Concurrent Resolution On The Budget For Fiscal Year 2010 - Conference Report

Floor Speech

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Mr. GRASSLEY. I thank the Chair, and I thank the distinguished chairman of the committee for those kind remarks, and I hold him in high esteem as well.

First of all, the budget we are voting on had bipartisan opposition in the House of Representatives. Seventeen Democrats voted against this budget. Most of those are what you call conservative Democrats, or whatever title they want. That is what I will call them--fiscally conservative Democrats. They think this budget leaves too much of a legacy to our children and grandchildren in the way of debt. So bipartisan opposition ought to tell this White House and this majority something, and I hope in time that will become very clear.

Today, the Senate begins its debate on the congressional budget resolution, and it will pass shortly, I am sure. The budget process started, of course, with the President's budget coming to the Hill on February 26. That was about 2 months ago. During the committee process--and I participated in that process, and I participated in the floor process--we faced one key question, and that was: Should we apply more or less budget discipline to the record debts and deficits of my President, President Obama, on what he inherited January 20, 2009?

Over the past few weeks, we have heard a lot about revisionist fiscal history or it might best be described as heavy editing of recent budget history. I was pleased to see the distinguished Budget Committee chairman make the record clear: President Obama inherited a $1.3 trillion deficit. I agree with that. I don't take exception to that. Those are quantifiable facts. Republicans don't disagree that President Obama inherited a large deficit.

One point of clarification, though, needs to be made. The deficit and the debt were bequeathed on a bipartisan basis. That was due to the makeup of the Presidency last time and the Congress over the last 2 years. The Democratic leadership obviously controlled the House and Senate during the years those budgets were drawn up--2007 and 2008. The Democratic leadership wrote the tax and spending bills President Bush signed in the last Congress. So congressional Democrats negotiated the bailout bill with the Bush administration. Those fiscal policy decisions, though at times very combative, in the end were jointly made on the one hand by a Congress, controlled by the Democrats, and by the administration, controlled by a Republican President. So it was bipartisan.

The antirecessionary spending, together with the lower tax receipts and the TARP activities, set a fiscal table of a debt of $1.3 trillion. That, in fact, was on the President's desk when he took over the Oval Office on January 20 this year. That is the highest deficit as a percentage of the economy in post-World War II history. Not a very pretty picture, Mr. President.

I have a chart here that shows that part of the story, and that part of the story is the gray there, as you can see.

As predicted a couple of months ago, that picture got a lot uglier with the stimulus bill. So for the folks who saw that bill as an opportunity to ``recover'' America, with Government taking a larger share of the economy over the long term, well, they can say: Mission accomplished. For those who voted for the stimulus bill--and I didn't--you put us on a path to a bigger role for the Government. Over $1 trillion of new deficit spending was hidden in that bill. It caused some of the extra red ink in this chart.

So I point to what is called the inherited aspect of the debt, and those are
the red bars on top of the gray bars--what was inherited.

I think supporters of that bill need to own up to the fiscal course they charted. Again, that is the red line, if you want averages, and it is the red bars for what has been done since this President has come to office.

To be sure, after the other side pushed through the stimulus bill and the second $350 billion of the TARP bill, CBO reestimated the baseline. A portion of this new red ink up front is due to that reestimate. The bottom line, however, is that reestimate occurred several weeks--several weeks--after the President and a more robust Democratic majority took over in January of this year. Decisions were made. And do you know what happens here? Decisions have consequences. So fiscal consequences followed.

The budget before us, for the most part, follows the fiscal trail blazed by President Obama. As the administration's top budget official said: This budget is 98 percent like the President's budget. I want to congratulate the chairman on keeping some of the tax priorities of the Senate, however. One deals with the alternative minimum tax patch. Although shorter than I proposed, it is dealt with over 3 years. The chairman also kept part of the Senate's middle-income tax relief.

But on both the tax and the spending side, we need to take a hard look at what is going on at the end of this budget term--2014. The budget resolution conference report claims to reduce the deficit from $1.7 trillion this year to about $520 billion in 2014. However, the final year of the budget fails to include the revenue loss from the alternative minimum tax patch for that year. It fails to include the revenue loss for fully extending the 2001 and 2003 middle-class tax relief, the President's Making Work Pay tax credit, the Medicare physician fix, and natural disasters, but it does include illusory, unspecified future discretionary spending cuts. When you add it all up, the thing it fails to do--or claims to do but doesn't--the conference report falls hundreds of billions of dollars short of its claimed deficit reduction.

So let's return, then, to the basic question I asked at the very beginning and also asked when we started the budget process several weeks ago. The question, once again, is this: Should we apply more or less budget discipline to record debts and deficits which my President, President Obama, inherited on January 20, 2009? This budget does answer that basic question. It makes the fiscal situation even worse. Inherited debt doesn't stay at its unacceptably high level; it doubles to 82 percent of gross national product.

So we have another chart here, with the red line going up toward the top in the 10-year outlook that the Congressional Budget Office shows to be over 80 percent. Abnormal deficit levels become normal deficit levels. Again, you see here what is normal and what isn't normal. Levels once considered a fiscal vice by most people--at, say, the peak during the Bush years--of 3 to 4 percentage points--here in the years 2007 and 2008, as you can see from the chart--are very dramatically dwarfed during the outyears of the President's budget. Fiscal vices become what? Fiscal habits, under this budget. I would ask anyone whether they define that plan as fiscal discipline.

Everyone in this body wants to help get our economy back on track. If the economy gets back on track, everybody wins. From a fiscal situation, there is no better policy development than growing the economy. More economy to be divided over an increasing population, so more economy for more people to have more. If we do not grow the economy, we have less for more people.

I think everyone in this body would agree that we ought to grow the economy. Likewise, we know small businesses are an extremely important part of our U.S. economy. I like to say that small business is the engine that drives the U.S. economy. President Obama agrees that small businesses have generated 70 percent of the net new jobs over the past decade, and most economists agree with that.

One month ago we debated the budget resolution on the Senate floor. During that debate, the Senate spoke on this point. Senator Cornyn's small business tax relief amendment passed by an overwhelming 82 to 16; in other words, 82 of the people in this body agreed with President Obama.

Senator Snowe had a similar amendment that was accepted by the managers of the floor bill. Last week the Senate spoke again. This time the question was phrased on a motion to instruct the budget resolution conferees on the importance of keeping taxes on small business low. The vote grew even more: 84 in favor of it, 9 against it. Unfortunately, the conferees did not adopt the Senate budget resolution protecting small businesses from tax increases.

America's small businesses have been suffering during this recession. We will hear it in our events back home--I do. A very good source of answers on the environment for small businesses is found in the monthly survey of small businesses, the survey by the National Federation of Independent Business, NFIB, a spokes-organization for small business. They are well known around here. They have been conducting this survey for 35 years.

The NFIB membership includes hundreds of thousands of small businesses all across America. I encourage every Member to check out this important survey and particularly this month's survey.

This survey shows some extremely disturbing trends. On credit availability, small businesses are getting squeezed very hard. We have a chart that shows this trend. Particularly, look out here at the year 2009 on the right side of this chart. It is way down as far as the percentage change compared to before. This credit crunch and other factors have contributed to a near record low in the NFIB's index of small business optimism.

I have a chart that puts this data in perspective. We have here, over a long period of time, the optimism of small business. What you see is the attitude of decisionmakers in small business America. Those are the decisionmakers for businesses that President Obama and Congress agree are the businesses most likely to grow or contract jobs. The pessimism is at its second lowest point in those 35 years of surveying. The data should concern every policymaker in this town.

As bad as the two sets of data are, it gets even worse. This chart shows the net increase or decrease in small business hiring plans. The survey asks the business owner whether he or she planned to expand or contract employment over the next 3 months. As you can see right here, it is very negative. This chart shows small business activity contracting tremendously. Small business hiring plans are at their most negative level in the 35-year history of this survey.

With this pessimistic environment, we should not be surprised, then, that small businesses are hemorrhaging jobs. The President's recent efforts to increase lending to the small business sector are commendable. The centerpiece of the President's small business plan will allow the Federal Government to spend up to $25 billion to purchase the small business loans that are now hindering small banks and lenders. Unfortunately, very well intentioned as it is, that is a drop in a very empty bucket. Remember, small business accounts for about half of the private sector.

Moreover, the positives that will come to small business from this relatively small package of loans which will ultimately have to be paid back will be heavily outweighed by the negative impact of the President's proposed tax increases on those very same small businesses, the business sector. Helping small businesses get loans just to take the money back in the form of tax hikes is not wise. It would be wise to make those loans possible, but these tax policies that the President is thinking about doing are going to hinder small business.

Don't take my word for it. Just today the National Federation of Independent Business wrote to all of us, all the Members of the Senate, on this point. NFIB's hundreds of thousands of small business owners oppose this conference report. I ask unanimous consent that a copy of that letter be printed in the Record.

There being no objection, the material was ordered to be printed in the Record

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Mr. GRASSLEY. Here is what the NFIB says in that letter:

NFIB is concerned the conference report assumes the top individual tax rates will expire, which would mean a tax increase from some small business owners.

Do we really want to raise taxes on these small businesses that create new jobs and employ two-thirds of all small business workers? With these small businesses already suffering from the credit crunch before the entire country, do we really think it is wise to hit small business again with this double-whammy of a 20 percent increase in marginal tax rates?

As we move forward from the budget process, the President and the congressional Democratic leadership have an opportunity to change course. From my 33 town meetings in Iowa during spring break, they want to change that course. There is a lot of concern about the legacy of debt that we are leaving to children and grandchildren. Both budgets would perpetuate the double whammy of constricted credit and high taxes directed at America's job engine, small business.

So as I close, in the coming months we Republicans will try to persuade our Democratic friends who have all the controls of fiscal policy to change course. One way they can change course is to focus like a laser beam on jump-starting the Nation's job engine--the small businesses of America. We need to reverse the direction of the sharply downward-sloping arrow that you have seen on some of these charts. That is where the President and the Congress agree that we need to get more job growth.

I quoted the President: 70 percent of the new jobs--small business. We in this party agree with that. As we move on from the budget, let's recognize the reality and the importance of small business.

I yield the floor.

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Mr. GRASSLEY. Mr. President, I would like to briefly respond to my friend from North Dakota, the chairman of the Budget Committee. The chairman was responding to my remarks on small business and the effects of proposed 20 percent higher marginal rates on small business owners.

The budget brought before us raises taxes on small business owners. There can be no question about it. Here is how it works.

The President's budget proposes to raise the top two marginal rates from 33 percent and 35 percent to 40 percent and 41 percent respectively, when PEP and Pease are fully reinstated. President Obama's marginal rate increase would mean an approximately 20 percent marginal tax rate increase on small business owners in the top two brackets.

Many of my friends on the other side will say that while they agree that successful small businesses are vital to the success of the U.S. economy, the marginal tax increases for the top two brackets will not have a significant negative impact on small businesses. The chairman appears to fall into this camp.

Proponents of these tax increases, like the distinguished chairman, the senior Senator from North Dakota, seek to minimize their impact by referring to Tax Policy Center data that indicate about 2 percent of small business filers pay taxes in the top two brackets. In testimony before the Senate Finance Committee, Dr. Bob Greenstein, director of the liberal think tank, Center on Budget Policy and Priorities, also used that figure. Moreover, Secretary Geithner has testified that this Treasury Department agrees with that figure. They argue that a minimal amount of small business activity is affected.

However, there are two faulty assumptions to this small business filer argument.

The first faulty assumption is that the percentage of small business filers is static. In fact, small businesses move in and out of gain and loss status depending on the nature of the business and business cycle. The nonpartisan Joint Committee on Taxation has indicated that, for 2011, approximately 3 percent of small business filers will be hit by these proposed higher rates. These statistics compare to a 2007 treasury which showed 7 percent of flow-through business owners paying the top rate. In the latest analysis, when the impact of the alternative minimum tax--AMT--is fully included, that percentage may drop some.

Small Business Administration--SBA--data provide evidence of the dynamic nature of small business. You can find that data on the SBA Web site in its frequently asked questions discussion. The website is www.sba.gov/advo. According to SBA, 67 percent of small businesses survive for 2 years; 44 percent of small businesses survive at least 4 years; and 31 percent of small businesses survive at least 7 years.

The second faulty assumption is that the level of small business activity, including employment, is proportionate to the filer percentage.

According to NFIB survey data, 50 percent of owners of small businesses that employ 20-249 workers would fall in the top two brackets. You can see it right here on this chart.

According to the SBA, about two-thirds of the Nation's small business workers are employed by small businesses with 20-500 employees.

Newly developed data from the Joint Committee on Taxation demonstrates that 55 percent of the tax from the higher rates will be borne by small business owners with income over $250,000. This is a conservative number, because it doesn't include flow-through business owners making between $200,000 and $250,000 that will also be hit with the budget's proposed tax hikes.

Now, as is frequently the case in debate, the proponent of an idea seeks to change the nature of the debate by changing the question. We witnessed a bit of that this afternoon.

Notice the distinguished chairman did not dispute the basic thrust of the points I raised. Instead, he said, we, on this side, used an unfair or inappropriate definition of small business. He cited examples of former Vice President Cheney and Microsoft founder Bill Gates, Jr. The point seems to be that the 750,000 flow-through small business owners, again those most likely to expand or contract their workforces, who will be in the bulls-eye of the 20 percent higher marginal rates, should be ignored. We should focus instead on one or two examples. The point seems to be that it is fine to target the large group of small business owners if you can find a Cheney or Gates example.

On this point, I direct the distinguished chairman and the full Senate to the Treasury Conference on Business Taxation and Global Competitiveness Background Paper. It was put out on July 26, 2007. The current Treasury is spending some time updating this data and will be incorporating the full effect of the alternative minimum tax--AMT--for 2011. If colleagues examine the study at page 20, table 3.3, they will find an insightful analysis. The study sorted Treasury data for flow-through entities. The analysis sorted the data to isolate active manager/owners from the broader pool of all flow-through filers. When so sorted, Treasury found that the lion's share of income and tax was still born by those manager/owners. I ask consent to have printed in the Record a copy of the Treasury table.

Even the Tax Policy Center, an institution in accord with President Obama and the congressional Democratic leadership's goal of raising the top rates on small business, shows a large slug of active small business income in taxpayers in the top two brackets. I will ask consent to include a TPC chart printed in the Record.

The proponents of a tax increase of up to 20 percent in the marginal rates of small business owners should bear the burden to disprove the concerns those on our side have raised. Perhaps they could work with Senator Snowe, Senator Cornyn and others to craft an exception that shields the small businesses that employ two-thirds of all small business workers from the tax increase. Pointing to an extreme example, like a Vice-President Cheney or a Bill Gates, Jr., may make great sound bites for politics.

It, however, will not amuse the small business owners who have worked hard to build a business. It won't amuse the workers they need to layoff. It won't amuse the suppliers they have to curtail purchases from. The bottom line is the budget contains a tax increase that is aimed at small businesses most likely to expand or contract. That tax increase is significant and real to those small business owners. They, not the politicians voting in the tax increase, will have to deal with the added tax burden.

Last week, a strong bipartisan group of 84 Senators agreed there is a problem here. We are raising taxes on Small Business America. We ought to be careful.

Throwing out a red herring involving Vice-President Cheney or Bill Gates, Jr. doesn't deal with the problem we have raised.

Mr. President, I ask unanimous consent to have the materials to which I referred printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD

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