Tax Policy

Floor Speech

TAX POLICY -- (Senate - June 26, 2008)

Mr. GRASSLEY. Mr. President, I want to address the Senate on the issue of tax policy. Serving as a member of the Senate Finance Committee with jurisdiction over this, I watch tax policy pretty closely. We are almost half through the year 2008. Since January 1 of this year, several tax relief provisions have expired. I am talking about what we call tax extenders that have been on the books in the Tax Code for several years, in some cases decades, that sunset from time to time that must continue to be extended if you want the benefits of that tax policy.

In most cases, we think this tax policy is good policy because many times these policies have been on the books and expired, and we have extended them. So the term ``tax extender'' means keeping existing tax policy in place; however, it has sunset so Congress must act to keep it going.

The biggest one is called the AMT. Most people know it by the alternative minimum tax fix. That affects 25 million families. There are a number of other widely applicable tax relief provisions that fit into the term ``tax extenders.''

One provides millions of families with a deduction for college tuition, another provides deduction for our schoolteachers for out-of-pocket expenses that they might pay for that the school district does not pay for. One that is very important to innovation in American business is called the research and development tax credit, which has been part of the Tax Code since 1981.

All of these tax relief provisions expired not just today but 6 months ago.

This Congress has not passed legislation yet to deal with this problem. We have had two cloture votes in the Senate on taking care of this, but those votes have been on a bill that will not pass the Senate. And even if the House bill were to pass the Senate, the President would not sign it. So the issue is, do we want to get these things extended or not? If you are going to do it, you have to do it in a way that is going to get it through the House and Senate, as well as the President's signature.

What is holding up this bipartisan, time-sensitive tax relief? It is an obsession with the Democratic leadership, a version of pay-go or pay-as-you-go. I have spoken on this before, but the hangup is the Democratic Party's feeling and obsession over raising taxes to offset continuing current law tax relief policies.

I have offered a deficit-neutral path to these tax extenders, that being a restraint on new spending. But I have no takers from the other side. I haven't even received a response on the merits of my offer that I made to the other side. The action or lack of action thus far proves my point. The leadership of the other party--or maybe all Members of that party--is so obsessed with raising taxes that they are willing to hold hostage popular bipartisan tax relief measures.

Democratic spokespersons are threatening to kill these tax extenders unless they get tax increases they want so badly. It reminds me of a nursery story. I am referring to the story of the big bad wolf. I have a chart here so people don't forget who the big bad wolf is. You remember the story. The big bad wolf in that nursery story threatened the three little pigs. He said something like: I am going to huff and puff and blow your house down. The Democratic leadership is playing the role of big bad wolf right now.

Here is what my friend the distinguished House leader said:

The extender bill is not going to pass unless it's paid for.

When asked if he would make a similar pledge regarding the $62 billion cost of preventing the alternative minimum tax from hitting 21 million more taxpayers, the distinguished leader of the other body demurred:

The extender bill is not going to pass if it's not paid for.

I call this an obsession.

I might add, I have been pleased to work with the House majority leader in the past, particularly on the children's health insurance bill and other matters. But in the case of the tax extenders, I beg to differ with the distinguished leader of the other body. That is some very serious huffing and puffing. For those millions of families sending their kids to college, forget about your tuition tax deduction unless the Democrats get their offsetting tax increase. They have ignored the spending cut proposal I circulated over a week ago, so they are not holding tax extenders hostage to a pledge to pay for them. They are holding extenders hostage to their version of pay-as-you-go, which is guaranteed tax increases. More revenue, from their judgment, means more spending and yet bigger government.

Now I will show you the big bad wolf can sometimes be a Republican. I have another chart with a famous quote on it from a former majority leader of this body. Senator Frist said:

If the Senate kills the trifecta bill, we will not return to it this year. That means we would have no permanent death-tax reform, no tax-policy extenders, and no minimum-wage increase. It's now or never. It's this week.

That is what was said approximately 18 months ago. At the time, Republicans were in the majority. It was also the last time folks in control of Congress were holding extenders hostage for an unrelated reason. In that case, the unrelated issue was death tax relief. Extenders were part of what was referred to then as the ``trifecta.'' A third part of the trifecta was a minimum wage increase.

Here is what then-Senate majority leader Bill Frist said, kind of a repeat:

If the Senate kills the trifecta bill, we will not return to it this year. That means we would have no death-tax reform, no tax-policy extenders, no minimum-wage increase.

He went on to say:

It's now or never. It's this week.

What we have is huffing and puffing, a threat to blow the extender House down--the big bad wolf once again. So you can see my criticism is not partisan. I have shown a case where the Republican majority held tax extenders hostage.

As we know, soon the then-Republican leader, the then-majority leader, Dr. Frist, came to his senses. He finally brought forward a bill that addressed the tax extenders in the lameduck session of December 2006.

The bottom line is, the folks on our side recognized, although it took a long time, the merits of continuing tax policy that has been on the books for a long period of time, that a vast majority of the Congress knows is good policy and it ought to be extended. They recognized that the unsuccessful effort to leverage the popularity of these tax benefits did not mean the extenders had to die on the vine. This recognition occurred despite earlier threats I have already spoken to to kill the extenders.

It will be the same tale of the big bad wolf 2 years later. A partisan obsession with a tax-increase version of pay-go or pay-as-you-go will not, at the end of the day, trump bipartisan popular tax relief measures that millions of families are counting on and have been on the books for a long time. If I am wrong, the spokespeople for the Democratic Party should tell those millions of families and thousands of innovative businesses that their partisan agenda is more important than doing the people's business. I will continue to wait for a response. More importantly, the people should hear the answer.

I feel very strongly that these are tax matters we ought to address very soon. Certainty of tax policy and predictability in tax policy is very important for our economy to move forward. In this case, I am referring to the bipartisan tax relief this Congress passed in 2001 and 2003.

I wish to emphasize the word ``bipartisan.'' The reason I wish to emphasize ``bipartisan'' is too often this policy of 2001 and 2003 that ought to be extended is referred to as ``the Bush tax cuts,'' as my friends on the other side of the aisle would like our friends in the media to call them, and the friends in the media are catching on. But why not bipartisan tax relief? Because I remember when that suggestion first came from the White House. It was $1.7 trillion worth of tax cuts over 10 years. I immediately said we were not going to be able to do that because we had to do something in a bipartisan way. So it ended up, because of my decision, in conjunction with Senator Baucus, that it was not going to be more than $1.3 trillion. So I come to the floor with legitimacy to denigrate the label of ``Bush tax cuts'' and emphasize bipartisan tax cuts.

I have actually noticed that my Democratic colleagues like the reference ``tax relief.'' They have used the reference on the campaign trail of their Presidential candidate. How ironic. My Democratic friends label the bipartisan tax relief the ``Bush tax cuts,'' yet they call their own tax plan ``tax relief,'' especially when this so-called Democratic tax relief is merely an extension of the 2001 reduction in tax rates for certain taxpayers, not all taxpayers. I am not surprised. After all, it is political season. But I feel a little bit disgruntled about it all. Sometimes I get mad about it. But I also am dismayed. I am disappointed that the poll-driven use of the term ``Bush tax cuts'' flows so easily off the tongues of people in the other party. The media folks can't get enough, so they continue to repeat the ``Bush tax cuts'' over and over and over. You can imagine how an author of a bipartisan tax relief measure would feel if it is referred to this way.

But do you know what really disappoints me? The fact that the spokespeople for the Democratic Party and their Presidential candidate are telling Americans who make less than $250,000 a year that their taxes will not go up if they vote Democratic in November. I think this is intellectually dishonest, and the folks in the media should call them on this and make it very clear that it is otherwise. Why do I say this? Because my friends on the other side will increase capital gains rates. They will also increase the tax rate on dividend income. I told this body and any friends in the media that Americans earning less than $250,000 a year have capital gains each year. They also claim dividend income. Here I will remind my colleagues and the media that over 24 million tax returns last year claimed dividend income. There is not that many taxpayers over $250,000 a year.

Also, over 9 million Americans claimed capital gains. We have another chart on capital gains. You would be correct if you guessed that not all of these Americans were making more than $250,000.

So how do you get away with saying we are just going to increase the taxes on people over $250,000 and let the capital gains rate go up, let the tax on dividends go up? You are hitting many Americans under $250,000. I will bet some of them were even low-income taxpayers because we established a policy just a few years ago that under a certain income and a very low income, we want low-income people to have a savings ethic, not only that, but the ability to actually save, people who today have a zero rate of taxation on capital gains--zero.

Speaking of zero, the junior Senator from Illinois has proposed to reduce the capital gains rate for startup companies from 7.5 percent, which is the current rate, to zero.

I like his thinking on that policy because it is going to help small business, it is going to help entrepreneurship.

But the distinguished Senator will increase the capital rates in other areas by at least 33 percent. That strikes me as being counterproductive. That is rearranging the deck chairs. It is simply squeezing the balloon. And in a sense, I consider it hot air and certainly not change you can believe in. It is not change I believe in, and eventually the American voters are going to see through this.

Let me get back to the tax increase that Americans making less than $250,000 will see. I want to take a moment to talk about an interview conducted by Wolf Blitzer of CNN. On his program Sunday, June 15, Mr. Blitzer delved into the capital gains and dividend income tax issue. He asked his guest--the chairman of the Democratic Congressional Campaign Committee--whether Senator Obama's plan to tax dividends and capital gains would increase taxes for Americans of every background, not just rich people. I am glad Mr. Blitzer asked the question.

The most interesting point to this story is the response. The response was that Senator Obama will increase the capital gains rate. Let me repeat that. If the distinguished Senator from Illinois is elected President, he will raise rates on capital gains. Why? Apparently the junior Senator from Illinois thinks investment income is, quote, unquote, leisure income. He thinks that ``leisure income'' should not get the same breaks as income earned through labor.

I wish to submit for the Record an excerpt of the transcript from the June 15 show on CNN so folks in the media can see this. The excerpt is the full interview of the DCCC chairman. I have highlighted the portion of the interview I wish folks to pay attention to.

To quote the chairman:

Obama has said that you shouldn't give a break to leisure over labor.

The DCCC chairman expounded upon this by saying:

In other words, people who are making money simply by investing it, rather than through their work in the labor force, shouldn't be getting a break over the people who are going to work every day.

The DCCC chairman thinks ``that makes sense.''

So the Democratic leadership, and their Presidential candidate, believe the current tax policy favors leisure over labor, and they consider that all investment income is leisure income. So what they are saying is anyone who saves and anyone who invests is a person of leisure.

Maybe my friends on the other side of the aisle have been reading the writings of Thorstein Veblen. Professor Veblen, as shown in this picture, authored ``The Theory of the Leisure Class.'' ``The Theory of the Leisure Class'' took a satiric approach to American society and economics. ``The Theory of the Leisure Class'' characterizes this ``leisure class'' as individuals who only benefited society in a minor or peripheral way because they did not engage in labor-intensive jobs. Instead, the ``leisure class'' often prevailed over ``labor income'' classes by making profits without producing goods and services.

Professor Veblen also argued that certain labor income individuals began to mimic or emulate the ``leisure class'' to do nothing more than achieve a so-called higher status.

So is the distinguished DCCC chairman, or his Presidential candidate, suggesting that all people who invest money are part of a leisure class, a leisure class that is making money rather than producing goods and services? And as a result, somehow, they should not get any breaks over those who are laboring for their money?

Do they want to discourage those who labor and produce goods and services from saving and investing? Do they want to discourage laborers from mimicking or emulating those profiting off of investments? They seem to think that all folks who invest are higher income people.

As an aside, if the DCCC chairman were correct, we would not have at least 5 million Americans using the low-income saver's credit, adopted in a bipartisan way here in this Congress. I have a chart in the Chamber. It shows the number of low-income taxpayers on a State-by-State basis claiming the saver's credit.

This is data from 2003.

In Iowa, for instance, there were almost 96,000 low-income families and individuals using the saver's credit.

Chairman Baucus and I designed this policy in the 2001 bipartisan tax relief legislation. Now it is permanent law. About 5.5 million low-income savers--and these are not people of leisure--use the credit. I would tell the DCCC chairman and the junior Senator from Illinois that these low-income savers are not figments of somebody's imagination. They are real people. I do not think they consider themselves members of the ``leisure class.''

I encourage everyone to study this transcript. You will see that the distinguished Senator from Illinois, according to his surrogates, wants to tax investments because he believes that making investment income is leisure. He believes that hard-working Americans should not get a break on this type of income. He believes that taxpayers do not work hard enough to earn money they can invest and then, in turn, have investment income, and that those who do work hard should not be given an incentive to invest.

I wish my friends on the other side to know that investments begin with taxpayers' hard-earned income. So in order to invest it, they first have to work hard to even earn it.

Also, I would like my friends on the other side, who agree with the DCCC chairman, to ask any taxpayer who saves, any taxpayer who invests their money, whether they think investment is easy. Investment is hard work. You have to educate yourself. You have to make prudent decisions. Ask them if investing their own money is leisure. The other side thinks it is kind of like sitting out there on the beach in the Sun all the time, not having a worry in the world.

It is almost like the other side is reviving the ``two Americas'' that the former Democratic Presidential candidate--former Senator John Edwards--was all about. But here, my friends on the other side are saying that higher income people--or folks in the ``leisure class,'' according to Professor Veblen--are the only taxpayers who invest. They contend that these folks are bad, that this ``leisure class'' should no longer have incentives to invest.

At the same time, my friends are taking away incentives for hard-working Americans to save and invest. The implication is if you save and invest, you are bad, and if you do not save and invest, you are good.

But that is going too far. It is off the reservation. Separating workers who save and invest from workers who do not save and invest is new territory for the other party and should not go unchecked.

The junior Senator from Illinois eloquently states that we need to move past division and that we as Americans need to come together. Who is going to disagree with that? My friend talks about his disdain for old-style politics and emphasizes change. But it is interesting to hear the surrogates of Senator Obama reaching back to the class warfare discussions that took place in the last century.

This is not change you can believe in.

Middle- and low-income investors should be appalled--appalled because their Government believes their pursuit of the American dream is all leisure and that the Government wants to increase their taxes, yes, on Americans who make less than $250,000.

So following the question of Mr. Blitzer, I wish to ask my friends on the other side of the aisle--or whoever wants to speak for them--whether Americans making less than $250,000 will see a tax increase under a new Democratic administration. Because if you take their words for what they are now, you are going to see a lot of big tax increases for people making less than $250,000 a year.

I wish to know whether they agree with Senator Obama and the Democratic leadership and believe that investment income is leisure.

My Democratic friends may respond that the junior Senator from Illinois wants to give middle-income folks a tax cut. But this middle-class tax cut is fiction for those middle-income taxpayers who save and who have investment. I challenge my media friends to tell Americans what is going on here.

Mr. President, I ask unanimous consent that the excerpt from the transcript of ``CNN Late Edition'' of June 15, 2008, be printed in the Record.

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