Tax Extenders Act Of 2009

Floor Speech

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Mr. GRASSLEY. Mr. President, today, the Senate starts debate on expiring tax and health provisions, for people outside Washington. Around here, those tax provisions are generally referred to with the word ``extenders.'' But before I discuss the bill before us, I would like to make a couple points on the process, before I get into the substance of the substitute before the Senate. What I find surprising is, we are taking up a package that, similar to last week's exercise, absolutely belongs to the Senate Democratic leadership; that is to say, we are not taking up a bipartisan package that I put together with my friend, Finance Committee Chairman Baucus.

To be sure, some of the structure reflects the agreement I have with Senator Baucus, but this package is almost three times the size of the package we agreed upon. Virtually all the additional cost is due to proposals I would not have agreed to in representing the people of Iowa or the Republican conference.

I was under the impression the Senate Democratic leadership was genuine in its desire to work on a bipartisan basis, but clearly I was mistaken. Although the Senate Democratic leadership was highly involved in the development of that original bipartisan bill, they arbitrarily decided to replace it with a bill that skews toward their liberal wing. So my first comment to my colleagues, also to the media and to the entire Nation, is: Don't let this package be mislabeled as the Baucus-Grassley package. It is not the package my friend, Chairman Baucus, and I negotiated. Again, the package before the Senate dramatically differs in cost, balance, and dramatically is different in intent from the Baucus-Grassley compromise announced on February 12.

My second preliminary comment goes to the way in which these expiring tax provisions have been described by many on the other side, including those in the Democratic leadership. If you roll the videotape back a week or so, you would hear a lot of disparaging comments about these routine, bipartisan extenders. From my perspective, those comments were made in an effort to sully the bipartisan agreement reached by Chairman Baucus and this Senator. If you take a look at newspaper accounts of a week or so ago, you come away with the impression that the tax extenders are partisan work of Republicans and only for Republican interests. A representative sample comes from one report which describes the bipartisan bill as:

..... an extension of soon-to-expire tax breaks that are highly beneficial to major corporations, known as tax extenders, as well as other corporate giveaways that had been designed to win GOP support.

The Washington Post included this attribution to the Senate Democratic leadership in an article last week:

"We're pretty close,'' [the majority leader] said Friday during a television appearance in Nevada, adding that he thought, `fat cats' would have benefited too much from the larger Baucus-Grassley bill.''

That quote happens to be from the majority leader.

The portrait that was painted by certain members of the majority and was echoed without critical examination--and in some press reports was outright inaccurate. For one thing, the tax extenders included provisions such as deductions for qualified tuition and related expenses and also the deduction for certain expenses for elementary and secondary schoolteachers. If you are going to college or if you are a grade school teacher, the Senate Democratic leadership apparently views you as a fat cat. If your house was destroyed in a recent natural disaster and you still need any of the temporary disaster relief provisions contained in the extenders package, too bad because helping you would amount to a corporate giveaway in the eyes of some. Such distortion of the extenders--some of them have been on the books for a long period of time; some of them passing this body by consensus--belittles helping some people who have needs.

Again, I wish to say the tax extenders have been routinely passed repeatedly because they are bipartisan and, frankly, very popular. Democrats have consistently voted in favor of extending these tax provisions. Let me tell you what House Speaker Nancy Pelosi released recently, a very strong statement when the House passed these very same tax extenders at the end of last year saying this was ``good for business, good for homeowners, and good for our community.''

That was December of 2009, not very long ago.

In 2006, the then Democratic leader released a blistering statement ``after Bush Republicans in the Senate blocked passage of critical tax extenders American families and businesses are paying the price because this Do Nothing Republican Congress refuses to extend important tax breaks.''

Recent bipartisan votes in the Senate extending bipartisan tax provisions had come in the Emergency Economic Stabilization Act of 2008 and the Tax Relief and Health Care Act of 2006. By the way, that passed the Senate by unanimous consent. Then we had the Working Family Tax Relief Act of 2004, which originally passed the Senate by voice vote, although the conference report only received 92 votes in favor and a whopping 3 against it.

Let me give what the nonpartisan Congressional Research Service has to say about the history of these extenders which are now before us, which should have been passed in December. They have been consistently widely supported because they mention the Tax Relief Extension Act of 1999, which passed the Senate by unanimous consent and one vote against it on the conference report. One Member on the other side said:

Our side isn't sure that the Republicans are real interested in developing good policy and to move forward together. Instead, they are more inclined to play rope-a-dope again. My own view is, let's test them.

So we are testing each other when we are talking about merely reimposing some policy that has been on the books for a long period of time and just happens to sunset, to force some review by Congress.

We had another Member of this large 59-vote majority exclaim:

It looks more like a tax bill than a jobs bill to me. What the Democratic caucus is going to put on the floor is something that's more focused on job creation than tax breaks.

Reading these comments, I found myself obviously scratching my head. The only explanation for this behavior is, certain Senators decided last week it serves a deeply partisan goal to slander what had been for several years bipartisan and popular tax provisions benefiting many different people.

The Washington Post article I quoted from earlier includes a statement from a Democratic Senate leadership aide saying that ``no decisions have been made, but anyone expecting us immediately to go back to a bill that includes tax extenders will be sorely disappointed.''

You can imagine that, today, a little over a week after these comments, I scratch my head, once again. We have before us the expiring tax and health provisions that were disparaged just a short time ago. Have they morphed from corporate tax pork? Have they suddenly reacquired their bipartisan character? Are these time-sensitive items, now expired for more than 2 months, suddenly jobs related?

We are beginning another debate, a jobs bill debate. So I wanted to focus on the economy, small business, and jobs after giving you that partisanship that should not have existed a week ago, to explain that it existed and not much has changed since then, but all of a sudden there is some idea of being bipartisan.

So we are going to talk about the substance of this bill. We all agree our Nation is currently facing challenging economic times. While there have been some signs of improvement such as the recent growth in our gross domestic product, job losses continue to mount and many hard-working Americans are struggling to make ends meet.

According to the Bureau of Labor Statistics, over 8 million jobs have been lost since our economy officially slipped into recession in December 2007. The unemployment rate is currently 9.7 percent, which is simply an unacceptable level. The lack of job creation continues despite aggressive action taken at the Federal level in order to stabilize the economy.

This includes the enactment of TARP and the $800 billion stimulus bill. However, these bills were all missing a critical ingredient for spurring job creation, and that was substantial tax relief targeted to small business.

Everybody knows small business is where the jobs are created in America; 70 percent of the net new jobs. In October 2008, Congress enacted the Troubled Asset Relief Program that we all call TARP around here, T-A-R-P. That was a $700 billion financial bailout bill that we were told had to be enacted immediately in order to deal with the so-called toxic assets to keep credit from drying up, which would have choked off the lifeblood of the American economy.

What we actually got--because we sure did not take out these toxic assets. So what we actually got was direct infusion of cash into the largest Wall Street banks, which was 180 degrees different than what we were told by Treasury before that bill was voted on, and the purpose of that bill as well. Later came the bailout of General Motors and Chrysler using TARP money after the Senate had just voted not to bail out GM and Chrysler.

This inconsistent policy by Treasury created uncertainty in the financial markets and the business community. Moreover, exorbitant bonuses were paid to executives and the management of firms that would have been out of a job if not for Congress and Treasury and the Federal Reserve intervening.

How effective was the bailout in improving the credit markets? In October 2009, the Government Accountability Office released a report reviewing TARP's first-year performance. The GAO report found credit had improved based on certain market indicators. However, they were not able to determine how much, if any, was attributed to TARP as compared to general market forces or other Federal action.

While it is unclear the extent credit has been freed up as a result of TARP, it is clear who has reaped the benefits of those programs. This past year, many financial firms, including Goldman Sachs, JPMorgan Chase, and others who received TARP funds, posted record or near-record profits.

While Wall Street executives have clearly benefitted form TARP, small businesses and their employers have not been that fortunate. Small businesses continue to struggle to obtain credit in order to expand their operations, purchase inventories, and even make payroll. The so-called stimulus bill, enacted almost solely by an overwhelming Democratic majority in Congress last February, has not spurred job creation either.

This massive $800 billion spending bill was hastily rushed to the floor of the Senate with little time to deliberate its merit. Lawrence Summers, the Director of President Obama's National Economic Council, said:

The test for the stimulus is whether it is timely, targeted, and temporary.

This stimulus bill hit the trifecta. It has failed in all three. Through a report issued in January 2009 by the current Chair of President Obama's Council of Economic Advisors, Christine Roemer, the administration predicted that the stimulus would save or create 3 million jobs. We were told by the Obama administration that if the bill was not passed quickly we would experience unemployment of 9 percent.

At this point we have a chart. The middle line, where it says 9 percent, the White House projected unemployment at 9 percent with no stimulus. However, we were also told by the Obama administration that if the stimulus bill passed, unemployment would not go over 8 percent, and that would be the bottom line.

Well, the bill was passed. But what did we get for $800 billion of debt before interest that was laid at the feet of our children and our grandchildren? The unemployment rate jumped from 7.7 percent in January right before the stimulus was enacted, to a high of 10.1 percent in October.

While unemployment recently dipped slightly to 9.7 percent--you can see that is the red line at the top--this was not due to job creation but because millions of individuals have literally given up looking for work and obviously do not show up in the unemployment statistics.

The Obama administration also stated that ``more than 90 percent of the jobs created are likely to be in the private sector.''

In all, 3.3 million jobs have been lost since the stimulus bill was enacted. That is 3.3 million compared to the 3.7 million the President said. Of course, 3.2 million of those jobs were in the private sector.

In summary, the Obama administration was terribly inaccurate regarding its stimulus jobs projection. At the time the stimulus bill was passed, I raised concerns that the bill was not targeted enough at small businesses and job creation. However, my point of view lost out and less than one-half of 1 percent of the bill included tax relief for small business.

The money in the stimulus bill gave tax credits to people who buy electric plug-in golf carts or to pay for rattle-snake husbandry in Oregon, among other ill-advised provisions, which would have been better allocated to small business tax relief, the place where employment starts. Since the stimulus, small businesses have been bearing the brunt of job losses in our economy. However, the words of those on the other side regarding the importance of small business job creation do not match their action when looking at the paltry amount of small business tax relief being provided.

Again, in the jobs bill, or stimulus bill, or whatever you want to call it that passed the Senate last week, there was only one provision directed solely to small business tax relief. That was a provision I supported which increased expensing of equipment purchased by small businesses. But it is a very small provision. It only gave small businesses what they have already been getting for the last couple of years, just extending it; in other words, just extending that figure. That provision was only $35 million out of $62 billion, the $15 billion that everyone talks about, plus the $47 billion for the highway trust fund that is typically not mentioned.

Last year, I introduced S. 1381, the Small Business Tax Relief Act. My bill would double the amount of equipment that small businesses could expense and would make those higher levels permanent instead of just for 1 year, as the Reid bill did.

In my negotiations on the jobs bill, I sought to include provisions for my small business tax relief bill. But there was no agreement to put small business tax relief provisions for my bill in the bipartisan compromise that we reached. Instead, we were asked to defer those provisions to a future tax bill.

According to ADP, national employment data from January 2009 through January 2010, small businesses with fewer than 500 employees saw employment decline by 2.67 million jobs, while large businesses with 500 or more employees saw employment decline by 694,000.

While I am sure many of us disagree about the effectiveness of the financial bailout and stimulus spending in getting our economy back on track, I know for sure that we all agree there has been a lack of job creation and too many people continue to be unemployed. Because the stimulus bill has so clearly failed in what it was supposed to do, which was to create jobs, and the administration and the congressional Democratic leadership are running away from the word ``stimulus'' faster than the Triple Crown winning horse Secretariat. Everything proposed now is called a ``jobs bill'' even if it includes proposals that were always labeled ``stimulus'' in the past.

Only 6 percent of Americans believe the stimulus bill created jobs. That is less than the 7 percent of Americans who believe that Elvis is still alive. Last week, the Senate passed a bill that included provisions designed to increase hiring. This includes a payroll tax holiday for businesses that hire unemployed workers and a tax credit for the retention of newly hired individuals throughout all of 2010.

The payroll tax holiday part of this proposal is likely to spark some modest hiring at businesses at the margins among those who have seen some improvement in their business but are on the fence about whether to hire somebody now or wait a while. However, many businesses continue to struggle and will not hire new employees just because it is the stated policy goal of Congress.

Before a business can hire a new employee, they need to know that new employee will generate additional revenue that exceeds the cost of the employee. The latest survey of the Small Business Economic Trends--and that is produced by the National Federation of Independent Businesses, or NFIB, as we know it--shows that many small businesses may not be in a place that they can afford to hire new employees even with the provisions of that bill passing the Senate last week called the Payroll Tax Holiday.

I have a chart from the National Federation of Independent Businesses to which I now want to refer. That chart has selected components from the Small Business Optimism Index. While many components of this index improved slightly from December, it is clear that small businesses continue to struggle. You will see from the chart a net negative 1 percent of owners who plan to create new jobs in the next 3 months. You will see on the chart a net positive of only 1 percent of business owners expect the economy to improve. Only 4 percent of business owners said it was a good time to expand, and a net negative 42 percent of owners reported higher earnings.

This last component is especially important for businesses when it comes to hiring new employees. If earnings are declining, there is little a payroll holiday will do to spark hiring since businesses need to know that the revenue generated by the additional employees will exceed the cost, not just today but in the future.

Before I go on to this NFIB survey, at the grassroots of my State, I had the opportunity the previous weekend to spend part of a Friday and part of a Sunday afternoon in what is called the Des Moines Home and Garden Show which has probably been around for 30 years or so, that one weekend a year. On the Saturday in between, I had an opportunity to attend a like show called the Home Improvement Show in Waterloo. You walk around and talk to vendors, small business people. You kind of look at what do they expect Congress to do about creating jobs. I never got anything positive about something we might do, but I got a lot of ideas that they want us to do that said: You have to give us some certainty.

Do you know what they quoted. They quoted the big tax increase coming up at the end of this year as some of that uncertainty. They quoted the cap-and-trade tax that possibly could pass the Senate. Then they quoted the potential cost to small business because of the health care reform bill. They said: Take all of those potential things out of the picture, and we will start hiring. But it is the uncertainty that is out there of what Congress is going to do to us that is keeping us from hiring people.

I want to go back to the NFIB survey. When businesses are asked what the single most important problem facing their business is, the answer is lack of sales. That is in addition to the uncertainty I related. But this is closely
followed by what I did say, taxes, and then government regulation, and redtape. I am glad my colleagues on the other side have recognized that true job creation comes through the private sector and have thus sought hiring incentives through payroll tax relief.

However, this minor tax relief is a drop in the bucket considering the challenges small businesses face due to the economy and proposed increased taxes and redtape included in the President's budget. Whether we are speaking about cap and trade that will drastically increase energy costs, health care reform that would mandate small businesses offer health benefits that will increase the cost of labor, or the call for tax increases on so-called wealthy taxpayers earning over $200,000 that will largely fall on the backs of small businesses, if our intention is to increase long-term employment, the last thing we should be doing at this time of economic uncertainty is to increase taxes and place additional burdens on those who are responsible for creating 70 percent of the jobs in our economy; namely, small business.

Providing small businesses a payroll tax holiday while intending to impose increased taxes, regulations, and mandates amounts to throwing them a few peanuts while taking away their supper. In recent months, I have spoken at length about the impact of tax increases set to kick in 10 months from today. I have examined the impact of these tax increases on small businesses. I think Members ought to take a closer look at it before we actually enact big tax hikes.

The President and my colleagues on the other side of the aisle have proposed increasing the two marginal tax rates from 33 and 35 percent to 36 and 39.6 percent, respectively; increasing the tax rates on capital gains and dividends to 20 percent, fully reinstating the personal exemption phaseout for those making over $200,000, and fully reinstating the limitation on itemized deductions for those making more than $200,000.

With these two provisions fully reinstated, the individuals in the top two rates could see their marginal tax rates increase over 15 percent or more. My colleagues on the other side of the aisle respond that these proposals will only hit ``wealthy individuals'' and only a small percentage of small businesses fall into this category. I have been trying to tell them for 3 or 4 years that what they want to talk about, the small percentage of small businesses falling into that category--I will not convince them, because I don't know what they are reading--is wrong. Because small business is going to be hit very definitely by these increases. What my colleagues fail to understand is that the small businesses that fit into this group are not static but consist of different businesses over time that go in and out of the top two tax brackets depending on the market.

Data from the Joint Committee on Taxation, which is a nonpartisan official congressional scorekeeper on tax issues, shows that 44 percent of the flowthrough business income will be hit with the increase in the top two tax rates proposed by the President. This hits small businesses particularly hard since most small businesses are organized as flowthrough entities. It will increase taxes on single small business owners who make more than $200,000 per year, even if they plow all of their income back into their small business to keep paying their workers and hire additional workers. Increasing taxes on this group punishes their success and limits their ability to reinvest in their company. It prevents them from putting away funds for tough economic times to keep their business afloat.

Government is currently creating a climate of uncertainty where the private sector does not know what we will do next, what taxes will be raised, and what regulatory barriers will be put in their way. We can start to put some certainty back into the business world by declaring we will not increase taxes on businesses 1 dime, by making the 2001 and 2003 bipartisan tax measures permanent.

Let me be clear: Businesses do not want to be certain that the government is going to raise their taxes and make them go up through more redtape. They want to be certain that it is not going to happen. Until then, many will simply sit on the sidelines and not hire more workers, as I reported from my weekend before last at a couple affairs in the State of Iowa.

Moreover, we can directly provide targeted relief to small businesses. Last June, I proposed legislation to do that. I introduced the Small Business Tax Relief Act to lower taxes on job-creating small businesses. Since the Democratic leadership barred any amendments last week, I am hopeful we will debate and vote on an amendment offered by Senator Thune. Many provisions in my bill are contained in the Thune bill. My bill contains a number of provisions that will leave more money in the hands of small businesses so they can hire more, continue to pay the salaries of their current employees, and make additional investments. This includes allowing flowthrough small businesses, partnerships, S corporations, LLCs, and sole partnerships to deduct 20 percent of their income, effectively reducing their taxes by 20 percent. My bill also includes tax relief for small business owners from the unfair alternative minimum tax. It takes general business credits, such as the employer-provided childcare credit, out of the alternative minimum tax. This would allow a mom-and-pop retail store that provides childcare for its employees to get the same tax relief a Fortune 500 company gets when it provides childcare for its employees.

My bill would also allow more than nearly 2 million small C corporations to benefit from the lower tax rates for the smallest C corporations. There are so many small C corporations because they were formed as C corporations before other entities such as LLCs became more widely used.

Among other provisions, my bill would also lower the potential tax burden on small C corporations that convert to S corporations.

The NFIB has written a letter supporting my small business tax relief bill, stating:

To get the small business economy moving again, small businesses need the tools and incentives to expand and grow their businesses. S. 1381 provides the kind of tools and incentives that small business needs.

I want to talk about an opportunity for true bipartisanship that was killed by the Democratic leadership. The same day Chairman Baucus and I released a bipartisan bill that contained significant compromises, behind closed doors the Democratic leadership cherry-picked four provisions out of the larger bill Chairman Baucus and I agreed to. Those provisions had been agreed to in a meeting of senior Members of the other side only while Chairman Baucus and I were negotiating. I was extremely disappointed to see the Democratic leadership blow up the bipartisan deal Chairman Baucus and I reached. To pour a little salt into the wound, the Democratic leadership then prohibited any

Senator on either side of the aisle from even offering an amendment to improve a bill that he hijacked. One of the four provisions the Democratic leaders cherry-picked is Build America Bonds. If it had been just me drafting the bill, I wouldn't have included this provision. However, for the sake of bipartisanship and compromise in the context of a much larger bill, I reluctantly agreed that putting this provision in the bill would not cause the overall bill to lose my support. Build America Bonds is a very rich spending program disguised as tax cuts. Bloomberg reported that large Wall Street investment banks have been charging 37 percent higher underwriting fees on Build America Bonds deals than on other deals. Therefore, American taxpayers appear to be funding huge underwriting fees for large Wall Street investment banks as part of the Build America Bonds program.

Democratic leadership has said the Build America Bonds program is about creating jobs. I wanted to know whether it is about lining the pockets of Wall Street executives. So last week I asked the Goldman Sachs CEO a number of questions about these much larger underwriting fees subsidized by American taxpayers. I expect to have that discussion shortly.

Turning back to the bill being debated this week, the Thune amendment, which incorporates many of the provisions from my small business tax relief bill, provides substantial small business tax relief and should be adopted.

In this bill, I hope we can all work toward improving our economy, not through more government but by letting the engine of job creation, meaning small business, keep more of its own money in the form of substantial small business tax relief.

I yield the floor.

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