Service Members Home Ownership Tax Act Of 2009

Floor Speech

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Mr. GRASSLEY. Madam President, we had a very early vote, and it brings the health care reform bill obviously one step closer to final passage--at least it looks obvious that is going to happen. Regardless of whether the other side has 60 votes, my friends on the other side still have a problem they want to not have the public concentrate on; that is, that the pending bill still raises taxes on middle-income Americans. The Reid modification did nothing to reverse this fact.

I will take a few moments to illustrate the winners and losers under the bill. We start with a question: If a person is not receiving a subsidy for health insurance under the bill, then how can the person receive a tax cut? This is a relevant question because the White House and the majority leadership continue to proclaim that the bill is a ``net tax cut'' for middle-class Americans. For example, on Wednesday, December 16, a senior White House aide wrote:

The bill being considered represents a substantial net tax cut for middle income families.

So I think that statement begs more questions. Who do you believe? The White House, on the one hand, or on the other hand, the nonpartisan independent experts upon whom we on Capitol Hill rely for judgment--the people who are not political, the Joint Committee on Taxation?

This committee tells us that in 2019, a little more than 13 million individual families and single parents would receive the government subsidy for helping people under 400 percent of poverty buy health insurance. The Joint Committee also tells us that the number of tax filers in 2019 will be 176 million people. If people are wondering why we talk about 2019, it is the budget window from now until the end of the 10-year period of time that we call a ``budget window.'' That means out of--comparing this 13 million to the 176 million taxpayers, 13 million people receiving the subsidy and 176 million tax filers--that means out of that 176 million individuals, families, and single parents, only 13 million of them would receive a government subsidy for health insurance. That is only 7 percent of the tax filers. It is pretty important to understand that only 7 percent of Americans will benefit from the subsidy for health insurance.

We have a pie chart so people can see exactly what I am talking about. This says 176 million taxpayers, with 13 million receiving the subsidy. This means 163 million families, individuals, and single parents--or 93 percent of all taxpayers--will receive no government benefit under the Reid bill. What does that mean? It means there is a small beneficiary class under the Reid bill--7 percent. Thirteen million people will receive benefits under the Reid bill. A very large nonbeneficiary class--93 percent--will not benefit.

This nonbeneficiary class is affected in other ways. Yes, while one group of Americans in this class would be unaffected, another group of Americans will see their taxes go up. This group would not have a tax benefit to offset the new tax liability. That means these Americans will be worse off under the Reid bill.

It is legitimate to ask, for these 93 percent of the people, what happened to their net tax cut? What they will see instead is a net tax increase. Based on the Joint Committee's data, in 2019 42 million individuals, families, and single parents with incomes under $200,000 will see their taxes go up. This is even after taking into account the subsidy for health insurance. Again, this is on a net basis.

If we were to identify those Americans who are not eligible to receive the tax credit and those whose taxes go up before they see some type of tax reduction from the subsidy, this number will climb to 73 million Americans. The first bar on the chart illustrates what we have already established but looks at Americans earning less than $200,000. Right here, 13 million families and single parents and individuals would receive the subsidy.

The middle bar on the chart shows the net tax increase number of 42 million Americans under $200,000-a-year income. Finally, when we identify those Americans who get no benefit under this bill, and those Americans who see a tax increase, we find that there are 73 million individuals, families, and single parents under the $200,000 category. That is this group.

I want to close by referring to a final chart that illustrates the winners and losers under the Reid bill. What we see is that there is a group of Americans who clearly benefit under the bill from the government subsidy for health insurance. This group, however, is relatively small--8 percent of Americans, if you look at those earning less than $200,000.

There is another much larger group of Americans who are seeing their taxes go up. This group is not benefiting from the government subsidy, this group on the chart. There is another group of taxpayers who are generally unaffected, this 82 million here. The Joint Committee on Taxation tells us this group may be affected by tax increases that are not included in this study, like the cap on flexible savings accounts and the individual mandate tax that people are going to pay if they don't buy health insurance.

The bottom line is this: My friends on the other side of the aisle, first, cannot say that all taxpayers receive a tax cut; two, they cannot say the Reid bill does not raise taxes on middle-income Americans because we have the professionals who are nonpolitical at the Joint Committee telling us differently. No one can dispute that data.

I yield the floor and suggest the absence of a quorum.

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Mr. GRASSLEY. Madam President, my friends on the other side of the aisle continue to argue that the Reid bill eliminates the so-called hidden tax. They argue that this would reduce the cost of health care. For example, on Wednesday, December 16, a senior White House aide wrote:

Even if you believe that some of the tax on insurance companies is passed along, it would be more than outweighed by the benefits middle-class families would get from reducing the hidden tax they currently pay for the uninsured.

I don't believe the fees on health insurance companies will be passed through to the policyholders. I think it is just idiotic not to think they would not be passed through.

I want to flatout state I know they are going to be passed through. My authority for this is the Congressional Budget Office and the Joint Committee on Taxation telling us that fact. The CBO and the Joint Committee on Taxation told us that these fees will actually increase health insurance premiums. Premiums will go up because the companies are paying increased taxes under this bill. For insurance premiums to go up, under a title of a bill that encompasses health care reform, that is going in the wrong direction. Also, for argument's sake, let's assume my Democratic colleagues are correct and this so-called hidden tax that results from uncompensated care equals $1,000. The pending health care reform bill still leaves a large number of Americans uninsured. Specifically, the Reid bill leaves 23 million out of 54 million without health insurance at the end of this budget window, 2019. So, at best, the Democrats' reform cuts the hidden tax in half--in this case, to about $500 a family.

To add insult to injury, however, the bill adds new hidden taxes. These taxes are the fees imposed on health insurance. CBO and the Joint Committee on Taxation--two respected organizations--say this will increase costs. If you check the report, no one can dispute that. These fees go into effect in 2011--still 3 years before any of the major reforms under the pending bill kick in.

That means this hidden tax will increase premiums in 2011, 2012, and 2013. That is before there is any government assistance for health insurance being provided to families that need it. The new hidden tax is also created as a result of the Medicaid expansion on the one hand, and Medicare cuts on the other hand, a major cost shift in health care derived from government programs--Medicare and Medicaid--which reimburse providers at rates roughly 20 percent to 40 percent lower than private providers.

President Obama understands that paying doctors below market rates leads to cost shift. This is what he said at a townhall meeting on health care reform:

If they are only collecting 80 cents on the dollar, they have to make that up someplace else, and they end up getting it from people who have private insurance.

The Medicare and Medicaid cost shift will be increased significantly under the pending health care reform bill. According to the CBO estimate, Medicaid will be increased by more than 40 percent, from 35 million to 50 million people. Additionally, the bill includes almost $ 1/2 trillion in Medicare cuts that will result in lower payments to providers.

Increasing the current Medicare and Medicaid cost shift as a result of the Democrats' health reforms would add even more costs to a family's health insurance policy. The easier cost shift to address would be the $1,700 cost shift from defensive medicine. The Democrats do not address the cost shift from defensive medicine which former CMS Director Mark McClellan has estimated adds $1,700 in additional cost per average family.

Addressing this reform alone could save more than covering all of the uninsured in America.

So, you see, my friends on the other side say their bill will eliminate the so-called hidden tax. My friends seem to come up short on that one. Also, they add new hidden taxes that will burden middle-class Americans.

I think in the present situation, the legislation before us and the language used by debaters on the other side, they should be transparent when they are talking about getting rid of the hidden tax. The pending health care reform bill makes things from these three perspectives work.

Madam President, I will be happy to yield the floor for a minute for the purpose of a colloquy with Senator Baucus on another subject.

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Mr. GRASSLEY. Madam President, I would like to add to what Senator Baucus said by speaking positively on this issue and to remind my colleagues who maybe have been watching in the last 3 weeks and have seen Senator Baucus and I on opposite sides of the issue of health care reform--it is uncharacteristic for us to have different points of view on legislation. In the 10 years he and I have been leaders of the Finance Committee, most of the issues coming out of our committee have been very bipartisan. What he just talked about and what I am going to respond to is one of those issues.

I agree with Chairman Baucus that we should retroactively extend the expiring tax provisions as soon as possible after Congress reconvenes in 2010.

As chairman of the Finance Committee in 2005, I worked with then-Ranking Member BAUCUS, and we authored the biodiesel tax credit.

The biodiesel tax credit is a tax credit that is needed to be extended before the end of the year to prevent the U.S. biodiesel market from grinding to a halt on January 1, 2010. This tax credit differs from other tax provisions in that the price of biodiesel will be $1 higher on January 1, 2010, as a result of the tax credit not being extended before that date. That means people will simply buy petroleum diesel rather than biodiesel come January 1, 2010.

I point out that support in Congress for extending the biodiesel tax credit, I think, has been and still is robust, bipartisan, and bicameral, and that it has not been extended prior to January 1, 2010, due solely to issues unrelated to the merits of the biodiesel tax credit.

I want everybody to know that I agree with Chairman Baucus that the expiration of these tax provisions creates uncertainty and complexity in the tax law. I also agree that the taxpayers need notice that these tax provisions will be in place so they can plan their personal and business affairs to fully and efficiently use the intended tax incentives.

In addition, extending the tax provisions as early as possible in 2010, as we intend to do, will minimize the administrative problems created for the Internal Revenue Service.

I look forward to working with Chairman Baucus to retroactively extend these provisions as soon as possible when the Senate reconvenes in 2010.

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Mr. GRASSLEY. Madam President, there was a report released recently by the Chief Actuary, Rick Foster. I hope this report will once and for all put an end to any serious consideration of the CLASS Act. The CLASS Act is going to be in the bill, if this bill passes Congress. But it should not be in it, and we should have had a long discussion on this provision because it is simply fiscally unsustainable.

The information the Chief Actuary's letter provides is ample evidence of why the CLASS part of this bill cannot work. Quoting from page 13 of the Chief Actuary's letter:

We estimate that an initial average premium level of about $240 per month would be required to adequately fund CLASS program costs for this level of enrollment, antiselection, and premium inadequacy for students and low income participants.

So who would enroll in the CLASS program? An American making 300 percent of poverty has a gross income of $32,490. If the CLASS premium is, as the Chief Actuary predicts, $240 per month--that is $2,880 per year--and an individual at 300 percent of poverty would have to commit 8.9 percent of their income to join the program. That is simply not possible, nor is it plausible to argue that young, healthy persons will commit almost 9 percent of their income to long-term care insurance policy.

The people who will enroll then are those who have real expectations of using the long-term care benefit. People who join the CLASS program with the expectation of needing the benefit become the Bernie Madoffs of the CLASS Act Ponzi scheme.

An individual becomes eligible for the CLASS program after paying premiums for just 5 years. If a person pays premiums of $2,880 per year for 5 years, they would have paid a total of $14,400 in premiums for that program. That person can then begin collecting a benefit of $1,500 per month. In 10 months, the person will have recouped their 5 years' worth of premiums.

This simple explanation should make it crystal clear why the CLASS Act is a fiscal disaster waiting to happen, not based on our determination but based on the determination of the Chief Actuary. The premium will be too expensive to entice young, healthy people to participate. The benefit payout is very enticing for people who know they will need the benefit. Healthy people do not participate; sicker people will. This adverse selection problem will send the program into the classic insurance death spiral.

The Chief Actuary concluded on page 14 of his report with this one sentence:

There is a very serious risk that the problem of adverse selection would make the CLASS program unsustainable.

If the CLASS Act becomes law, the Federal taxpayers are at very serious risk of paying a price to clean up the fiscal disaster when the CLASS Act fails.

I yield the floor and suggest the absence of a quorum.

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