Progressive Consumption Tax Act of 2014

Mr. President, as a father, grandfather, and doctor, there are few issues that are more important to me than making sure Social Security benefits are protected for both current and future generations. While both the Social Security Disability Insurance program and the Social Security Insurance program will be exhausted during my kids' lifetime, the disability program's finances are particularly dire.

Since 2005, the disability trust fund has paid out more in benefits each year than taxpayers pay back in. Last year alone the shortfall was $32 billion. As a result, the trust fund will run out of money by 2016, after which the Social Security Administration, the ``Agency,'' will only be able to pay 81 percent of disability benefits to the 11 million Americans currently dependent on them. This outcome is unacceptable.

Faced with the impending insolvency of the disability program, politicians have debated the principal causes of the trust fund's rapidly expanding shortfall. Some argue the program does not need reform, believing that the increase in the disability rolls is due to factors beyond our control. Citing aging baby-boomers and the rise of women in the workplace, opponents of reform argue that dramatically rising disability spending was and is unavoidable.

That is simply wrong. Since 1989, the percentage of working-age Americans receiving disability benefits has more than doubled, while the percentage of Americans reporting a work limitation has remained fairly stable. A paper published by the Center for American Progress and the Brookings Institution noted that even among middle-aged men, the fraction receiving disability benefits has risen by 45 percent since 1988.

A significant driver of the program's increased cost is fraud, waste, and abuse. Over the past 4 years, the U.S. Senate Committee on Homeland Security and Governmental Affairs, the ``committee'', and the U.S. Senate Permanent Subcommittee on Investigations, the ``subcommittee'' have conducted several bipartisan investigations into aspects of the Agency's disability programs and uncovered significant problems with the program that Congress and the Agency need to correct.

In 2012, the subcommittee looked at a random sample of 300 disability cases and found that one-quarter of the decisions made by the Agency were not supported by the medical record. Much of this was the result of the Agency's poor supervision of its 1,500 Administrative Law Judges ``ALJs''. This was not just the subcommittee's judgment; the Agency agreed. After conducting its own study, SSA similarly found that 23 percent of ALJ decisions nationally were not supported by the record.

In 2013, the Committee issued a report showing how the disability programs could be gamed by attorneys, doctors, and ALJs. The report detailed how attorney Eric C. Conn, ALJ David

Daugherty, and several doctors conspired to manufacture fraudulent medical evidence to award benefits. Mr. Conn got rich and also paid a few doctors millions of dollars to sign fraudulent medical evidence, which Judge Daugherty then used to approve claims without a hearing. The result of their plan was millions in potentially fraudulent disability awards. Mr. Conn became the third highest-paid disability attorney in the country, and we found a number of large, unexplained cash deposits in Judge Daugherty's bank accounts that were not reported on his taxes or his public disclosures.

Both reports highlighted how the Agency's push to reduce the hearings backlog came with significant costs: the Agency paid little regard to the quality of decisions being made by ALJs, and focused only on encouraging ALJs to decide as many cases as possible.

The Agency's Office of Inspector General recently issued a report estimating that a group of high-approving judges granted at least $2 billion in improper benefits. As a result, the Agency will pay out another $273 million in improper benefits each year.

This is only a sample of the work the Committee and Subcommittee have done in the last few years, and it does not crack the surface of the excellent work done by the Agency's Office of Inspector General, including uncovering huge fraud schemes in New York and Puerto Rico.

The program's antiquated, subjective, and ambiguous rules make it easier for lawyers, doctors and claimants to game the system.

Changes in program criteria used to determine eligibility for benefits has made determinations less objective. Researchers at the National Bureau of Economic Research attributed 53 percent of growth for men and 38 percent of growth for women not to age, workforce participation, or economic factors, but to weakened eligibility criteria.

Since changes by Congress in 1984, the Social Security Administration no longer makes benefit decisions based strictly on medical evidence, but instead determines whether vocational factors such as age, education, and skills prevent an individual from working ``any job in the national economy,'' a standard that should be hard to meet. But the number of applicants approved based on this standard has more than doubled.

Eligibility criteria are not the only rules that can be gamed. Most recently, I examined how some claimant representatives systematically withhold medical evidence from the Agency to help their clients win benefits and engage in other misconduct to pad their pockets and clog the disability program.

What I found is a program that offers backward incentives for everyone from the applicant and representatives to the beneficiaries. Because the program accepts applicants only after they quit their job, and provides them with rehabilitation services only after they start receiving benefits, applicants must leave their job and often go years before they receive services they need. Because beneficiaries will lose their benefits if they make too much money, there are discouraged from working to their abilities. Because the program rewards representatives only if they win, and awards greater fees the longer the case sits, representatives hide bad evidence, delay decisions, and provide poor representation to disabled Americans.

For most Americans, disability benefits should not continue indefinitely for their lifetime. Yet only one-half of 1 percent of individuals on disability rolls leave because they have returned to work and earned over the amount allowable by the Agency.

Additionally, scholars believe 23 percent of applicants are on the margin of program entry--that is, whether they are awarded benefits depends on who reviews their case. Accordingly, there is a relatively high percentage of beneficiaries that can work, but choose not to, either because they do not want to lose their benefits, both monetary and Medicare, or because they need supports that are not currently offered to them.

Our Federal laws, including the Americans with Disabilities Act and dozens of Federal work programs, are designed to assist disabled Americans in leading integrated, self-sufficient lives. Yet we have failed to target and coordinate the resources they need before they have to leave their jobs. The Social Security Advisory Board, SSAB attributes Ticket to Work's low success rate to the fact that intervention ``comes too late in the process--after the individual's connection to employment has been severed and frequently after the individual has undergone a lengthy process of proving inability to work.''

According to the SSAB, ``focusing all of the return-to-work efforts inside the structure of the disability program seems to be too late for many individuals. In order for the intervention to be effective, it needs to occur before the individual comes to SSA, before he applies for SSDI or SSI, and before the attachment to the workforce is lost.'' The SSAB has advocated for comprehensive front-end services, arguing they are ``a real chance to access tailored services that can enhance return to work efforts.''

When the trust fund is exhausted in 2016, many Members of Congress will say we just need to move funds from the Social Security retirement program

Let me be clear: this is not a solution; it is a Band-Aid, a temporary fix that takes money away from seniors and will eventually hurt taxpayers when both funds go broke in 2033.

I hope there will be a rigorous debate in the next year about how we can better serve disabled Americans with a program that gives them the resources they need to work to the extent they are able and protects benefits for those who are forced to rely on them. The disability program is an important safety net, but it does not serve the disabled or the taxpayers to treat it like an early retirement program or long- term unemployment.

This is a conversation that will take place after I have left the Senate. Accordingly, after 4 years of research, investigations, and thoughtful meetings with other interested, engaged parties, today I am offering a bill I believe can be used as a blueprint to shore up the fund before its exhaustion in 2016, fix systemic problems with the program, and provide targeted resources for the millions of disabled Americans who want to work to the best of their abilities.

The Protecting Social Security Disability Act of 2014 was drafted with three goals in mind: first, to make systemic changes to the program that preserve it for future generations; second, to ensure benefits are adequate and quickly available for those who need them by adding program integrity measures that root out fraud, waste and abuse; and third, to provide resources and incentives to those disabled Americans who want to work and have the ability to do so.

Mr. President, I ask unanimous consent that the section-by-section summary of the bill be printed in the Record.

Mr. President, I am pleased to introduce the Progressive Consumption Tax Act of 2014.

We need a tax code that is fair for American employers and fair for American families. We need a tax code that makes our U.S.-based businesses more competitive. Finally, we need a tax code that allows us to responsibly and reliably collect reasonable revenues.

I applaud the contributions of my colleagues in both the Senate and the House for their efforts in also trying to achieve these goals in tax reform. However, I am adding this bill to the tax reform debate, because I think we need to seriously reconsider the framework for that debate.

Today, we seem to be stuck on 1986-style tax reform--lower the income tax rate, and broaden the base by eliminating tax preferences.

The 1986 reform was a tremendous effort. But, I would argue that that reform lasted less than one year before Congress began tinkering with our income taxes once again. Since then, innumerable changes have made our tax code more and more complicated and, for many taxpayers, less and less fair.

Another issue with reform efforts focusing on our current tax system is this--the extent to which we rely on income taxes is very out of step with the rest of the world.

Compared to other countries that are in the OECD--developed countries with advanced economies, countries that we want to be competitive with--all taxes as a percentage of GDP in the United States are low.

But, the U.S. is not a low income tax country. Our income tax revenues as a percentage of GDP are higher than the OECD countries. As many of my colleagues have pointed out, we have some of the highest statutory income tax rates in the world.

What accounts for the difference is that all OECD countries except the U.S. have a consumption tax. In fact, about 150 countries now have a consumption tax, many of which were enacted decades ago.

Unlike the U.S., these countries can tax imports and subsidize exports by rebating their consumption taxes for exports--without violating current World Trade Organization, WTO, rules. As important, these countries can sustain reductions in their corporate income tax rates, because they have an alternative and more pro-growth revenue source--a consumption tax.

The Progressive Consumption Tax Act puts this country on a level playing field by providing for a broad-based progressive consumption tax, or PCT, at a rate of 10 percent. The PCT would generate revenue by taxing goods and services, rather than income.

This is not simply an add-on tax. The revenues generated by the Act would be used to eliminate an income tax liability for a significant number of households. Those who do still have an income tax liability would see a much simplified income tax with their marginal rates reduced--the top marginal individual income tax rate, applying to taxable income over $500,000 for joint filers, would be 28 percent. The current top marginal rate, applying to taxable income over approximately $450,000 for joint filers, is 39.6 percent.

The act would also slice our corporate rate by more than half, to 17 percent.

Finally, the act would provide rebates to lower- and moderate-income families to counteract heir consumption tax burden and to replace essential support programs like the Earned Income Tax Credit and Child Tax Credit. Like the EITC and CTC, Individuals and families who do not have an income tax liability would still be able to receive these rebates.

A key part of the act is progressivity. By eliminating an income tax liability for a significant number of households and providing rebates, the Act is meant to be at least as progressive as the current system.

The act is also meant to responsibly produce reasonable revenues. I know that some have concerns that the act would just provide a new lever for the government to raise funds. That is why the act contains a revenue ``circuit breaker'' mechanism that returns excess PCT revenues to taxpayers if a certain threshold is met.

Overall, the Progressive Consumption Tax Act has many advantages compared to our current reform efforts.

First, it encourages saving. Under current law, families and individuals are taxed on income, which includes savings. Under the act, most households would be exempt from the income tax, and thus would be able to save tax free.

The act enhances U.S. economic competitiveness. The U.S. corporate income tax rate would be lowered to 17 percent, encouraging multinational corporations to locate here, not abroad. OECD countries currently attracting U.S. multinationals often impose higher consumption or corporate tax rates than those envisioned by the act.

For instance, this year, we heard of many companies that were considering relocating to the U.K. That country's corporate income tax rate is 21 percent and its general consumption tax rate is 20 percent. Under the Act, the U.S. corporate tax rate would become 17 percent and the consumption tax rate would be only 10 percent.

In fact, if the Progressive Consumption Tax Act became law, every top statutory rate in the United States--our individual income tax rate, our corporate tax rate, our consumption tax rate--would be at least five percentage points lower than the OECD average.

The act encourages economic growth. In study that examined 35 years of data on 21 OECD countries, consumption taxes were found to be more growth-friendly than both personal income taxes and corporate income taxes. Corporate income taxes, especially, appear to have the most negative effect on GDP per capita. Growth-oriented tax reform should move away from income tax revenues and towards consumption tax revenues, as the act does.

The act also enhances U.S. trade competitiveness. Countries with consumption taxes can adjust their taxes at the border by rebating exports. That means that these countries can agree to reduced tariffs under trade agreements, can still tax imports with their consumption taxes, and can export their own goods without a full tax load. Because the PCT is border-adjusted, the U.S. would be able to maintain export and import tax parity in the same way as these other countries.

The act reduces income tax compliance costs. Most households would not have an income tax liability under the act--although they would need to provide key pieces of information to the IRS in order to obtain their rebates.

Finally, the act protects low- and middle-income families from an unfair tax burden. Through the income tax exemption and rebate feature, the Progressive Consumption Tax Act aims to ensure that this new tax system is at least as progressive as the current income tax system.

When my colleagues and others talk to me about comprehensive, responsible, pro-growth tax reform, this to me is what we need to do.

That's why I am pleased to introduce Progressive Consumption Tax Act in this Congress. The Act is meant as an opening for serious discussion on this type of reform. We can't just stand by, fight the same tax reform fights we did

nearly 30 years ago, and in the meantime watch American jobs move overseas and our income tax system become further riddled with loopholes. I hope we will stand for what is right in our tax code, and enact the type of reform that allows our country to have among the lowest tax rates in the industrialized world, and the fairest system for all Americans.

Mr. President, I am pleased to introduce the Progressive Consumption Tax Act of 2014.

We need a tax code that is fair for American employers and fair for American families. We need a tax code that makes our U.S.-based businesses more competitive. Finally, we need a tax code that allows us to responsibly and reliably collect reasonable revenues.

I applaud the contributions of my colleagues in both the Senate and the House for their efforts in also trying to achieve these goals in tax reform. However, I am adding this bill to the tax reform debate, because I think we need to seriously reconsider the framework for that debate.

Today, we seem to be stuck on 1986-style tax reform--lower the income tax rate, and broaden the base by eliminating tax preferences.

The 1986 reform was a tremendous effort. But, I would argue that that reform lasted less than one year before Congress began tinkering with our income taxes once again. Since then, innumerable changes have made our tax code more and more complicated and, for many taxpayers, less and less fair.

Another issue with reform efforts focusing on our current tax system is this--the extent to which we rely on income taxes is very out of step with the rest of the world.

Compared to other countries that are in the OECD--developed countries with advanced economies, countries that we want to be competitive with--all taxes as a percentage of GDP in the United States are low.

But, the U.S. is not a low income tax country. Our income tax revenues as a percentage of GDP are higher than the OECD countries. As many of my colleagues have pointed out, we have some of the highest statutory income tax rates in the world.

What accounts for the difference is that all OECD countries except the U.S. have a consumption tax. In fact, about 150 countries now have a consumption tax, many of which were enacted decades ago.

Unlike the U.S., these countries can tax imports and subsidize exports by rebating their consumption taxes for exports--without violating current World Trade Organization, WTO, rules. As important, these countries can sustain reductions in their corporate income tax rates, because they have an alternative and more pro-growth revenue source--a consumption tax.

The Progressive Consumption Tax Act puts this country on a level playing field by providing for a broad-based progressive consumption tax, or PCT, at a rate of 10 percent. The PCT would generate revenue by taxing goods and services, rather than income.

This is not simply an add-on tax. The revenues generated by the Act would be used to eliminate an income tax liability for a significant number of households. Those who do still have an income tax liability would see a much simplified income tax with their marginal rates reduced--the top marginal individual income tax rate, applying to taxable income over $500,000 for joint filers, would be 28 percent. The current top marginal rate, applying to taxable income over approximately $450,000 for joint filers, is 39.6 percent.

The act would also slice our corporate rate by more than half, to 17 percent.

Finally, the act would provide rebates to lower- and moderate-income families to counteract heir consumption tax burden and to replace essential support programs like the Earned Income Tax Credit and Child Tax Credit. Like the EITC and CTC, Individuals and families who do not have an income tax liability would still be able to receive these rebates.

A key part of the act is progressivity. By eliminating an income tax liability for a significant number of households and providing rebates, the Act is meant to be at least as progressive as the current system.

The act is also meant to responsibly produce reasonable revenues. I know that some have concerns that the act would just provide a new lever for the government to raise funds. That is why the act contains a revenue ``circuit breaker'' mechanism that returns excess PCT revenues to taxpayers if a certain threshold is met.

Overall, the Progressive Consumption Tax Act has many advantages compared to our current reform efforts.

First, it encourages saving. Under current law, families and individuals are taxed on income, which includes savings. Under the act, most households would be exempt from the income tax, and thus would be able to save tax free.

The act enhances U.S. economic competitiveness. The U.S. corporate income tax rate would be lowered to 17 percent, encouraging multinational corporations to locate here, not abroad. OECD countries currently attracting U.S. multinationals often impose higher consumption or corporate tax rates than those envisioned by the act.

For instance, this year, we heard of many companies that were considering relocating to the U.K. That country's corporate income tax rate is 21 percent and its general consumption tax rate is 20 percent. Under the Act, the U.S. corporate tax rate would become 17 percent and the consumption tax rate would be only 10 percent.

In fact, if the Progressive Consumption Tax Act became law, every top statutory rate in the United States--our individual income tax rate, our corporate tax rate, our consumption tax rate--would be at least five percentage points lower than the OECD average.

The act encourages economic growth. In study that examined 35 years of data on 21 OECD countries, consumption taxes were found to be more growth-friendly than both personal income taxes and corporate income taxes. Corporate income taxes, especially, appear to have the most negative effect on GDP per capita. Growth-oriented tax reform should move away from income tax revenues and towards consumption tax revenues, as the act does.

The act also enhances U.S. trade competitiveness. Countries with consumption taxes can adjust their taxes at the border by rebating exports. That means that these countries can agree to reduced tariffs under trade agreements, can still tax imports with their consumption taxes, and can export their own goods without a full tax load. Because the PCT is border-adjusted, the U.S. would be able to maintain export and import tax parity in the same way as these other countries.

The act reduces income tax compliance costs. Most households would not have an income tax liability under the act--although they would need to provide key pieces of information to the IRS in order to obtain their rebates.

Finally, the act protects low- and middle-income families from an unfair tax burden. Through the income tax exemption and rebate feature, the Progressive Consumption Tax Act aims to ensure that this new tax system is at least as progressive as the current income tax system.

When my colleagues and others talk to me about comprehensive, responsible, pro-growth tax reform, this to me is what we need to do.

That's why I am pleased to introduce Progressive Consumption Tax Act in this Congress. The Act is meant as an opening for serious discussion on this type of reform. We can't just stand by, fight the same tax reform fights we did

nearly 30 years ago, and in the meantime watch American jobs move overseas and our income tax system become further riddled with loopholes. I hope we will stand for what is right in our tax code, and enact the type of reform that allows our country to have among the lowest tax rates in the industrialized world, and the fairest system for all Americans.