Madam President, might I just add a word to what the Republican leader has just said. As the Republican whip, it is my job to visit with Senators about their views on issues and votes that are coming up. I didn't always like the answer…
Madam President, might I just add a word to what the Republican leader has just said. As the Republican whip, it is my job to visit with Senators about their views on issues and votes that are coming up. I didn't always like the answer George Voinovich gave me, but I always knew that, as the leader said, it was a principled response to a question that reflected his well-thought-out and deeply felt views about the role of the government, issues on finance and debt, and generally from his long experience as having been a public leader at the State level, as well as the Federal level.
So I join my colleague in paying tribute to an incredible public service career and especially the time I have enjoyed working with Senator Voinovich in the Senate.
Madam President, I think I can do it in 12 minutes.
Madam President, I want to speak for a few minutes about the tax legislation the Senate is debating and will be voting on before long.
There has been some dismay on both sides of the aisle regarding the merits of the package. I emphasize a point also made by others: Nobody thinks this is a perfect bill. Most conservatives are upset about the unfunded extension of unemployment benefits and the fact that the tax rate extensions are not permanent. On the left, there are those who dislike the death tax reform and would have preferred that the top marginal income tax rates be increased. There are other concerns as well.
I agree with some of the criticisms my conservative friends have made. This is not the bill I would have written. There are some provisions in the package I disagree with or would have written differently. On the other hand, this is not the bill President Obama would have written. He has made it clear that he doesn't like everything in it either.
The package represents a true bipartisan compromise. That is something we talk about a lot but seldom seem able to do. But political circumstances will not allow either party to dictate its perfect bill. So while neither party got everything it wanted, there are provisions in the package to appeal to both sides of the aisle, and most of us agree it would be very bad for Americans to allow taxes to be increased.
The most important things this bill does, in my view, are to freeze all existing income, capital gains, and dividend tax rates and reform the death tax. Without legislation, taxes are set to go up for every taxpayer in just 17 days. So by maintaining current tax rates and instituting death tax reform, the bill will provide positive economic certainty to families and to job creators. This is a very important development for American taxpayers and for our economy.
In fact, according to new data from Morgan Stanley, this bill could boost economic growth to 4 percent or more next year. That is a lot better than the anemic 2 percent achieved in the third quarter of this year.
Ironically, some commentators have argued that this economic growth will benefit President Obama's reelection prospects and, therefore, should be opposed. That is not clear thinking.
Some other conservatives say that if we wait until next year to pass tax legislation, the GOP-controlled House could pass a better bill than this one. That is true, from my perspective, but there is no guarantee that the Senate or the White House would go along with such a bill or that we could get any better compromise in the end. In the meantime, every taxpayer would have been hit with a tax increase in the first paycheck of the new year and for many weeks thereafter.
Tax increases would almost certainly hurt the economy. Look back to 1936, for example, when President Roosevelt raised taxes on high earners. The shaky economy plunged back into depression and unemployment skyrocketed.
Freezing the tax rates, on the other hand, has the potential to help the economy and job growth. Some on the liberal left seem to think that tax provisions in this bill should implement their particular philosophy of class warfare. But the Tax Code is not a vehicle for punishing certain taxpayers, as some on the left seem to think. I would hope we all agree that we want to help the job creators as well as job seekers. Ideology should not trump those concerns on either the right or left.
The key thing is that tax rates matter to growth. Businesses must be allowed to retain earnings so they can expand, invest, and hire new workers.
As I have come to the floor to point out again and again, many successful small businesses that create jobs pay taxes at the individual rate and would be hurt by increases in the top marginal income tax brackets. According to IRS data cited by economists Kevin Hassett and Allen Viard:
Fully 48 percent of the net income of sole proprietorships,
partnerships, and S corporations reported on tax returns went
to households with incomes above $200,000 in 2007.
That is the last year, incidentally, for which we have these figures. Other businesses would have been hurt by skyrocketing capital gains and dividend taxes. Raising capital gains and dividend tax rates would greatly discourage the investment our economy so urgently needs. Indeed, capital taxes are among the most distortive and least efficient taxes the government collects.
In my view, any comprehensive tax reform package should include significant reductions in capital taxation. For now, I am glad that Members of both parties have decided to at least block a capital gains tax increase, which would have a severe impact on job-creating investment.
Death tax reform is another measure in this bill that will provide certainty to job creators. I thank Senator Lincoln for her leadership on this issue. We have spent a lot of time together over the last few years working on this issue, and she deserves much credit for her expertise and devotion toward crafting this plan, which will provide relief to job-creating small businesses.
The result is a true compromise. There will be a large increase from this year's zero percent estate tax rate--which is what I favor--to a 35-percent rate; but that is much less than the 55-percent rate that will be in place on January 1. And the exemption is $5 million, which is preferable to the $1 million exemption after January 1.
Should death tax reform not occur and the rate rise to 55 percent, small businesses could be forced to reduce their payrolls by more than 500,000 workers over the next 10 years, according to a former CBO Director, Douglas Holtz-Eakin. Think of that. That is a half million people whose jobs could be threatened.
The effect of the compromise will be to eliminate the death tax liability for about 90 percent of estates that would otherwise owe exorbitant sums. According to the institute for Research on Economics and Taxation, the death tax proposal in this bill would add more than $200 billion in annual economic growth relative to current law. So this is not about ``giveaways to the wealthy,'' as some have asserted. Most of the people helped by this measure are small business employers.
A final word about the deficit: It is true that extending unemployment compensation without cutting other government spending will add to the deficit--and there are some tax incentives in the bill that are similar to spending, and should also be offset with spending cuts. It is important to note that we should not raise taxes to provide the revenue--that would just grow the size of the Federal Government-- and Democrats are unwilling to find spending cuts, so we are left accumulating more debt instead. The political reality is that the unemployment benefits would certainly pass both Chambers, and there are not and will not be the votes in the Senate to cut spending to offset the costs either this year or next.
I admit that I am surprised to hear some conservative commentators lump the extension of current tax rates and death tax reform into the same argument about the deficit. Congress has never offset theoretical revenue loss from the annual AMT relief, for example, because we all know there was never any intent to collect it. Likewise, Republicans have always viewed the tax extender package and extension of other rates as exactly that--extensions of existing law, not new tax cuts. The left--and some commentators--delight in misrepresenting the legislation as providing ``tax cuts for the rich.'' But these are not tax cuts--only extensions of decade-old existing tax rates--for everyone. The only new tax cuts are the expensing for businesses sought by the President, with which Republicans generally agree, and the payroll tax holiday. The actual revenue loss, therefore, is about $237 billion, not the $900 billion that some assert. While any increase in the deficit is unwelcome, the overall merits of this bill--including preventing a massive tax increase on each and every taxpayer--outweigh that deficit increase, in my opinion.
In conclusion, Americans are looking for economic growth and solutions to unemployment. Keeping tax rates where they are and providing some certainty is a good place to start. I urge my colleagues to support this bill and see to it that job-killing tax rates are not imposed on anyone.