Congressional Budget For The United States Government For Fiscal Year
Madam President, I thank the Senator from New Hampshire, the ranking member of the committee, for all his hard work and support for those of us who have prepared amendments and would like to offer them. This is actually the Kyl-Graham…
Madam President, I thank the Senator from New Hampshire, the ranking member of the committee, for all his hard work and support for those of us who have prepared amendments and would like to offer them.
This is actually the Kyl-Graham amendment. The Senator from South Carolina will be offering this amendment and, incidentally, as soon as we have the exact text typed, we will present that for actual formal submission, but I can begin talking about it right now. Let me begin doing that.
The purpose of this amendment is to demonstrate, I believe, that there is sufficient ability in this budget to take care of a couple of problems that are very important and which we believe should be included within this budget before it gets passed: provisions that provide for the education of American children, provide for capital gains and dividend tax relief to continue to exist both for our families and businesses and the competitiveness of our economy, as well as other provisions which were not included in the underlying budget, such as death tax reform, which I think most of us acknowledge needs to occur and which we need to provide for in the budget.
This amendment Senator Graham and I will be offering in a moment is designed to include these very important provisions which I think most of us support in the budget. Not to do so would clearly represent a very big hole, I suggest, in the budget.
There is a suggestion in the amendment that was offered by the Senator from Montana and others that what Republicans have been saying about this budget resolution--namely, that it raises taxes on every American taxpayer--is, in fact, the case because as approved by the Budget Committee on a party-line vote, I might add, this budget raises taxes by $916 billion over the 5 years of the budget, which would be, of course, the biggest tax increase in the history of the country.
The chairman of the Senate Finance Committee, the Senator from Montana, well understood this, and I suggest probably is the reason for his offering of the amendment to reduce the revenue that is projected by the budget resolution and then, in his case, purports to dedicate that revenue to middle-class tax relief. He wouldn't be offering this amendment were it not for the recognition that there is a huge tax increase in the budget that came from the Budget Committee.
So I submit, to begin this conversation, that Senator Baucus's amendment is a good start, but it leaves in place the tax hikes on millions and millions of Americans, and that is not something most Republicans want to see.
If the Baucus amendment is adopted, then Democrats will be proposing to raise taxes on hard-working Americans by $736 billion over 5 years, rather than the $916 billion, still the biggest tax increase ever. We don't think this is right.
Incidentally, on a technical note, according to the Republican Budget Committee staff, the Baucus amendment increases the deficit in 2010 and 2011. This is important. When the interest is factored in, the Baucus amendment would take the budget out of balance in 2012 by some $6 billion. In the past, the Budget Committee members have had an informal agreement that interest would not be computed for amendments because it would be too cumbersome.
While this amendment would take the budget further into deficit-- preventing tax increases is more important than worrying about a small, manageable size deficit--it may be interesting to note that the Baucus amendment would have this effect.
In addition to raising taxes, we are talking about increasing the amount of deficit.
The Senator from Montana notes that his amendment would extend the 10-percent bracket, the child tax bracket, the marriage penalty relief, the adoption tax credit, the earned-income tax credit for combat pay, and provide modest estate tax relief. I agree with the Senator on all these policies except with the modesty of the death tax relief.
Senator Baucus and some of his cosponsors, especially the two Senators Nelson, have always supported repeal of the death tax, as have I. So it is disappointing to many family businesses and farm owners that we now have sponsors who had supported the repeal of the death tax endorsing an amendment that would set the death tax rate at what I believe is a confiscatory 45 percent and set the exemption at only $3.5 million, which most of us believe is too low. This leaves more than 22,000 families subject to the estate tax each and every year, according to the Joint Tax Committee.
Another one of the cosponsors of the amendment of the Senator from Montana, the Senator from Arkansas, says on his Senate Web site that he supports a $5 million exemption and a 35-percent rate. I am disappointed he would then be endorsing a proposal that would have a 45-percent rate. A 45-percent rate allows the Government--think about this for a moment--to take almost half a family farm or business over the $3.5 million exempted amount at the time of death.
There is a reason this particular policy has been supported by life insurance companies. I think everybody can understand that. It keeps the onerous death tax in place and would require these family businesses and farms to continue to pay exorbitant premiums to insurance companies.
One of the reasons we would like to eliminate the death tax is so we don't have to pay the burden of trying to avoid the tax, which a lot of these small businesses have to do.
As I said, the Kyl-Graham amendment we think substantially improves the Baucus amendment by modifying the year-to-year revenue numbers so that certain tax provisions that have been essential in helping families pay education expenses essential to our economic recovery, essential to savings for retirement, senior citizens, and families facing the death tax are provided for in this budget. Let me quickly go through them and then ask my colleague, Senator Graham, to make further comments.
On the matter of education, the Baucus amendment fails to extend the many education tax provisions that are scheduled to expire. Our amendment, on the other hand, makes higher education more affordable for middle-class Americans by extending the tuition deduction, extending the modifications to the Coverdell education savings accounts, extending certain provisions for the student loan interest deduction, and for extending the exclusion for employer-provided educational assistance.
These are important provisions to American families. They need to be recognized in this budget.
Our amendment permanently extends the $250 deduction for expenses of elementary and secondary school teachers who, on many occasions, are required to pay for the very school supplies they feel are necessary and are important for educating the kids for whom they are responsible.
These are the education provisions.
On capital gains and dividends, who can argue that the capital gains and dividend tax rate reductions have been two of the most important reasons for the strong economic recovery that our country has made. Yet the Baucus amendment fails to prevent an increase in these two important tax rates.
An extension of the current rates would allow our economic recovery to continue. Allowing these rates to expire and to go back up to where they were would be devastating for our economy and for the competitiveness of our capital markets and, by the way, for the retirement savings of many Americans.
So the Kyl-Graham amendment permanently extends the reduced tax rate for qualified dividends and capital gains for nearly 18 million families and individuals every year. That, too, is an important component that should be in this budget.
Quickly on two items before I turn to the discussion of the death tax, this goes to competitiveness. What our amendment would do is prevent tax increases that would clearly hurt our competitive position in the world economy. We talk about outsourcing of jobs and competitiveness and the rest of it. If you want to know what will save American jobs and will allow us to continue to grow, it is the tax rates that Senator Graham and I preserve in this budget.
America cannot be the home for worldwide capital markets if it is hostile to American investors. So the amendment makes the existing tax rates for long-term capital gains and for qualified dividends permanent tax policy. We understand that the lower tax rates that were implemented in 2003 and extended again in 2006 have been a tremendous success for our economy and have benefited a broad range of American citizens.
Growth, since the 2003 tax relief, has averaged more than 3.5 percent a year, while it averaged 1.3 percent from the first quarter of 2001 through the second quarter of 2003, before these tax rates were put into effect.
The Dow Jones industrial average has risen by 40 percent since the lower investment tax rates were enacted.
The average 401(k) balance has risen by about 65 percent since 2003, very good news for American families and investors.
Why would we want to destroy this tremendous growth in the economic wealth of Americans? All of this investment activity makes it easier for entrepreneurs and businesses to raise funds to expand and grow their businesses, create more jobs, and improve the standard of living for all Americans.
By the way, to answer the question of who benefits by all this, some of our colleagues are prone to suggest it is only the wealthy who benefit. Not so. It is interesting to note that most Americans who are benefiting from these lower tax rates are middle-income taxpayers. Fully 43 percent of tax filers in 2004 reporting capital gains had adjusted gross income of under $50,000. These are not the wealthy; these are not the rich. Just 9.5 percent of filers reporting capital gains had an adjusted gross income of $200,000 or above.
So the majority of Americans benefiting from these lower tax rates, the rates we preserve in the budget if our amendment is adopted, are average, middle-class Americans.
For lower income Americans, the current 5-percent rate for investments, which drops to zero in 2008, is another important but sometimes forgotten benefit, especially, important, I might add, to our senior citizens.
According to statistics calculated by the Joint Committee on Taxation, more than 75 percent of all elderly taxpayers' returns reporting capital gains income have adjusted gross incomes of less than $100,000; more than 40 percent have incomes of $50,000 or less. Again, wealthy, the rich? No, we are trying to preserve lower tax rates for middle-income Americans and for senior citizens who rely significantly on their investment income in their retirement.
Madam President, 79 percent of all elderly taxpayers' returns reporting dividend income have incomes of $100,000 or less, and 44 percent have incomes of $50,000 or less, adjusted gross income. So clearly, continuing these lower tax rates is important for our senior citizens and for middle-income Americans.
Incidentally, these lower tax rates, far from blowing a hole in the budget, have actually helped increase revenues far beyond the projections of CBO.
I note that since 2003, Treasury has collected $133 billion more in capital gains revenue than was originally projected by CBO and exceeded the official CBO projections by 68 percent.
In the meantime, all the additional tax revenue flowing into the Treasury from our growing economy has caused our budget deficit to shrink below 2 percent of GDP, which is below the historical average.
If we stay on this current path, we can see continued increase in revenues, continued reduction in the deficit, and continued growth of our economy, not to mention support for our families and retirees.
Last point. What happens if the budget is adopted without providing for the continuation of these lower tax increases? Last fall, Goldman Sachs conducted a very interesting analysis. They wanted to see how the economy would react if taxes were increased in 2011, as the Democrats advocate.
Their analysis showed that the tax increase, and I am now quoting, ``would almost surely mark the onset of a recession.'' Their analysis assumed that the Federal Reserve would step in and cut interest rates to boost the economy, and I am quoting here, ``In an effort to resuscitate demand, the Fed immediately cuts the federal funds rate, bringing it 250 basis points below the status quo level over the next year and one-half. Despite this, output growth remains well below trend over that period, putting downward pressure on inflation as slack in the economy increases.''
That is a projection of what would occur if this were to happen. We want to prevent this. We want to keep the economy strong and not allow anything that would cause it to go into recession.
Just a final point having to do with the death tax reform. We can't pass a budget that doesn't include an assumption that we are going to reform the death tax. We ought to be repealing the death tax. But what we have done in this amendment is to provide an amount of money that would accommodate the kind of death tax reform that has been supported by both Republicans and Democrats.
Last year, the senior Senator from Louisiana introduced a death tax reform bill, S. 3626, which would provide for a $5 million exemption per estate, indexed for inflation. It would provide for a family business ``carve out,'' a 35-percent rate to taxable estates, and it would begin in the year 2010. The Senator from Arkansas, Mr. Pryor, has endorsed death tax reform that meets these specifics in a statement, according to his Web site.
Now, our amendment provides room in the year-by-year revenue numbers in the budget to accommodate death tax reforms such as those which were proposed by Senator Landrieu and endorsed by Senator Pryor. There have been other Members on the Democratic side of the aisle who have supported proposals I have introduced on death tax reform.
What we are very much hoping is that all of the people, both Republicans and Democrats, who have supported these proposals in the past will remain true to their commitments to their constituents to make sure small farms and small business owners aren't going
to have to prepare for or pay the death tax and that we would make room for that in this budget. If we fail to do that, then clearly we are not going to be able to provide the kind of relief our constituents demand and deserve.
Our amendment provides room in the year-by-year revenue numbers to accommodate death tax reform such as that which has been proposed by our Democrat colleagues and, I would add, that I have proposed as well.
Now, of course, budget resolutions don't dictate policy to the Finance Committee, so it would certainly be our intention to work with a lot of different Senators. I worked with Senator Lincoln in the past, and certainly we would want to work with Senators Landrieu and Pryor and all of the others who have indicated they would be willing to support a kind of death tax reform. As long as we have provided the numbers in the budget as Senator Graham and I propose here, then we can work to make those provisions law.
I would hope we could craft an estate tax proposal that would provide an exemption of at least $5 million, indexed for inflation, that provides workable relief for the smallest estates, and that provides for a top death tax rate which is no higher than 35 percent--no higher than 35 percent. Workable relief could mean a lower rate for the smallest estates; it could also mean a family business carve-out as long as it actually works for small businesses and farms and doesn't drive up their administrative costs and leave them with planning uncertainty.
All of these are goals both Democrats and Republicans have endorsed. We hope our colleagues on both sides of the aisle will therefore agree with us that it is important for us to accommodate in this budget room to extend the important tax provisions for education, capital gains and dividends, and for the estate tax.
Amendment No. 507
Madam President, I understand the amendment about which I have just been speaking is actually at the desk. I would like to call it up at this time, and I ask unanimous consent that Senator Graham be added as an original cosponsor.
Madam President, I ask unanimous consent that further reading of the amendment be dispensed with.
I yield to the Senator from South Carolina, Madam President.
Madam President, may I say to the Senator, the chairman of the committee, our amendment is some four pages long, and it has the amounts increased and decreased stated. I am sorry I have not totaled up the exact amount and then subtracted out the cuts. I will be happy to try to do that for the Senator.
All of the provisions that we have in this amendment are accommodated by the budget that has been provided to us by the committee. Let me get the exact number.
Madam President, the so-called payment for this is the same as other things are paid for in this budget, by the assumption that revenues will be available. As a result, there is no specific cost, if that is what the Senator is asking.
Madam President, I now have a number. The Senator from North Dakota was very close in the estimate which he gave. I believe the number is $72.3 billion for 5 years, which is very close to the number that the Senator had. Of course, since the budget raises taxes by $916 billion, that more than accommodates what we provide.