Concurrent Resolution on the Budget for Fiscal Year 2014
Floor Speech
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Mr. GRASSLEY. Mr. President, I say to Senator Sessions, the distinguished ranking member, I am going to try to show him and other Members of the Senate that the numbers that they think they can raise revenue from, to $1 trillion, are not going to work. We can take different taxes and add them up and up and it will come out to $1 trillion. But I am going to show him, based upon votes that have been taken on the other side of the aisle, that it is not politically possible for them to do it unless they are willing to vote differently than they have ever voted before because they have to take on some of the most popular tax credits that are in the Tax Code. That is what I am going to do in the few minutes the Senator has devoted to me.
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Mr. GRASSLEY. Mr. President, over the 10 years that I was chairman or ranking member of the Finance Committee, I worked with several Budget Committee chairmen. They were Senator Domenici, Senator Nickles, Senator Gregg, Senator Conrad. We did not always agree on every issue, but by and large there was coordination between the Budget Committee and the Finance Committee. Basically, I had past chairmen, Republican or Democratic, come to me and say: Tell us what you can do or not do within the Finance Committee so we do not give you an impossible task when a budget resolution is adopted by the Senate. It worked very well because they respected the institutionalized knowledge within the staff of the Senate Finance Committee, both Republican and Democratic staffs, as well as the more important institutionalized information that comes from the Joint Committee on Taxation.
As I said, we did not always agree on every issue, but by and large there was that coordination. Unfortunately, the coordination receded somewhat, starting somewhat in the year 2007. Since 2010, we fell into this 4-year pattern of not even having a budget debate in the Senate, even though the law requires that the Senate adopt a budget every year.
Finally, getting back to abiding by the law--coordination provided the means then between the budget and Finance Committee that allowed the Finance Committee to realistically address the demands of the tax, trade, health and welfare policies that were intended by a budget resolution. This usually happened in a bipartisan way, but this year is different. This budget resolution does not realistically address the needs or the capabilities of the Finance Committee. By capabilities, I don't mean it is not there to get it done and people are willing to do it, but the possibility of doing it is very remote based upon the unrealistic assumptions in this document.
Despite claims to the contrary, this budget is not balanced unless one believes balance is more of the same fiscal behavior of the last 4 years of the Senate Democratic leadership fiscal policy. That policy has resulted in higher taxes, higher spending, and yet higher debt. Where there is fiscal pressure, it is placed on the Finance Committee by this document now before the Senate. The Finance Committee is called upon to do all the heavy lifting.
The principal lift is in the heavy tax increases. The Finance Committee has reconciled under this document with an almost $1 trillion tax increase. Reserve funds, in addition to that $1 trillion, reserve funds anticipate another $500 billion in tax hikes to pay for even more spending.
The task put on the Finance Committee is described as curtailing or eliminating what is called ``spending through the Tax Code,'' and ``loopholes.'' But if we look at the document, and particularly if we look at recent history, we will find a different story that says what they assume is not very realistic.
We will find tax increases. I wish to explain that. But first I will account for revenue raisers the majority party has specified and supported with votes in this Congress and the last one. What those votes show, unless there is a big change of heart on the other side of the aisle, is there is not going to be that revenue ever raised. So that makes the document on the other side, if it is not possible, blue smoke and great hope and good luck.
What this is going to tell us is that the unspecified and undefined tax increases the budget resolution is seeking, once we have the undefined tax increases--I am going to then define that. I will define it by taking the universe of tax base broadeners and working through the list to explain to all the unreality. I will be able to show one of two conclusions. The first conclusion I can show, the math doesn't work and there are not sufficient revenue raisers to fill the revenue goal of my friends on the other side of the aisle or, No. 2, the budget resolution would need to go much further down the income scale and do what we just heard Senator Roberts say, start taxing middle-income taxpayers. But it is going to be hard to get them to admit that on the other side because all we have to do is tax the wealthy 1 percent and we can solve all our problems.
But we cannot only tax that 1 percent. We could confiscate--not tax but confiscate the income over $200,000 and we are going to run the Government for just a very few months. But people tend to believe that. It is very difficult to preach the other side, how unrealistic it is, but that is a fact.
All of us should take a careful look at the claims of the Democratic leadership and see how the claims stack up to the cold, hard numbers that I will give you and the analysis by the tax-writing committee staff. So let's turn to those numbers.
Over the 10-year budget window going out to the year 2023, the budget resolution demands revenue and related outlay savings of $975 billion. There are two reserve funds, as I already said, that total up to about $580 billion in tax increases if that is taxed. And around here, with the ability--the willingness--to spend what they want to spend, they wouldn't mind tapping it, but I think that is unrealistic as well.
I am going to show my colleagues this chart. The first chart is a water well. Here is the top of the well, and we can see it is a long well to the bottom, and there is a little bit of water in the bottom. But most of the well from this point to the top is dry right now, and that is what they have to fill by their budget resolution.
At the top of the well we will see this number, $1.503 trillion, plus money to raise money for the reserve fund. That is what it takes to go from here to here to fill it.
If we want to put this another way, this budget puts the burden on the Finance Committee to come up with $1.5 trillion in offsets over the next 10 years. This budget assumes the well of revenue raisers is full to the brim, but they are starting out at this point.
My colleagues know I am a farmer. I should say my son is a farmer; I am kind of like a hired man now. I think that gives me something to know about wells and the predictability of well water. We on the farm always hope we will get rain, and particularly now, as it is dry in the middle west. So now we get a decent level of water so we can fill up the well to the top so we have plenty of reserve.
As a former chairman and ranking member of the Finance Committee, I think I can tell my colleagues something about revenue raisers. In the positions I held on the Finance Committee, I led efforts to identify and enact sensible revenue raisers aimed at closing the tax gap and shutting down tax shelters. And as a senior tax-writing committee member, I continued to look for ways to shut off the unintended tax benefits.
Given this experience, I know what is realistic when it comes to revenue raisers. From 2001 through 2006, Congress enacted over 100 offsets with a combined total of not necessarily a lot of money but still a lot of money compared to this stuff we are talking about here, but it still scored for $1.7 billion over 1 year; over 5 years, $51.5 billion; and over 10 years, $157.9 billion. That is from about 100 offsets.
What other revenue raisers have been identified and scored? The President's last budget, the one we got in February of 2012--and they are supposed to be out every February and we are not going to get it until April 8 now; why I don't know--but the President's budget in 2012 contained a package of a lot of revenue that the Joint Committee on Taxation said would raise $1.4 trillion over 10 years.
The majority party has largely left these revenue-raising proposals untouched over the last 4 years. So if we have a Democratic President of the United States suggesting $1.4 trillion of revenue in his budget, as the suggestion from the White House, and the other side here in the Senate wants to raise a tremendous amount of revenue and they haven't touched it in the last 4 years, what makes us think they are going to touch it now? Is it realistic to think all of these taxes will be raised if even the Democratic President asks for it and his friends on the other side of the aisle--our friends as well--ignored it?
The majority party has, however, identified and specified and voted for tax hikes that amount to $108.3 billion. That is $108.3 billion of identified and scored revenue raisers. That is only about 7.8 percent of the amount that is needed to make this budget work. So we see how unrealistic this budget resolution is.
Based on these facts, what is the likelihood the Finance Committee will be able to come up with revenue raisers of this magnitude? In my view, from my 10 years as chairman and ranking member, that chance is not very high. If that is the case, then what will happen? The revenue side of the budget will be ignored, but the spending side will be followed. The net effect will be a massive tax increase, a bigger deficit, or both.
Now back to the chart. So the revenue-raising well is about 7.8 percent full. We have heard a lot about tax expenditures. As I have said before, the people have been told there are trillions of dollars of spending through the Tax Code. I am going to look at the individual income tax expenditures because the administration and the Democratic leadership have said they want to leave the corporate tax expenditures for lowering rates.
Here is a little irony. The Congressional Budget Act defines refundable tax credits as spending. It makes all the sense in the world because the tax benefits go to individuals who don't pay income tax. These credits are actually paid out in the form of a check in excess of any income tax liability of that individual. However, we won't hear the majority advocate reducing, let alone eliminating, any of those refundable tax credits. In fact, the majority's budget would increase them further. They represent even more significant tax expenditures.
I have another chart here based on the nonpartisan Joint Committee on Taxation data. Here are 10 tax expenditures. The chart shows the top 10 individual income tax expenditures from this year, 2013, through the year 2017. These top 10 expenditures represent 70 percent of the total individual tax expenditures.
No. 7 is the earned income tax credit. That is a refundable tax credit designed for low-income taxpayers.
No. 8 on the list--I won't bother to point to it--is the premium tax credit enacted by ObamaCare. By 2017, this credit will actually make its way into the top five. Like the earned income tax credit, the premium credit is fully refundable.
No. 9 on the chart is the child tax credit which is partially refundable.
For each of these credits, more than half of the value of the benefit is paid out in the form of a government check exceeding tax liabilities. That is direct spending through the Tax Code. Yet these credits are considered off limits by the majority.
So let's take a look at the tax expenditure No. 1. That is the tax-free treatment of employer-provided health care. Americans can look forward to $1 trillion of health care-related taxes coming due over the next 10 years. All of this tax increase is thanks to 21 tax increases contained in ObamaCare. My guess is the majority doesn't want to take on that group.
So No. 2 is tax-deferred retirement savings plans. It is defined benefit plans and section 401(k)-type plans. To be sure, some higher income taxpayers benefit. Defined benefit plans tend to dominate in the unionized world. Section 401(k)-type plans are more common now. Some high-income taxpayers do, in fact, benefit because they are owners of a business and we want them to set up and maintain the plans. About 4 percent of this tax expenditure goes to taxpayers at $1 million or more of income.
No. 3 on the list is the preferential rate for capital gains and dividends. It is true that higher income taxpayers tend to have more capital gains. But a few months ago the rate rose 59 percent with the ObamaCare and fiscal cliff deal tax hikes kicking in. Do we want to choke off more savings and investment?
No. 4 is the deduction for State and local income and real property taxes. The New York Times editorial page is usually very in tune with the majority. An editorial on December 6, 2012, has a title that says it all: ``Keep The State Tax Deduction.'' My guess is that with the heavy hit on heavily taxed blue State taxpayers, the majority will not want to visit that deduction.
No. 5 concerns the American dream of home ownership. It is the home mortgage interest deduction. It disproportionately goes to the middle-income taxpayer. Do we really want to tank the tepid housing recovery now underway?
So look at No. 6. It is the tax benefit from the Medicare benefits the Federal Government pays. We have heard a lot about the Medicare reforms contained in the Ryan budget from the majority. Does the majority want to cut the value of Medicare benefits by taxing them?
I have already discussed Nos. 7, 8, and 9 on the chart which are all refundable credits. They are the earned income tax credit, the premium tax credit, and the child tax credit. Significantly, the premium tax credit makes the list while only being in effect 4 out of the 5 years we have examined.
So how about the last one then, No. 10? It refers to the step-up in basis that occurs on death time transfers. Higher end taxpayers tend to pay the estate tax when they die. This policy ensures they don't pay a double tax on the transfer. Does the majority really want to reopen the estate tax debate that we all thought just ended on January 1?
If we were to expand on this list and look at the top 20 expenditures instead of just the top 10, we would account for 90 percent of the individual tax expenditures. They include such things as charitable deductions, tax incentives for college, and the exclusion of capital gains from the sale of a home. Does the majority want to raise taxes on the backs of college students or cause heartburn for middle-income homeowners when they sell their home?
Well, let's take a step back for a minute. Where does the budget take us? The terms of the budget documents tell us the majority Members say they want to eliminate or curtail spending through the Tax Code--$1 trillion plus another $500 billion if they decide how to spend it. Yet they themselves would vehemently oppose eliminating or reducing tax expenditures that are defined by our budget laws as spending.
I challenge the budget authors to tell me which tax benefits they want to curtail. Do they want to cut back the tax treatment of employer-provided health insurance? Do they want to cut back defined benefit plans or 401(k) plans? Do they want to increase capital gains and dividend rates even further than the 59 percent? Do they want to cut back on the State and local tax deduction? Do they want to cut back on the mortgage interest deduction? Do they want to tax Medicare benefits? Do they want to raise the tax level on death time transfers?
Well, I conclude: This budget represents a dramatic step backward for the American taxpayer. For the first time in 4 years, thank God, we are debating a budget. Yet it repeats the same fiscal pattern of the first term of this Presidency. It spends too much, it taxes too much, and it results in too much new debt.
As former chairman and ranking member--and I suppose this is the fourth or fifth time I have said this, so people get tired of me saying it--but in that former position, I am sorry to say the experience I have had is that this budget doesn't even attempt to match the demands of the Finance Committee with the numbers in this budget.
I hope deficit hawks on both sides of the aisle pay close attention. The only thing certain here is that new spending will occur.
The deficit impact of not realistically dealing with the tax, trade, and health policy spending priorities of the Finance Committee disguises the deficit built into this budget.
I have many other concerns about the budget proposed by the majority. Simply, today, I wanted to let the Senate know how the numbers on the revenue side do not work from the standpoint of the usual stands that people take on closing loopholes and not closing loopholes and based upon what is politically feasible out of the Finance Committee.
As we take up amendments, I am hopeful we can make the budget mesh with the Finance Committee's policy demands.
I yield the floor.
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Mr. GRASSLEY. Absolutely. And based upon the experience we have had of actually voting on those issues in the past--or the fact that I stated how the President put certain things in his budget of February 2012, and none of those ideas have ever been brought up by the majority party in the period of time they have been before them. So if their own President--when I say their own President, the President of their party--our President proposes that they raise revenue from those places, and they do not do it, it signals to me it is a pretty difficult job to do, and it is not going to be any easier this year than in past years.
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