves money either puts it into the bank, where it is lent to someone, often a business, so they can hire more people, purchase equipment or invest in stocks and bonds, or the money is directly invested in a stock or a bond, which provides capital for the same purpose.

In other words, savings actually puts the money saved to work providing capital for someone to do something with it. And that creates economic growth. If that increment of income is instead taken from those who earned it and spent by the government, the effect on the economy will almost always be a net negative. If we want to encourage aspiration, innovation, and the job creation that comes with those, is it a good idea to raise the capital gains rate by almost 59 percent and nearly triple taxes on dividends, even though these profits have already been taxed once at the corporate level? The President and some Congressional Democrats think so, but I strongly disagree.

Here is Brooks' third question: Will we be a Nation of takers or a Nation of makers? Many have lamented the decline of the manufacturing base in America. Although the United States is still the largest manufacturing economy in the world, there is no doubt that policies from Washington have made it more difficult for manufacturers--and those are the economy's foremost makers--to compete in global markets. The list of these policies is long. Let me explain a few.

First, the corporate tax rate. At over 39 percent, our combined corporate tax rate is now the highest in the industrialized world. Other countries are cutting their corporate tax rates to encourage economic growth, but we are doing nothing on the tax front to follow their lead and attract more investment to the United States. Is it any wonder jobs are moving overseas? If not, whose fault is it, the company trying to return a profit to its investors or the government which makes it impossible to compete with foreign corporations?

Look at energy. Manufacturers rely on cheap sources of energy to produce products cheaply. Yet President Obama has stood in the way of domestic production of energy such as the Keystone XL Pipeline and worked tirelessly to punitively raise taxes on the oil and gas industries. New regulations on coal-fired powerplants, emissions of greenhouse gases, and industrial boilers will also hurt our economy.

Simply put, domestic makers are being hurt by the President's anti-energy and proregulatory agenda. Is this fair? Why should Americans pay more than the real economic cost of available American energy? And is it fair that a few corporations make billions because the government mandates that we buy ethanol from them, just to cite one example?

Now let's turn to labor. Manufacturers are also being burdened by union-dictated rules including from the National Labor Relations Board such as the ``ambush elections rule'' and new rules on the establishment of ``micro unions'' within the workplace.

With anticompetitive tax, energy, and labor policy, it will be increasingly difficult for our country to compete as a Nation of makers. These are precisely the kinds of policies that encourage employers to move jobs overseas, which hurts American workers and the greater economy. And this is required in the name of fairness?

We are also trending toward being a Nation of ``taking.'' The government is the biggest taker. But a majority of Americans now take more than they contribute. In tax year 2009, 51 percent of Americans paid zero Federal income
taxes, according to the Joint Committee on Taxation--over half of Americans. And these citizens take much more than their follow citizens in government benefits.

Look at food stamps, for example. As my friend Senator Sessions has pointed out, ``food stamp spending has quadrupled since 2001. It has doubled just since 2008. A program that began as a benefit for 1 in 50 Americans is now received by 1 in 7.'' Spending on food stamp welfare has increased 100 percent since President Obama took office. Some 80 percent of all spending in the recently passed farm bill will go toward food stamps.

In total, there are 69 means-tested Federal welfare programs costing taxpayers $940 billion every year, including both Federal programs and State contributions to those programs. The number of Americans living off the wealth of ``makers'' keeps growing and growing. There are nearly twice as many government workers today as there are in the manufacturing sector, meaning that there are more government workers than people making products and paying their salaries. Is that fair?

As economist Stephen Moore noted, ``This is an almost exact reversal of the situation in 1960 when there were 15 million workers in manufacturing, and 8.7 million collecting a paycheck from the government.''

The growth of taxpayer-funded dependency is directly connected with the growth in the economy. The more we make as a Nation, the more wealth we generate and the less people who rely on welfare to survive. To get there we need aggressive progrowth policies in place to encourage free enterprise and discourage a Nation of taking. It is neither fair to the makers nor those who must rely on the government for the President to impose policies that reduce economic growth, reduce job creation, reduce savings and investment, and reduce opportunity and freedom.

In conclusion, free enterprise and meritocratic policies are consistent with our founding principles. As Thomas Jefferson declared in his first inaugural address, ``A wise and frugal government ..... shall not take from the mouth of labor the bread it has earned.''

Will America remain the country our Founders envisioned or will we become a country where fairness means equal outcomes for all dictated by the government? Will we make it easier or harder for people to earn their success? And will the American people be happier if allowed to pursue their dreams, sometimes failing, sometimes succeeding, or if the government tries to force equal economic outcomes? Which is more moral, which is more fair, which is more American?

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