Mr. President, am I right that we are prepared to proceed to the text of the conference reconciliation report? Mr. President, before I explain what is in the conference report, I want to make clear…
Mr. President, am I right that we are prepared to proceed to the text of the conference reconciliation report?
Mr. President, before I explain what is in the conference report, I want to make clear what the tax policy is we are talking about. For 90 percent of the legislation that is before us, we are talking about maintaining existing tax policy as it has been, either from the 2001 Tax Reduction Act or the 2003 Tax Reduction Act. The reason I want to take some time to explain that--and that is not part of my explanation of the conference report--is because the public listening in and/or my colleagues are going to be confused over the words ``tax cuts.'' For 90 percent of this legislation, we are not cutting anybody's tax bill. What we are trying to do because of sunset is we are maintaining for the next year, or in some cases the next 5 years, existing tax policy. So I don't want anybody to come over and say we are cutting taxes.
If we don't pass this legislation in the year 2006, or in some cases in the years 2009 and 2010, people are going to get an automatic increase of taxes without a vote of Congress. So we are talking about maintaining existing tax policy. The reason we are talking about maintaining tax policy would be for two reasons. In the case of dividend and capital gains tax policy, the tax policy we adopted in 2003 is the reason we have created 5.2 million jobs.
That is why the economy is rolling. I know the public is listening. When they pay $3 for gas, the $3 for gas blinds them to the fact that we had 4.8 percent growth last quarter. It blinds them to the fact that we have 4.7 percent unemployment, which is practically full employment, and some economists would tell you it is full employment, or that we have a low inflation rate.
It seems that when my constituents, and probably constituents in every State, see high gasoline prices, that is all that is on their mind. I don't blame them because I put gasoline in my car--I don't have some driver do it, I put it in myself--and I know what the price of gasoline is. I know a lot of my constituents go out of the same convenience stores I do with a bottle of water. Bottled water, if you buy it in these small containers, you are paying about $8 a gallon for water and never complaining about the cost for water but complaining about $2.63 gas that you can buy in Des Moines, IA, this very weekend.
We are talking with regard to capital gains as maintaining existing tax policy. Just so everybody understands, we are not cutting anybody's taxes below what they are today. We are maintaining existing tax policy. But if we didn't take the action we are taking today, taxes would automatically go up in these areas by 33 percent, and for low- income people, who have zero capital tax gains, they go up--what would that be? One hundred percent. If they are not paying taxes today and they start paying taxes at the rate everybody else pays, it is a 100- percent increase in taxes.
I don't know why people would argue with us, when we have a zero capital gains for lower income people, that you would want to tax lower income people. But if we do not continue this tax policy, that is the case.
I wish to emphasize again what Chairman Greenspan has said about the 2003 tax policy we are continuing today, and that is that it is responsible for the economic recovery we have had of 18 quarters of economic growth and 5.2 million jobs being created.
The other part of the bill is to continue tax policy existing since 2001. That existing tax policy is that 22 million Americans--well, no, I better say it this way. That tax policy since 2001 has been that when we reduce people's taxes here on the one hand, we are not going to take it away from them on the other hand by having them hit by the alternative minimum tax. I am going to explain this in greater detail, but up front, a good part of this bill is to maintain the policy Senator Baucus and I have had in place since 2001 of holding people harmless from the alternative minimum tax. In other words, if you get a tax decrease here, we are not going to have the same people pay a tax over here on the alternative minimum tax.
As far as the alternative minimum tax is concerned, I think the best policy is what we did in the late 1990s when this body sent to President Clinton a bill to repeal the alternative minimum tax, and he vetoed it. I don't know how many Democrats we are going to have condemning us for not doing more on the alternative minimum tax. What more could you do than what we did in 1999 and repeal a very bad tax policy, the alternative minimum tax? And a Democratic President vetoed it. But they will probably be the ones complaining and crying the most because we are not doing more.
What we are talking about here today is maintaining present tax policy through this reconciliation bill for roughly 90 percent of it. Ten percent of it would be some change in tax policy. If people want details on that, I will be glad to go into that.
Maybe another thing I ought to explain--and it is more personal because I am going to be the chief negotiator for the Senate on this bill because I am chairman of the Senate Finance Committee--I have negotiated for a long period of time with Chairman Thomas, and everything has worked out fine as compromises have to work out fine, and I think I have done a very good job of protecting the Senate's position.
Let me remind everybody, all of my colleagues, particularly Republicans, particularly about a telephone call from the President on the Thursday before we began our Easter break--the exact date I don't have in mind--and in meetings with the leader and the Speaker and all this, we were just very anxious to get something done before Easter. At that point, the position of the House was that we were not going to have hold harmless on AMT. Consequently, I didn't agree to this agreement. I believe I probably disappointed a lot of my colleagues and the leader and the Speaker and the President of the United States because I just didn't, how would you say, surrender to a House position that we were doing too much on AMT.
Our policy since 2001 has been hold harmless, and I believe that is what we passed three times on the floor of the Senate: in November last year, January this year, February of this year, as the Democrats made us go through three periods of 3 days of debate on the same tax bill that ended up passing by a bipartisan majority of somewhere between 64 and 67. So it has been the policy of the Senate since 2001, reaffirmed by three votes of this body in the last 6 months, to hold harmless.
I didn't believe I was doing 66 Senators a favor by agreeing to something which would have 3.5 million--let's say more accurately 2.5 to 3 million taxpayers being hit by the alternative minimum tax out of the 22 million to whom I have already referred. So it took a little longer, and here we are--what, May 11, 1 month later than when it originally happened. But we have hold harmless in this bill. Hold harmless is in this bill.
Everything is going smoothly between Chairman Thomas and me. Nobody is going to believe that because if you read the papers, we are always at each other's throat. You know, those characterizations are entirely wrong. He has strong convictions about tax policy, and he is the negotiator for the U.S. House of Representatives. He has a right to stand firmly for their positions, but I have a responsibility to stand firmly for the Senate position, with the understanding that someplace there are some compromises. I guess enough said on that point.
I have mentioned, in summation, before I go into explanation about the conference report, and this is the third time, but it cannot be said too many times because I don't know how many times you are going to hear today--in fact, we ought to count how many times we are going to say we are cutting taxes, we are cutting taxes, we are cutting taxes. Would you keep track of that for me? I want to hear how many times that is used. We are not cutting anybody's tax. Maybe we ought be cutting people's taxes, but we are not. We are maintaining existing tax policy as expressed by this body in the 2001 and 2003 tax bill so 22 million Americans don't get hit by the alternative minimum tax and so that we have incentives for investment and taxes don't go up, and capital gains and dividends, without a vote of the people in 2009 and 2010; so that we keep the incentives Chairman Greenspan said are the reason we are having the economic recovery we have had for 18 quarters, creating 5.2 million jobs, 4.8 percent economic growth, 4.7 percent unemployment, et cetera.
We have moved to the final step in the tax reconciliation process to which I have already referred that we dealt with three times and probably 3 days each time during November, January, and February. We have an agreement of the conferees from the House and Senate on a conference report. The basic objective of this conference was to produce a conference report that will pass both the Senate and the House and be sent to the President.
To achieve that objective, we needed to focus our efforts on a true bipartisan, bicameral compromise. As I said and will probably say again today--but you have heard me say it over the last 3 months to my colleague and friend, Senator Baucus--a compromise must be bicameral. Likewise, I said to Chairman Thomas of the House and to House conferees that the compromise should be bipartisan.
In the Senate, we passed a reconciliation bill for the second time but the contents of the bill for a third time, on February 2, with a bipartisan vote that included 66 Senators. So that obviously includes a vast number of Democrats.
My preference was to continue working in conference to produce a bipartisan compromise that could pass in the Senate. Unfortunately, I doubt if we will get 66 votes for this conference report. But I am very hopeful that we will pick up some Democratic votes.
Going into conference, everybody knew that the House bill and the Senate bill were significantly different. The centerpiece of the House bill was a 2-year extension of the 15-percent maximum tax rate on dividends and capital gains and the zero percent tax rate that will apply to taxpayers in the lowest two tax brackets. Such an extension would continue the bipartisan tax policy enacted in 2003, a policy which has been vital to our economy's recovery and continued growth.
The centerpiece of the Senate bill was a 1-year extension and modification of the alternative minimum tax hold-harmless provisions. This provision would keep 15 million American families from being hit by the stealth tax. The AMT is a stealth tax because you really never know when you are going to be hit by it. Hitting Americans with such a stealth tax, the alternative minimum tax, is wrong. So, as I said before, the AMT should be abolished. It is not abolished. We did vote to abolish it in the late 1990s, but President Clinton vetoed that. So here we are, since 2001, working in a bipartisan way to do what we call hold harmless.
As I said at that particular time, my highest priority was to make sure we kept our promise to make certain that no additional taxpayers are brought into the AMT system on an annual basis, and that is the purpose of the Senate's hold-harmless provision on alternative minimum tax.
I will expand on that notion for a moment and be somewhat repeating myself from my extemporaneous remarks,
but exactly 5 years ago today, May 11, 2001, Senator Baucus and I announced the bipartisan deal that became the basis for historic 2001 bipartisan tax relief legislation. I say historic because taxes were as high as they had ever been in the history of the country as a percentage of the gross national product.
When newly elected President Bush released his budget for that first year in 2001, his tax relief plan did not contain a general hold harmless on the alternative minimum tax, and the House passed a bill that did not have hold harmless provisions for the alternative minimum tax. When Senator Baucus and I were negotiating the bipartisan plan, we agreed on that bedrock principle of hold harmless--hold harmless on AMT so no new people would get hit with it. Because they got a tax decrease over here, we should not take their taxes away over here.
We agreed to make sure the AMT would not take the tax relief we were providing. This is how we came up with the concept we refer to as hold harmless. To me, it goes to a fundamental principle of transparency in government: Don't promise taxpayers relief that you know they are not going to really get.
Some of my friends on this side of the aisle--meaning Republicans-- rightly complain about doubletalk on alternative minimum tax that we hear from Members on the other side, Democratic Members, the Senators from so-called blue States. You remember the blue-red map in Presidential elections of 2000 and 2004? Blue States generally go for Democratic candidates for President, red States go for Republican candidates for President.
I am going to refer to the blue States which are those that generally vote Democratic. Senators from these States are generally hostile to the tax relief we have provided in 2001 and provided again in 2003, and seem to be sympathetic to tax hikes. They take this position despite the fact that their constituents in these blue States, and represented for the most part by Democratic Senators, tend to bear the highest per capita Federal tax burden. The hostility of these Members seems to grow to a white-hot intensity when anybody above, say, $100,000 in income benefits from any tax relief package.
It has always been a strange disconnect to those of us on this Republican side of the aisle because that intensity--and at times what appears to be outright anger--seems to grow as the States' shade of blue grows much darker. Ironically, the per capita income, living costs, and Federal tax burdens tend to rise as the shade of the State tends to get a darker blue. The implication appears to be that constituents in these blue States should be happy to bear this high tax burden as their Senators fight against tax relief for them. In fact, Members from blue States seem to have no limit to the level of Federal taxes they believe folks in their States should bear. Taxes can never be too high, goes the rationale, as long as we keep growing the public's dependence on more Federal programs.
When Members on the Republican side hear demagoguery on taxes emanating from Members from blue States on a daily basis that we shouldn't have tax cuts for high-income people, they ask, Why do these folks then seem to change their mind when we are talking about the alternative minimum tax? As you tend to get intense debate that we ought to do something about the alternative minimum tax from the same Senators who are complaining because we are giving too much tax relief to high-income people in their various States, and the AMT happens to most dramatically impact taxpayers between $100,000 and $500,000. How is this any different from other forms of tax relief? They are hot and heavy to have the AMT which helps their taxpayers in blue States, but they are not hot and heavy to have tax relief in the first instance when you vote to reduce tax rates.
If I go to some extent talking about this contradiction, it is a contradiction that affects and bothers a lot of people on the Republican side of the aisle. It is an argument we do not understand. Frankly, it is a sentiment I have to overcome in my caucuses as I argue for the AMT and for tax relief; and I have had to argue this contradiction particularly with my House counterparts as we go to conference to negotiate differences between the House and Senate and try to explain to them why we need to do a hold-harmless provision on
Mr. President, first, I will respond to some of the things that Senator Baucus brought up in his opening statement. He complimented me in our working through this, and I always have a good working relationship with Senator Baucus. And 90 percent of the time, or maybe more, he and I are on the same side of the fence. I remind people in the Senate that on three occasions, in November and January and February, we were on the same side of the fence on this issue.
The difference between us now is related to the extension of the capital gains and dividend tax credit that was not in the Senate bill at that particular time. And since it is not in the conference report, that is one of the reasons he and I are on separate sides of the fence.
I will respond to some of the points he made on extenders because they are not in the conference report. Senator Baucus's criticism is right that they are not in this bill. They are, however, covered in a collateral agreement between tax-writing committees and congressional leadership. And on a document basis for my saying that we will be dealing with those, even though they are not in the conference report, I ask unanimous consent to have printed in the Record a joint statement on a collateral extenders agreement, that they will be in a follow-on piece of legislation that ought to be before the Senate very quickly. These are not in dispute between the House and Senate. This is a product under negotiation, but these issues are no longer under negotiation.
Mr. President, on Senator Baucus's criticism of the charts that I used, let me say that the
charts reflect the data of the Committee on Joint Taxation. I explained how the Committee on Joint Taxation is a professional group, not a Republican group or a Democrat group. They are paid by the taxpayers of this country to be experts on tax policy. I challenge many of my critics, and the sympathetic ears that these critics have in the east coast media, to also use the joint tax data because in a lot of the presentations already, and today, we are going to hear statistics that don't come from the green eyeshade people who have no political ax to grind in the Joint Tax Committee but, quite frankly, come from liberal think tanks who do have a political ax to grind.
I ask Democrats to use Joint Tax Committee data. I think my friends on the other side have an issue with the perspective of the charts. The charts I used earlier take into account the tax savings taxpayers enjoy relative to their tax burden. Democrats tend to look only at the tax benefit. They ignore the taxes people pay. That is where there is a very real difference. It is philosophical. The charts I used are accurate.
On the number of taxpayers by State, the source is the Internal Revenue Service, not a conservative or liberal think tank.
Finally, on the need to do an extension now, just ask folks in the market whether this decision to extend the capital gains and dividend tax provisions ought to be done now or in the year 2008. We hear that it is very important to have a long-term tax policy if you are going to encourage investment, and that is why we are extending this now at this particular time.
I would also like to refer to some comments that were made by the Senator from New Mexico. He spoke about the impact of one of our offsets for policy long term, speaking about the Roth IRA being the wrong kind of policy to put in this bill.
It is interesting to hear my friends on the other side criticize the Roth IRA conversion provisions in the conference report. One would be led to believe that this protaxpayer provision is somehow an evil Republican idea that the Democrats have never seen before. But I am afraid that my friends on the other side of the aisle have a short-term memory. They are giving this Finance Committee chairman and my Republican colleagues too much credit.
I wish I could take credit for what is called the Roth IRA. Maybe it could be called the Grassley IRA. But I can't. There is another Finance Committee chairman, not a Republican, who first laid out the exact IRA conversion proposal that is in the conference report we are going to vote on today.
Way back in 1991, there was a chairman of the Finance Committee, a famous Senator from Texas, by the name of Lloyd Bentsen. He introduced the identical provision as part of what they called the Tax Fairness and Savings Incentive Act of 1991. If the Roth IRA--later named the Roth IRA--was tax fairness in 1991 when the Democrats wrote it, it is tax fairness in 2006 as it comes back in a conference report.
Chairman Bentsen's bill would have allowed all taxpayers, regardless of income, to convert amounts from traditional IRAs into the new Roth- styled IRA account that he also proposed. In fact, the only difference between Democratic Chairman Bentsen's original proposal and the provision in the conference report is Chairman Bentsen's bill would have given taxpayers 4 years to pay tax on converted amounts compared to the shorter 2-year period under the provisions in this conference report.
But some may ask: Was Chairman Bentsen just a lone Democratic voice in the wilderness on this issue without support from fellow Democrats at that time in 1991? Not surprising to those of us who had the honor of serving with Senator Bentsen, it wasn't just his idea. His bill was introduced with 13 Democrats as original cosponsors, and it has a prominent list of Democratic cosponsors, many of whom are still serving with us in the Senate today. In fact, I can point to my good friend from Montana, Senator Baucus, as one of the original cosponsors of Chairman Bentsen's bill. Let me name some others: Akaka, Dodd, Inouye, Lieberman, Mikulski, and Senator Pryor's father was also an original cosponsor. So this is not a new idea, nor is it a Republican idea. It is an idea which has had bipartisan support in the Finance Committee and the Senate for the past 15 years, ever since Chairman Bentsen first proposed it. Indeed, the Bentsen bill was just the beginning of a long bipartisan history of this provision. So why today is there not bipartisanship on this issue?
In the next Congress, after Senator Bentsen became Treasury Secretary under President Clinton, the bill was introduced. Senator Roth--who would, of course, later become Finance Committee chairman--introduced Senator Bentsen's former bill, including the proposal that would become known as the Roth IRA conversion proposal. Senator Roth introduced this bill with a bipartisan list of 57 original cosponsors, 24 of whom were Democrats.
In the next Congress, Senator Roth reintroduced his bipartisan legislation with 52 cosponsors, and 18 Democrats were cosponsors of that bill, including Minority Leader Reid and Senator Kerry. It was a good proposal for the Democrats then. So why is it not a good proposal today?
Democrats say they are concerned about the budget deficit, but we all know our deficit was much larger as a percentage of GDP in the early 1990s than it is today. The real question is, Do my Democratic friends really oppose this protaxpayer provision that merely creates a level playing field when it comes to access to retirement plans or do they only have this objection because the provision is part of a progrowth tax relief bill that the Democratic leadership has decided to oppose today?
The bipartisan history of this concept didn't stop when Democratic Chairman Bentsen became Secretary of the Treasury. Roth IRAs became law in the Tax Relief Act of 1997. The Senate version of that legislation allowed all taxpayers to convert traditional IRAs to Roth IRAs, the same as the conference report before us this very day.
That bill passed the Senate--now listen, that bill passed the Senate. The exact thing we are doing today passed the Senate by an overwhelming 80-to-18 bipartisan vote.
When an income limit was placed on Roth IRA conversions during the conference negotiations in the 1997 act, the Senate came back the very next year in the IRS Restructuring and Reform Act and again showed bipartisan support for expanding the eligibility for Roth IRA conversions. Expanded Roth IRA conversion eligibility was part of the Senate bill which passed unanimously 97 to 0. So obviously Democrats voted for it then. It was also included in the final conference report which passed the Senate 96 to 2.
I hope this makes it very clear that this isn't a provision which came out of thin air. This isn't a Republican proposal. This isn't a budget gimmick. This is a provision which Democrats have long supported. This is a provision which was proposed by a Democratic chairman of this committee. This is a bipartisan provision. And most importantly, it is a good provision. Good policy makes good politics. It is a protaxpayer provision. This is a provision which means all Americans have access to the same retirement plans. This is a provision which brings in real revenue to the Federal Government. This is a provision which will increase tax compliance in an area in which there is much room for improvement. This is a provision which rewards those who work hard, pay their taxes, and do what we need to do more of: save for retirement. That is why it has such a long history of bipartisan support. It also is why it is a very good part of this conference report.
I would think people on the other side of the aisle would be ashamed of damaging the very good image Senator Bentsen had as a U.S. Senator, as a Democrat, as chairman of the Finance Committee. Why don't they honor his reputation as a Senator and vote for provisions he had that are in this conference report rather than being so partisan?
Mr. President, my friend from Montana referred to a report published by Federal Reserve staff, and I would like to make a few comments on that.
The report compares U.S. and European stock values during brief periods of time before and after the lower rates were announced in late 2002 and enacted in 2003. Since U.S. and European stock values moved together, the report concludes that the lower rates had
no effect on the aggregate market value of U.S. stocks.
The report was written by members of the Federal Reserve staff. It does not represent the views of the Federal Reserve itself. In fact, Chairman Alan Greenspan has repeatedly testified before the Congress that lower rates on dividends and capital gains represents good tax policy, and Ben Bernanke has cautioned that not extending the rates soon could negatively impact the economy.
I am not an economist, but it seems to me that the analysis of these Fed staffers is overly simplistic for at least four reasons:
First, the analysis covers a very short period of time--2 months surrounding the President's proposal in January 2003 and 4 months surrounding enactment of the reduced rates in May 2003. Looking at such a short period of time, the Fed staffers only tried to determine if the news of the tax cut had an effect on the U.S. market. Now, I am a believer in the efficient capital markets theory to some degree, but it can't be that simple. Surely, the broader, longer term benefits of these lower rates on the economy should be considered more than simply the news of their enactment.
Second, the analysis essentially assumes away all other factors during that short period of time could affect U.S. markets and European markets differently. It is hard for me to understand how this assumption could be valid. If that was true, then why would anyone consider investing in European stocks as a diversification strategy?
There is a multitude of factors that would seem to affect the U.S. and European markets differently, given how complex the U.S. and European economies are. The Wall Street Journal article that described this report noted a few things that ``might have contributed to a rise in European stocks or a drop in the U.S. market during the review periods'':
In the U.S., some companies reported weaker than expected earnings, while some European firms reported strong earnings;
There was a terrorist bombing in Saudi Arabia that ``rattled'' the U.S. market;
There were concerns about the weak dollar.
Third, the analysis assumes that the impending war in Iraq would affect U.S. and European stocks equally. Again, I am not an economist, but I find this assumption hard to believe.
Fourth, the Fed staffers' analysis does nothing to convince me that taxing something less doesn't make it worth more. It is common sense that people value assets based on how much those assets put in their pockets on an after-tax basis. So if the Government taxes certain investments less, it makes those investments worth more, relative to other investments. Of course, there are many other factors besides tax policy that affect investment value. But we should do what we can in terms of tax policy to promote economic growth.
The Wall Street article concludes with a quote from Michael Thompson, director of research at Thomson Financial, that ``attributing stock market gains to one isolated factor risks being `intellectually dishonest' ''. It would be just as intellectually dishonest to point at this simplistic study as a reason to raise taxes on dividends and capital gains.
Mr. President, my friend from Montana criticized the charts I showed earlier that showed how lower income taxpayers, relative to their tax burden, have more at risk than higher income taxpayers. In light of Senator Baucus' criticism of those charts, I want to go into detail regarding how the statistics were calculated by my Finance Committee staff.
To get a clear picture of the relative benefits of this tax policy, I have taken another step in the distributional analysis.
I looked at the size of the tax benefits in relation to the total tax liabilities that these taxpayers bear.
The results of this analysis show that, among taxpayers who benefit from this tax policy, those with less than $50,000 of AGI benefit more from this tax policy, especially when the lower income tax rate drops from 5 percent to zero percent.
According to the JCT data, 6.3 million tax returns with adjusted gross income of less than $50,000 benefited from the reduced tax rates on dividends.
The aggregate total income tax liability of these taxpayers was $12.4 billion, which is an average of $1,968 per tax return.
In 2005, the lower tax rates on dividends saved these taxpayers $600 million in the aggregate at an average of $95 per return.
In 2008, if we assume the same data, the elimination of dividend taxes for lower income families will save them an additional $350 million, which is an average of $56 per return.
In total, this tax policy will save $950 million, or an average of $151 per tax return.
That produces a savings of 7.6 percent for these taxpayers.
Tax returns with more than $200,000 in adjusted gross income would save $6.5 billion in the aggregate, or an average of $2,964.
These numbers, of course, are much bigger than the savings numbers for the less than $50,000 of AGI category. But these numbers represent only 2.2 percent of this group's total tax liability.
The estimates for capital gains show that 3.6 million tax returns with under $50,000 of AGI will report a savings of $680 million from lower tax rates on capital gains, or an average of $189 each, producing a 10.2-percent tax savings.
Those with $200,000 or more in AGI will save $13.7 billion in the aggregate or $11,421 each on average. To be sure, these dollar numbers are much higher than the less than $50,000 group, but as a percentage of total tax liability, it is only 7.6 percent, lower than the savings of the less than $50,000 group.
And what about seniors?
2.4 million tax returns filed by seniors with adjusted gross income of less than $50,000 benefited from the reduced tax rates on dividends.
The aggregate total income tax liability of these taxpayers was $4.4 billion, which is an average of $1,833 per tax return.
In 2005, the lower tax rates on dividends saved these seniors $500 million in the aggregate at an average of $208 per return.
In 2008, if we assume the same data, the elimination of dividend taxes for lower income seniors will save them an additional $250 million, which is an average of $104 per return.
In total, this tax policy will save seniors $750 million or an average of $312 per tax return.
That produces a savings of 17.1 percent for these taxpayers.
Four hundred thousand tax returns for seniors with more than $200,000 in adjusted gross income would save
$2.7 billion in the aggregate, or an average of $6,775 each, representing a 5.7-percent savings.
The estimates for capital gains show that 1.5 million tax returns will be filed by seniors with under $50,000 of AGI, reporting a savings of $305 million from lower tax rates on capital gains or an average of $204, producing a 13.2-percent tax saving.
Seniors with $200,000 or more in AGI will save almost 3.8 billion in the aggregate or $12,633 on average representing a 10-percent savings.
Now, I have a couple charts that summarize the tax savings as a percentage of total income tax liability across AGI levels.
This chart illustrates the relative savings from reduced dividend taxes across AGI levels.
Opponents of this policy want to persecute these taxpayers by taking back their 2.2 percent savings.
But at the same time they will punish these taxpayers by taking away their 7.6 percent savings.
And they will punish these seniors by taking away their 17.1 percent savings.
This chart illustrates the relative savings from reduced capital gains taxes across AGI levels.
Opponents of this policy want to persecute these taxpayers by taking back their 7.6 percent savings.
But at the same time they will punish these taxpayers by taking away their 10.2 percent savings.
And they will punish these seniors by taking away their 13.2 percent savings.
As this data shows, the tax policy enacted by Congress in 2003 to lower taxes on dividends and capital gains has provided meaningful benefits to taxpayers across the income spectrum, not just the rich.
In fact, lower income taxpayers will save more than higher income taxpayers when measured as a percentage of total tax liability.
These lower rates have allowed millions of taxpayers to keep more money in their pockets to spend or add to their savings through reinvestment in the economy, rather than give it to the Federal Government to spend.
I yield the floor.
Mr. President, it is very unfortunate that when it comes to issues of taxes that we see hand-wringing and we read editorials about who is receiving the benefits of a reduction in taxes or, in this case, who is going to have to face an increase in taxes because that is what this is all about, preventing an automatic increase in taxes if we don't do anything.
With the AMT, the alternative minimum tax, it is going to hit millions of families next year if we don't do something. We are going to have an increase in capital gains and dividends in a couple years if we don't take action today on this bill.
We should think of this as a question of who is going to see an increase in taxes. That is why the title of this bill is so on point. The title of the bill is the ``Tax Increase Prevention and Reconciliation Act,'' and the key part of those many words is ``tax increase prevention.'' That is the key part of the title. That is what this bill is all about. This is not about cutting taxes further. How many times have we heard the words ``cutting taxes'' used on the floor of this body?
What we are doing in this bill is making sure that people don't get an automatic tax increase because of sunset, and because Congress doesn't have guts enough to vote for a tax increase, they can stop legislation like this and have a tax increase and never have to be on record in favor of the tax increase. But we are not cutting taxes. We are keeping the same tax policy that we had in the 2003 tax bill, in the case of dividends, and we are keeping the same tax policy in the case of the alternative minimum tax that we had in the tax bill since Senator Baucus and I negotiated that tax bill in 2001--in other words, to hold harmless 22 million more people who are not going to be paying that tax on 2006 income who didn't have to pay it on 2005 income.
I would like to discuss some of the points on this matter that I hope will help keep the feet of people on the other side of the aisle, and maybe a couple on our side of the aisle, on the ground.
Let's start with the basic fact that thanks to the tax cuts we have enacted during the Bush administration, we have now removed millions of people from the Federal income tax rolls. Millions of hard-working families now do not have to pay any Federal income tax and, as my colleagues know, many of these families can get benefits from what is called the earned-income tax credit which serves the purpose of offsetting some payroll taxes low-income people pay.
Let me make it very clear. If you are bad-mouthing the tax policies of 2001 and 2003 in this administration, are you saying that it was wrong to take millions of low-income people who previously had to pay some income tax off the rolls? They probably couldn't afford to pay a little amount of income tax, and they are no longer paying income tax. It just shocks me that I would hear people bad-mouthing that tax policy that was adopted in 2001 which, quite frankly, is a continuation of some tax policy that was adopted in other tax bills in previous years.
That is a fact of life. Thanks to our tax cuts, millions of low- income families and individuals no longer pay Federal income tax. Yet people love to pull their hair about the fact that we are not giving tax cuts to these same low-income people. It is a fact of life that we all looked at. This kind of talk stops me right in my tracks. It reminds me of city folk who start to farm, plant soybeans, and wonder why they are not going to get a corn crop.
It is this way: If you don't pay Federal income tax--and remember, we just took lots of people, millions of people, off the Federal income tax rolls who don't pay Federal income tax--if you don't pay it, it is pretty hard to cut your income taxes. If you don't plant corn, you are not going to get a corn crop.
Again, this bill is focused on preventing tax increases, not cutting taxes. So anybody on the other side of the aisle who says we are cutting taxes for this group or that group doesn't know what they are talking about because what we are doing is continuing existing tax policy. If they want to go back and argue that tax policy adopted in 2001 and 2003 is wrong, that we cut taxes way back then, that is an intellectually honest argument. But don't say we are cutting taxes in this tax bill because we are not cutting taxes anymore. We are keeping the tax policy where it has been.
I find it particularly interesting that we hear from the other side of the aisle that we should have done just the alternative minimum tax in this bill and not done provisions for capital gains and dividends. Often, these folks arguing this way are the same folks who are wearing their hair shirt ragged on this issue of who is going to get tax benefits.
Interestingly, the Tax Policy Center, which is so often cited by newspapers and Members, shows that if we had just done capital gains and dividends and not done the alternative minimum tax, that would have provided more tax relief for low-income families and individuals. Let me make sure my colleagues understand that point. By including capital gains and dividends, this bill provides more tax benefits to low-income families and individuals than if we had just done the alternative minimum tax.
So I suggest to those who think they should only do the alternative minimum tax, they should hang up their hair shirt. We all know the reality is that capital gains and dividends are encouraging investors, new businesses,
and as a result we get 5.2 million new jobs. We get 4.8 percent economic growth in the last quarter--18 quarters in a row of growth. I don't say that; Chairman Greenspan says that the tax cuts are responsible for turning the economy around and having this growth.
Let me further say that Chairman Greenspan has always had a great deal of credibility, and he still does. If he says it is better, then I say it. But if we can both say it, we are both right.
You create new jobs, new businesses. It is absolutely wrong to state that low-income families are not seeing benefits. They are seeing the benefits of these tax policies previously enacted by these 5.3 million new jobs created, and they will see these benefits in the future with more new jobs being created.
This has helped Americans at all levels. It is reported that the percentage of Americans earning more than $50,000 a year rose from 40.8 percent of the population to 44.2 percent of the population in just 2 years. While inflation is a factor--it is a very low inflation rate-- that still reflects real gain.
To reduce all of this to a spreadsheet of who benefits directly from taxes is an easy game, and it is a good tool of demagoguery. The truth is that all Americans will benefit from a strong, growing, robust economy that will continue when we pass this bill because these policies are working today, and if we continue these tax policies, they are going to continue to grow the economy, producing new jobs and, more importantly, better jobs.
I would like to focus on this issue of who is paying the taxes in this country because that argument vexes me when I hear it demagoged. I ask unanimous consent to have printed in the Record an editorial from the Wall Street Journal last week that says: ``How to Soak the Rich (the George Bush Way).''
Mr. President, I will highlight a few points from this editorial that is based on Internal Revenue Service data. After the tax cuts passed by Congress and signed by President Bush, the Federal income tax burden substantially shifts as a greater burden to the wealthy. Well, that must be a shock to people on the other side of the aisle. It says that after the tax cuts passed by Congress and signed by President Bush, the Federal income tax burden substantially shifted as a greater burden to the wealthy. It cites these statistics: Between 2001 and 2004, the percentage of Federal income taxes paid by those with incomes of over $200,000 a year and above has risen from 40.5 percent to 46.5 percent. The tax share paid by millionaires has risen, with Americans with incomes over $1 million going from 16.9 percent to 17.8 percent in 1 year, from 2002 to 2003.
And what have we gotten from the tax cuts in capital gains and dividends? Not only has it sparked the economy, as Chairman Greenspan gives it credit for doing, but in response to the cuts in capital gains and dividends, we haven't seen revenues from capital gains and dividends go down as part of our overall revenues. But the Wall Street Journal editorial states that capital gains receipts have increased 79 percent after the cut in capital gains and dividend tax receipts have gone up 35 percent.
We are seeing all this with the bottom line being that tax revenues have been increasing at an incredible rate. The Secretary of the Treasury noted in a press conference with me that we have seen double- digit increases in tax receipts in the last 2 years--hundreds of billions of dollars of taxes coming in. And I think I remember the figures that the Secretary of the Treasury gave. But first of all, before I give those figures, let me say there may be some people listening who think if you increase tax rates, you increase revenue coming into the Federal Treasury. Then there are people who believe that if you cut tax rates, you are going to cut revenue coming into the Federal Treasury. We are in an era where we are cutting tax rates, 2001 through 2003, and the surprise is--and this is probably a shock to some people--we had $274 billion more coming into the Federal Treasury in 2005 than in 2004. And with the continuation of that policy, right now, we have $137 billion more coming into the Federal Treasury than we anticipated in a 6-month estimate at this point in this fiscal year.
So it is working. That is why the title of this article that I am submitting is: ``How to Soak the Rich (the George Bush Way).''
Mr. President, there are studies that go around that say you can get marginal tax rates too high; that people that have some means are going to decide they are only going to pay so much money into the Federal Treasury. Then you know what they do? Instead of choosing productive activity to make money and pay more taxes, they decide: I am not going to pay any more. They choose leisure and do nothing, or do less. But when you reduce marginal tax rates, there is something about the wealthy: They are greedy. They are going to take advantage of the opportunity, and they are going to invest, make more money, pay more taxes and, in the process, create more jobs. That is what is happening in this economy today.
My hope is that my colleagues will see past the editorials and the rhetoric that make fun of what we are trying to do because they are too stupid to read the studies which show that you can lower taxes and have more revenue come in and recognize the reality that the wealthy are paying the greater tax, which happens when you reduce taxes, you increase revenue, because they are done choosing leisure and then they have incentives for productivity. Also, I hope my colleagues realize that low-income families have seen their Federal income taxes reduced as well, as best evidenced by those who are no longer on the rolls, or additionally what Senator Baucus and I got in the 2001 tax bill: The 10-percent rate. And people over here are bad-mouthing the 2001 tax cut. Do you want to do away with the 10-percent rate? Do you want to let that sunset in 2010 because you don't have guts enough to vote for a tax increase? Do you want it to go into place automatically and have a 50-percent increase in the tax rate of low-income people? It doesn't sound to me like you are very populace when you say things such as that.
The tax cuts have benefited all Americans by giving us a strong and growing economy, creating new jobs, 18 quarters of economic growth, 5.2 million jobs. We need to keep this economy going, and the way to help that along is not to increase taxes on middle-income people by voting against this bill that prevents 22 million middle-income people from being hit with the alternative minimum tax and to not increase taxes on those who invest in new or growing businesses that create new jobs. This bill is about preventing a major tax increase. A tax increase will hurt the economy. Don't take my word for it, take Chairman Greenspan's word for it.
Mr. President, I yield the floor.
Mr. President, the Washington Post printed on its front page yesterday a chart that was intended to show that the tax benefits in this tax bill go disproportionately to the super rich. The information was based on a study by the Tax Policy Center, along with the Center on Budget and Policy Priorities that has made no secret of its opposition to the tax relief included in this conference agreement. So there is a biased view.
I have had an opportunity to dig into the details of how that particular study was conducted. But if it is like similar analyses, the reported dollar savings statistics don't tell the whole story, and for three reasons:
First, it includes all households, even those that do not file tax returns or don't owe any tax liability, and even those that have a negative tax liability because they receive refundable credits.
In analyzing the distribution of the tax cut, it makes more sense to look at who actually receives the benefits as opposed to what they do. In other words, why include people who don't pay any taxes in the first place?
Second, the statistics in that study did not take into account the fact that the tax rates on dividends and capital gains for those in the bottom two income tax brackets drop to zero percent in 2008. That is that rate we are extending.
Third, and most importantly, the statistics are not shown in the context of the total income tax burden that these taxpayers bear. It is common sense that income tax cuts can only go to people who pay income tax.
Let me repeat that because I think the other side wants to ignore that:
Income tax cuts can only go to people who pay income taxes.
The value of the tax cut should be measured then not only in absolute dollar terms but also in relationship to the total income tax liability.
This conference agreement before us has two centerpieces, the alternative minimum tax hold harmless, which passed the Senate with 66 votes. The extension of lower tax rates on dividends and capital gains is the second provision.
If we applied the logic of including all tax returns in the various income groups and compare the AMT and dividend and capital gains tax savings to the total income liability borne by those groups in the aggregate, we can see that all of these groups receive meaningful benefits.
That is what the chart before us says. This chart was prepared by my Finance Committee staff, but it is based upon analysis of data provided by the Joint Committee on Taxation, not some liberal think tank that has its own ax to grind. The Joint Committee on Taxation is not Republican or Democratic--they are professional tax people who just study taxes up and down, and their economic impact.
As the statistics from the Joint Committee on Taxation show, all of these income groups receive meaningful benefits from this conference agreement.
In fact, the biggest beneficiaries are those in the $100,000 to $200,000 and $200,000 to the $500,000 AGI categories. The $100,000 to $200,000 and the $200,000 to $500,000 category.
The reason that shows up on the chart that way is not because of the reduced rates on dividends and capital gains that the other side is complaining about; it is because of the alternative minimum tax, the hold-harmless provisions that I fought to get completely the way the Senate had included them in this conference report.
Of course, it is strongly supported by the same folks who strongly oppose this conference agreement because of the extension of lower rates on dividends and capital gains, which I point out benefits low- income taxpayers more than the AMT relief--as we can see on the chart, $50,000 and under and the $50,000 to $100,000 category.
The core of this conference agreement is the alternative minimum tax hold harmless, which is the Senate position I fought hard for in conference. The other main provision is the extension of the lower rates on dividends and capital gains in combination with two provisions providing meaningful income tax savings to Americans across the income spectrum, not just the rich. These savings will prevent over 15 million Americans from being hit by the stealth AMT tax and allow those taxpayers and millions more to keep more money in their pockets to spend in the economy, adding to savings rather than sending money here for Members of Congress to spend.
Let me remind people of something brought home to me when I held a town meeting in Iowa. I never have anyone come in and say they are undertaxed, but I sure have plenty of people come in and say that Congress is wasting a lot of money. So every time we have a tax bill, people are complaining because we are not taxing more to reduce the deficit, and higher tax rates do not bring in more revenue. The people crying about that are the very same ones who are voting all the time to increase expenditures whenever they get an opportunity.
I also address one of the important measures in this bill, the tax gap. Last January, 2005, the Joint Committee on Taxation provided a report on possible options to improve tax compliance. This report suggested that one of the key ways to deal with the tax gap is to impose withholding on certain payments made by government entities. The joint committee report stated:
The lack of a withholding mechanism on nonwage payments
leads to substantial underpayment of tax each year and has
long been identified as contributing to the tax gap.
And a further quote:
Payments made by the Federal government and State and local
governments represent a significant amount of those annual
payments that are not subject to withholding. Imposing
withholding on nonwage payments made by the Federal
government and State and local governments would improve
taxpayer compliance, reduce the tax gap, and promote
fairness.
The problems of government contractors not paying tax has been a subject of very good oversight of the Committee on Governmental Affairs, particularly led by Senators Coleman and Levin, as well as the Government Accountability Office. The findings of the Government Accountability Office report in June of 2005 show that over 33,000 contractors owed over $3 billion
in unpaid Federal taxes as of September 30, 2004. Clearly, there is a serious problem. Fortunately, there is broad bipartisan support for a solution proposed by Joint Tax of a 3-percent withholding on government payments.
I think it important that my colleagues recall that this basic, same reform was included in an amendment offered by the ranking member of the Budget Committee on November 17, 2005. That was vote No. 330. This amendment, which included this provision, was supported by all but two of the Members of the other side of the aisle.
I am pleased that there is wide recognition of the need for this reform and that this is not a partisan question. However, I do anticipate that some Senators will want to make an argument that we should have implemented this reform much earlier.
Several points on that issue. This is a real break from previous practice and will require changes in business as usual by Federal, State, and local governments. It is for these reasons that the Joint Tax Committee recommended at a minimum there should be a 6- to 18-month delay before implementation.
It was unfortunate that the amendment from the ranking member of the Committee on the Budget did not allow for this time period for governments to prepare for this new requirement. In fact, rather than giving the time allowed as recommended by the Joint Committee on Taxation, the provision was actually retrospective. However, I understand firsthand the difficulties of trying to deal with revenue issues in a specific year, so the author of the amendment has my sympathy.
We chose to go beyond the period recommended by the Joint Tax Committee and give governments and contractors additional time to prepare for this new withholding requirement. Allowing for additional time was a point that brought greater comfort to conferees in considering this new legislation. Additional time would give Congress an opportunity to hear from parties. It may be possible that after the dialog, we will be able to move up the effective year to begin this important provision dealing with the tax gap.
Let me be clear. This is a measure which has bipartisan support. That is very positive. We need to work on a bipartisan basis to deal with the tax gap. This is a good first step. The only question, then, is possibly one of timing. I have erred on allowing government and the contractors to fully prepare for this new requirement and for the Treasury to issue regulations that will give guidance allowing for a smooth start.
I also take a moment to respond to something that was said this morning by my friend from Oregon, Senator Wyden, a member of the Senate Committee on Finance. He is up on tax legislation most of the time. His earlier comments about his provision to eliminate energy bill tax incentives for major oil companies needs an explanation that I don't think he is aware of.
In November of 2005, he offered an amendment in the Committee on Finance to eliminate the tax break known as G&G for geological and geophysical costs that major oil companies received in the Energy bill. His provision is in this conference report. I went to the conference with his provision, and I came out of conference with his provision intact.
In addition, we actually improved the original Senate amendment and increased the amount of tax revenue that is going to be raised over the 5-year period. The provision of my friend from Oregon resulted in a $101 million Federal tax benefits savings for the 5-year budget window this bill covers. Through conference negotiations, we managed to find a way to actually increase the revenue raised over 5 years from that $101 million up to $160 million, and we still respected the concerns in the original Senate bill.
Another point I make is that the original proposal filed by my friend from Oregon actually lost $88 million in Government taxes the first year. In other words, the way the original amendment worked, it actually gave major oil companies an $88 million tax benefit, and under the reconciliation rules, that would not work. We had to change the formula so that the provision raised tax revenue of $160 million over all 5 years of the budget resolution.
I want the record to reflect that I upheld my part of that bargain. This conference report holds up its part of the bargain on that provision. The major oil companies only received one tax benefit in the Energy Policy Act of 2005. This conference report removes the tax benefit the major oil companies received from the G&G tax incentive.
I yield the floor.
Mr. President, I spoke this morning about the bipartisanship and the origination of the idea behind the Roth IRA conversions, and how Senator Bentsen was the inventor of that idea, and how it had such broad bipartisan support. I supported it. It also had bipartisan support when Senator Roth introduced the bill. It had passed the Senate so many times by big, bipartisan margins.
We hear people on the other side of the aisle badmouthing an idea of one of the most esteemed Members of their party in the history of the Senate, Senator Bentsen of Texas, who was chairman of this committee in 1991, 1992, and was going to be chairman in 1993 and 1994, but he became Secretary of the Treasury. Now all of a sudden it becomes partisan that we are including that idea in this legislation. I don't understand it.
I have this response to what was said. I heard my friend on the other side try to argue that the provisions in the conference report that will allow taxpayers to make Roth IRA conversions is a budget gimmick. Was it a gimmick when Senator Bentsen introduced it? It is not a gimmick. Nothing could be further from the truth.
The Roth IRA conversion provision generates real Federal revenue. In fact, the nonpartisan Joint Committee on Taxation estimates that the provision will generate $6.4 billion in Federal revenues over the next 10 years. This is a provision with longstanding bipartisan support in the Senate.
The Democrats have also tried to argue that the Roth IRA conversion provision will actually make the Federal deficit worse in the long term. That, too, is not true. Roth IRA conversions merely change the timing of when individuals must pay tax on their retirement savings, accelerating tax payments in the case of those who convert. It does not result in a net change in Federal revenues over any long-term period.
In addition, critics choose to ignore a reverse effect of the various retirement savings incentives. Because congressional budget estimates are done on a 10-year basis, these estimates ignore distant revenue gains as well as losses. Because tax incentives for retirement savings basically and typically are front-loaded, the 10-year budget estimates generally reflect only large losses of Federal revenue. These estimates ignore the fact that the Federal Government will recoup the tax on that money and the associated investment gains when it is distributed later in retirement.
From a budgetary standpoint, the Roth IRA conversion provision only balances out a small part of this effect. If anything, this provision has the potential to actually increase receipts over a long period of time because it will lead to higher tax compliance as folks voluntarily pay their tax up front.
This provision brings in real money into the Treasury, it is good, and, most importantly, it is bipartisan--or I guess it used to be bipartisan. Today it is very partisan, and that is something I don't understand. How could you as Democrats be for something over the 1990s and not be for it now? Is it because maybe the Republicans are in the majority? It just doesn't make sense.
I yield the floor.
I appreciate my distinguished colleague from Montana, Senator Baucus, raising this concern. I can assure him that the changes made to the section 199 wage limitation were intended to target the incentive to domestic production activities. If these changes unduly harm the types of industries he has raised in a way that is inconsistent with this intent, I would be happy to consider revisiting this issue in future legislation.
