April 28,2005

Statement on Budget Resolution, Reconciliation, and Tax Relief

Floor Statement of Senator Chuck Grassley
Budget Resolution Conference Report
Delivered Thursday, April 28, 2005

I urge my colleagues to support this conference report. The Budget Resolution is a“blueprint,” or outline that sets the overall level of spending and revenue for the federal government.

The Budget itself does not change any law. Instead, it sets the ground rules for all of the otherspending and revenue legislation that will be considered by the Senate this year. Under Senate rules,any bill that exceeds the levels set in the budget may be subject to a 60-vote point of order. Byimposing a super majority requirement, the Budget encourages the Senate to stay within the overalllimits, while at the same time providing the opportunity to exceed those limits when there areextenuating circumstances. The annual budget process is often the subject of much controversy. SoI’d like to take a moment and focus on a number of specific provisions as they relate to theCommittee on Finance.

As Chairman of the Finance Committee I have the responsibility for all of the legislation thataffects Medicaid and Medicare, and the income tax code. The Budget Resolution conference reportprovides reconciliation instructions for the Finance Committee to achieve $10 billion in programsavings and $70 billion in tax relief. While these instructions do not actually require the FinanceCommittee to enact any specific policy, there are a number of policies that are assumed within thesenumbers. The budget provides for $10 billion in savings from the Finance Committee. I will committhe Finance Committee to make every effort to work in a bipartisan fashion where we keep in mindprinciples that guide us in producing a better Medicaid program.

The Finance Committee will look at proposals that produce shared savings for the federalgovernment and the states. The Finance Committee will look at proposals that empha stateflexibility through voluntary options for states. The Finance Committee will do this while makinga commitment not to eliminate coverage for Medicaid beneficiaries. I look forward to taking actionto improve Medicaid. Doing nothing is far worse for Medicaid. If we don’t eliminate wastefulpractices; if we don’t provides states the necessary flexibility; if we don’t provide states relief, theyare simply going to cut people off the roles to make their budget ends meet. Doing nothing is farworse for Medicaid beneficiaries than a rational, reasoned approach to protecting and strengtheningthe program. That is what we will do in meeting our instructions.

Mr. President, I turn now to the tax relief portion of the budget. I’d like to comment on threeaspects: The amount of relief for the budget period; The amount of relief for fiscal year 2006; andThe use of reconciliation for tax relief. Before I start with the number, let me put the revenue sideof the budget in context. Some have argued that bipartisan tax relief has gutted the revenue basepermanently. They argue that this change is a reason to raise taxes by not extending tax relief. Thefacts, according to the Congressional Budget Office (“CBO”), show otherwise.

I have chart here. It is CBO data. The chart shows the volatility of revenue and itsrelationship to economic performance. When we suffer economically, revenue goes down. When theeconomy grows, revenue grows. In the first four years of the Bush Administration, we had aninherited recession, 9-11, and the after-effects of the stock market “bubble” and corporate scandals.

The uptick in the economy started late in the Bush Administration and continues today. As CBOshows, revenue is coming back. Let’s not confuse cause and effect. Tax reduction has helped theeconomy recover and the Treasury is benefiting. So, let’s be clear, under-taxation of the AmericanPeople is not the source of our budget problems.

Now, let’s start with the basic number. When the Senate Budget Committee considered theresolution a few weeks ago, Republicans laid out a plan for reconciled tax relief. This plan was theproduct of discussions with members of our caucus. Our objective now is to preserve current lawlevels of tax relief. The plan centers on a seamless extension of tax relief provisions that began withPresident Bush’s first term. It is critical that these provisions be rationalized with a common sunsetdate.

Assuring taxpayers of the continuity of promised tax relief should be one of our highestpriorities. Taxpayers should not face a reversal of the level of tax relief that we have delivered. Thisobjective is critical with respect to the widely-applicable provisions dealing with capital gains anddividends, small business expensing, low-income savings, the alternative minimum tax (“AMT”),and college tuition deductibility. Millions of taxpayers from all walks of life rely on these expiringtax relief provisions. Now, some on the other side have been critical of the $70 billion in reconciledtax relief. As with Social Security reform, we get a lot of complaining. We don’t get a lot of answers.We don’t get problem solving and a constructive dialogue.

Where is the Democratic plan for tax relief? Has anyone seen it? All we hear are criticisms.How many times have we heard about the AMT problem? Answer: plenty of times. Mr. President,there is an AMT problem. I’ve got a couple of charts that tell the story. Let’s look at the baseline.

The AMT is a part of the individual income tax. Historically, individual income taxes havebeen at about 8 to 9 percent. The AMT and regular tax balloon proportionately under current law.

According to CBO, this balloon effect is due to sunset of the bipartisan tax relief and the AMT.

Now, let’s focus a little bit closer. Take a look at the next chart. This chart shows that extension ofthe bipartisan tax relief still leaves individual income taxes at record levels. The chart also showsthat fixing the AMT leaves individual income taxes at record levels. So, Mr. President, we do havean AMT problem and fixing it will not gut the revenue base over the long-term. It’s common sensethat a unfair tax like the AMT that is out of control should be fixed without regard to offsets. Thatcommon sense plays out on the budget side as well.

We’ve even heard incorrect assertions that this budget doesn’t address the AMT problem.Well, guess what? In this budget, there is room for extending the current patch or hold-harmless formillions of families facing the AMT. Where is the Democratic plan for AMT relief? Where’s theresponse for the current period? I’ve been looking for it and can’t find it, Mr. President. Mr.President, this budget contains a plan for tax relief. The reconciliation instruction gives us theresources to maintain current law tax relief. Put another way, the reconciliation instruction is our bestmeans to protect against a tax hike on millions of American taxpayers.

Now, Mr. President, I turn to the second aspect of the tax relief portion of the budget. We’llhear a lot of criticism against the use of reconciliation for tax relief. It was not an easy choice. Iprefer regular order, but recent tax legislative history in the Senate suggests the reconciliation optionis an important tool to have at our disposal.

With partisan obstructionism on the part of the Democratic Leadership, many regular ordertax relief packages have been stalled in the Senate. Even tax relief packages that the DemocraticLeadership claims to support encounter obstruction. Members will recall that several cloture voteswere required for the bipartisan FSC-ETI legislation.

Likewise, we were unable to go to conference with the House on the CARE Act and otherpopular tax relief packages because of Democratic Leadership objections. The situation has onlybecome worse this year. The climate may be still more difficult if the Democratic Leadership actson its threats to “shut down the Senate” if the controversy over judicial nominations is brought tothe forefront. From a practical standpoint, there is a significant risk that reconciled tax relief maybe the only tax relief vehicle that can pass the Senate in this environment. I hope that is not the case,but it is prudent to consider it a possibility.

Because of this hostile partisan environment, a reconciliation bill may be the only knownpath to preserve the tax relief provided during the last four years. For this reason, our caucus viewedthe reconciliation number as a comprehensive blueprint for preserving current law levels of taxrelief. There is $36 billion of tax relief for regular order tax relief. This amount is meant to coverpackages such as the comprehensive energy bill we passed several times. What it comes down toMr. President is this: we need to take care of legislative business and continue the tax relief promisedto the American People. But we’re better off with a plan that prevents tax hikes. I’m pleased we havethe plan. So, once again, I urge my colleagues to support the budget resolution conference report.