Mr. President, today, along with Senator Wyden, we introduce bipartisan tax reform legislation, a piece of legislation that we believe, and hopefully we can gather a consensus in this body to…
Mr. President, today, along with Senator Wyden, we introduce bipartisan tax reform legislation, a piece of legislation that we believe, and hopefully we can gather a consensus in this body to believe, is necessary to be a component of addressing the current fiscal situation.
The Senator from South Dakota just articulated very well the plight we currently are facing with our current Federal deficit and accumulating debt. I don't think I could have said it better than he did. He laid out what I think most Americans are now realizing, and that is we have to get a grip on our current fiscal situation in this country if we are going to provide any kind of opportunity for the future--for prosperity, for opportunity for our young people to get good jobs, buy homes, raise a family, and send their kids to college. And even in a more current sense, we need to get our economy moving again to the point where we can get people back to work and become a prosperous leading nation in the world. We are gradually, and accelerating all the time, losing that position because of our fiscal situation.
This morning, a number of us met--both Republicans and Democrats--in one of a series of meetings we have been having with outside experts. Dr. Carmen Reinhart and Ken Rogoff spoke to us this morning, both distinguished and respected economists, and others who have studied the situation, and they laid out the current status of our fiscal situation and the economic plight it is putting our country into. One of the things they said--and I think the reason I am on the floor this evening--is that unless we address all the aspects in dealing with our fiscal crisis, both in terms of excessive spending that is taking place, and has taken place over the last several years, as well as components for growth, we are not going to successfully address this.
We not only have to look at the spending which has accelerated dramatically in the last few years, and the amount of deficit we are accumulating every year, and the amount of debt we are rolling up, but we also have to look at ways of addressing that by cutting spending and also spurring the economy to growth. The component for growth pretty much falls along the lines of tax reform.
Senator Wyden had worked for 2 years with former Senator Gregg. They spent a great deal of time putting together a very comprehensive plan. Senator Gregg, as everyone here knows, retired after many years of distinguished service. He was recognized as one of the, if not the, leading proponent of budget stability, of economic growth, and of all the aspects that go into dealing with economic situations. He is greatly missed. I had the privilege of being his friend, serving with him, and then having him encourage me to take his place in moving this legislation forward.
I have spent the last 3 months working with Senator Wyden, who is coauthor of that legislation, along with Senator Gregg. We have made some refinements to this and we are introducing it today. We will be doing a formal introduction of it together in the coming days, but the agreement and the growing consensus we hear from everyone is that comprehensive tax reform has to be a component of addressing our fiscal plight and getting us back into a period of sustained growth.
S. 727 is the bill that will be available for people to look at--the Bipartisan Tax Fairness and Simplification Act of 2011. It simplifies our current tax system, it holds down rates for individuals and families, it provides tax relief to the middle class, and creates incentives for businesses to grow and invest in the United States.
As we know, with any structure that is built, the first thing you do is build a solid foundation. What we are trying to do in our tax reform package is to build that foundation based on several basic principles. We believe that to bring forward legislation on a bipartisan basis we have to have a tax package that is revenue neutral, that is not stereotyped or characterized as a backdoor means of raising taxes or of cutting spending. Revenue neutrality means we can go forward knowing it is not used for that purpose but for the purpose of putting in place a tax system that will stimulate growth, provide for better competitiveness for our industries and businesses, and make us a more prosperous nation.
Simplification is a key foundational principle, as well as protection for the middle class and families--fairness across the board. And as I said earlier, economic growth. I want to address each of those.
First of all, achieving a revenue-neutral bill. This has been analyzed by the Joint Tax Committee, and basically we have information back that it is revenue neutral. This analysis is based on a static basis. As we all know, if you put in place policies that will encourage growth and stimulate growth, it becomes a dynamic scoring. But CBO doesn't do dynamic scoring, nor does the JTC--the Joint Tax Committee. But nevertheless, even at the static analysis of this bill, it achieves revenue neutrality. It is our goal to maintain that throughout, as adjustments might be made.
Simplifying the Tax Code has to be one of the very first things we do. Today, the U.S. Tax Code is 71,684 pages in length, and it includes a tangled web of over 10,000 exemptions, deductions, credits, and other preferences. I took three tax courses in law school, and I don't begin to understand the 10,000-plus exemptions and deductions and preferences that are in there. I turn it over to an accountant, who spends every working hour of his week, every day of the year trying to stay up with the complexity of this Tax Code.
It is no secret that Americans spend 6.1 billion hours each year filling out tax forms, and roughly $163 billion a year is spent on tax compliance. It is a great benefit for accountants and tax lawyers, but the average person simply cannot begin to comprehend the complexity of this code, and we pay a significant price for that.
Along that line, people feel a real sense of unfairness in this. They are always wondering if their neighbor has a better accountant or a better tax attorney or has figured out a way to take advantage of a deduction or exclusion or a tax preference that they may not be aware of. You know: You are having coffee on April 16 and talking about filing your taxes yesterday and saying: Well, you did take the deduction for X, Y or Z, didn't you? Or how about that extra room in your house you use for business? Or did you know you can deduct the cost of pencils, but also driving down to pick up a latte, or whatever, if you are meeting somebody for business? This stuff goes on and on forever. And you think: Gosh, I didn't know that. He got a better deal than I did.
We lose our sense of confidence in terms of the fairness of the tax system. So simplification is absolutely essential. And for a 71,000- plus page Tax Code, I think it is an absolute necessity.
We reduced the number of tax brackets for individuals, first of all, from six to three. We also eliminate the alternative minimum tax, which means you have to calculate your taxes twice, in many instances, to see which one is the higher and which one you pay. That doubles the amount of time, or it adds a lot to the amount of time.
I want to point to this chart here on my right, the Wyden-Coats Tax Reform Act of 2010. This is what a simplified U.S. individual tax return form will look like if this bill is passed. It is one page. It incorporates, obviously, the information about who you are and whether you are married, your spouse's Social Security number and yours, et cetera, et cetera; whether you are head of household, these very simple provisions here that are on the tax form now. We can all figure out how to work through to here.
Right here, you list your dependents and their relationship to you, and you get their Social Security numbers and then to see whether you qualify for a dependent's deduction, and then you check those off.
You list your capital gains and your dividends here. Your total income is added together, and then you adjust that by some very simple retained exemptions that we have not taken out, and deductions, and tax credits, all still on one page. You come down to the payment, and you either get a refund or you owe the government a little more money. And that is it. Then you send it in.
We also have a provision in there if you don't want to do this yourself or you have some confusion. It is basic enough. You can do it electronically or by telephone or whatever, and ask the IRS to do it for you. They will calculate it for you, send it to you, so you can review it and then certify that it is correct or that you have questions that can be answered.
Point No. 1: Simplification is absolutely necessary. It can be done, and we have structured it so with three
brackets that allow us and allow individuals to fill out their taxes on the basis of this simple form.
Thirdly, after revenue neutrality and simplification, we are talking about how do we use this to grow the economy. Clearly, with the fiscal situation we are in today, we are not going to solve our problem just by cutting or by raising taxes. We need to have a growth component so we can achieve more revenue through the prosperity and growth of corporations and income levels of individuals and so forth. So we are reforming our code in a way to help us get out of this fiscal situation by improving the prosperity and growth of the country.
Our current tax system places the employers and businesses at a disadvantage in the global marketplace. If you look at this chart on my left, the United States, out of the 36 most competitive countries competing for global business around the world, is 35th. We are 35th out of 36 in the highest rate of taxes paid by our corporations, and they are competing against countries such as Germany, France, Austria, Turkey, Chile, and all these that are listed here--Asian nations and so forth--that have much lower combined tax rates than the United States.
We want to lower this level of payment of taxes in the United States by U.S. businesses to 24 percent from the current rate of 35 percent. If we go by a combined rate, it ends up with numbers a little different than that, but we want to move the United States down here into the competitive area where we are competitive with all those countries that we compete with to sell products overseas in this global economy. We do that and pay for it by eliminating a lot of the credits, special preferences, exemptions, and deductions that are available in those 71,000 pages, resulting in 10,000 or more special exemptions. We eliminate a lot of those in return for a lower corporate rate.
I talked with a number of businesses--small, large, and medium--that were saying if we can just get the rate down where we are competitive, we do not need to dig into the Tax Code to try to find all these special exemptions. It has been called corporate welfare. It doesn't always fall into that category. Some of this is legitimate, but it is not across the board. While it addresses problems of a specific industry or a specific company, it does not address it across-the-board in a way for their competitors to be treated in the same way.
Under Wyden-Coats, we try to level the playing field and make investing in the United States more attractive to businesses of all sizes. We have a repatriation provision in there which at another time we will explain in more detail. But a number of organizations, including Heritage and the Manufacturers Alliance, have done studies and produced information that shows that a lowering of this rate is a job creator. It is a growth component. The Heritage Foundation found that the legislation could create up to 2.3 million new jobs a year, while cutting the Federal deficit by an average of $61 billion, just through the changes we have made in the corporate structure of taxation. The Manufacturers Alliance published a paper that concluded such an approach would ``create nearly 2 million jobs on a net basis and add an extra $500 billion to GDP by 2015.'' The alliance also estimated that the increase of economic activity from this legislation could reduce the debt by $1.2 trillion over the coming decade.
I wish to repeat that. While CBO or the Joint Tax might score this on a static basis--meaning that from lowering tax rates they do not calculate in what the potential growth from that might be in a fluid way, a dynamic way--history shows us that every time taxes are lowered, there is an uptick in economic activity and more important an uptick in the hiring and a drop in the unemployment rate. Getting us more competitive with our competitors around the world will clearly bring a yet undetermined number of more revenue coming into the Government based on higher profits by our companies and resulting in more employment. That is a key component of this tax reform.
Protecting the middle class and families is also another key component of our tax reform and of the Wyden-Coats plan. Today a family of four in Indiana making $90,000 and filing jointly would owe nearly $13,000 in personal income taxes. Under Wyden-Coats that family would keep more of their hard-earned money and save approximately $5,000 in personal income taxes.
We protect and extend important tax deductions for families. We do not eliminate all deductions to reach our simplified Tax Code with only three levels of taxation. Without increases, we retain the rates. We don't raise any of the rates that are currently in place. We keep the dependent tax credit, which is set to drop to $2,400 in 2 years. Under the Wyden-Coats plan, we permanently set that credit at $3,000, a benefit to families. The child tax credit is scheduled to revert to $500 in 2013. Wyden-Coats eases the tax burden on families by permanently setting the child tax credit at $1,000.
We promote personal saving and investment. We think it is important that we encourage saving and investment. Today we have three separate IRA or Individual Retirement Account plans for savings and investments available to individuals in the United States. Wyden-Coats promotes this by expanding tax-free saving opportunities and consolidating these three new accounts into one account that would allow a married couple to contribute up to $14,000 a year to tax-favored retirement and savings accounts.
We take the three current plans in existence, we consolidate them into one. We increase the amount per year that can be, tax-free, donated to those savings and retirement accounts as another way of looking out for families and their need to save for the future.
We are making the Tax Code fairer. Today our current tax system picks winners and losers, with hundreds of specialized tax rates that benefit some but not all. These credits, specialized earmarks within this Tax Code that we are working with today, total $1.1 trillion. We want to eliminate, under Wyden-Coats, a number of those exemptions and end a number of specialized tax breaks that favor one sector of the economy or special interest group over another. We want to level this out.
I recognize and Senator Wyden also recognizes that there will be issues with this bill, especially from groups that benefit from these special exemptions, but those special exemptions and tax earmarks often put other companies at a disadvantage, and it is time, as I said, to make our system fairer and more simple. Ronald Reagan once said: To put it simply, our tax system is unfair, it is inequitable, it is counterproductive and all but incomprehensible. Reagan went on to say that were he living at this time, even Albert Einstein would have to write to the IRS to help him fill out his 1040 form each year.
It is 25 years since we had any meaningful tax reform; 1986 was the last time. During that time, our Government has vastly expanded Tax Code reform into a complicated, tangled web of deductions and loopholes for tax lawyers to decipher. But if we can reform this Tax Code and encourage job investment here at home and, through doing this, create more American jobs and make our country more competitive in a global market, we will have taken a major step to moving forward in terms of addressing the fiscal plight we are currently in.
Senator Wyden and I are open to suggestion. This is not set in concrete. This is not a be-all, end-all plan. We don't have all the answers to this complex problem. But we think this is an essential start to a debate that is necessary to be accompanied by other solutions that we have to bring to our current fiscal situation. We want to put this in as a starter, as a way of saying 2 years-plus of hard work by two people who are knowledgeable about this topic--and I do not begin to bring myself up to the speed Senator Wyden and Senator Gregg achieved in the 2-plus years of very hard effort, but I am trying to learn as fast as I can. We want to bring forward a bipartisan, Democratic-Republican plan which we think is based on principles that are necessary to stimulate our growth and provide fairness and simplification of our Tax Code. We want to provide it. We are asking everybody to look at it, examine it, come to us with your questions. There will be a lot of things to like. There will be some constituents who will find some things they do not like because it takes away a special exemption that they perhaps depended
on. But we want to explain the basis on which we have made these decisions. We are open to suggestions, as long as those suggestions allow us to retain those basic principles and maintain us at revenue neutrality level and a fairness across-the-board to families and businesses and individuals throughout this country.
I urge my colleagues to take a look, to work with us. The door is open for us to sit down and talk, whether to colleagues in the Senate or families or businesses across the country who want to bring their special input to this particular effort. We look forward to working with them and, over time, incorporating this in the plan to make us a fiscally healthier country and a country that is growing and dynamic and can retain its place as a place of prosperity and opportunity for not only those of us today but for our future generations.