Budget Reconciliation
BUDGET RECONCILIATION
Mr. GRASSLEY. Mr. President, because I am chairman of the Senate Finance Committee and we have jurisdiction over taxes, I want to respond to some of the comments that have been made over the last 2 or 3 days, both on the floor as well as in news conferences, by the Senate Democratic leadership on the reconciliation tax relief bill that will be before Congress sometime between now and Thanksgiving. Quite frankly, it is necessary to pass because if we do not, then taxes are automatically going to go up without a vote of Congress. It is not necessarily the biggest tax increase that Congress has ever voted but a very sizable tax increase.
Obviously, if we are going to increase taxes, it ought to be done by a vote of the Congress and not done automatically. So we have to take action before we adjourn this fall, and that is what the reconciliation tax relief bill is all about.
It is quite obvious from these news conferences that the Democrats have been having, in statements on the floor, that they do not seem to understand that this is going to happen, and if it does happen, it is going to hurt middle income taxpayers as well as lower income taxpayers.
In press reports for several weeks now, the distinguished Democratic leader suggested that we cease all efforts to address expiring tax relief provisions. The senior Senator from Nevada stated as follows: I think we need to revisit this budget and reconciliation. Is it really the time to have $70 billion more in tax cuts?
Well, we are not going to have $70 billion more in tax cuts if we pass this reconciliation tax relief package. We are going to continue the tax policy we have had for the last several years, and if we do not pass it, we are going to have a $70 billion tax increase, and that is what inaction is going to bring about. I see the Senator suggesting that that happen. I am going to say why that is bad not only for taxpayers, but that is bad for the economy of our country.
Then we also had the assistant Democratic leader, the senior Senator from Illinois, likewise attack the notion of tax relief. This very afternoon, the ranking Democratic member of the Budget Committee, the senior Senator from North Dakota, attacked the idea of further tax relief.
Those words again. They want people to believe that we are going to cut taxes further, but if we do not take action, taxes are going up, not down. If we pass a bill, they are going to stay where they have been for the last several years.
Clearly, this line of attack is being coordinated by the leadership team on the other side of the aisle. As is usual with the question of tax relief, the East Coast media tend to be echoing the line of attack from the leadership of the opposition.
Yesterday, October 19, the Democratic leadership held a press conference to criticize further tax relief efforts. The purpose of the press conference was opposition to Republicans' attempt to spend billions on tax breaks for special interests while cutting health care, student loans, and other crucial assistance through their--meaning Republicans--immoral budget.
Now, understand, morality is brought into this. That kind of incendiary language is what makes folks outside of the Washington Beltway angry. Not only is it patently false, it is also over the top. Anybody with an ounce of common sense knows it.
Immoral? Give me a break. What is immoral is wasting taxpayer money to gin up this kind of partisan ``attack dog'' language because it diverts legislative resources from what this Congress needs to be doing and that is solving problems.
I have heard from my friend and ranking member, Senator Baucus, that the Democratic leadership may now be supporting an extension of some of these provisions that they seem to be attacking at the same time. Be that as it may, we have to look at a lot of other things besides the largely business tax relief that is included in what we call extenders, extending from one year to the next or the next several years things that automatically expire, that if we do not extend them, taxes go up rather than staying level.
I want to put all this debate in context, because until now, what I have set in motion here is what is coming from the other side so you have a context for the points I wish to make.
First off, let's take a look at the Democratic leadership's point on the budget. Why is the budget important, some people ought to ask and legitimately ask. The budget--we call it the budget resolution--is a blueprint or kind of an outline that sets the overall level of spending and the revenue of the Federal Government. The budget, then, sets the ground rules for all the other spending and revenue legislation that will be considered by the Senate over the course of a year. So we pass the budget resolution in the spring, and all the appropriations bills and the tax bills and everything else have to fit into that budget resolution.
Under the Senate rules, then, a bill that exceeds the levels set in the budget resolution could possibly be, and often is, subject to a 60-vote point of order; in other words, taking 60 votes to go beyond the budget, which is very difficult to get in this body. That is why you get a lot more fiscal discipline with a budget resolution. By imposing this supermajority requirement, the budget encourages the Senate to stay within the overall limits we set in our resolution while at the same time providing opportunities to exceed those limits if there are extenuating circumstances.
Chairman JUDD GREGG of the Budget Committee has used this tool of a point of order to keep spending under control. On this appropriation bill that was just completed after 2 or 3 days' work, that has proved effective, in three or four instances, to keep a lot of additional spending from happening--spending that, if we just had a simple majority without a budget resolution, could possibly not have been prevented.
By the way, despite all the posturing about fiscal responsibility coming from the Democratic side, I am still waiting for spending cuts, ideas on how we can save money on expenditures, coming from the other side. I have asked my colleagues on the other side of the aisle over the years to put their money where their mouth is. The Finance Committee that I chair produced $180 billion in revenue raisers and got $135 billion of that enacted. So we have produced on the revenue side. I am going to be showing with that chart here in just a little bit where we have also had other tremendous advantages from the tax policy of the last 4 years. But where are the critics, then, who seem to always want to raise revenue? Where are they when there is an opportunity to come up with ideas to save money on the spending side of the ledger?
I have always said it would be one thing to raise taxes, and I might be willing to consider doing that if I could ever come to the conclusion that you could raise taxes high enough to satisfy the appetite of a lot of big spenders in this Congress to spend money. If I would ever see a limit, I might be willing to settle for something if that was the end of it. But you never have the end, it seems. You never have enough revenue for the people who want to spend money.
Budget reconciliation, as has been the point of the news conference I already referred to, is often the subject of much controversy. So I would like to take a moment and focus on the reconciliation bill my committee is going to have to consider between now and adjournment in order to retain the present level of taxation. If we do not take action, which is what the Democrats are asking us not to do, taxes are going to go up.
As chairman of this tax writing committee that we call the Finance Committee in the Congress, I have a responsibility for all of the legislation that affects Medicaid, Medicare, Social Security, the income tax code. The budget resolution we passed earlier this year provides reconciliation instructions for my committee to achieve $150 billion in program savings. And by the way, we finally have a package put together that will do this, a package that I believe we will be able to vote out of committee next Tuesday. We have set our committee there so we will meet our savings on the expenditure side--we will meet those goals.
Of course, then the other part of my work is the $70 billion of tax relief that is not a tax reduction but maintaining the existing level of taxation.
While these instructions from the Budget Committee--or you might say now it is policy, by the full Senate--do not actually require the Finance Committee to enact any specific policy, there are numbers and policies that are assumed within the numbers that the Senate has given me. Today, I will focus on the tax relief portion of the budget. After all, that is where the attacks have come from the Democratic leadership through their news conferences and statements here on the floor of the Senate.
Start with a basic number. When the Senate Budget Committee considered the resolution over a half year ago this year, Republicans laid out a plan to reconcile tax relief--in other words, to keep the taxes from automatically going up, not to cut taxes from where they are today. This plan was the product of discussion with members of the Republican caucus. Although the process was driven by Republican members, the substance of the proposal is bipartisan. Our objective, then as now, is to preserve current law levels of tax relief. The plan centers on a seamless extension of tax relief provisions that began in President Bush's first term, in 2001. It is critical that these provisions be rationalized with a common sunset date. Assuring taxpayers of the continuity of promised tax relief should be our highest priority. Predictability of tax policy, in other words, is essential to a vibrant, growing economy. Taxpayers should not face the reversal of the level of tax relief we have delivered. It is going to have terrible economic consequences if we do.
Let me repeat. Reconciliation is about preventing automatic tax increases, it is not about new tax relief proposals.
Some on the other side have been critical of the $70 billion in reconciled tax relief from the day we passed the budget resolution. Where, let me ask, is the Democrat leadership's plan for tax relief? Or do they propose that we start taxing middle-income Americans by letting these things sunset and have an automatic increase in taxes? Has anyone seen a Democratic proposal for maintaining existing tax policy so we do not have an automatic tax increase? All we seem to hear, based upon these news conferences and statements, happens to be criticism. How many times have we heard about the alternative minimum tax or what we call AMT? We heard about it plenty of times. We even heard incorrect assertions that this budget does not address alternative minimum tax problems.
Guess what. The reconciliation bill has room for extending the current patch, or ``hold harmless'' for millions of families who, if we do nothing, are going to face the alternative minimum tax. These are not the wealthy people that the alternative minimum tax was intended to hit. These are going to be 5 million more middle-income tax-paying people who presently are not hit by it. So where is the Democratic leadership plan for AMT relief? When they say we ought to rethink this budget resolution, are they saying we are going to tax these 5 million people who have not been hit by this by doing nothing between now and the end of the year? Where is the response for the current period? I have been looking for it. I can't find it, from the other side. All we are hearing is another excuse to make the American taxpayers second-class citizens. In this case, spending for the hurricane might be the excuse. There always seems to be a reason to deny tax relief or automatically increase taxes on middle-income Americans.
Likewise, there always seems to be an excuse for dodging spending restraint. Let taxes go up automatically, don't do anything to reduce spending. In short, it seems that the Democratic leadership cares more about spending taxpayers' money than keeping the tax burden low. The American taxpayer has done his or her part. Receipts are way ahead of last year--way ahead of where even we predicted they would be. According to Treasury data, receipts last year were $1.880 billion. This year, receipts are $2.154 billion. So this is an increase of $274 billion coming in this year, more than last year without increasing taxes, with no rates of tax increase.
Even taking into consideration that level of taxation, in a news conference the Democratic leadership said we ought to rethink our tax policy. According to the Congressional Budget Office--and I might refer to that occasionally as CBO--the CBO receipts are up for this fiscal year alone by $97 billion over what CBO guessed they would be earlier this year--$97 billion more coming in than the official estimators said just a few months ago would be coming in.
Whichever figure you might use, either that $274 billion more coming in in 2005 than in 2004 or the $97 billion more that is coming in, more than the CBO estimated, this is very definitely an impressive improvement on the revenue side of the budget. That amount exceeds the amount of reconciled tax relief over 5 years by $70 billion that we provided in this budget resolution that will be the subject of legislation on this floor in the next 4 weeks.
As a percentage of the economy, which is known as the gross domestic product, Federal receipts are up to about 17.5 percent of GDP. The historical average is right about 18 percent. When I say historical average, I mean over a period of time from the late 1950s until today averaging about 18 percent of taxes coming into the Federal Government as a share of the gross domestic product. So we are getting back to historical averages, but you wouldn't know that by listening to some of the alarmist claims for more revenue that you hear in speeches on the floor of this Senate.
Where is the extra money coming from? It is coming across-the-board. A good chunk of it is coming from nonwithheld income taxes, and that would be from capital gains dividends, higher than expected small business income. No one should be surprised by these developments. They are consistent with economic and fiscal history. The bottom line is that when the economy grows, the Federal Treasury benefits as well.
That is shown very clearly on this chart. Over 40 years, up until now--and beyond that, guessing what the economy might do for another 10 years--we see the green line here, the gross domestic product, the measure of it on a yearly average. That is the green line. It is fairly constant, not so erratic.
The revenues coming in are the red lines. That tends to be much more dramatically different from year to year than what the GDP measurement is. You can see here, going back 40 years, when the GDP goes down, you have a very dramatic drop in taxes coming into the Federal Treasury.
When they go up, you have a much more dramatic increase in taxes coming into the Federal Treasury. You can see that several times--quite a drop here in the gross domestic product but a very dramatic drop in income coming in.
More recently, we had the Clinton recession that we inherited, plus 9/11. So you find a dip in the gross domestic product here, but, boy, you see a very dramatic drop in the income coming in at this point.
We passed the tax bill of 2001, and we passed the tax bill of 2003. You know that Greenspan said the growth in the economy is very related to those tax reductions we had at that particular time. You can see that we have a rise since then in the gross domestic product. You have a rise in income. But this chart was made before we had some more recent figures.
This red line, the point right here, would be about right here, reflecting that $274 billion more coming in in 2005 over 2004. You see a little rise in the gross domestic product, a very dramatic rise for the most recent figures at this point here instead of this point here--a more dramatic rise in the income coming into the Federal Treasury from our taxes because there was a little bit of an increase in the economy.
People are saying here we have to increase taxes, whether it is automatically or whether you vote them. You don't have to do that. You can see we are projecting a very good income coming into the Federal Treasury just when there is a slight increase in economic growth of our country as reflected in what we call the gross domestic product.
Some people here have it backwards. They think Federal revenue drives the economy. It is almost as though they believe raising taxes will lead to more growth. Growing economic activity, as shown by this chart, is fueling the good news on the receipt side of the Federal budget. In this environment, it is a wonderment why the Democratic leadership would want to send such a negative message to the financial markets.
Why does the Democratic leadership want to raise capital gains tax by 33 percent and double the tax on dividends? In these uncertain times, why would the Democratic leadership want to drive a stake in the heart of this growing economy, not only a growing economy but a more vastly growing amount of money coming into the Federal Treasury?
A cynical person might feel that the Democratic leadership is only looking at political gain by driving down our economy. I can't believe my friends in the Democratic leadership would want to cause economic pain for short-term political gain. But with all these speeches that are going on around here and all these news conferences about rethinking the budget, you have to wonder, don't you?
To sum up on my first point, the taxpayer is not the problem. The taxpayer is sending plenty of money to Washington, DC by $274 billion more in 2005 over 2004 with these lower levels of taxation we have. The revenue side of the budget is coming in fine, way beyond expectation.
I will turn to the specific plan we are going to present to the Senate when we have this reconciled tax package out here.
Again, this is a tax relief plan expressed in these news conferences that the Democratic leadership wants to kill. The reconciliation instruction gives us the resources to maintain current law tax relief. Put another way, the reconciliation instructions to my committee are our best means to protect against tax hikes on millions of American taxpayers.
Let us take a look at the tax increases the Democratic leadership would put on the American people by inaction by this Congress--an automatic tax increase. That is the Christmas present we would be giving the taxpayers, if we adjourn by Thanksgiving. What a Christmas present.
First and foremost, the tax relief plan continues to hold harmless for the alternative minimum tax. This piece of the plan--the largest, I might add--is worth $30 billion to 14 million American families.
Does the Democratic leadership want to push millions of middle-income families into the alternative minimum tax? If the answer is no, then they ought to support our reconciliation bill.
Second, the plan extends the progrowth piece of the 2003 tax relief bill, specifically lower capital gains and dividend rates.
As the Finance Committee hearing showed earlier this year, we got testimony about how these incentives have helped the stock market recover. A lot of folks on Wall Street tell us they have assumed continuation of these progrowth tax relief measures in the pricing of stocks. Does the Democrat leadership want to play games with stock prices? If the answer is no, then they ought to support our reconciliation bill.
A third point: Other widely applicable tax relief benefits are addressed in our bill. I am talking about these middle-income tax benefits we already have on the books that would expire. The deductibility of college tuition, the small savers tax credit, the small business expensing--all of these provisions are bipartisan. Millions of taxpayers are already relying on them. Does the Democratic leadership want to take away the deductible for college tuition from families who send their kids to college? Does the Democratic leadership want to eliminate the small savers credit? Does the Democratic leadership want to take away expensing of equipment from our small business folks and farmers? If the answer is no, then they should support our reconciliation bill.
The fourth example is our plan is going to address expiring business and individual provisions that we call extenders because we extend them from year to year or maybe 2 or 3 years at a time. But they eventually run out. These provisions include the research and development tax credit, the State sales tax deductibility from the Federal income tax, and the deduction of teachers' out-of-pocket expenses.
As I noted, the Democratic leader did not come out and say he would support taking a look at some of these regular extenders, but they are a small part of the picture. I note that the ranking member of the Budget Committee hasn't come that direction yet.
The Democratic leadership is not singing with one voice on this subset of expiring provisions. But if we do what the Democrats said they wanted to do in their news conference, these could possibly expire.
Does the Democratic leadership then want to eliminate the research and development tax credit? Does the Democratic leadership want to eliminate the sales tax deduction from the Federal income tax? Does the Democratic leadership want to eliminate the deduction for teachers' out-of-pocket expenses? If the answer is no, then they ought to help us get this budget tax reconciliation bill passed. These are all about growth of the economy.
In the Midwest, farmers--and I am one of them--have a saying: Don't eat your seed corn. Keep planting seed corn. That makes the economy strong. The tax relief seeds we planted a few years ago are yielding, as you can see here, a good harvest of revenue to the Federal Treasury.
What it comes down to is this: We need to take care of legislative business. We need to continue the tax relief promised to the American people and not let it expire, not let there be an automatic tax increase. If there is going to be an automatic tax increase, it ought to be voted by Congress. We ought to have guts enough to increase the taxes.
But we are better off with a plan that stops this automatic tax increase. The revenue side of the budget is performing fine, as you can see here. The American taxpayer is doing his or her share by the tune of $274 billion more coming in this year, 2005, over 2004. Now is not the time to shortchange the American taxpayers by raising their tax burden, particularly on middle-income taxpayers.
I ask my friends in the Democratic leadership to please refrain from raising taxes on millions of middle-income Americans. It is simple: Maintain existing levels of taxation. You do that by supporting the reconciliation bill that will be coming before this Congress shortly.
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