Grassley: Tax Agreement Adheres to Economists' Advice on Economic Growth
Floor Statement of Sen. Chuck Grassley
Monday, December 13, 2010
I’d like to discuss the tax hike prevention agreement. Some have described this as a second economic stimulus package. But, more accurately, it is a prevention of tax hikes scheduled to take effect in a mere 19 days. The tax hike prevention agreement insures against the negative growth that would occur if the tax hikes went into effect. In fact, 78% of the score of this bill is attributable to simply preventing a tax hike on all taxpayers by extending current tax policy. Only 22% of this bill is attributable to new tax policy or to new spending.
Some on the other side supported the President’s earlier proposal. The earlier proposal was to prevent the tax hikes only on those below certain income thresholds. The Senate did not support that proposal, however. It is clear that proposal can’t pass.
That can be a difficult thing, I know. Over the years, I have seen proposals that I thought were good and just, and that I cared passionately about, defeated here in the Senate. But I had no choice other than to move on and get to work on another proposal that would still be a “good enough” deal for the people of Iowa, and for the people of America.
And so that is what our President has done. He has moved on, in a pragmatic spirit. He has put forward another proposal to prevent the tax hikes. He doesn’t view it as ideal. Frankly, few on my side do either.
For all of us, it is always a balancing act. We want to stay true to our ideals, and we also want to deliver practical results to our constituents. I submit that the tax hike prevention agreement strikes that right balance for the vast majority of us.
I will now briefly review why preventing all the 2011 tax hikes, for all Americans, is so important.
Just ten days ago, the unemployment rate ticked up to 9.8% from 9.6%. In July, the unemployment rate was 9.5%. The trend is in the wrong direction. It’s a very fragile situation. The economy is clearly telling Congress: “Handle with extreme care.”
Economists: The majority of economists surveyed by CNN Money say that preventing the 2011 tax hikes is the number one thing Congress can do right now to help the economy.
Sixty percent of economists said preventing tax hikes on all Americans was the best course of action. But only 10% of economists said preventing tax hikes on only the middle class was the best way to help the economy. This survey is by CNN. CNN is clearly not a Republican network.
The non-partisan Congressional Budget Office says that GDP would be as much as 1.4% higher in 2011 if all the tax relief is made permanent. If the tax relief is only for lower-income Americans, then CBO says the GDP would only be 1.1% higher in 2011. In other words, the difference between preventing the tax increases on all Americans, and on only preventing the tax increases on some Americans, will be 0.3% of GDP in 2011.
Given the recession, given the unemployment rate, given business reluctance to invest and grow, we need to be especially sensitive to GDP growth. If it were just a matter of either the government got the money, or the private sector, that would be one thing, as the government does have a deficit problem. But in this case, it’s a matter of money simply not being there, because of the hit to GDP. We are talking about a dead-weight loss.
Fiscal history proves higher rates don’t yield higher revenue.
Here is what the nonpartisan Joint Committee on Taxation has to say: “We anticipate that taxpayers would respond to the increased marginal rate by utilizing tax-planning and tax-avoidance strategies that will decrease the amount of income subject to taxation.”
We have known about these looming tax hikes for a decade now. We should have acted many years ago. Now, we have only 19 days to go before the tax hikes take effect. We are down to the wire and need to act.
The time to dither is over. The NFIB, the voice of small business, had this to say recently: Because of no action on expiring tax rates, there is a “cloud of uncertainty larger and darker. In response, consumer sentiment fell and owner optimism remained anchored solidly in recession territory. Thus, spending stayed in ‘maintenance mode’, deterioration of jobs continues, and capital spending remains at historically low rates. Owners won’t make spending commitments when sales prospects remain weak and important decisions such as tax rates and labor costs remain so uncertain.”
So, the bottom line is this: Stop the tax hikes.
I yield the floor.
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