Mr. President, I want to speak for a few minutes on the tax package that is before the Senate and that we will be voting on tomorrow. Yesterday, the Senate voted to proceed to this $857 or $858 billion package that would have the effect of…
Mr. President, I want to speak for a few minutes on the tax package that is before the Senate and that we will be voting on tomorrow.
Yesterday, the Senate voted to proceed to this $857 or $858 billion package that would have the effect of extending all personal income tax rates for 2 years, substantially reducing the estate tax, establishing or extending a host of tax incentives for American families and businesses.
I think the way to evaluate this package is on two basic grounds. First of all, how does it help us deal with the very substantial economic problem we face with trying to strengthen the recovery from this deep economic downturn that we have experienced and, second, how is it helping us to set a long-term course to achieve fiscal stability.
On the first issue, the economic recovery, there is much in the package that I would strongly support and that I do strongly support. We should protect 98 percent of American households from any tax increase. We should extend benefits to our fellow Americans who are unable to find jobs in this period of very high unemployment. We should continue key business incentives such as the section 103 program, which has provided a critical lifeline to the renewable energy industry.
If the only economic imperative that we faced was how to strengthen this recovery from the downturn, I would be voting for the package. But as I said at the outset, that is not our only economic imperative. Our dire fiscal condition requires us also to adopt a strategy that will dramatically reduce deficits in the coming years. Frankly, I am disappointed by the plan's shortsightedness on that issue and, therefore, I did oppose the cloture motion yesterday, and I plan to vote against the package tomorrow when the vote is called.
If we are serious about addressing the deficit, we need to admit that we cannot afford all of this package. In 2001, I came to the floor to explain my opposition to enacting the so-called Bush tax cuts. At that time the Congressional Budget Office was actually projecting budget surpluses. But as I explained then, I viewed the 2001 tax cuts as carrying a higher pricetag than we as a nation could afford. The 2001 cuts, which were accelerated in 2003, reduced the stream of revenue to the Federal Government by an amount that virtually guaranteed the elimination of our anticipated budget surplus, and instead insured that substantial deficits would once again become the norm in our Federal budget.
The result, which is a Federal debt that today nears $14 trillion, could have been avoided under the Bush tax structure only if there had been major
cuts in spending at the same time. As we all know, no such cuts in spending were ever proposed by the President, and no such cuts in spending were ever adopted by the Congress. In fact, in the years following the Bush tax cuts, spending increased very substantially. The Bush tax cuts were larger than we could afford when they were adopted.
Including interest costs, those tax cuts account for nearly 55 percent of the deficit that is projected to the end of the next decade. Once again, in my view, we cannot afford to extend those tax cuts in their entirety today. The Nation's debt now stands at 62 percent of gross domestic product.
The Congressional Budget Office says if we continue on our present course, that debt will reach 90 percent of gross domestic product by 2020 and 185 percent of gross domestic product by 2035. This concern is not merely academic. Our growing deficit has stark consequences for our government's ability to meet essential priorities.
At current levels, government revenue in 2025 will be enough only to cover interest on the debt, Medicare, Medicaid, and Social Security. The threat to American prosperity is severe. By 2035, rising debt could reduce per capita gross domestic product by as much as 15 percent.
In recent weeks, we have had several expert commissions tell us that we need to get the debt under control. They have offered thoughtful, practical proposals to do that. This National Commission on Fiscal Responsibility and Reform released a six-part plan that would achieve nearly $4 trillion in deficit reduction through 2020.
Five of the six senators who served on the commission supported the plan. Two weeks earlier, a bipartisan commission, headed by former Congressional Budget Office Director Alice Rivlin, and my former colleague Pete Domenici, issued their own report. Both bipartisan groups concluded that to be credible any deficit reduction plan must impose limits on spending and must increase revenue.
For much of this Congress, the excuse for deferring serious action on deficits and debt has been that we should wait and see what these commissions decide. Well, now that these commissions have finished their work, this bill is our first chance to begin considering their recommendations. I see no evidence that we are doing so in this legislation.
I understand we cannot tackle both tasks simultaneously, that is, stimulating the economy and reducing the deficit. We cannot attack both of those tasks with equal force at the same time.
A decision, which I have supported, has been to focus first on stimulating the economy. But that focus does not excuse us from also taking the relatively easy steps that are available to reduce future deficits. I agree with the Commission for a Responsible Federal Budget, whose leaders argue that, ``The critical objective is to pair any stimulus for the short term with a credible plan to reduce the debt in the medium and long term.''
We should be talking about what triggers to attach, how to pay for the new package over the decade, what spending cuts and tax reforms to make. It is unfortunate that that conversation has not taken place.
Because the cost of the package is not offset, it has been, unfortunately, larded up with very wasteful provisions that do little to stimulate the economy. The most problematic is the one many colleagues have commented on, that is, the $129 billion to extend tax cuts that benefit only the very high-income American households and reduce the estate tax below 2009 rates.
Proponents of the bill say that because the economy is weak, now is not the time to allow the tax cuts for the wealthiest households to expire. But a Congressional Budget Office report issued earlier this year tears down this argument. They examined 11 options to stimulate growth and job creation and concluded that extension of the 2001 and 2003 tax cuts was dead last in that list of 11. They further found that extending the tax cuts for high-income households, in particular, would rate lower in effectiveness than extending all the tax cuts because: ``Higher-income households . . . would probably save a large fraction of their increase in after-tax income.''
There is one comparison that puts this sharply into perspective, at least to my view. Last month, the President announced that because of concerns about the deficit, he was proposing to freeze all civilian Federal salaries at a savings of about $2.5 billion a year. I stated at the time that I supported his decision. But in this package we will erase those savings nearly three times over merely with the reduction of the estate tax from the 2009 levels. Is it not enough to reinstate the 2009 estate tax provisions which exempt $7 million in assets per couple and tax amounts above that 45 percent? Under this package, the exemption is dialed up to $10 million per couple, and the rate is reduced to 35 percent. So instead of reaching only 1 out of 400 American estates, this plan would subject 1 out of 1,000 estates to any tax whatsoever. So while a GS3 clerk at the Department of Agriculture office in Albuquerque will have her salary frozen in the name of fiscal responsibility, the heirs of a $50 million estate will save $5.35 million. This unwarranted generosity will cost our Treasury an added $7 billion a year. Americans are right to question how we can be serious about reducing the deficit when we are ready to give wealthy heirs a windfall with no benefit whatsoever to the economic recovery.
I also am troubled that the package makes the Tax Code permanently temporary and falsely assumes we will be able to achieve a different outcome when we debate this issue 2 years from now. Today's Wall Street Journal points this out in a story entitled ``Temporary Tax Code Puts Nation in a Lasting Bind.'' The piece opens with this sentence: ``Welcome to the world of the temporary tax code.''
I ask unanimous consent that the text of that article be printed in the Record at the conclusion of my remarks.
The main argument being used in support of the extension is that this is the only proposal we can get our Republican colleagues to agree to. In my view, that is an uncharitable view of our Republican colleagues. I think they would embrace a more responsible proposal if they felt they were required to do so.
The fact that not a single Republican supported either the proposal Senator Baucus brought to the floor or the proposal Senator Schumer brought to the floor last week, in my view, results from their expectation, which was apparently accurate, that if they remained intransigent, Democrats would give in to their demands to extend all the tax cuts. Those demands reflected in the bill now before us do not acknowledge the serious problem we face with our deficits. I have explained why.
There are also some important provisions that were included in the Recovery Act which, unfortunately, have been left out of this tax package. I am informed they have been left out because Republican leaders have insisted Recovery Act provisions not be extended. There are some of the provisions in the Recovery Act that had been extremely beneficial to economic activity in my State. The Build American Bonds program, for example. It is very unfortunate that program is not being continued as part of this package. The package also ends a provision Senators Crapo and Grassley and I fought to include in the Recovery Act, which raises the bank-qualified limit, which was last adjusted in 1986, for small municipalities that sell debt to community banks. This has significantly reduced rural governments' borrowing costs and created jobs and needed infrastructure improvements in thousands of communities. I am disappointed that has not been continued.
The reflexive anti-Recovery Act position Republican leaders have taken is reflected as well in the provisions dealing with energy. In spite of the positive provisions in this legislation to strengthen the economic recovery--and there are some which I strongly support--the bill moves us in the wrong direction with regard to our other major problem, which is deficit reduction. On that issue, it will start the 112th Congress off on the wrong track. For that reason, I will oppose the legislation tomorrow when the vote is called.
Mr. President, yesterday the Senate voted on proceeding to the most significant revenue bill of the 111th Congress. As I explained when I came to
the floor earlier today, this bill contains important provisions that will stimulate the economy. I strongly support extending tax cuts to the overwhelming majority of American families. But this bill goes further than that. It extends tax cuts to the very highest earners and adds a substantial estate tax cut. And it does so without any offsets or any plan to address the deficit. The inclusion of those provisions will make it difficult for the next Congress to act in a responsible way to address our serious deficit situation. For those reasons, I voted against proceeding to the bill.
While my ``no'' vote was driven primarily by the bill's fiscal recklessness, I am also disappointed by the inadequacy of its energy tax provisions. Aside from a 1-year extension of the section 1603 grant in lieu of credit program, which will offer some support to our renewable energy industries, every meaningful advanced energy incentive that was included in the package Senator Baucus offered has been stripped from today's bill, or reduced to the point of near- ineffectiveness. These include key provisions to promote energy efficiency, clean technology manufacturing, energy independence, and pollution reduction.
Among its disappointing provisions, this bill chooses to extend the volumetric ethanol excise tax credit, or VEETC, for an additional year at its current rate of 45 cents per gallon. When we include the associated income tax deductions, this extension will cost American taxpayers about $6 billion. But the VEETC subsidizes production of a fuel whose consumption is already mandated by our renewable fuel standard. The House was poised to drop the credit down to 36 cents, a level that I would support. But today's so-called compromise package extends the credit at 45 cents a gallon, which will cost an additional $1 billion. That $1 billion would be better spent funding other clean energy technologies which do not enjoy the market protection of the renewable fuel standard. For instance, we could much better use the $1 billion for the advanced energy project credit, or section 48C, which enables companies to establish, reequip, and expand factories in the U.S. to manufacture advanced energy technologies.
Failing to change this bill's energy provisions will ensure that the 111th Congress will be recorded as one that failed to maximize its potential in using the Tax Code to promote advanced energy priorities. To be sure, the American Recovery and Reinvestment Act included many significant tax innovations that promote clean renewable energy and energy efficiency. But since ARRA's enactment at the very beginning of this Congress, the Senate has failed to consider any legislation that would build off those innovations. Time and again, energy tax legislation was pushed back, delayed, and obstructed. Particularly galling is that this obstruction occurred in a year that saw the worst environmental disaster in the history of this Nation, one that resulted from our overdependence on fossil fuels.
But we still have an opportunity to turn things around before the Congress adjourns. And so I urge the Senate to consider the comprehensive commonsense provisions that Senator Snowe and I have offered as an amendment.
Our amendment, No. 4783, is modeled on a standalone bill, the Advanced Energy Tax Incentives Act of 2010, S. 3935, which Senator Snowe and I introduced in September. This is a bipartisan, comprehensive package of incentives focused on enhancing energy efficiency, deploying renewable energy, and rebuilding our domestic manufacturing base. These commonsense incentives will make our businesses more dynamic and competitive, our homes more efficient, our economy more secure, and our skies and waters cleaner.
Among other highlights, our amendment would enable home and business owners to defray upfront costs of investing in energy-saving technologies, including the introduction of performance-based tax credits for whole home retrofits. It would make $2.5 billion in tax credits available to attract manufacturers of technologies that harness clean renewable energy or enhance energy efficiency and establish a $1 billion tax credit program to enable American manufacturers to undertake energy-saving measures that advance their competitiveness. Our amendment would facilitate the growth of renewable electricity by creating a tax incentive for energy storage systems, which will enable utilities to deploy intermittent energy sources like wind and solar power while reducing energy demands during peak hours and contributing to an overall more reliable smart grid. And the amendment would retool the tax credit for carbon capture and storage, CCS, to give CCS projects greater certainty.
Mr. President, we must continue to ensure that the Tax Code contains well-designed incentives that will help us transition to an energy efficient economy. The most significant revenue bill of the 112th Congress should include robust provisions that expand domestic clean energy manufacturing; help American businesses and families reduce their energy use and dependence on fossil fuels; and create thousands of jobs. I deeply regret that in considering the bill before us, the Senate will not give priority consideration to our amendment.
I yield the floor.
Exhibit 1
[From the Wall Street Journal, December 14, 2010]
`Temporary' Tax Code Puts Nation in a Lasting Bind
(By John D. McKinnon, Gary Fields and Laura Saunders)
Washington.--Welcome to the world of the temporary tax
code.
In the late 1990s, there were typically fewer than a dozen
tax provisions that had just a limited lease on life and
needed to be renewed every year or so.
Today there are 141.
Now Congress, taking up a deal worked out between the Obama
administration and Republican leaders, is poised to turn the
whole personal income-tax system into something of a
temporary structure. The plan embraces a broad range of
provisions--an extension of Bush-era rates, a new estate-tax
formula--but for only two years. A payroll-tax cut in the
bill is for a single year.
This means that if the compromise passes largely intact,
the U.S. will have no permanent regime governing levies on
salaries, capital gains and dividends, the Social Security
tax, as well as a slew of targeted breaks for families,
students and other groups. This on top of dozens of
corporate-tax provisions that already were subject to annual
renewal.
The level of uncertainty, unusual for developed nations,
complicates planning and discourages hiring and investment,
many economists and corporate executives say.
``I haven't seen anything like it, and it's hard
historically to find anything like'' the current and pending
negotiations, says Mortimer Caplin, an Internal Revenue
Service commissioner in the Kennedy administration who at 94
is just three years younger than the income tax itself.
``This Congress has left an awful lot up in the air.''
A vote to pass the tax deal in the Senate is expected on
Tuesday or Wednesday; prospects for swift approval in the
House remained cloudy but party leaders seem increasingly
resigned to the measure clearing Congress intact.
The two-year expiration of the bill's main provisions on
individual rates would occur just after the next presidential
election, and few in Washington envision a long-term solution
being crafted at such a charged time.
At the same time, the possibility of a sweeping tax-system
revamp can itself add to the uncertainty, what with
politicans increasingly ready to talk about this. President
Barack Obama has lately, as has the deficit-reduction panel
he appointed, including Republican members such as Rep. Dave
Camp, future chairman of the House Ways and Means Committee.
The possibility of an overhaul that would put on the table
long-established credits and deductions could further uproot
predictability.
This year has been something of a test case for tax
uncertainty, with concern about what would happen when
provisions adopted in 2001 and 2003 expired at year-end.
Sales of certain kinds of life insurance rose as families
wrestled with the possibility that estate taxes would jump in
2011. With no assurance the 15% rate on dividend income would
last past 2010, Kraft Foods Inc., Exelon Corp. and Altria
Group Inc. asked their shareholders to contact Congress in
opposition to an increase. Stocks of utilities, which
traditionally pay high dividends, appeared to factor in the
possibility of a rise in the dividend tax rate in 2011,
analysts said.
At Incobrasa Industries Ltd., a producer of biodiesel in
Gilman, Ill., sales manager Douglas Santos has been waiting
to see what happens to an expired tax subsidy for his
industry. He is running at 25% capacity, vs. 100% in 2008.
Mr. Santos wants Congress to make up its mind one way or the
other. ``Just do something,'' he says. The bill before
Congress would restore the subsidy.
Economic research has shown businesses tend to be more
reluctant to invest when they perceive high levels of
uncertainty about various things, including over taxes. The
pressure on policy makers to narrow the budget deficit, not
merely simplify the tax system, further muddies the waters
now, says Massachusetts Institute of Technology tax economist
James Poterba, who finds
``the crystal ball . . . particularly unclear at the
moment.''
Some call the worries exaggerated. ``I truly do believe the
concerns expressed over tax uncertainty are truly
overblown,'' says Martin Sullivan, an economist with Tax
Analysts, a nonprofit tax publisher, who sees today's
situation as quite manageable compared with the profound
business uncertainty companies faced during the financial
crisis.
``We're used to [uncertainty] in the tax world,'' he says.
``What's changed in the last few years is the size of the
temporary extensions.''
Obama administration officials note that the tax code has
been through gyrations before, for example in the 1980s, when
Congress adopted accelerated depreciation in 1981, only to
repeal it five years later. That threw real-estate markets
into an uproar and added to problems that contributed to the
savings- and-loan collapse.
The White House says the current confusion points to the
need for a system that is more stable and simpler. ``We've
got to have a larger debate about . . . how is this country
going to win the economic competition of the 21st century,''
President Obama said last week. ``That's going to mean
looking at the tax code and saying, what's fair, what's
efficient? And I don't think anybody thinks the tax code
right now is fair or efficient''
Small business is often looked to as a source of job
growth. But the latest monthly survey by the National
Federation of Independent Business, a small-business advocacy
group, found that 75% of owners felt it wasn't a good time to
expand, and one in five said the main reason was doubt about
policy environment, including taxes.
For smaller companies, tax uncertainty could be an
incentive to expand overseas rather than in the U.S.,
according to Tom Duesterberg, president of the Manufacturers
Alliance, a group representing medium-size firms. Companies
``can't wait until all these [tax] questions are resolved,''
he says. ``They are not going to wait until all that
definitively happens. They have to deploy cash, please their
shareholders and expand and grow.''
Billy Hoffpauir, a developer in Lafayette, La., says he has
been trying to sell some real estate because ``with the
current uncertainty, I am unable to quantify the risk to make
long-term investment decisions.'' If he finds buyers, he
says, he would be likely to plow the cash into ``other
interests, probably overseas,'' because some foreign
countries have more favorable taxes and regulations. The tax
situation is the overwhelming driver in his business
decisions, Mr. Hoffpauir says.
Lea Bailes, president of Guier Fence in Blue Springs, Mo.,
says his plans for next year depend on how the tax debate
turns out: ``We're looking at acquiring a couple of smaller
fence companies. The number we acquire, honestly, will depend
on what we have to pay in tax.''
The company, which employs about 70, would try to hire two
to three new workers for each acquisition, possibly 10 in
all. ``If everybody our size can add 10 employees, we'd be a
lot farther down the road in dealing with the unemployment,''
Mr. Bailes says.
Guier is in the process of acquiring another firm now, and
while Mr. Bailes likes to take time to make such decisions,
he worries that concern over a possible rise in capital-gains
rates might make the seller push to complete the sale this
year. The bill in Congress would keep the current 15% top
rate for two years.
One reason unsettled rules on individual income taxes
affect planning at small businesses is that many don't pay
corporate tax, but pass business income through to the owners
for taxation on their personal returns.
Bill Wiygul, whose family owns four auto-repair businesses
in northern Virginia, estimates he and his wife would pay at
least $20,000 more in various taxes in 2011 if Congress
doesn't address parts of the code, including the Alternative
Minimum Tax. The AMT snags a growing number of filers each
year, and while Congress regularly limits the number
affected--and likely will do so again this week or next--this
has so far been an AMT ``patch,'' never a permanent fix.
Mr. Wiygul says he would trade an increase in tax rates for
greater certainty if the pain was shared by all. ``We are
petrified,'' he says. ``We would be more actively pursuing
expansion opportunities if we felt like the climate was more
certain.''
Large multinationals are only marginally affected directly
by income-tax provisions on the table this year. Yet the
stakes might be high for these companies. Executives worry
about becoming a target for lawmakers seeking revenue to
narrow deficits.
If a broad revision ``is a true `step back, let's take a
fresh look,' we would not be frightened by that,'' says Ken
Cohen, a vice president at Exxon Mobil Corp. But if it pits
industry versus industry or becomes a hunt for revenue,
``that's the process we would have much more apprehension
about.''
The reasons the tax code has acquired an increasingly
temporary cast have to do with deficits, a divided Congress
and even the constitutional system.
Political division contributes because of the daunting task
of mustering a filibuster-proof 60 votes in the Senate.
Legislative shepherds of the Bush cuts resorted to passage
under what is called ``budget reconciliation,'' requiring
only a majority vote. But a measure passed this way can't be
for longer than the budget that authorizes it, in this case
10 years. Hence the provisions expire in 2010.
Such an outcome is less likely in countries with
parliamentary systems because these leave the government less
subject to having its will thwarted by a large minority.
``Very few countries have tax provisions that expire unless
legislative action is taken,'' says Jeffrey Owens, head of
tax at the Organization for Economic Cooperation and
Development in Paris. ``Also, in most OECD countries, it's
the government that initiates new legislation, and once
proposed the legislation generally passes.''
Deficits tempt legislators to give tax provisions a
temporary term to disguise their cost. For proponents of a
new tax provision, the strategy is to get a foot in the door
by passing it for a year or two, at a seemingly affordable
cost, intending to renew it regularly.
That is how the number of provisions up for yearly
extension has ballooned. Though the provisions are often
extended in a bundle, a given provision's inclusion in the
bundle is never certain.
Perhaps nowhere has tax uncertainty been felt more
intensely this year than in the estate tax, always a
controversial matter.
A 2001 law lowered its rate and increased the exemption in
steps, with the tax lapsing in 2010 and then, unless Congress
acts, returning in 2011 at a 55% top rate on estates of $1
million or more. The unusual hiatus coupled with a far more
costly tax as soon as 2010 ended gave ``just an unbelievable
Alice-in-Wonderland aspect'' to planning for certain well-to-
do families, says Bruce Stone, a Miami-area estate lawyer.
Sales of a life-insurance policy commonly used for estate
planning rose 22% in the first nine months from a year
earlier, and their death-benefit coverage was up 30%. Though
the policies can also be used for other purposes, part of the
jump seemed clearly to be for hedging against the possible
estate-tax jump in 2011.
In a few cases, the uncertainty drove people to ponder
extreme measures to avoid a tax hit for heirs.
David Drouhard, a Washington-state farmer who is 56,
received a diagnosis of advanced kidney cancer 14 months ago
and faced a grim set of treatment choices. Most offered
little chance of extending his life more than 18 months,
although an immunity-boosting drug held out some hope. Mr.
Drouhard says he worried that inaction on the estate tax
would force his family to sell his wheat and alfalfa farm,
now worth about $3 million, to pay taxes if he died in 2011.
After much deliberation, Mr. Drouhard decided to take the
immunity-boosting drug, but with a caveat: ``I said, `If we
don't see results from the first series [of treatments], I'm
going to stop,'' he says. ``I try to take care of my family,
so why not go ahead and die instead of living another six
months.'' He has responded well to the treatment, but adds:
``I think it's wrong that you have to make that kind of
decision.''
The compromise Congress is weighing this week would set a
top estate-tax rate at 35% and the exemption at $5 million.
But this would be for just two years. Just as this year, a
failure by Congress to act then would cause the tax to then
revert to a top 55% rate and $1 million exemption, in this
case in 2013.