The Presidential Burden
Mr. President, I compliment our distinguished Senator from Texas for the excellent remarks she has made about really what is going on right now and what the President is trying to do. I, for one, want to help the President. I want to help…
Mr. President, I compliment our distinguished Senator from Texas for the excellent remarks she has made about really what is going on right now and what the President is trying to do.
I, for one, want to help the President. I want to help him to help this economy. So I rise today in support of President Bush's growth and jobs plan, and I would like to take a few minutes today to tell you why I believe this is the right prescription for America at this time.
I know from talking to people in my own home State of Utah, and across the country, that our current economy is not meeting its full potential. This is crystal clear. The nationwide unemployment rate stands at 6 percent. And while that is better than usual after a recession, it is still far too high. Thousands of people in Utah and millions of people across the country are out there looking for work. Yes, most of them are finding jobs eventually, but jobs are far too scarce still. As long as there are people who want to work but cannot get work, we have a problem in our country.
The President's plan starts off by speeding up the tax reductions this body has already passed by a significant margin. This is just plain common sense. A big part of the tax cut we passed in 2001 was designed to be phased in over the following 10 years, with rate cuts, marriage penalty relief, and child tax credits increasing every few years. But since our economy is below its potential right now, then right now is the time to make the full amount of these tax cuts effective. Doing so would put money in people's pockets immediately. The IRS would change their withholding tables immediately after the accelerated tax cuts become law, so more money would show up immediately in workers' paychecks.
The President's plan to speed up the tax cuts now, right when we need them, will have an immediate, visible impact on practically every American taxpayer.
A key part of the President's plan is to accelerate marriage penalty relief and speed up the $1,000-per-child tax credit. Phasing in these family-friendly tax provisions slowly might have made some political sense 2 years ago, but today, when young families are wondering whether Mom and Dad will have a job next week, cutting the tax man's share of the pie will be a big help.
Waiting 3 to 5 years for family tax relief makes no sense in the middle of a slow economic recovery. Let's do it now. Let's provide a tremendous boost to millions of American families.
As to some of the media reports that the President's plan unfairly benefits the wealthiest people in the country and does little or nothing for low- or middle-income taxpayers, let me set the record straight.
According to the Treasury Department, a married couple with two children and an annual income of $40,000 would see their taxes decline, under the President's plan, by $1,133--from $1,178 to $45--in 2003.
In other words, under today's taxes, they would pay $1,178. That would be reduced $1,133 to where they have a tax bill of $45. That is for people who make $40,000 a year. For this family, there is not much more tax relief that can be given.
Under the Bush plan, 92 million taxpayers would receive, on average, a tax cut of $1,083 in the year 2003 and thereafter. Forty-six million married couples would receive an average tax cut of $1,716. Thirty-four million families with children would benefit from an average tax benefit of $1,473. Six million single women with children would receive an average tax cut of $1,384. Twenty-three million small business owners would receive tax cuts averaging $2,042. Talk about helping the middle class.
In my home State of Utah, over 646,000 taxpayers would get tax relief from the President's package. That is important to me. That is important to almost 650,000 people in the State of Utah.
Under our ultra-progressive income tax, the top 50 percent of income earners--those who made $27,682 in the year 2000 or more--that upper 50 percent, from $27,000 and up, paid over 96 percent of all the income taxes paid in this Nation.
Therefore, those who are paying most of the income taxes are naturally going to get much of the benefit of a tax cut. In fact, it is almost impossible to cut any tax without making the people who pay that tax better off.
Projections prepared by the Treasury Department show that 40 percent of the President's proposed tax cut would go to people with income over $200,000 per year. But it is important to note that this same group is paying 44.8 percent--almost 45 percent--of the total income tax.
If we enact the President's plan, people making over $200,000 a year will end up paying even a larger fraction of the Nation's income tax bill, 45.4 percent. On the other hand, people making less than $50,000 would pay less of the total share than they do now.
Further, the President's plan contains an important provision to increase the incentive for small business investment. I might have made this provision even stronger than the President chose to make it. But even as it stands, the increase to $75,000 per year of business expensing will be a boon to companies struggling to grow. It will increase the demand for business equipment and software, sectors that have been hit especially hard in this downturn. This proposal can help to revive business spending and create new jobs in industries that make machines, computers, and software.
I would like to debunk one particular false notion that is making the rounds here on Capitol Hill and in the media; the idea that lower income people spend all of their tax cut but the middle and higher income people will just save them.
It turns out that how much you earn does not have a night-and-day impact on the people's decision to spend. A recent study by the nonpartisan National Bureau of Economic Research concluded--and I quote--
Low-income households are not more likely to spend the
rebate.
In fact, as this chart shows, it looks as though families with lower incomes actually tended to spend a smaller fraction of their rebate.
I will just point to this chart now. The modest income earners spent little of their rebates. Americans who earned
up to $50,000 per year spent less than 20 percent of their 2001 tax rebate. But Americans who earned more than $50,000 a year spent over 25 percent of their rebate checks.
It would appear to me rebates are not the way to go if we want to stimulate the economy. Yet that is what our colleagues on the other side seem to think is the gold standard to help get the economy going.
I would now like to address the part of the President's package that has drawn the most attention, the plan to end the double taxation of dividends. Ending the double taxation of dividends will make stocks more valuable, it will make businesses more financially sound, and it will make it harder for a few wrongdoers to hide their corporate shenanigans.
Why do America's corporations load up on debt financing despite the fact that the higher debt levels increase the risk of bankruptcy? I will tell you why. Because our Nation's tax laws have always given them massive financial incentives to do just exactly that.
The reason is simple. When a corporation pays interest to bondholders, that payment is taxed only once. That is at the bondholder level. But, in contrast, when it pays dividends to stockholders, that payment is taxed twice--to both the corporation and the shareholder.
President Bush's economic growth plan contains a proposal to end this absurd incentive and, by doing so, his plan will strengthen the foundations of our economy and help ensure growth and new jobs for years to come.
This chart--``How the Double Taxation of Dividends Harms Our Nation''--shows that bankruptcies go up, corporate accountability goes down, and investment in capital formation also goes down. And that is where jobs are thrown to the wind.
Our Tax Code's harsh and unfair treatment of dividend payments harms the foundation of our economy in those three ways. It increases the number of bankruptcies, it weakens corporate accountability, and it slows the formation of capital.
By loading up on tax-deductible bonds and bank loans rather than issuing new shares of stock, corporations increase their chance of going bankrupt.
Our Tax Code should not encourage this behavior. When corporations load up on debt, they commit too much of their cash flow to making interest payments, and the danger of bankruptcy becomes all too real. Once we change this policy, businesses will find they have people lined up out the door to buy stocks that pay dividends. When companies hear of the clamor for dividend-paying stocks, they will have a much stronger incentive to pay for new projects and new factories by issuing new shares of stock rather than running to the bank or the bond market for a loan.
And then, if times get tough, businesses will not be as likely to declare bankruptcy and head to Federal court for a painful reorganization, as we are seeing today. Instead, many companies will be able to cut their dividend to shareholders, and continue business more or less as usual.
This is not speculation on my part. Just open up any textbook on corporate finance--books that are on the shelves of many an MBA--and you will see it yourself in black and white: Business managers are taught to weigh the benefits of tax-favored debt finance against the increased risk of bankruptcy. They even have a name for it. They call it the Trade-off Theory of Capital Structure. And it is caused by the double taxation of dividends.
Our Tax Code's inequitable treatment of equity also weakens corporate accountability. Dividend payments are cash-on-the-barrelhead evidence that a company is profitable.
While not a perfect measure by any means, it can be an important signal that a firm is solvent. As they say on Wall Street, ``Profit is an opinion, but cash is a fact.''
The Wall Street Journal reported recently that only about 30 percent of S&P 500 corporations pay any dividends at all. A crucial reason for this dividend drought is our Tax Code, which requires corporations to pay 35 cents in taxes for every dollar in profit and then, on top of that, requires taxpayers who get those profits in the form of dividends to pay personal income tax. The total government take, when state taxes are added, can exceed 70 percent. So what is the incentive to pay dividends--something we ought to be encouraging, rather than destroying.
Finally, our inequitable treatment of equity slows innovation and the formation of capital. The double taxation of dividend income cuts the flow of equity funding to all but the most promising investments. Good ideas go unexplored and promising investments go unfunded because they cannot guarantee enough after-tax profit to investors.
I believe it is important for Congress to eliminate the double taxation of dividends. It is important for our country and the stability of our business community. That is why I support President Bush's plan. By making shares a more attractive investment, his plan will boost demand for stocks and push up their value. By reducing the long-run risk of bankruptcy and encouraging companies to take on promising projects, it will be good for employees. And most importantly, ending the double taxation of dividends will make American corporations stronger, much more accountable, than they are today and more innovative in the years to come.
I am proud to be able to support the President's growth and jobs package, and I am looking forward to working with my colleagues on the Finance Committee, both Democrats and Republicans, to pass out a bill that give tax cuts to America's families, that gives small businesses an opportunity to grow, and that end the double taxation of dividends to strengthen both our stock market and the financial foundations of American business. This is an economic agenda that addresses the needs of today as well as the challenges of the future. The American people deserve no less.
I suggest the absence of a quorum.