Mr. President, I know it is my turn to speak, but out of deference to Senator Baucus who is negotiating on the Children's Health Insurance Program, I ask unanimous consent that he go before me, and then I ask that Senator Tester would…
Mr. President, I know it is my turn to speak, but out of deference to Senator Baucus who is negotiating on the Children's Health Insurance Program, I ask unanimous consent that he go before me, and then I ask that Senator Tester would follow him, because I don't want Senator Tester to have to sit around and listen to me. Then I ask unanimous consent after those two, I be the next in line.
Mr. President, I rise to speak to the amendment that is before the Senate--the Dorgan-Grassley amendment--on payment limitations; in other words, limiting the amount of money that one farming operation can get from a farm program in a specific year.
The second reason I come to the floor is to address the issue of the President's suggested veto of the farm bill because it contains tax provisions that, presumably, the White House does not like.
I would like to give a justification for the provisions that are in this bill. I think everybody in this body would agree we need to provide an adequate safety net for our family farmers. In recent years, however, assistance to farmers has come under increased scrutiny. The largest corporate farms are reaping the majority of the benefits of the farm payment program. These payments were originally designed to benefit our small- and medium-sized farmers but instead have contributed to the demise of the small- and medium-sized family farmers. I believe we need to correct our course and modify the farm programs before those programs cause further concentration and consolidation in agriculture.
Today, most commodities are valued off demand, and the market dictates profitability. When farmers overproduce by planning for the farm program or expand rapidly because of the security of those programs, then the markets are not functioning. Unlimited farm payments have placed upward pressure on land prices and have contributed to overproduction and lower commodity prices.
I am going to refer to a series of charts that I have. Increased land prices and cash rents are driving family farmers and making it difficult, particularly for young farmers, to get into family farming-- something that is probably there because for generations families have been farming sometimes the same land.
For instance, in Iowa, you can see how the value of farmland has very dramatically increased, particularly very recently. Around my hometown of New Hartford, IA, land is selling somewhere between the poor land at $4,000 an acre and the very best land for $6,000 an acre. In my home county of Butler, the value of an acre is up 64 percent since 2000. Across the entire State of Iowa, the average land value per acre rose 72 percent just in the last 6 years.
You will see from the next chart that the average typical cash rent per acre in Iowa rose 25 percent in that same timeframe. So you can legitimately ask, how are family farmers, particularly young farmers who cannot buy land and who have to rent land, going to survive when they have had such a rapid increase in either the price of land, on the one hand, or cash rents on the other hand? How are they even going to be able to get into farming for the very first start?
I have been hearing directly from producers for years what former Secretary Johanns heard in the series of farm meetings. I think either the Secretary, or his staff, had well over 100 hearings on proposed farm legislation prior to--well, during the years 2005 and 2006. So I have heard what Secretary Johanns has heard in his farm bill forums: Young farmers cannot carry on the tradition of farming because they are financially unable to do so because of high land values and cash rents.
What does all this have to do with farm programs? I am going to quote a famous and well-known Midwestern agricultural economist, Dr. Neil Harl, now emeritus. He came out with a report on this subject. He is and was at Iowa State University. The report states:
The evidence is convincing that a significant portion of
the subsidies are being bid into cash rents and capitalized
into land values. If investors were to expect less Federal
funding--or none at all--land values would likely decline,
perhaps by as much as 25 percent.
So here we have an article from last year's Washington Post, when the Post did a series of articles on the disparity that farm program supports are causing. They reported:
The largest farms' share of agricultural production has
climbed from 32 percent to 45 percent, while the number of
small and medium-sized farms has tumbled from 42 percent to
27 percent.
I assume the printing on the chart is so small that you will have to take my word for it that is what it says. The law creates a system that is clearly out of balance.
If we look at the results posted here, we have a system where 10 percent of the biggest farmers get 73 percent of the benefits from the tax-supported farm programs. Worse yet--or more extraordinary, I should say--the top 1 percent get almost 30 percent of all of those payments. I tend to concentrate on the top 10 percent of the biggest farmers getting 73 percent. But I think this other top 1 percent of--how do you say it--the big farmers, the top 1 percent are getting 30 percent of all of the benefits out of the Treasury. So we are back where we were 5 years ago.
This body passed as part of the farm bill, by a vote of 66 to 31, putting limits on farm payments. Well, it didn't survive a House-Senate conference. Senator Dorgan and I were working together then, and here we are back 5 years later. The farm bill is up for reauthorization, and we are filing an amendment that, I believe, will help revitalize the farm economy for young people across this country.
This amendment that Senator Dorgan put before the Senate this morning--actually, Senator Reid did it for Senator Dorgan--will put a hard cap on farm payments at $250,000. No less important, it will close the loophole that has allowed large operations to avoid even the existing $360,000 limit and, as a result, receive benefits far exceeding the limit.
If I could say that another way, we have a situation where we do have caps in place, but there is legal subterfuge to get around those caps. One of them is the three-entity rule--split up your farming operation into three entities, and each one of those could qualify for that $360,000 limit.
The other one is where generic certificates are used. Those are not included in the limit. So that is why you read where some farmers are getting millions of dollars through the farm program.
We use the adjective, hard cap; $250,000 is the absolute limit. We do away with the legal subterfuge of getting around the cap to make it so it works and so it is effective.
I have another article by the Washington Post from last year outlining the ongoing abuse of farm support programs. It is entitled ``Farm Program Pays $1.3 Billion to People who Don't Farm.'' We are paying $1.3 billion to people who are not actively engaged in the business of farming. Senator Dorgan spoke better about this last night and this morning and gave better examples than I can on that point. We have examples of people who live on land collecting direct payments because a commodity was once grown on that land. Any agricultural use, including having a horse on that land, qualifies them for a direct payment, even though they are not even growing a crop.
Our bill addresses these problems by doing away with the loopholes people have abused over the years to continue to get the payments. I have already referred to the three-entity rule. We also put in place a system we call direct attribution. Most importantly, we tighten up what is already in the law but not enforced by the U.S. Department of Agriculture, that you have to be ``actively engaged'' in the business of farming.
I wish to make a very clear distinction. Some Members of the Senate have advocated that the Dorgan-Grassley amendment is not as tough as what is in the Senate Agriculture Committee bill before us. I wish to explain why that is not true.
I have another chart. We have to compare apples to apples. Saying the committee has a hard cap on payments at $200,000 is not accurate. They only have a hard cap on two categories of payments: direct payments and countercyclical payments. The Dorgan-Grassley amendment actually caps those at $100,000.
In addition, my amendment will cap marketing loan gains at $150,000, while the committee bill before us that the Dorgan-Grassley changes leaves the marketing loan unlimited in the amount of money you can get through the marketing loan.
This actually weakens current law, and if you can believe, after all the bad publicity about 10 percent of the biggest farmers getting 72 or 73 percent of the benefits out of the farm program, why, the Agriculture Committee might write a bill that actually weakens current law. But I wish to make clear our bill at $250,000 is a hard cap, and it is more effective in taking care of this issue of the biggest 10 percent getting 73 percent of the benefits.
I anticipate there will be other votes on other types of reforms, including even means testing, also known as the adjusted gross income limit. I wish to make sure my colleagues are aware
that an adjusted gross income cap and a hard cap on payments are two very different things and each should be looked at and considered individually.
Back in 2002--and I referred to this before, that Senator Dorgan and I have been working together--back in 2002, I voted against the farm bill out of conference committee. A lack of payment limits in that bill because it was lost in conference, the Senate position was lost to the House position, was one of my reasons for voting against the bill.
I have been fighting to reduce large-scale subsidies since I was a Member of the House of Representatives in the 1970s. Then we were, believe it or not, arguing over a $50,000 limitation.
Our amendment produces some considerable savings. Senator Dorgan and I have identified very critical and essential programs to help producers and farmers, small business owners, conservationists, and low-income people, including seniors and children. We support beginning farmer and rancher programs and the Rural Microenterprise Program. These programs are crucial to bolstering young farmers and to helping main streets across America.
It will also provide funds for the organic cost-share program and the farmers Market Promotion Program. These growing components of our food supply system will create new opportunities for farmers and increase healthy food options for our consumers.
A large priority of mine has always been seeing justice for Black farmers--discrimination cases brought against the USDA, but not everybody eligible got in on it. This amendment puts some money, double the amount provided by the committee, in for late filers under the Pigford consent decree for farmers who haven't gotten a chance for their claims to be heard. It is time to make it right for these farmers who were discriminated against in their attempts to get help from the Federal Government in farming.
We also support the Grasslands Reserve Program and the Farmland Protection Program with additional dollars. Conserving our natural resources is one of the most important components of agriculture, and this investment will make a substantial difference in the availability of these programs.
Finally, while the Agriculture Committee makes significant contributions to the nutrition and food assistance programs, they were not able to go far enough due to tight budget constraints. So Dorgan- Grassley adds money to this program so it can be adjusted for inflation and other nutrition priorities to assist low-income seniors, as well as children.
I worked with Senator Dorgan on a similar measure, as I have said for the third time, in 2002, and it passed with bipartisan support by a vote of 66 to 31. Unfortunately, it was stripped out of conference. My colleagues might remember the last time we had a vote on payment limits was on the budget resolution. Many of my colleagues said they agreed with what we were trying to do, but they voted against us at that particular time because they said doing it on the budget resolution in the middle of a farm bill authorization of 5 years was not the right time. Everybody said it needed to be done the next time the farm bill came up for debate.
Well, that time is right now, and I ask those who maybe thought it shouldn't be done on the budget resolution a couple years ago to remember what they said. They came up to us individually and said: We agree with what you are trying to do, but it shouldn't be in the middle of the farm bill reauthorization, and it shouldn't be done on the budget resolution. The inference was they will be with us at the right time. The time is right now, or within the next 24 hours, when we vote on this amendment.
I remind this body that in addition to what was said by our colleagues at that particular time, in the last farm bill, we set up, as supposedly a sop for those of us who didn't get what we wanted in payment limitations out of conference 5 years ago, a commission on the application of payment limitations for agriculture.
This commission was set up, and for a couple years they studied this issue. The purpose was to conduct a study on the potential need for further payment limitations on farm programs. The commission met. Farmers, agricultural economists--I can't think of everybody who was on it, but they knew the business of agriculture. This commission recommended the very same loophole-closing measures which we included in this amendment that is now before the Senate. Those people who thought they threw us a sop or some sort of a compromise that we ought to accept a commission instead of the real hard change in law to accomplish what we wanted to accomplish, that we would have people study it and then give some respectability to it, or maybe they thought we would forget about it and go away 5 years later, we haven't forgotten about it; we haven't gone away.
We are taking the recommendations of this commission that was set up to say what we ought to do in the area of payment limitations, and we are doing exactly what they said. We not only have the promise of those people who said it shouldn't be done on the budget resolution, we have the recommendations of all these experts of how it ought to be done, when it ought to be done, and why it ought to be done. It is for all those reasons that we have Dorgan and Grassley back again suggesting what we thought should have been done 5 years ago. If it had been done 5 years ago, we wouldn't have this problem of 10 percent of the biggest farmers getting 73 percent of the benefits out of the farm program.
There are several problems connected with that situation. One, when urban people read about this, they are going to say: Why do you need a farm safety net if all the help is going to biggest farmers? So we lose urban support. We lose support of a farm program in the House of Representatives controlled by urban people, and we don't have a farm safety net, and family farmers don't have the ability to withstand a lot of situations that are beyond their control. We also have a situation where we drive up the price of farmland so the next generation of farmers cannot get started. But also, we depart from the principle of a farm safety net of the last 70 years that was supposed to be directed to medium- and small-sized farmers, the very same people who produce the food we eat in a way so consumers spend less of their income on food than any other society anywhere on this globe, and to keep them strong when they cannot withstand natural disasters or the politics of agriculture or a war or energy problems. They don't have the staying power, but the larger farmers do.
For 70 years, we have directed the benefit of a farm program, until very recently, to small- and medium-sized farmers. How it gets out of whack so we get 10 percent of the biggest farmers getting 73 percent of the benefits of the program is hard to explain. But it has happened, and we are trying to get back to the original purpose of farm programs to help small- and medium-sized farmers over the hurdles they have to cross, through no fault of their own, situations they cannot control, that larger farmers have the ability to have a little more staying power.
So here we are. By voting in favor of the Dorgan-Grassley amendment, we can allow young people to get into farming and lessen dependence on Federal subsidies. This will help restore public respectability for Federal farm assistance by targeting this assistance to those who need it the most.
So let us quit dragging our feet and let us pass real reform with a real payment for real farmers. I call upon my colleagues to support this commonsense legislation that is referred to as Dorgan-Grassley.
I told you, Mr. President, in my opening remarks that I wished to address a second issue as well, directly related to the farm bill, but including some issues that are a little bit broader than the farm bill, and that deals with the tax policy.
Remember, a very significant part of this farm bill is tax policy that we in the Finance Committee--Senator Baucus, me, and the other 19 members of the committee--set up that are directly related to soil conservation and drought relief, and we raise revenue to pay for it. In the process of this broad policy, we have freed up money the Agriculture Committee would otherwise spend on a lot of programs, such as disaster relief and conservation, so the Agriculture Committee would have a little more leeway to do what needs to be done in farm policy, and that is directly related to the fact that under the budget adopted by this Congress,
we find the Agriculture Committee $15 billion under benchmark, and that is a big bite to swallow with the needs in American agriculture. So we have come up with, in the Finance Committee, a little bit of help for the Agriculture Committee.
As recently as yesterday, the President, or his people, have suggested because of the tax policy that is in this bill, they might veto the whole farm bill. I want to tell the President why that is a crazy idea--a crazy idea--so I will take the time to comment, then, on the revenue raisers that are in this farm bill.
The revenue raiser is a proposal to clarify a judicial doctrine in the tax law known as the economic substance doctrine. I am here not so much to justify revenue raising through this definition of economic substance, but I am here to say there are four circuit courts of appeal in different parts of the country that have had four different decisions on economic substance and each has said Congress ought to define economic substance. So as far as I am concerned, in putting economic substance in here, it is not just to raise revenue and to have an offset for the programs we have set up, it is for Congress to do the job of making the Tax Code on economic substance clear so the courts are not defining it, and most importantly so that four different courts aren't defining it in four different ways. We need to have some certainty, and this bill brings that certainty to the definition of economic substance.
But before I get into that, I have to be a little more general. For a lot of folks, this proposal may sound like an esoteric tax policy matter, and they might wonder why I am focusing on it today. The reason is the White House has indicated the President will veto the farm bill if this proposal is included in the bill sent to the President's desk.
Mr. President, I ask unanimous consent to have printed in the Record the Washington Post article reporting on the President's suggested veto of the bill.
The title of that article is: ``Bush Vowed to Veto Senate's Farm Bill.''
Before I discuss the specifics of the economic substance doctrine, I wish to put this revenue raiser in context. We have heard a lot about pay-go. That is short for pay as you go. If you want to spend money, either raise taxes to offset it or cut someplace else to offset it. Or if you want to cut taxes, raise taxes someplace else to pay for it or cut spending someplace else to pay for the tax decrease. But around here we use the term pay-go for short.
Now, of course, pay-go was in place for many years before the current policy was put into place after a few years of absence. The difference is the old version of pay-go applied it as a backstop to a budget resolution. So if a proposal spent more than the budget permitted and added to the deficit, a pay-go point of order was possible. Likewise, if a proposal to cut taxes more than the amount of the revenue the budget assumed would come in, pay-go would apply.
This year Congress is struggling because a rigid notion of pay-go has hamstrung the committees--meaning every committee of the Congress that processes revenue or spending policies. The rubber has hit the road with pay-go here, more so at the end of the session than throughout the rest of 2007, and it has been a somewhat bumpy road for all of us. Of course, I think this road is even going to get bumpier as time goes on between now and Christmas.
As everyone knows, Congress has a lot of unfinished business. I am going to focus on the unfinished tax business. I have a chart here I want to point to. It is a chart I have used before. This chart shows the unfinished tax business that has got to come before the Congress between now and Christmas. It accounts for all the bills we passed out of the Finance Committee. It also accounts for the expiring provisions that are known as tax extenders. The biggest item of the revenue loss chart is the alternative minimum tax and the fix for that alternative minimum tax so 19 million additional middle-income taxpayers and their families are not paying the AMT. You see all of those various aspects listed there separately--the 2007 AMT fix, 2008 AMT fix, 2008 extenders, the Energy bill that has already passed the Senate, the airport reauthorization bill, and then eventually we will spend some time on the farm bill. But you can see they add up to a heck of a lot of money.
Since we are in the 2008 fiscal year, I have included then extenders for 2008 and also carrying a fix for AMT for not only 2007 but 2008.
This chart accounts for the revenue loss from the farm bill package that is there at $13 billion. My chart shows the revenue loss side as demands on the water well there. It is at the top of the well in the bucket what the shortfall is there. There are a lot of thirsty bills that have to be paid for. Those thirsty bills carry a revenue loss of $170 billion over 5 years.
I have accounted for the revenue offsets. This figure includes all revenue raisers proposed by Senate Democrats that are specified and scored by the nonpartisan Joint Committee on Taxation. That figure includes $32 billion from the Finance Committee-approved proposals and $29 billion in other proposals. That total is $61 billion. That is what we know for sure that has been thought up and probably has a great deal of support to accomplish.
This offset figure is calculated from the vantage point of the Senate Democratic leadership. In this total are proposals that House Democrats have opposed, such as shutting off the foreign subway leasing tax shelter, known as SILOS. In this total are proposals that most Senate Republicans have opposed, such as the reimposition of the Superfund taxes. In this total are many proposals that even the Bush administration has come out against.
Now with this favorable assumption to them, the pay-go advocates in the Senate need to know that as we stand here today, there is not enough known revenue to meet the pay-go requirements that are on this chart that obviously have to be dealt with between now and Christmas. In other words, the demands on the revenue well are $170 billion, and the available revenue raisers are only $61 billion. So that is a shortfall that is clear there, in the middle of the well--a shortfall of $109 billion. In other words, the revenue well is dry.
Now, $109 billion is a lot of money even here in Washington, DC. If the proposals are scored over 10 years, that shortfall does narrow slightly, from $109 billion down to $76 billion, and it is
possible that some of the revenue raisers in Chairman Rangel's bill may be pursued by the Senate Democratic leadership. But as it stands now, for unfinished tax business alone, by this accounting, we cannot meet the requirements that the Senate must meet that we call pay-go.
I point this out because everybody has to see this big picture. They seem to be missing the big picture on how we wrap up our overdue legislative business and meet the demands of the new pay-go rules. On the farm bill alone, my chart treats the farm bill as fully offset. My chart is created from the perspective of the Senate Democratic leadership, and so it shows the farm bill as offset. That is the way it is as it came out of the Senate Finance Committee.
The problem is that President Bush's opposition to the key revenue raiser is not accounted for in this chart. President Bush's position does matter. His opposition to any revenue raiser, but specifically this one, would have to be overcome with a veto override. As my friends and the Democratic leadership know, that happens to be a very tough hurdle, as we have found out, for instance, on the Children's Health Insurance Program recently before the House of Representatives.
My point is it is time to get practical around here. This chart of the water well shows that as we sit here today, looking at it from a Senate Democratic leadership perspective, the revenue well is dry. To insist on pay-go without a sense of realistically available offsets is trying to go up a blind alley. I say to my Democratic friends: At this late point in the legislative session, let us focus on what is practical. Let us apply the offsets we can agree to and in a manner we can agree on. We need to get to a posture of what can be agreed to by the House, by Senate Republicans, and by the White House. The AMT fix is the 800-pound gorilla in this discussion. It is $55 billion of the $109 billion shortfall. It affects 23 million families and could affect adversely another 27 million families. The AMT fix is long overdue. It needs to be completed expeditiously.
To address this important matter solely from a pay-go perspective is to ignore the realities that it needs to get done. Republicans are ready, Republicans are willing, and Republicans are able to help get this AMT fix done, and done very shortly, but for many reasons I have discussed all year, not at the price of offsets.
I will now go into the reasons why clarification of the economic substance doctrine is an appropriate revenue raiser and why it is basic to this farm bill before us, because it is a part of the farm bill; and why the President is crazy to use that as an excuse for vetoing the farm bill.
The provision made the Finance Committee package revenue neutral, raising $10 billion over 10 years. But I support codification of economic substance not just to raise revenue--although it does that, and it is important that it do that because otherwise we would not have our provisions offset, according to pay-go. As ranking member of the Finance Committee, and even when I was chairman in the last two Congresses, I have supported codification of economic substance because it is the right policy. This provision is an improved version of a provision that passed the Finance Committee and the full Senate in the last two Congresses.
The prior version was included in two bills passed by the full Senate in the 109th Congress, twice in the tax reconciliation bill, once in 2005 by a vote of 64 to 33, and again in 2006 by a vote of 66 to 31. It also passed the full Senate two times in the 108th Congress, once in the 2003 tax bill by a vote of 51 to 49 and again in the 2004 JOBS bill by a vote of 92 to 5.
This Senate is acquainted with the need to codify economic substance for us to do our job of making the Tax Code understandable so you do not get four different circuit courts of appeal giving four different definitions to economic substance. We ought to have one national policy on what is economic substance. Codifying it will clarify the test. It is a conjunctiva test requiring both a meaningful change in economic position and a business purpose, independent of Federal taxes. The courts are split on whether a transaction must have both economic substance as well as business purpose. This will give courts, then, a uniform doctrine to apply to noneconomic transactions that are inappropriately motivated solely to avoid Federal taxes--in other words, closing loopholes.
It will also ensure that a court will not overturn the doctrine, as a trial judge did in what is called the Coltec case, saying:
The use of the economic substance doctrine to trump the
mere compliance with the Code would violate the separation of
powers.
That judge--I don't have to say that judge was crazy because the court of appeals reversed that judge's decision. But I am still concerned that another strict constructionist judge might reach a similar conclusion. Most important, codifying the economic substance doctrine will provide an additional deterrent against taxpayers entering into transactions solely for tax purposes, in ways that are inconsistent with congressional intent.
As I said earlier, this provision is an improved version of what has already passed the Finance Committee and the full Senate more than once. So this Senate agrees with economic substance. But maybe Senators have forgotten how they voted 2 and 3 and maybe 5 years ago, so I am here to remind them this has been overwhelmingly accepted by the full Senate.
This improved version has modifications made in response to concerns of taxpayers that codification would throw legitimate tax planning into question and allow the IRS to substitute its business judgment for that of the taxpayers. I am going to talk about those modifications so people understand, and all these lawyers in this town who are concerned about our writing this, that they know we have taken some of their legitimate concerns into consideration.
For instance, the strict liability nature of the penalty has been retained in order to effectively deter taxpayers from entering into tax-motivated transactions in unintended ways. Indeed, according to the Joint Committee on Taxation, the bulk of the revenue score is attributable to this strict liability penalty--not because the IRS will collect the penalty but because people are going to start obeying the law and change their behavior. The penalty will alter taxpayer behavior. It will cause taxpayers to forego entering into noneconomic, tax-motivated transactions that Congress never intended.
We have heard complaints that a strict liability penalty will cause IRS field agents to overreach and courts to be reluctant to apply the doctrine. These are serious concerns, and we have addressed those concerns by requiring the IRS to nationally coordinate through the Chief Counsel's Office when the penalty is asserted and/or when it is compromised. This procedure is similar to a process currently used by the IRS to designate cases for litigation.
As a protective measure, taxpayers will be permitted to make their case to the IRS at the national level before a penalty is asserted. Of course, cases involving the economic substance doctrine should be going through Chief Counsel anyway, and taxpayers currently have the ability to persuade the IRS not to assert a penalty. But because of the strict liability nature of this penalty, it is important to formalize this process and move it to a higher level of review.
Getting the Chief Counsel's Office involved earlier in this controversy will help taxpayers and the IRS resolve or make litigation decisions regarding tax shelters earlier.
We have also lowered the penalty for undisclosed transactions from 40 percent to 30 percent to bring it in line with the penalty on undisclosed listed transactions.
The proposal to codify economic substance has been controversial, even though it has passed the Finance Committee and the full Senate in the last two Congresses. Taxpayers and practitioners expressed legitimate concerns about it. We have addressed those concerns--maybe not in the way everybody wants, but I think we have done it in a responsible way.
As a general matter, in my tenure as chairman of the Finance Committee before we went into the minority this year, I am proud to have kept taxes down. During my tenure, we enacted bipartisan tax relief bills that totaled over $2 trillion over 10 years. So for
critics who look at any change in the Tax Code, regardless of how legitimate it is, even regardless of not doing it for revenue-raising measures--they look at everything and say: You are changing the Tax Code; you are raising taxes--I am here to tell them on this issue of economic substance how ridiculous that is. So for the critics of this revenue raiser, I would refer them to my record of keeping taxes down.
By the way, for those on the liberal side of the political spectrum, I point out, as a percentage of GDP, the Federal Treasury is taking in a percentage that is above the post-World War II average.
Codifying the economic substance doctrine should be considered on its merits. It should not be dismissed because it scores as a revenue raiser. It should not be endorsed either because it scores as a revenue raiser. In my view, it should be enacted because it is the right tax policy. Folks need to take off the bean-counting green eyeshades and look at the tax policy.
The same goes for the long overdue AMT fix that I have talked about. It is not about maximizing Federal revenues. It is about fair taxation for 19 million middle-income families.
I am done, Mr. President, but I want to digress for one minute for the benefit of faceless bureaucrats down at the White House. I want to talk to those people who maybe were advising the President, and they put it in his veto message, that one of the reasons he was vetoing the Children's Health Insurance Program is because our bill allowed families earning up to $83,000 to have their children in a government program--when quite obviously most people making that kind of income can have health insurance. What I have said to those very same people who put that in the President's message is it was not in our bill; that States could do that. That has been in the law for 10 years. But nobody pointed that out to the President. Some stupid person said to the President: This bill allows people with $83,000 to get it. It didn't have anything to do with that. It was in the law for 10 years.
I want those faceless bureaucrats to read why we are doing economic substance. It is about time Congress does its job and the courts don't do the job we are supposed to do. Four circuit courts of appeal have defined and found fault with various aspects of economic substance. They said it is time for Congress to define it.
Yes, it is a revenue raiser, but it is not one of these changes in tax policy that is a change in rates of taxation that you can legitimately call tax increases. But somebody down there at the White House is telling the President this is a tax increase. What we are trying to do is do our job. This cannot be a reason for vetoing the farm bill.
If anybody down at the White House wants to discuss my rationale for this, come up and I will sit down and talk with them, or I will even go down there if they want to talk about it.
I yield the floor. I guess nobody else wants to speak, so I suggest the absence of a quorum.
Mr. President, I ask unanimous consent the order for the quorum call be rescinded.
Mr. President, within the past few weeks a series of events has occurred that can help shed light on how tax relief enacted in the past 7 years has impacted the budget of the United States. On September 27, the Senate voted to increase the debt limit so the Treasury would be able to borrow enough to meet our Nation's obligations. At the time, I made a statement that this was necessary. The proper place to take a stand for fiscal responsibility is when we are considering bills that spend money and actually create our debt.
Unfortunately, some of my colleagues believe the only answer to our budget woes is to increase taxes. But I believe this point of view is misguided and would prove destructive to our budget in the long term. Especially over the past 7 years, discussion of an increase in debt limit has prompted excitable statements from my colleagues across the aisle on the current administration's fiscal record. I am sure I do not have to say these statements from across the aisle have not been positive.
Another event I want to mention is the release on October 5, 2007, of the Monthly Budget Review from the Congressional Budget Office. The Congressional Budget Office budget review forecasts that the deficit for fiscal year 2007 would be significantly smaller than the deficit for 2006, and then the Final Monthly Treasury Statement, published by the Treasury Financial Management Service, confirmed that. According to the U.S. Treasury, the Federal deficit for fiscal 2007 was $162.8 billion. The deficit for 2006, the year before, was considerably higher, at $248.2 billion. The deficit for 2007 then is around $85 billion less than it was last year.
The chart I am going to show you, taken from Treasury documents, shows how this decrease in the deficit has been driven by a 6.7-percent estimated increase in total receipts over fiscal year 2006.
If you are determined to show that tax relief has led to less revenue from the Federal Government, then this data is difficult to explain. Of course, the conventional criticism offered against tax relief was that it was going to be directly responsible for massive increases in the deficit. This argument implies that as a result of tax relief, the Federal Government would collect less money in taxes.
On May 23, 2003, the Senate voted to agree to a conference report to accompany the Jobs and Growth Tax Relief Reconciliation Act of 2003. The vote was close. The conference report was agreed to only because the Vice President cast the tie-breaking vote in favor of the report. Anyone who reviews the Congressional Record of that debate would see that the rollcall vote was preceded by a very contentious discussion. Many of my colleagues had very strong criticism of the bill which, among other things, reduced the rates for capital gains and dividends.
Tax policy generally is not seen as something that attracts a lot of excitement, but the floor debate of May 23, 2003, could have given a listener the impression the sky was falling.
This chart of Chicken Little reporting that the sky is falling illustrates the tone of some of the criticism made by my colleagues.
One Senator claimed:
The tax base of the Federal Government is being destroyed.
This same Senator referred to the bill as:
One of the most dangerous, destructive and dishonorable
acts of Government that I have ever seen.
Another one of my colleagues claimed that the bill:
Is about helping the elite few with large tax cuts while
burdening the majority of Americans with huge debt.
Here again, you see the implication that the 2003 tax relief was going to diminish revenues collected by the Federal Government.
A third colleague claimed:
This bill I call the policy of the three Ds. This is the
policy of debt, deficits and decline.
This comment is especially interesting when examining a statement made by this very same Senator on September 27 of this year during the discussion on increasing the statutory limit on the public debt. That same Senator said at that time that:
Revenue has been basically stagnant in this country for 6
years.
According to my colleagues in the Congressional Budget Office, revenues in 2000 were $2 trillion, just a hair over $2 trillion, while revenues in 2007 were calculated by the Treasury to be around $2.12 trillion, taking into consideration inflation.
First, I wish to point out that the word ``stagnant'' used by my colleague is a far cry from the debt, deficit, and decline that tax relief was supposed to inflict on this Nation. I am not saying we do not have a massive national debt fed by successive budget deficits, but the specific tax relief enacted in 2003 and again within the past 7 years is not the cause of that.
As my esteemed colleague pointed out, even accounting for inflation, the revenues of the Federal Government are projected to be greater in 2007 than they were in 2000. So this certainly shows that our tax base was not gutted by tax relief as was so profoundly asserted by my colleagues.
I also would like to say that I do not think that $90 billion is a trifling
amount of money. Maybe it is to some people in some places, but it is certainly not for us people, for the Iowa farmer.
To offer a different perspective, let's consider this year's appropriations bills. The Democratic leadership wants to spend $23 billion more than the President's budget on appropriations. That same group is preparing to force a showdown with the President over that $23 billion. That is one-fourth of the amount I am talking about here. So when it comes to spending, extra dollars do count, but extra revenue from lower levels of taxation is to be belittled no matter what the number might be. It just sounds so inconsistent.
My excitable colleagues here in the Senate are not the only ones who predicted gloom and doom that never came because of the tax relief in August of 2003. Even the Congressional Budget Office published a document titled ``The Budget and Economic Outlook: An Update.'' The bill reducing rates on capital gains and dividends had become law at the end of May, so the Congressional Budget Office was able to take tax relief into account as they conjured their budget projections. This chart right here illustrates the discrepancy between what was forecast by the Congressional Budget Office in the summer of 2003 and what actually transpired. You can see the red line actual figure is way above the blue line that was suggested by the Congressional Budget Office.
In August of 2003, the Congressional Budget Office projected that the Federal Government would collect about $1,770 billion in revenue. According to the historical budget data--also from the CBO--revenue in 2003 was actually about $1,783 billion. That difference is $13 billion. Now, $13 billion may be peanuts to some people, but I think it is a good start.
In August 2003, the Congressional Budget Office projected Federal revenues for 2003 to be $2,276 billion. Actually in 2003, Federal revenues were about $2,407 billion. The Federal Government collected, then, $131 billion more in 2006 than was originally forecast in the dark days of 2003, when several of my Democratic colleagues thought that tax relief was poised to destroy our tax base. Revenues actually collected were higher than projected when considered as a percentage of gross domestic product.
In August 2003, CBO projected that revenues in 2006 would be 18.2 percent of GDP. Actual revenues collected in 2006 were more than that-- at 18.4 percent compared to 18.2 percent of GDP. In 2005, they were 17.6 percent; in 2004, they were 16.3 percent; and in 2003, they were 16.5 percent. After a small downturn in 2004, Federal revenues, taken in proportion, increased faster than the GDP.
Speaking of its 2007 projection, in an October 2007 monthly budget revenue, CBO states:
Revenues rose to 18.8 percent of GDP, which is slightly
higher than the average of 18.2 percent over the past 40
years.
Even with lower taxes, the Federal Government is collecting, on average, a greater percentage of GDP in revenue year by year than it has over the past four decades.
Incidentally, in 2003, CBO projected that revenues would equal 18.3 percent of GDP in 2007.
Next, I want to compare the 4-year period after the 2003 tax relief plan went into effect with the 4-year period after the tax increases were enacted in the Clinton first year, 1993.
The Omnibus Budget Reconciliation Act of 1993, signed into law by the President in August of that year, increased taxes on corporations and individuals while increasing taxes on gasoline and raising the taxable portion of Social Security benefits.
I think this may be counterintuitive to some people, especially to those who believe that the well-being of our Nation is directly proportional to our ability to seize income from taxpayers, but as a percentage of GDP, Federal revenues increased faster after tax relief than they did after tax increases.
To set the stage, in 1993, Federal revenues were 17.5 percent of gross domestic product. In 2003, Federal revenues were a percent less at 16.5 percent of GDP.
By the way, all of these numbers are Congressional Budget Office numbers, and until I get to 2007, they are not projections.
If you look at this chart we are now putting up, you can see that as a percentage of GDP, Federal revenues increased faster in the 4 years after the 2003 tax relief than they did after the 1993 tax increase. Let me emphasize that. Revenues came in faster after we decreased taxes in 2003 than they did after 1993 when we increased the taxes.
For 1997, Federal revenues were 19.3 percent of GDP. Between 1993 and 1997, Federal revenues increased by 1.8 percent of GDP.
Now, in 2007, Federal revenues are projected by the Congressional Budget Office to be 18.8 percent of GDP. If this is the case, then over the past 4 years, Federal revenues will have increased by 2.3 percent, and 1.8 percent subtracted from that 2.3 percent leaves one-half of a percent. The tax relief enacted in 2003 grew Federal revenues by one- half of a percentage point more than the tax hikes of 1993 in the 4 years following each.
I like to emphasize this because I think that it just--too many people see it as common sense that if you raise tax rates, you are going to bring in more revenue; if you lower tax rates, you are going to bring in less revenue. But I just showed that tax increases under Clinton did not bring in as much revenue as tax decreases in this administration. They brought in more revenue. So I would like to disabuse people of the fact that increasing rates brings in more revenue and decreasing rates brings in less revenue.
What is also important is that as a percentage of GDP, revenues were higher in 1997 than they will be this year. In my opinion, they were too high.
The point that I am making is that the rate of change in revenues as a percentage of GDP has so far been greater after tax relief than after a tax hike. I think it is very important, especially for those who reflexively believe that the only way for the Federal Government to raise more money is to confiscate more income from taxpayers. Clearly, that view is false.
To conclude, let me summarize the current budget situation.
Right now, taxes are lower than they would have been under Democratic rule. I want to make it clear that I am not saying that no Democrats supported any tax relief. Some Democrats voted for the 2003 tax relief plan, and many more voted for the 2000 tax relief plan. However, I am skeptical that a Democratic Congress or White House would have allowed taxpayers to keep so much of their own money.
The budget deficit is shrinking, and Federal revenues are increasing. Anyone who finds fault with this situation is determined to do nothing but simply find fault. They would probably be unable to enjoy a sunny day because they would constantly be on the lookout for storm clouds regardless of what the forecast said. There is a problem with debt and with Federal budget deficits, but tax increases are the wrong way to approach that problem.
We have a Federal budget deficit because the Federal Government spends too much money, and the best way to get rid of deficits is to spend less. Consequently, raising taxes makes the situation worse by punishing the overall economy and making conditions more difficult for the economy--the source of Federal revenues--to function efficiently. We have to remember that our economy supports the Government and not the other way around. The budget data I have discussed today shows how we can increase revenues and reduce deficits by removing impediments to economic efficiency and allowing our economy to flourish.
I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Salazar.) The clerk will call the roll.