American Recovery And Reinvestment Act Of 2009
Floor Speech
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Mr. GRASSLEY. Mr. President, I have two or three items of this legislation I want to discuss with my colleagues, some items I hope can still be worked into the final package.
The first deals with the idea that President Obama put forth in his campaign about the zero capital gains. If you look at what is possibly going to be passing this Senate, you find that this bill contains only about $21 billion in net tax relief for businesses, and that is for the purpose of encouraging investment because investment creates jobs and these are long-term jobs. I don't find any fault with the business incentives that are in here, but $21 billion, for the most part--it is tax relief going to just big business.
That has to be a result of the $19 billion dollar net operating loss carryback provisions which are in this bill, mostly benefitting large corporations.
Well, how much tax relief for small business is in this $827 billion bill? Not much. I think it is a pretty puny amount. So I stand to encourage support of a proposal by President Obama to eliminate capital gains on sale of stock in small business and startup corporations.
Under present law, under section 1202 of the Internal Revenue Code, 50 percent of the gains realized on the sale or exchange of certain small business stocks held for more than 5 years is excludable from gross income. That 5 years is very important because we want to look at long-term investment, not the just the get in quick and get out quick that has created a lot of economic problems.
Now, beyond that, the remaining gain is taxed at the rate of 28 percent. So excluding half the gain from tax, and taking the other half at 28 percent, you end up at 14 percent. However, regular capital gains are currently taxed at 15 percent, so you can see section 1202, which was intended to encourage investment in small business corporations is not very effective.
A tax rate of 14 percent, pretty simply, is not much better than 15 percent and, consequently, does not do much good. It is actually even a worse situation in that that portion of excluded gain is subject to the alternative minimum income tax. Therefore, this bill should go further than it does.
Now, obviously, the underlying piece of legislation tries to address the small business investment but not the way President Obama suggested. So I am back to where President Obama was. This bill should be amended, and I have an amendment that would do three different things:
First, it would increase the section 1202 exclusion to 100 percent of the gain realized upon the sale of qualifying small business stock, instead of the 75-percent exclusion included in the underlying bill; second, it would make the section 1202 gain not subject to the alternative minimum tax; and, third, it would increase from $50 million to $75 million the amount of aggregate gross asset the corporation could have and still qualify as a qualified small business corporation. Again, this amendment would implement President Obama's campaign proposal to eliminate capital gains tax on sale of stocks in small businesses and startups.
Would you please note the President's campaign proposal was not merely to bring down the capital gains rate on small business to 7 percent, as the stimulus bill now written would provide but, very importantly, eliminate capital gains for the sale of stock of small businesses and startup corporations.
If you wonder why the President's as well as my emphasis upon small business investment is--you know it better than I do, or as well as I do--70 to 80 percent of the new jobs are created in new business and you realize, in 2007, I believe it was, maybe it was 2006, whenever we had the latest figures, the only net gain in employment in the United States was in small business, while there was probably a downturn in big business at that time.
So we ought to move forward. What I would like to have you note is the main policy justification for preferential tax treatment for capital gains is because of the risk inherent in many investments in capital assets that are taxed at ordinary rates would discourage risk-taking, because ordinary tax treatment would take a large share of the upside but would not help the taxpayer in the case of the investment not working out, on the downside.
To correct this imbalance in our law, capital gains are given preferential treatment. I explained to you the importance of giving to it small business because they are the employment machine of our free market economy. This argument concerning risk-taking is especially strong regarding investment in originally issued stock from small corporations such as we are discussing in this legislation, in a little smaller way.
With small corporations especially, it is still in startup mode and still raising new capital. The risk of failure is especially high. That is even more so, given the fragile nature of today's economy, which leads me then to my next two points: I have spoken about the importance of the stimulus bill being targeted and temporary; that is, if the word ``stimulus'' is to have any real meaning, the bill should be targeted and temporary.
The question is, Is this provision--I suppose you could raise it about the provision in the bill, which is a smaller version of what President Obama recommended. Is this provision concerning elimination of capital gains tax on the sale of small business corporation stock targeted and temporary?
Well, you know the answer is obviously yes on targeted. The provision is targeted with where relief is needed. One thing all of us heard over and over again is capital markets are one, frozen; two, people are not loaning money; and, three, they are not investing money in anything very risky, but rather than simply putting their money in Treasury bills or cash, very safe, risk-free places. So small businesses are starved for the capital needed to invest, and they need to invest in new capital, new equipment, and new employees.
What will it take to encourage people to invest new equity in small corporations? Well, I believe this provision will help by giving favorable tax treatment for such investment. Note that the favorable tax treatment described in this amendment will not be extended to the purchase of small business corporate stock on the secondary market. If an individual buys already-issued small business corporate stock from another individual, this does not get the new capital to the small business itself; rather, the favorable tax treatment described in this bill would only be for originally issued stock of corporations issued after the date of enactment of this legislation.
Why only for originally issued stock? Because that is the stock issued for direct capital injections from the investor into the corporation. By targeting this amendment in such originally issued stock, this will result in new capital investment in small business corporations where jobs are created in America.
Now, targeted, yes; temporary, yes. So the provision must be temporary under this legislation. This provision would only apply to the purchase of originally issued stock after the date of enactment, 2009 through January 1 of 2011. Of course, all of us hope our current economic problems will have eased by that date, 2011. Thus, to make sure this provision is targeted during the time it is needed most, it is targeted for the remainder of this year and next year.
According to the staff of the Joint Committee on Taxation, this provision has a 10-year cost of $1.5 billion. You can surely see that with the job creation machine small business brings about, this is a good investment. Please do not count on me to say this again, but I have the audacity to hope that this proposal will attract large bipartisan support, this proposal of the President is actually change we can believe in. I encourage support for that provision.
Going to another issue, a large portion of this bill is devoted to health care, so also I will bring up that. In the Senate, we are giving States more money for Medicaid; giving subsidies so people who lost their jobs can pay for health insurance and throw billions of dollars at pet projects related to health care.
Over in the House, they are going even further. They are expanding who is eligible for Medicaid, letting people stay on their employer's health plan for up to 35 years after they are fired and ultimately have the taxpayers foot that part of the bill.
Last week the Wall Street Journal summed up these reforms with an op-ed entitled, ``Democratic Stealth Care.'' Under the title, the article quotes:
With the Nation preoccupied by financial crisis, Democrats have been quietly working to nationalize health care.
Now, some may think this is just a conspiracy theory, but between the Children's Health Insurance Program last week and now the stimulus this week, I begin to wonder.
The Government-run Children's Health Insurance Program alone is going to cause 2.4 million people to drop out of the private market, the private market where people already have health insurance and where they are already paying for it, and join the taxpayer-funded program and that probably the additional kids who need to be in that program will not be in it.
Now this is a big victory for the people who want the Government to change over our health care system. But they are not going to stop there. Some say Medicaid spending in this stimulus bill is meant to help States get people already enrolled. Well, who is going to argue with that? But I think you have to look at it beyond that.
If you just wanted to shore up existing Medicaid programs, why does this bill provide billions more than what the Congressional Budget Office says States will actually need to meet that responsibility? When we marked up this bill in the Finance Committee, I said: Anything in this stimulus package should meet the three Ts test that we hear: timely, targeted, and temporary.
But that also applies to these health provisions. Well, I do not see how giving States billions more for Medicaid dollars than they need so they can add more people to the program we already cannot afford meets any of these tests. I am not saying that about people who are unemployed and would otherwise qualify, I am talking about beyond that. It also is not very targeted to give the same CEOs who got $18 billion in bonuses last week a Government handout to buy health insurance. But under this bill, you can get a subsidy to pay for health insurance regardless of how much you make.
The budget deficit for this year is already targeted and projected to be over $1 trillion. After the stimulus bill and other legislation, the deficit is going to grow to over $2 trillion. It is critical that we must be fiscally responsible with these taxpayers' dollars. I do not see how giving a millionaire, who maybe got fired from a corporation, money to buy insurance is fiscally responsible. But this legislation allows that because there is not an income cap for getting on Medicaid.
The Wall Street Journal article I mentioned goes on to say: ``In this new health care nirvana, even the rich are welcome.''
It also says that: If you add it all up, ``the Democrats may move ten million more people under the Federal health umbrella in just 4 weeks.''
This certainly sounds, of course, like a big step toward too much Government-run health care for this Senator. I thought Republicans and Democrats were going to work together on our reform of our health care system. Well, I must have missed some memo along that line because it looks like this bill is taking steps a lot further with things that are normally in a health care reform package.
Quite frankly, we do have a bipartisan process going on that I am a part of. I am glad to be a part of it. But some of those moves make me somewhat cynical.
On another point, something in this stimulus package appropriates money for the National Science Foundation. I wish to speak about an issue there. Not that they should not have the money, but we have to change things at the National Science Foundation if that money is going to be spent wisely. Last week, I sent a letter to the National Science Foundation asking about the inspector general's semiannual report. The IG found extensive use of National Science Foundation computers to view sexually explicit material.
A particularly severe incident described in the semiannual report involved a manager at the National Science Foundation spending, would you believe it, up to 20 percent of his official worktime viewing pornography, over a 2-year period of time, at a cost to taxpayers, us, just for his salary of $58,000. Now, he is no longer there.
But there is a culture hit there that encourages this sort of thing. The IG estimated that, obviously, that is a waste of taxpayer money and spoke about that.
As my investigators began digging around the National Science Foundation, they found that pornography is not necessarily the main problem. It is only a sign that the National Science Foundation has not been subjected to too much scrutiny over the years. We are going to put a damper on that misuse of taxpayer money, because I have some very powerful cosponsors of my amendments in Senator Mikulski and Senator Shelby, who are the chair and ranking member of the Appropriations subcommittee that oversees the National Science Foundation budget. They are also involved with the extra money for the National Science Foundation in this stimulus bill.
To make sure the National Science Foundation gets a very clear message that Congress is serious about ensuring accountability of taxpayers' money, this amendment freezes $3 million of the additional billions of dollars going to NSF for a short period in the money that is going as operating funds directly to the Office of Director of the National Science Foundation. This money will become available when the National Science Foundation Director does what he is supposed to be doing. If he had been doing that, we wouldn't have these problems we are trying to fix.
The tasks are, No. 1, the National Science Foundation Director needs to submit a report to Congress detailing the steps the National Science Foundation has taken to remove pornography from the foundation computers. By the way, this report is only based upon one server. I don't know how many servers they have, but they have, obviously, more than one that needs to be gone through. The inspector general found problems after searching that one and believes there is a more extensive problem.
No. 2, the National Science Foundation Director submits a report to Congress detailing an appropriate response of the National Science Foundation IG semiannual report where all this information came from. This will include actions taken to stop people watching pornography while on the job at the National Science Foundation.
No. 3, the National Science Board needs to hire an independent general counsel. The board is supposed to provide oversight over the National Science Foundation, but they have been relying on the National Science Foundation's own attorney for legal advice. This is pretty silly and raises concerns about the independence of the National Science Foundation's own attorney. So we are going to want them to have somebody more independent.
I am certain this will not fix all of the problems at NSF, but with the help of Senators Mikulski and Shelby, we are on a road to making this organization more accountable to the taxpayers. We will have a lot more work to do at the agency, but I am happy that Senator Mikulski is in position there.
In the $800 billion bill we have before us, it calls for more congressional oversight. I know most everybody knows that. But I want to point out some problems we have to take care of to make sure all Members of Congress are able to do congressional oversight with an amendment simply ensuring that we in Congress can keep a watchful eye on the extraordinary amounts of money being spent in the stimulus bill over the next 2 years. We need this oversight. Over the years, under both Republican and Democratic administrations, I have taken on the responsibility of asking a lot of the tough questions of the executive branch, regardless of whether the President was of my party or the other. Day in and day out, many Members of Congress--this one included--write letters asking questions about how laws we pass are being carried out. We ask about allegations of waste, fraud, and abuse that come to our offices on a regular basis. In order to get to the bottom of these allegations and truly understand how executive branches under both Republicans and Democrats are conducting the people's business, it is not enough to rely upon assurances from bureaucrats that there is nothing to worry about.
We need access to documents, records generated by the agencies that we are trying to oversee. We need to access those records in order to act as a constitutional check on the executive branch to verify that what they are telling us is more than just spin. Documents and records created at taxpayer expense ought to be available to their elected representatives in Congress. It is that simple. It is fundamental to our constitutional system of checks and balances. Too often, however, unelected bureaucrats, sometimes political appointees, misinterpret the law and deny congressional requests for information without any legitimate legal reason for doing so.
My amendment would take away those bogus legal arguments by making the will of this body crystal clear. If an agency gets money under this bill and if the agency gets a request for records from the chair or ranking member of congressional committees, the agency must provide those records. A vote for this amendment is a vote to make sure that Congress has the information it needs to do its duty under the Constitution. We cannot act as a check and a balance if we allow ourselves to be kept in the dark about what is going on in the executive branch, particularly when we are appropriating almost $800 billion over the next 2 years as a stimulus.
I yield the floor.
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