Improving America's Security Act of 2007

IMPROVING AMERICA'S SECURITY ACT OF 2007 -- (Senate - February 28, 2007)

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TAXES

Mr. GRASSLEY. Mr. President, as everybody who follows Congress on a regular basis knows, when you get close to the month of March, we are in budget season. The President sent his budget to the Hill, which he does regularly, the first week of February, about a month ago. So now it is up to the Congress. In the next few days the Senate Budget Committee will be marking up our budget resolution.

For the public at large, don't confuse a budget resolution, which is a discipline for Congress on budgeting, with appropriations bills that actually give the President the authority to spend money. They come along a little bit later in the year.

At a minimum, the budget resolution will lay out the fiscal priorities of the next 5 years. As everyone knows, the American people spoke last November and sent a Democratic majority to both Houses of Congress. For the first time in 12 years, Democrats will take the initiative on the Senate budget. As ranking Republican on the Finance Committee, which deals with taxes, trade, Social Security, Medicare, and Medicaid, and also as the senior Republican on the Budget Committee, which is the committee that sends the budget to the Senate, I am eager to see the direction the new Democratic majority wants to take on fiscal policy for this year, but the budget also has long-term implications of 5 years.

There are a lot of questions I am waiting to get answered. What will be their plan on pay-go, which means pay as you go? With spending at higher-than-average levels of our economy, what kind of spending discipline will the Democratic majority show? On the revenue side of the ledger, will Democrats look to prevent a tax increase on virtually every American taxpayer a few years down the road, when the present tax policy sunsets, or will the Democratic majority, without a vote, set in motion, then, the largest Federal tax increase of all time? This is a fact. It will happen. When we have a sunsetting of tax law, it is possible to have a tax increase without Congress voting it. In this particular instance, this would put in place the biggest Federal tax increase ever.

Over the next few days, I want to talk about the tax issues--I want to do it topic by topic--that are going to come up during debate on the process of the budget. There are probably many ways to do it, but this is how I split the general subject into topics: One, the importance of preventing a tax hike on virtually all American taxpaying families and individuals. That is what I want to visit about today. Next is the negative economic consequences of sunsetting the bipartisan tax relief plan that will be the biggest tax increase in the history of the country without a vote of the people, if we don't do something about it. Then another time, I am going to review Democratic tax increase offset proposals with a specific focus on the limits and problems associated with those tax increases.

Next I will focus on one particular ill-defined but often mentioned offset; that is, reducing the tax gap. Everybody is for reducing the tax gap, and I am working with Senator Baucus to do that. He is chairman of our committee. But there has to be realism brought into that debate, and I hope to provide that realism. Then fifth and last, tax reform and simplification, its necessity and bipartisan opportunities to do so.

These discussions are meant to be about the revenue side of the budget. But before we get into the revenue side of the budget, I want to issue a challenge to my friends on the other side of the aisle. It is a challenge I have made over the last few years. It is in the context of intellectually honest budgeting. It is also in the context of the bipartisan record of the Finance Committee on tax policy over the last few years. That tax policy has been led by this Senator, when I was chairman, and by Senator Baucus working with me during that period of time, or Senator Baucus, now leading the committee and, hopefully, my always working with him as he worked with me.

That bipartisan record of the Senate Finance Committee shows about $200 billion of revenue raisers from antitax shelter measures and corporate loophole closures, basically doing something about abuse of the Tax Code, unintended by Congress, by people who can hire very sophisticated lawyers to find ways around paying taxes. We have closed $200 billion of those, and it has been bipartisan. So when I hear from self-styled deficit hawks, or from the media, who are sympathetic to those points of view that we need higher taxes to reduce the deficit, I believe the Finance Committee has anted up in terms of producing revenue raisers without raising general levels of taxation on the American people.

Here is my challenge, and I will ask my friends to listen up. Anyone on the other side who considers themselves a deficit hawk needs to prove it, then, on the spending side. Compared to our committee already raising revenue by $200 billion by closing tax loopholes and tax abuse, show me, then, a spending restraint proposal for deficit reduction. I issued that challenge several years

ago and have issued it repeatedly. No one from the other side has stepped up. We can look and look and look and we won't find such a proposal. All of those liberal think tanks that oppose tooth and nail any kind of tax relief are usually advocates of spending increases, all of this under the guise of fiscal responsibility. We won't find any proposals to restrain spending from these liberal think tanks.

If we look at the media sources that are sympathetic to the views of the Democratic leadership or the liberal think tanks, we will find hard-line opposition to tax relief and a lot of tax increase proposals but, likewise, no proposal reining in spending. They will claim the mantle of fiscal responsibility but won't show anything on the spending side other than spending increases. For these folks, when it comes to deficit reduction, there is only one side of the Federal ledger. That is raising taxes.

We have a Federal Government that is projected to spend $2.7 trillion for this fiscal year alone and is projected to spend $33.7 trillion over the next 10 years. Yet leadership on the other side of the aisle, the liberal think tanks that back them up, and the media that helps them get their message out so easily and is sympathetic to their views, can't find a dollar of savings on the spending side. To these folks, with all due respect, I want to call them out. They won in November. The Congress is in their hands. Let's see some credibility on the spending side of the ledger. Show the taxpayers the money. Show me a proposal to restrain spending and put it to deficit reduction. That is a preliminary point.

Now I will move to talk about preventing tax hikes. The same group's position on current law tax relief is radically different than its position on spending restraint. Back in 2001 and 2003, Congress approved, and the President signed, legislation that provided across-the-board tax relief to nearly every American taxpayer. The Democratic leadership, liberal think tanks, and sympathetic east coast media criticized tax relief on a couple of grounds. One charge was that the tax relief was a tax cut for the rich. The other charge was that the bipartisan tax relief was fiscally irresponsible.

Nonpartisan Joint Committee on Taxation distribution tables actually put a lie to that first charge. The record levels of revenue show that the growing economy, the expanding U.S. economy, and economic stimulus from tax relief better the Nation's fiscal situation, bringing in more tax dollars, not depriving the Federal Treasury of dollars.

This debate on preventing tax increases is often couched only in macroeconomic terms. We will hear what it ``costs' to extend bipartisan tax relief. We will hear very big numbers. For instance, the Joint Committee on Taxation projects that the revenue loss from making the bipartisan tax relief permanent is $1.9 trillion over the next 10 years. That is the way the Democratic leadership, liberal think tanks, and sympathetic east coast media will define proposals to prevent a tax hike. We won't see them talk about the number of families who benefit from the extension of the $1,000 child tax credit. You won't see them talk about the number of married couples who benefit or the average family benefit from marriage penalty relief.

Today I am going to take a few minutes and shed some light on the side of the debate about extending bipartisan tax relief. Lord only knows, there is not much light shed on these important facts, because everybody is talking about tax relief for the rich. I will acknowledge the critics' point on the macro cost of extending tax relief. But keep in mind, a liberal's tax relief cost is a conservative's tax hike, when we are talking about extending current law. They are the two sides of the same taxpayer's coin. I will agree to that number, but call it a $1.9 trillion tax increase.

So I am going to follow the Democratic leadership plan and dismantle the bipartisan tax relief package bit by bit. I am also going to challenge the Democratic leadership to show us the money by indicating whether they want to scrap each piece as I move through the package. Which pieces would they scuttle?

I will work through the bipartisan tax legislation piece by piece.

Let's start, then, with the basis for the 2001 bipartisan tax relief measure. That is the new 10-percent bracket. The revenue loss for this part of the package is $299 billion over 10 years, according to the Joint Committee on Taxation. The 10-percent bracket is a huge piece of tax relief for low-income people. The 10-percent bracket does that. No wonder 100 million families and individual taxpayers benefit from the 10-percent bracket. I do not think anybody wants to dismantle that piece. But I want to hear that from the Democratic leadership because that is a compromise of their position of whether the 2001 tax increases ought to sunset.

Where do we go next, then? The marginal tax rate cuts, which include the 10-percent bracket, lose $852 billion over 10 years, according to the Joint Committee on Taxation. That proposal reduces the taxes of approximately 100 million families and individuals across America. It appears some folks think 35 percent is too low of a top rate. Well, guess what. Repealing the marginal rate cuts hits small business--the biggest source of new jobs in this great country of ours--and it hits small business the hardest.

The Treasury Department estimates 33 million small business owners who are taxed on their business income at individual rates benefit from the marginal rate cuts. Repealing these cuts would cause 33 million small business owners to pay a 13-percent penalty. Do the Democratic leaders want to raise taxes on these small business taxpayers, restricting the ability of small business to create jobs?

Treasury also projects that small business gets over 80 percent of the benefits of the cuts in the top two rates. Do we want to raise the tax rates on these people--small businesses for the most part--by 13 percent? Does that make any sense? So to the Democratic leadership, what do you say?

How about the death tax relief package? The Joint Committee on Taxation scores that package at $499 billion over 10 years. Most of the revenue loss is attributable to increasing the exemption amount and dropping the rate to 45 percent on already taxed property. Is it unreasonable to provide relief from the death tax or should we raise the death tax on small businesses and family farms? That is what will happen if the bipartisan tax relief package is not extended. So to the Democratic leadership, what is your take on that provision?

Do the opponents want to repeal the proposal to double the child tax credit, which the 2001 bill does? Mr. President, 31.6 million families benefit from the child tax credit, according to the Joint Committee on Taxation. Or how about the refundable piece that helps 16 million kids and their families? That proposal loses $135 billion over 10 years. I do not think we would have a lot of takers on that one. They are going to want to extend that. Democratic leadership, do you agree?

How about the lower rates on capital gains and dividends? Thirty-three million Americans--a good number of them low-income seniors--benefit from the lower tax rates on capital gains and dividends, according to the Joint Committee on Taxation. Does the Democratic leadership think we should raise taxes on these 33 million Americans benefiting from these lower tax rates? That would be families and individuals.

On a side note, in another speech, I will be talking about the worrisome Goldman Sachs economic report on the adverse economic effects of failing to extend lower rates on capital gains--this line right here, as shown on the chart--when it expires.

There are consequences to what Congress does. When you have a booming economy, there could be very detrimental consequences to the country when you take away the incentives that have had this economy exploding like not any time since the early 1990s.

Let's take a look at the marriage penalty piece. It is the first marriage penalty relief we delivered in over 30 years. The Joint Committee on Taxation scores this proposal at $52 billion over 10 years, and Treasury estimates that in 2004, nearly 33 million married couples benefited from this tax relief. Again, I do not think many folks would want to raise taxes on people because they decided to be married. I hope the Democratic leadership would agree with that statement.

Another proposal is expensing for small businesses; in other words, writing everything off in 1 year instead of stretching it out over 10 years. This is a commonsense, bipartisan proposal and directed specifically to small business--the engine that creates new jobs. According to IRS Statistics of Income, 6.7 million small businesses across the country benefited from this expensing provision in 2004. If we do not make it permanent, small businesses face a tax increase of $19 billion over 10 years and probably sputtering the engine that creates so many jobs in America. Does the Democratic leadership think small business expensing is an unwise tax policy?

Continuing on through the bipartisan tax relief package, let's take a look at education tax relief. This package, which will help Americans deal with college education costs, scores at $12 billion over 10 years by the Joint Committee on Taxation. IRS Statistics of Income show nearly 16 million families and students benefited from this tax relief in 2004.

In this era of rising higher education costs, should we gut tax benefits for families to send their kids off to college? Does the Democratic leadership think that is the way to go, which would be the way we would go if Congress does nothing and you let this tax law sunset?

Finally, families where both parents work have to deal with childcare expenses. The tax relief package includes enhanced incentives for childcare expenses. Mr. President, 5.9 million families across America benefit, according to the Joint Committee on Taxation. Does the Democratic leadership think we ought to take away these childcare benefits? That is what would happen if the tax cuts of 2001 were sunset. It would happen without a vote of the Congress either.

Now, I have taken you through about $1.9 trillion of tax relief. It sounds like a lot in abstraction, but it provides relief to every American who pays income tax. I would ask any of those who want to adjust or restructure--and those are words that are used around here about this tax relief package passed in 2001--do you want to adjust it or restructure it? Where would you cut in this package?

Would you hit the 10-percent bracket, driving up the taxes of low-income people? Would you hit small business tax relief and sputter the growth machine, the job machine of America; or the now refundable child tax credit, and hurt low-income people; or the death tax relief; or the marriage penalty relief; dividends and capital gains relief; education tax relief; or childcare tax relief? I hope not. Because in a recovering economy, with above-average levels of individual income tax, as a percentage of GDP, even with the tax relief package in place, which areas would you adjust, which areas would you restructure?

Why, then, undo bipartisan--with emphasis upon ``bipartisan'--tax cuts that make the Tax Code actually more progressive? Now get that, not regressive; it is more progressive now than before the tax bill of 2001.

As folks on both sides of the aisle say, budgets are about priorities. As the Democratic leadership draws up its budget, we will hear a lot of talk about a big number for extending tax relief. It is a big number. It is the biggest tax increase ever. It is going to affect nearly every American taxpayer.

If leadership now in the majority of this body, because of the results of the last election, decides to propose the biggest tax increase in history in the name of deficit reduction, I will be looking for that one, single dollar of spending restraint I never see. Now, maybe we will see it, but I will bet we would not. Only time will tell, and it will be within the next 2 or 3 weeks.

Mr. President, I yield the floor. I do not think I see any colleagues who wish to speak, so I suggest the absence of a quorum.

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