Service Members Home Ownership Tax Act Of 2009

Floor Speech

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Mr. GRASSLEY. Madam President, I thank the Senator from Montana for arranging that for me. I hope this afternoon to speak on the issue of importation of drugs because I support the Dorgan amendment. Right now I wish to address the issue of the Crapo motion to commit.

This generally deals with all of the tax provisions in this 2,074-page bill. If Senator Crapo prevails--and he should--the unrelated House bill, along with the Reid amendment, would be sent to the Senate Finance Committee. The Finance Committee, under the motion, would be empowered to return the bill to the full Senate with an amendment that eliminates the heavy taxes that are in this bill. Senator Crapo has discussed the impact of the Reid amendment on middle-class families. I will lay out all the taxes that are in this bill.

In farm country, many of us who work the land often observe big freight trains rumbling across the terrain. Sometimes they scare cattle, hogs, and other animals. Those freight trains are impressive in their power, in their speed, and now the length of the trains. It is very common to see a 100-car train, 150-car trains. The partisan force with which the majority is powering this bill through the Congress is equally as impressive as that of a freight train. The speed that is being displayed for such complex legislation is something to behold. Most importantly, the sheer number and breadth of the new taxes in this bill reminds me of a very long train.

Almost $ 1/2 trillion in taxes, fees, and penalties, and I think they all have the same economic impact, whether it is a tax, a fee, or a penalty--a negative impact on the economy. These taxes, fees, and penalties are so imposing, I am calling this 2,074-page bill the tax increase express.

The locomotive driving this train is health care reform, driven by the Democratic leadership. So we have the locomotive that drives this tax increase. I don't think the American public knows the bill would impose that much, $ 1/2 trillion worth of new taxes, new fees, and new penalties on the American people.

The American public, who supported President Obama with a majority of votes 13 months ago, heard the President loudly and clearly, and that is why they gave him such an overwhelming majority.

They understood our President pledged he would not raise taxes on people making less than $250,000 a year. Unfortunately, the Democrats' leadership bill would violate that clear pledge.

What are the tax increases and the fees and penalties in Senator Reid's amendment? Let me take a moment to highlight them because every locomotive needs power to run. The first power source, the first car of the tax increase express, is the so-called fees on health insurance companies, medical device manufacturers, and drug manufacturers.

That might not sound like something the grassroots of America would worry about--taxes on insurance companies, medical device manufacturers, drug manufacturers--because maybe they think businesses pay taxes. But businesses and corporations do not pay taxes, only people pay taxes. So when people find out they are going to be paying these, it puts a whole new light on what is a fee and what is a tax.

There have been numerous studies that have shown that these fees on, for example, health insurers will increase health insurance premiums. Some say premiums would increase by $488 for a family, other studies say $500. Most Members on the other side of the aisle take issue with these studies. They argue these studies were performed at the request of insurance companies or conducted by independent experts with ties to that same industry.

Let me ask my Democratic friends this: Do you question the work of the Congressional Budget Office and the Joint Committee on Taxation? Well, you should not because they are like a god around here. When the CBO says something is going to cost something, that stands, unless there are 60 votes to override it in the Senate. So most everything the CBO says stands. They have respect because of the intellectual honesty of their research and the nonpartisanship they have. So these agencies--the Congressional Budget Office and the Joint Committee on Taxation--have testified that these fees will actually be passed on to health care consumers. Check the record. No one can dispute it.

The Congressional Budget Office and the Joint Committee on Taxation have also testified that the fees will increase health insurance premiums. Check the record. No one can dispute it.

My friends in the Democratic leadership may say, once their health reforms are in place, premiums will go down, net of the fees. They will hail a recent CBO report highlighting the winners but somehow ignoring the losers. They will say these fees will not affect premiums for the vast majority of Americans. But here is the flaw in that assertion. The Congressional Budget Office analyzed premium costs, what they are projected to be in 2016 under this legislation.

What about premium costs right now in the years before these programs take effect--2010 and 2013? Why is this question important? The answer is, these fees go into effect in the year 2010, not when most of the expenditures go into effect in 2014.

The majority of the Democratic reforms which are intended to lower costs do not go into effect until 2014--4 years from now. I ought to say that 10 times because that is very important to how this bill came out to be revenue neutral.

So we ought to look at what happens in the years 2010, 2011, 2012, and 2013. Premiums will go up. Why? Because, for one, the Democrats are adding costs to the health insurance you buy by imposing these fees on health insurers, and they are giving you no government assistance to help with these added costs.

I would ask my friends in the media, dig a little bit deeper on this point, and you ought to be reporting on it. Why? Because the American public does not understand that in the short term premiums will go up. Instead, the public is simply hearing some media reports on a portion of the premiums, in 2016 and beyond. Of course, that is a very long time from now. The American public does not want to wait for their premiums to go down, if they go down at all. It appears my friends in the Democratic leadership want the tax increase express to barrel through Congress before the public realizes what health care reform actually means; that is, higher premiums as early as 2010.

Let me turn to the second car of the tax increase express. This car is the proposal to restrict the eligibility criteria for claiming the itemized deductions for medical expenses. This proposal says you can no longer deduct expenses that exceed 7.5 percent of your adjusted gross income. Instead, you can only deduct expenses that exceed 10 percent of your adjusted gross income.

In plain English, this proposal limits tax deductions you can take for medical expenses. In other words, you will lose a portion of your tax deductions. Even the New York Times calls proposals that would take away a portion of your tax deduction a tax increase.

Mr. President, I ask unanimous consent that article from the New York Times, dated February 26, 2009, 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. In the top line, the article says: ``President Obama will propose further tax increases on the affluent to help pay for ..... health care reform.''

I am highlighting this article because the President is also proposing to take away a portion of a person's tax deduction. The President wants to limit the itemized deductions people making more than $250,000 a year can take. The only difference between the two proposals is the medical expense deduction limitation affects people who make less than $250,000 a year--the same class of people the President promised in the election he was not going to increase taxes on.

So, again, do not take my word for it. Data from the Joint Committee on Taxation tells us that in the year 2013, the largest concentration of taxpayers claiming the medical expense deduction will earn between $50,000 and $75,000--people who never thought they were going to have their taxes increased based upon what the President said during the campaign.

The analysis shows, a good number of taxpayers earning between $75,000 and $200,000 also claim the medical expense deduction.

My friends on the other side of the aisle will argue that their government-subsidized tax credit for health insurance will wipe clean any new taxes for those people below 400 percent of poverty. They will also argue that people purchasing insurance through the new exchange will be protected from catastrophic expenses as a result of annual out-of-pocket limits. For this reason, my friends on the other side argue those middle-class taxpayers will not need to rely on medical expense deductions.

I hate to break it to my colleagues, but the Congressional Budget Office--again, that god of Capitol Hill--estimates that in 2014 only 4 percent of Americans will be purchasing exchange insurance and only 3 percent of Americans will be receiving a tax credit. By 2019, when the Reid bill is in full effect, only 7 percent of Americans with exchange insurance will be receiving the tax credit. That leaves a heck of a lot of people below 400 percent of poverty with higher taxes.

What about those individuals and families above 400 percent of poverty? These people earn income below the President's magic $250,000 level, and somehow they do not qualify for this tax credit. What they do qualify for, though, is a tax increase. After all, there is reason why this proposal raises $15 billion over 10 years, and that is a heck of a lot of money.

Let me now turn to the third car of the tax increase express. This car is the high-cost plan tax. The Congressional Budget Office has consistently cited the two most powerful ways to bend the cost curve downward, meaning the cost curve of health care inflation: No. 1 is to cap the tax preference for employer-provided health coverage or the so-called exclusion; and, secondly, Medicare delivery system reforms.

A recent letter sent to the White House by respected economists also contends that placing a limit on high-cost employer plans would slow health care spending and reduce costs.

Well, some of my colleagues have come out squarely in support of a cap on the exclusion. That was an intellectually honest position. My friends, the chairman of the Budget Committee and the chairman of the Finance Committee, took the intellectually honest position. The Democratic leadership, however, has squarely opposed a cap on the exclusion. They argue that a cap on the exclusion would hurt middle-class workers.

But in a sleight of hand, this bill--this 2,074-page bill--and its authors, the Democratic leadership, came up with a proposal that would tax insurance companies for offering high-cost plans. It is a more complicated way of taxing the same workers. It is a sleight of hand because the Democratic leadership knows the tax will be passed through to the worker.

My friends simply did not want to say they were taxing the workers directly. So they have decided to tax those same workers very indirectly. In the end, the worker would be paying the tax, and these workers would be middle-income workers.

Again, do not take my word for it. The Joint Committee on Taxation testified before our very Senate Finance Committee that the high-cost plan tax would be passed on to whom--the workers.

Joint Committee on Taxation data also indicates that in 2019, 84 percent of the revenue generated from the high-cost plan tax comes from--guess who--individuals and families earning less than $200,000 a year, contrary to the President's promise in the last campaign that these folks would not pay any additional tax.

So whether you agree or disagree with the policy of limiting the tax benefit for employer-provided coverage, middle-class workers would see a tax increase.

Let's go to the fourth car of the tax increase express. This car is going to carry two new tax increases. The first tax increase is on workers who contribute to a flexible spending account, better known as an FSA.

Under the current tax laws, a worker may contribute to an FSA on a pretax basis and use those FSA contributions to pay for copays and deductibles tax free. Currently, there is no limit on how much a worker may contribute to an FSA. This 2,074-page bill, put together by Senator Reid, would limit the contribution amounts to $2,500. Statistics show, the average FSA contribution is $1,800 a year. So this $2,500 limit does not sound that bad, right? Well, I say wrong. A great number of workers who have serious illnesses contribute significantly more than $1,800 and, let me say, more than $2,500.

On average--on average--these workers whom I am talking about with serious health problems earn about $55,000 a year. If I were to connect the dots, I would see a tax increase on workers with serious illnesses who earn $55,000 a year. Well, here is how. These workers would now have to pay taxes on their FSA contributions in excess of $2,500.

The Democratic leadership is taxing health benefits for the first time ever--at least this benefit for the first time ever.

The second tax increase in this fourth car is the elimination of the taxfree reimbursement for over-the-counter medicine. Under the current tax rules, payments for over-the-counter medicine may be reimbursed taxfree if a worker is covered under a flexible savings account or under a health savings account. This 2,074-page bill takes away that tax benefit.

The fifth car of the tax increase express is the new Medicare payroll taxes. Since the New Deal, the United States has put into place several social insurance programs. They are part of the social fabric of America. Included in those programs are Social Security, unemployment insurance, and Medicare. They are all founded on the social insurance concepts. As Senator Moynihan, when he represented New York, used to remind us, to ensure their constitutionality, these programs were designed to be financed with payroll taxes instead of insurance premiums. But to maintain the closest appearance possible to social insurance, the payroll tax looks a lot like a premium for insurance.

This analogy is very intentional. It is not accidental. It is bedrock to the sustainability and universality of social insurance programs that we all support: Social Security on the one hand, Medicare on the other.

The Reid amendment breaks that precedent, muddies the premium analogy, and could start us on a tax-hike-only journey to dealing with our unsustainable entitlement programs.

Let me explain that. The way the payroll tax works now is that every worker pays in based on his or her salary, wages, or small business income. That is a single, simple, and consistent tax base. Also, one tax rate applies to that payroll tax base. Now, for the first time--for the very first time--an additional second tax rate will apply to the payroll tax base. Also, for the first time in the almost 45-year history of this great social insurance program, we have before us a proposal that creates a marriage penalty in the payroll tax. Now think of the negative comments you get from a marriage penalty from grassroots America. So here we have a proposal that creates such a marriage penalty in the payroll tax. In other words, some married couples will be paying higher payroll taxes due solely to the fact that they are married. A tax on marriage? This is a direct result of this addition to the second tax rate.

Here is another matter that boggles the mind. The second tax rate kicks in if your wages exceed $200,000 if you are single and $250,000 if you are married. These dollar thresholds are not indexed. They are not indexed, so what happens then when you have inflation?

Another tax where the tax base is not indexed is the AMT. That ought to bring back all the horror stories about not indexing something timely when you first pass it. I think every Member of Congress knows that is an annual problem for us. In the late 1990s, commentators called the AMT the tax system's ``ticking timebomb.'' Fortunately, my friend, the chairman, and I started to diffuse this bomb in the 2001 tax legislation. It appears that my friends on the other side of the aisle have created another tax system ticking timebomb problem.

Finally, we have a caboose of this tax increase express. The caboose is the individual mandate penalty tax. It is a tax. It can be called a penalty, but it is a tax. All you have to do is have the IRS collecting it, as it does, and you know it is a tax. President Obama does not want to acknowledge that the penalty for failing to maintain a government-approved health insurance program is a tax, but it is right here in black and white. The Reid bill amends the Tax Code by adding a new excise tax. It is payable by those Americans who do not purchase government-approved health insurance.

I ask unanimous consent to place section 1501 of the Reid amendment in the Record, which adds this new excise tax to our tax laws.

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

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Mr. GRASSLEY. The kicker here is that CBO has told Congress that roughly one-half of those Americans who will pay this tax are individuals between 100 and 300 percent of poverty. These folks earn less than $250,000 a year. I see the light at the end of the tunnel that this tax increase express is going through. Unfortunately, that light at the end of the tunnel is the tax increase express.

We can derail the tax increase express if we want to.

That is why today I am supporting Senator Crapo's motion to commit the Reid amendment to the Senate Finance Committee. Senator Crapo's motion would require the Finance Committee report a bill back to the Senate that does not include tax increases, fees, and penalties included in the Reid bill.

Why should my Democratic friends vote in favor of the motion? Because they shouldn't want to bear the fallout of legislation that was rushed through Congress as the economic stimulus package was back in February. They shouldn't want to tell their constituents they voted in favor of a bill that increased their premiums. They shouldn't want to vote for a bill that raises taxes on many, only to provide benefit for a few. They shouldn't want to break President Obama's pledge not to tax people making less than $250,000 a year.

What my friends should want is real health care reform, the kind of reform that has broad bipartisan support. I have consistently said that if Congress wants to restructure one-sixth of the economy, it ought to be done on a bipartisan basis, and that is not one or two Republicans voting with Democrats. That is not happening around here on a bipartisan basis. We are debating this 2,074-page bill, a partisan product, a bill that was cobbled together by the Democratic leadership, a bill that has not received approval of the Senate Finance Committee.

I ask my Democratic friends to stop this process foul right now. Vote in favor of Senator Crapo's motion so we can do health care reform in the right way: on a bipartisan basis, in a transparent and open way, so that the American public can understand what we are doing; so the American public can be a part of the process; so that we can find a way to reform our health care system without burdening our constituents with these higher taxes, fees, and penalties.

Let's reduce the out-of-control spending in the Reid amendment and find savings within the health care system. Let's derail the tax increase express before it steamrolls over hard-working Americans and discourages employment, particularly employment in small business, where 70 percent of the new jobs are created. The taxes, fees, and penalties don't need to be the fuel of this locomotive fire.

I ask all of my colleagues to support Senator Crapo's motion to commit the Reid bill to the Finance Committee.

I yield the floor.

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