Small Business Jobs and Tax Relief Act

Floor Speech

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Mr. GRASSLEY. Mr. President, I didn't come to the floor to speak about the wind energy tax credit, but I wish to say to my colleagues on the other side of the aisle that I agree with them, and they probably know I agree with them because I am the author of the wind energy tax credit of 1992. I often tell people that when we worked so hard on that, I did not have the slightest idea it would turn out to be such a big thing; that Iowa would be second in wind energy production in the Nation. I think Texas is No. 1. For sure, I did not know we would have manufacturing in our State as a result of it. We have had companies come from Spain, from Germany and then we have had from Colorado and Arizona component manufacturers that have come to Iowa. There are about 4,000 people, maybe 5,000 people, employed in my State in that, so I hope we can get it reauthorized.

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Mr. GRASSLEY. Mr. President, I have come to the floor to speak about the issue of taxes--that is now a big issue--not about the issue the majority will set before the Senate to talk about today and tomorrow and however long it takes but the issue we heard about from President Obama yesterday, the talk about the need to raise taxes on those earning more than $250,000. We heard this from him again just yesterday, as we did last year quite a bit and the year before quite a bit, when he spoke in support of increasing taxes on the so-called wealthy.

In his speech yesterday, he made the following points: that those making under $250,000 deserve certainty and they deserve it now; another point is that it is OK to increase taxes on small business owners making more than $250,000 because those tax increases would affect less than 3 percent of the small business owners; another point, that those making more than $250,000 are not paying their fair share; and another point, that we cannot afford to extend the 2001 and 2003 bipartisan tax relief to these households because of the impact on the deficit; and last, that if Congress sent him a bill to extend the 2001 bipartisan tax relief just for those making under $250,000, he would sign the bill into law right away.

I come to the floor to highlight what the President is not telling the taxpayers. First, on the issue of certainty, the President fails to mention what his plans are for the dozens of tax provisions that expired at the end of last year and the dozens more that are expiring at the end of this year. These provisions affect everyone from teachers who dip into their own pockets to purchase school supplies to families and students struggling to pay for higher tuition. They also include key incentives for businesses to invest in new equipment and engage in research needed to produce the products of tomorrow.

The President also failed to mention what he would do about the alternative minimum tax that threatens an ever-increasing number of middle-class Americans each year, the same middle class that the President is telling the world he wants to protect--and nothing wrong with protecting the middle class. Over the past several years, legislation was enacted in regard to the alternative minimum tax to avoid and avert this crisis happening to the middle class, and we did it through a series of patches to increase the exemption amount so these 30 million middle-class taxpayers are not hurt with the alternative minimum tax.

The President also fails to mention whether he continues to support the middle-class tax increases he included in his budget proposal. This is how the President proposes to tax the middle class. Would he reinstate the personal exemption phaseout and the Pease limitation on itemized deductions? Additionally, would he impose a new 28-percent limitation on itemized deductions? Each of these provisions comes with its own income thresholds and phaseout rules that increase complexity and increase taxpayer burden.

Finally, the President fails to mention the tax increases he supported to pay for the health care reform legislation. These provisions include a bigger haircut on the deductions for medical expenses, lower contribution amounts for flexible savings accounts, and taxes on artificial knees and hips that medical device manufacturers have to pass on to the patients.

Given all the looming tax increases the President failed to mention in his speech yesterday, it is difficult to see how extending just the 2001 and 2003 bipartisan tax relief provides certainty to taxpayers, including small business. The President agrees they are job creators and engines of our economy, so the President recognizes a fact of life that middle-class small businesspeople are job creators. Unfortunately, he defends his tax increase this way on small businesses, by claiming the impact will be minimal because only 2 to 3 percent of the small businesses would be subject to this tax increase. What the President fails to mention is that this 2 or 3 percent account for a large amount of economic activity and a large amount of the jobs created. We often talk--people on both sides of the aisle--about small business providing 70 percent of the new jobs being created in America.

I wish to see how the Joint Committee on Taxation, which is a nonpartisan congressional organization--and I wish to emphasize the nonpartisan aspect of this because we often refer to them as authorities in this area. According to this joint committee, 53 percent of the flowthrough business income would be subject to the President's proposed tax increases--so as I said, 70 percent of the new jobs created here--but this 2 or 3 percent also accounts for about 25 percent of all employment in America.

The President claims he wants to give the 97 percent of small businesses a sense of permanence. Yet the tax relief for those in this group is only for another year. How do we get permanence if we only want to provide tax policy for 1 year? It does not add up.

The President continues to claim we cannot afford to extend tax relief for those earning above $250,000 because of our current deficit situation, but he fails to mention any ideas for reducing the deficit by controlling spending or by enacting tax reform, which is the only real way to provide a sense of permanence and eliminate the uncertainty we all agree keeps small and even larger corporations from hiring.

At the start of his administration, the President established the Simpson-Bowles Commission to come up with a framework to address our current out-of-control spending as well as to reform the Tax Code. The Commission issued a report over 1 year ago that included substantive proposals on how to reform the Tax Code. There are some proposals in the Simpson-Bowles plan I like and some proposals I do not like. I like that it would streamline the Tax Code, reduce tax rates across the board, broaden the tax base, enhance economic opportunity in the process. At the same time, it violates one of my core tenets of tax reform: that it not increase taxes overall. But the Simpson-Bowles plan is at least a serious proposal. I think most everybody recognizes that.

However, the President failed to embrace the Simpson-Bowles plan and offered a token framework for corporate tax reform. While the President agrees our current corporate tax rate is too high, his framework is overly vague and provides little in the way of simplification. Instead, as one commentator put it, his proposal on corporate tax reform simply ``rearranges the deck chairs on the Titanic.''

That being said, at least the President took a position on lowering the corporate tax rate to 28 percent. This is in stark contrast to his ideas on individual tax reform he put on the table yesterday. Even thinner on details, his overarching principle for individual tax reform seems to be the wealthy should pay their fair share. Yet after years of talking about the wealthy paying their fair share, he never defines what rate or amount of tax constitutes fair share for individual taxpayers. Adopting this rhetoric seems to indicate support for using the Tax Code to reduce income disparity between the highest and lowest taxpayers. However, data from the nonpartisan Congressional Budget Office--again I emphasize nonpartisan--shows the so-called wealthy already pay the bulk of the taxes and that our Tax Code is highly progressive.

I put a chart up. This chart will show that if all Federal taxes are considered, the top 5 percent of households pay an average effective rate of about 28 percent and account for nearly 45 percent of all Federal receipts. In contrast, the bottom 20 percent, as we can see, pay average effective tax rate of about 4 percent and account for less than 1 percent of all Federal receipts. All Federal taxes include individual income taxes, corporate tax, excise, and payroll tax.

The disparity is even greater when we only consider individual income taxes. This is actually a better measure, since the President proposes to increase just income taxes on the so-called wealthy.

If we look at the chart that is before us, we will see that the bottom 40 percent of households have an average effective tax rate below zero. In contrast, the top 5 percent have an average effective tax rate of nearly 18 percent and account for 61 percent of income tax receipts.

I have highlighted the top 5 percent in these charts because these are the households generally earning more than $250,000--in other words, these are the wealthy households, according to the President.

When we look at these numbers, it is fair to ask the President, once again, to define what he means by ``fair share.'' How high is the President willing to raise taxes to meet this objective? In other words, if this 5 percent is paying 61 percent of all the income tax receipts, how much more do they have to pay to satisfy the President in order to pay their fair share? In other words, define ``fair share.''

I have always stated that taxpayers should pay what they owe, not one penny more and not one penny less. Anyone who looks at my record will see I have fought long and hard to shut down loopholes and to ensure taxpayers of all income levels pay what they legally owe. However, I hold a fundamentally different view from the President on how the economy works and what the government's role should be and the rate of taxation in contributing to the government's role in enhancing the economy.

I believe the money one earns is that individual's money, not a pittance that a taxpayer can keep based upon the good graces of the government. I generally believe individuals have the right to enjoy the fruit of their success. I believe the best way to increase the wealth and livelihood of all Americans is through progrowth policies that increase the size of the economic pie, not by redistributing the pie based upon some unspecified definition of fairness.

I believe 18 percent of the gross domestic product of this country is good enough for the government to collect and spend, and for the most part it has been that way over a 50-year average of taxes. That benchmark of 18 percent is what the government has collected consistently regardless of the statutory tax rates. Whether tax rates have been high or low, they generally bring in about the same amount of money. In other words, just because they raise tax rates on the so-called wealthy people does not necessarily mean that we get the influx of revenue that some believe we will get. This is obviously something the President has not considered.

As I have done so often in recent years, I have come to the Senate floor to say we still end up with the same amount of money regardless of what the effective tax rate is because higher income individuals have the ability to choose the form of income they will receive. They also have a greater ability to decide when they will recognize this income, such as through the sale of stock, as a way to limit their taxable income in a given year. They also have accountants and attorneys to help them legally shield income from the view of the IRS. As taxes go up, so does the incentive to reduce one's income through legal and nonlegal means.

I have a chart that shows annual revenues as a percentage of gross national product in relationship to top marginal tax rates. This is in a period of time since World War II. So getting back to what I previously said, over a long period of time the revenue coming into the Federal Treasury tends to be about the same amount. I think this averages out to about 18.2 percent of GDP.

We can see during the Eisenhower years the marginal tax rate was 90 percent. Starting with Kennedy, it became 70 percent. Starting with Reagan, it became 50 percent. Once again, starting with Reagan, it came down to 30 percent. When Bush, the father, didn't keep his promise of, ``Read my lips; no new taxes,'' he gave in on that, it went back to 40 percent. Now under the 2001-2003 tax bills, it is at 35 percent. The President says we need to raise the tax rate back to this level.

As this chart shows, we can have high marginal tax rates or low marginal tax rates, but the people of this country have decided they are going to send just so much money to us bums in Congress to spend. So they decide how much we are going to get, and we can raise marginal tax rates, we can do what the first President Bush did, but we are still going to get about the same amount of revenue. So I hope the President takes that into consideration and also considers the negative aspect when marginal tax rates are reduced.

This means we are not going to be able to tax our way to surpluses. We are going to have to make substantial adjustments on the spending side to bring it in line with revenues. In other words, the bottom line of what I would like to tell the President is that the American people of this country have not come to the conclusion that they are undertaxed. They have come to the conclusion that Congress spends too much, and the problem isn't on the tax side; the problem is on the expenditure side.

History also shows that tax increases just lead to spending increases. Often on the floor of the Senate I quote Professor Vedder of Ohio State University who has studied tax increases and spending for more than two decades. Some of his research goes back to World War II. His most recent work on this subject was with Steven Moore and published in the Wall Street Journal:

Over the entire post World War II era through 2009, each dollar of new tax revenue has been associated with $1.17 in new spending.

So we raise a dollar here, and we spend $1.17 over there. It is pretty obvious that bringing in more revenue isn't going to reduce the deficit.

Another study by the National Bureau of Economic Research states that when it comes to fiscal adjustments:

Those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over Gross Domestic Product ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.

So we know increasing taxes, including on targeted groups, is not going to reduce the deficit. American workers and businesses deserve tax reform and tax certainty. There is bipartisan agreement that we need comprehensive tax reform. What we need to get that done is real leadership, to be sure.

Lack of leadership is not because of lack of interest. The Senate Finance Committee, on which I serve, has held more than a dozen tax reform hearings during this Congress. The Senate Budget Committee has also held tax reform hearings. What has been lacking is what is so important in this town, Presidential leadership.

The President's speech yesterday was just that, a speech. As I outlined, he spoke only about extending certain tax relief measures for those earning under $250,000. However, he failed to address other looming tax increases and failed to discuss how his other tax increase proposals provide the certainty that he claims he wants to provide.

It is easy for the President to engage in election year antics and goad Congress to send him a bill. Unfortunately, that is not leadership, and such speeches do nothing to help individuals and small businesses.

If the President really was concerned about preventing tax increases on the middle class and small businesses, he would at least be working with leaders in his own party to make sure they all agreed on who the wealthy in this country really are and who ought to have their taxes increased.

Democratic leaders in the House and Senate have signaled that they support extension of lower income tax rates for those making up to $1 million. In fact, a year ago this week, we in the Senate were debating the majority party's ``millionaire tax resolution.''

So if the President really wanted Congress to send him a bill that provided certainty to the taxpayers, he would make it a priority to get it done. Unfortunately, he is busy traipsing around the country raising money for his reelection. That is not leadership, and it is certainly not going to provide timely tax relief to the millions of taxpayers who need it.

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

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