Congressional Budget For The United States Government For Fiscal Year
Madam President, I note that my friend and colleague, the chairman of the Budget Committee, is here. I thought I would begin by quoting something he said which I think sets the tone for the discussion of the budget. I believe it was during…
Madam President, I note that my friend and colleague, the chairman of the Budget Committee, is here. I thought I would begin by quoting something he said which I think sets the tone for the discussion of the budget. I believe it was during a March 4, 2007, interview on ``60 Minutes'' when the distinguished chairman said:
I believe, first of all, that we need more revenue.
Now I won't pretend that I know the exact context in which this statement was made, but it is not the first time I have heard Democratic colleagues say we need more revenue. In one of our informal meetings, colleagues said: We will need a much bigger revenue stream when the next President is elected. That individual was presuming it would be a Democratic President.
Yes, of course.
I am happy to have the Senator from Vermont confirm that on the other side of the aisle there is a belief that the U.S. Government needs more revenue.
I would actually put it the other way around. Especially in times of economic difficulties--and I think we all agree that our economy is not in great shape right now; there is a discussion that we may even be in or very close to a recession--of course, the worst thing to do during that period is to give the Federal Government more revenue, to take more revenue out of the pockets of taxpayers, average Americans who have to pay attention to their own budgets.
As a matter of fact, our problem is not the lack of Federal revenues. We are collecting more money now at the Federal Government level than the historic average over the last 40 years. I hardly think the Federal Government needs more revenue. I argue, instead, that our families need to keep more of the hard-earned revenue that is a result of the efforts of their families in working hard every day.
It is true that because many on the Democratic side of the aisle have plans to spend more money, as my distinguished colleague from Vermont is suggesting, they therefore see a need to take money from taxpayers' pockets so that we in Washington, in our infinite wisdom, can make decisions about how that money should be spent. I think that is the wrong prescription virtually any time but certainly at a time when we may be heading into a recession.
It at least is the case that our Democratic friends in their budget would raise taxes in some cases--not all but in some cases--to pay for this additional spending they believe should occur. As with last year's budget, which would have increased taxes by $900 billion, this year the budget would increase taxes by $1.2 trillion--the biggest tax hike in the history of the United States.
Once again, there is a suggestion out there that we can soak the rich and nobody else will have to bear the burden. The top 1 percent would pay something like $25 billion in taxes; that is the amount we could expect from this budget in 2009. Of course, that wouldn't begin to take care of the spending proposals that have been added up on the other side of the aisle.
Every time we try to target the rich in order to collect a lot of money to pay for spending in Washington, we end up hitting everybody else. The best example of that is the alternative minimum tax, the AMT. Originally, this tax was designed to ensure that millionaires would always pay some taxes, that they could not avoid tax liability by taking advantage of writeoffs and deductions and credits and other provisions of the Tax Code that anybody is entitled to take advantage of, if those provisions meant that you could write off or offset your income with losses or deductions and therefore there is no tax liability. We said: No, that is not right. The AMT will come into play at that point so everybody has to pay some taxes. It seemed like a good idea at the time.
What has happened in the meantime, we all know, because it has not been indexed for inflation, we now this year had something like 23 million taxpayers subject to that kind of alternative minimum tax liability, something people on both sides of the aisle have sought to avoid. We don't want to tax everybody. We don't want to hit the middle class, let alone other taxpayers. But it is a good example of how, when we try to aim at the rich, we end up somehow always managing to hit the poor or the middle class. That is the same thing here.
In the budget, there is a suggestion that we are only going to hit the rich. There are problems with that: No. 1, it is not true, as I will point out; secondly, you wouldn't begin to get the kind of revenue our colleagues say they need in order to engage in the spending programs the budget calls for.
I have a couple other examples. The energy and education tax incentives in this budget must be paid for by other tax increases. The same applies to the middle-class tax relief promised and any AMT relief after 2008. I remember because I chaired the subcommittee of the Finance Committee that has jurisdiction over the IRS. I heard a lot about tax gap collection. So we held a hearing. We said: How much money could we really collect by enforcing revenue collections? Everybody owes these taxes. If we just collected the money, how much could we expect to get? The experts said: Actually, not very much. You would spend more than you would end up collecting in many cases because it is not a matter of just going out and collecting a due debt but, rather, forcing the kind of bookkeeping on various kinds of small businesses that would probably put most of them out of business if they were really to keep the kinds of records that would enable us to collect the kinds of taxes that we suggest maybe they owe. So this business of recouping a portion of the tax gap and using that to pay for these spending programs is one that does not have the support of those who have testified before the Finance Committee.
The bottom line is, we are not going to be able to collect the kinds of revenues and the increased taxes called for here in order to pay for spending programs the Democrats have identified.
Finally, there is talk about a so-called reserve fund. This is an interesting concept. It is sort of, well, there is going to be money out there because we promise we will put money in it, so we can afford to therefore raise spending in anticipation that we will put money in this reserve fund. The amount of reserve funds included in the 2008 budget have now grown this year, representing up to $300 billion in new taxes and spending. As I said, that looks good on paper, but it doesn't come about in reality.
I will get to a final point in a minute about collecting revenues and what that has to do with the death tax, but let me deal with a couple other items before I talk about that.
The ranking member of the Budget Committee has noted something that started last year, and it certainly is included in this year's budget. That is the fact that budget enforcement mechanisms which were put into the budget last year amid great fanfare about how we are not going to have sham budgets; we are going to have pay-go--whenever we spend, we will make sure we collect it in advance--it turns out that has been waived more times than it has been abided by. With the budgetary sleights of hand that were put in place last year, we find that the same things roll over into the budget this year, with the result that, again, we have greater debt that is not really going to be paid for, notwithstanding what the budget seems to suggest.
The House budget included reconciliation instructions to pay for a 1- year extension of the AMT patch by presumably raising taxes on oil and gas companies, taxing private equity, and codifying the so-called economic substance doctrine. The Senate committee did not include reconciliation instructions in the Senate budget resolution, I presume because of the conclusion that at
the end of the last year, the AMT did not need to be paid for.
Obviously, there is an understanding in this caucus that those who oppose higher taxes on oil and gas--there are those who oppose higher taxes on oil and gas and oppose taxes on private equity, and it would be a very difficult thing to get such a bill passed in the Senate. But no one should be surprised that the same reconciliation instructions could very well magically appear in the Senate after a conference in order to get around Republican opposition to higher taxes. That is why you have heard many Republicans predict that when the conference report is concluded on this budget--if, indeed, a budget is passed--and it comes back here to the Senate, we are going to see some things that never would have been in the bill at this point in time and which I hope my colleagues would recognize and would oppose at that time.
I said I would get to the matter of whom this budget really hurts. We in the past have tried to focus on the rich, and we always end up hurting other people. Who are some of the other folks who would suffer under this budget? They include families, seniors, people with low incomes, small businesses--in other words, just about every group in this country we really don't want to hit with higher taxes. But when the current tax rates expire at the end of 2010 and the Democratic budget permits the rates to go back up to where they were before, the so-called Bush tax cuts, we are going to see 116 million taxpayers start sending more of their paychecks to Washington, DC.
The poor Federal Government needs more revenue, as my colleague said earlier. For the 7.8 million taxpayers taken off the rolls, if the current tax policies are allowed to expire, 7.8 million families who currently don't pay any income taxes because of the way we constructed the 2003 tax cuts would be put back on the rolls again. So there you have people in the lower income brackets--7.8 million taxpayers we took off the rolls--who would come back as taxpayers under the Democratic budget. Families, 43 million working families with children would see their taxes raised by an average of $2,300 in the year 2011 on average. Take a security guard earning $50,000, with a wife and two kids. He would see his taxes go up by $2,300 in 2011. Take a widowed teacher's aide with two kids. Her taxes will go up by $1,100 in 2011. That may not seem like a lot of money here in Washington, but it is a lot of money for a family working hard to make ends meet, worrying each month about where they will get the money to do all the things they need to do.
We tend to think in this body and in the Congress generally not in terms of millions anymore or even hundreds of millions but in billions of dollars. In fact, trillions are starting to creep into our lexicon. We need to get back to focus on what families are really concerned about. One thousand there, $2,000 there, $4,000 there ends up being a lot of money to these families.
Who else is going to get hit? Senior citizens, 18 million senior citizens will see their taxes rise by an average of $2,200 under this budget. So every Democrat who proudly casts a vote in favor of this budget, understand, this budget assumes that seniors will have an average tax increase in 2011 of $2,200. An elderly couple with $40,000 in income, if the Democrats roll back our current tax policy, a couple over age 65 at $40,000 in income will see their taxes go up by $2,200 in 2011. Eighteen million seniors will see their taxes increase if the current tax rates are not extended, which is not the case under the Democratic bill. Seniors especially benefit from reasonable capital gains and dividends tax rates because frequently they have small investments. They are part of a teacher's pension or some other fund that pays them dividends. Thirty percent of taxpaying seniors claim capital gains. More than 50 percent of taxpaying seniors claim individual dividends which would, of course, increase their tax liability under the Democratic budget.
We talk about small businesses. Small businesses are the engine of our economy. They provide more employment opportunities than all of the big businesses combined. Yet they pay the income tax rate at the highest level, which is the level of the ``rich.'' So whenever Democrats talk about taxing the rich, understand their shotgun also includes all of the small businesses because that is the rate they pay. So in the tax world, small businesses are the same thing as high-income individuals. Is that whom we want to harm, especially at a time when our economy, being in jeopardy as it is, has to rely upon the jobs created by small businesses? Seventy-five percent of all individual returns in the top 1 percent of income include business income. In fact, 83 percent of all individual returns above $1 million included business income. Think about that. That means that the bulk of the people who are reporting income in this category include business income.
Small businesses pay 54 percent of all individual income taxes. This is one of the worst things about the Democratic budget--not just for the lack of equity, not just because it hurts individuals, but because it has a devastating impact on our economy at this critical time.
If tax rates are allowed to rise to their pre-2001 levels, 27 million small businesses will see their tax bill increased by over $4,000. I will repeat it: 27 million small businesses will see their tax bill increase by over $4,000.
I might just note parenthetically, there is a direct correlation, by the way, between high taxes and high unemployment. In the United States, we have had relatively low taxes because of the Bush tax cuts. We collect about 34 percent of revenues as a percent of GDP; in fact, 34.2 percent. Our unemployment rate is 4.8 percent. In the European Union, the tax rates are more than 10 percent above that. They collect 45.4 percent of revenues as a percent of their GDP, and their unemployment rate is almost 8 percent. It is 7.9 percent right at this moment. So if we want higher unemployment, then raise taxes. It is a pretty sure way to get there.
Let me conclude by discussing briefly what this budget does with respect to the death tax because this has been a matter of particular concern to me. I have talked to Chairman Baucus about this matter.
In the Finance Committee, I offered an amendment to reform the death tax. In exchange for my agreeing to lay the amendment aside because the other side did not want to vote on it, the chairman agreed to hold hearings with the goal of trying to report out a death tax reform proposal sometime this spring. He has now advised me that is not going to happen. We will have the hearing, but we will not have a markup to put out a bill. That is very disappointing. Yet the budget actually assumes that such a bill will pass.
The budget, as I understand it, has a provision for an amendment of the death tax for so-called death tax reform. It is not very good reform because it would freeze the rate at 45 percent, which is a very high rate of taxation. It would set the exemption level at $3.5 million, which is not bad, but it could be better.
I have a better idea about what real reform would look like. What I would like to do is to set the exempted amount at $5 million per person, index that for inflation, and put the top death tax rate at no more than 35 percent. I think it ought to be closer to 25 percent, but in the spirit of trying to reach a compromise, I will propose we at least have it no higher than 35 percent. This would protect almost 120,000 families, family businesses, and family farms from having to pay the death tax each and every year. And it would promote continued economic growth and job creation.
It is interesting to me that the United States has the third highest estate tax rate in the world and is 37 percent above the international average. Twenty-four nations have no estate tax. There are only two countries that have rates higher than ours. Ours would be at 45 percent under the Democrat budget. In France it is only 40 percent. The average is about 13 percent.
One of the reasons other countries do not have this kind of tax at the time of death is because of the amount of money that people will spend to try to avoid it. It has been estimated, as a matter of fact, that there is almost an equal amount of money spent each year in an effort to try to avoid payment of the tax as there is paying the tax itself. And by ``trying to avoid it,'' I mean hiring lawyers and accountants and buying insurance policies, all of
which cost a lot of money. But due to some extent----
Let me conclude my point on this, though I do appreciate the intercession of my colleague earlier, acknowledging that folks on his side of the aisle would like to see a lot more revenue because of the spending they would like to accomplish.
Let me finish this point about the death tax.
The U.S. Treasury estimates that the estate tax reduces bequests by 14 percent. Individuals are either choosing to save less or rely heavily on estate planning, which is a large deadweight loss to the economy. The death tax costs more money to comply with than it raises in revenue. As I said before, there is a direct correlation between the two.
Economists Henry Aaron and Alicia Munnell estimated the amount spent on avoiding the death tax is approximately equal to the amount collected. The IRS estimates it takes about 38 hours to complete form 706, the Federal estate tax return. Estate planning for businesses can range from $5,000 to $250,000 for family limited partnerships and up to $1 million for closely held businesses. Fifty-two percent of the estates that filed a return were required to incur sizable legal, accounting, and other professional expenses even though they owed no tax.
So my point about the death tax is that almost no one thinks it is fair. Almost everybody acknowledges it should be reformed. We have tried year after year to reform it. We have not been able to get the necessary votes to accomplish that, though virtually every Republican has supported reform.
The chairman of the Finance Committee assured us we would work toward the goal of getting a bill this year but now says there will not be a goal, and as to the ``reform'' in the budget, it turns out to be very little reform at all. In fact, it was the same ``reform'' we passed last year as part of the budget. As everybody knows, the budget is not law. The budget is a goal, and we did not follow up on that goal. When I tried to do so, I was asked to back off for a future commitment, that we would try to work on it this year. Now we are told we are not going to do it this year.
So let's just understand that what we would be doing in passing a budget that theoretically has a proposal for death tax reform is not serious. We are not going to have death tax reform.
For those who vote for the amendment which will be offered here to suggest there will be death tax reform, understand that if you do not follow it up with real action to pass a bill that reforms the death tax, then this is nothing more than an unkept promise.
So I urge my colleagues, as they think about this, to recognize we will be held accountable. We now have a year of experience following the Democratic budget that was passed last year, and we see all of the unfulfilled commitments that were made in that budget now. Since the budget tracks so carefully this year what we did last year, one has to ask the same questions: Is it going to be the same this year where on the death tax, for example, we are not able to get relief? As I said, I will propose an amendment that I think takes a little bit better stab at death tax relief. I would hope we could get support as we have from some of our Democratic colleagues on that to demonstrate we want to do something substantive this year on that subject rather than simply put it in the budget and claim we have done something when, in fact, everybody knows that just putting it in the budget does not actually change anything.
Let me close, Madam President, by saying--I will be happy to yield, but I will be happy to stop and let my colleague from Vermont just go ahead, if he would like to do that--I want to acknowledge the hard work of the chairman of the Budget Committee, who is here. I know he is very much committed to trying his very best. But at a time when, as he acknowledged, many folks on his side of the aisle think the Federal Government needs more revenue, we are just in a debate in which we have to agree to disagree. He always does so in an amiable way, and I respect that.
But I just believe it is the American taxpayer who deserves more revenue, not the U.S. Government. Therefore, reluctantly, I will be opposing this budget in the form it is in and hope we can make substantial changes to it in a true spirit of bipartisanship.
I thank you.
Madam President, might I just ask the Senator to yield for 1 second?
I specifically indicated that I did not know the context.
Because I respect the Senator so much and was sure he would tell us what the context was, No. 1.
No. 2, I certainly agree with the distinguished chairman of the Budget Committee on both of the subsequent two comments: one, that we should reduce spending, and, two, that we should have entitlement reform.
I would only make the point that I do not see a lot of reduced spending and entitlement reform in the budget, but perhaps the chairman could go on and discuss that as well.
I thank the Senator for yielding.