February 23,2010

Grassley Lauds Trade's Role in Job Creation, Calls for Implementation of Pending Trade Agreements, No Proposed Tax Increases

Statement of Sen. Chuck Grassley
Hearing, Trade and Tax Issues Relating to Small Business Job Creation
Tuesday, Feb. 23, 2010

I appreciate the partial focus of this hearing on the value of international trade in promoting job
growth. But, I’m skeptical of forced distinctions among the beneficiaries of trade — particularly
when it comes to the job of the U.S. Trade Representative. The role of USTR is to eliminate
tariff and non-tariff barriers to U.S. exports, and to enforce and defend U.S. rights and privileges
under our international trade agreements. In doing so, USTR benefits all American firms that
export, not just firms of a particular size.

While small and medium-sized enterprises may have specific resource constraints to contend
with in seeking export sales, no U.S. business will be internationally competitive in the face of
tariff and non-tariff barriers to our exports. Reducing and eliminating such trade barriers should
be our top priority — it’s the single biggest step we can take to increase our exports. The most
effective and proven means of reducing tariff and non-tariff barriers is through the negotiation
and implementation of trade liberalizing agreements among nations.

Yet this Administration and the Democratic leadership in Congress have demonstrated they are
unwilling to do so when it comes to implementing our pending trade agreements with Colombia,
Panama, and South Korea. So, I am concerned that this Administration’s recent focus on export
promotion comes as a distraction. We all want to see more exports. But that doesn’t mean we
should throw more money and earmarks at export programs and call it a day.

I’m particularly concerned when I learn that the President’s new National Export Initiative has
monies budgeted, and yet the participating executive departments still have 180 days to submit
detailed plans to the President on how such monies would be spent. Most bureaucracies will find
a way to spend money if they’re told to spend it. That doesn’t make it good policy.

Unprecedented budget deficits are forecast for years to come. It’s more important than ever that
we scrutinize any proposals for increased spending. Those who seek to spend more must be able
to explain why — why are current spending levels insufficient? What is the imperative for
spending more taxpayer monies?

I want to discuss the tax portion of this small business hearing now. The first rule Congress
should follow is, when you’re in a hole, stop digging. With unemployment at unacceptably high
levels, Congress should not be raising taxes on small businesses, which create 70 percent of the
net new jobs in America. The worst thing that could happen to small business’ ability to create
new jobs is to hit them with a job-killing tax hike.

Small business will be hit with this job-killing tax hike if Congress does not act to extend all of
the lower tax rates that are set to increase at the end of this year. These lower tax rates are the
result of the 2001 tax bill that passed with broad bipartisan support. Congressional Democrats
and the President have proposed increasing the top two tax rates from 33 and 35 percent, to 36
and 39.6 percent, respectively.

The Joint Committee on Taxation, which is the non-partisan official scorekeeper on
Congressional tax issues, provided data that shows that 44% of flow-through business income
will be hit with the tax hike that will result from the increase in the top two tax rates if Congress
doesn’t act to stop it. I ask unanimous consent to put this joint tax document into the record.

Some on the other side will state that only a small percentage of small businesses will be hit with
these tax hikes from the top two rates increasing. However, talking about the percentage of
small businesses that are hit is misleading, because it treats a small business with one employee
the same as a small business with 400 employees. What we should be concerned with is the
amount of income and number of jobs in those small businesses that are affected, and not what
percentage of small businesses is affected.

This hearing will also cover small business tax issues that do not affect small business job
creation as much as the rate hikes, but we should keep in mind this 800-pound gorilla in the
room as we discuss the other tax issues that affect small business job creation.