December 04,2010

Grassley: Tax Increases Would Harm Economy, Would Not Help Deficit Reduction

Senate Floor Remarks of U.S. Senator Chuck Grassley
Ranking Member of the Committee on Finance
Saturday, December 4, 2010

I’d like to discuss the proposal to increase taxes on some Americans starting in less than a month from now.


Just yesterday, the Bureau of Labor Statistics said that the unemployment rate ticked back up to 9.8 percent from 9.6 percent.  In July, the unemployment rate was 9.5 percent.  For the three months August, September, October, it was 9.6 percent.  And now we realize that for November, it was 9.8 percent.  The unemployment rates for minorities are significantly worse.  The trend is in the wrong direction.  It’s a very fragile situation.  The economy is clearly telling the Congress:  “Handle with extreme care.”


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 percent 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 hardly known as being a Republican network.

Some on the other side may say that preventing tax hikes on the higher-income people is not important. The theory goes that high-income folks would just save the money.  There are a couple of problems with that point.  The first is that savings and investment are good things, not bad.  But the other more direct response is that they probably would increase their spending on consumption.  Mark Zandi, respected economist with Moody’s, had this to say:  “Normally, I would firmly agree that raising taxes on people who make over $250,000 a year would not make a meaningful difference in the way they spend money. But I worry that these aren’t normal times and that even this income group may be sensitive.”

Congressional Budget Office

The Congressional Budget Office says that Gross Domestic Product would be as much as 1.4 percent higher in 2011 if all the tax relief is made permanent.  If the tax relief is only for lower-income Americans, as is proposed by certain members on the other side of the aisle, then, according to CBO, the Gross Domestic Product would only be 1.1 percent 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 percent in 2011.

Given the recession, given the unemployment rate, given business reluctance to invest and grow, is this a time to reduce Gross Domestic Product at all?  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 Gross Domestic Product.  We are talking about a dead-weight loss.

Fiscal history proves higher rates don’t yield higher revenue for long.

Joint Committee on Taxation

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.”

Small Business

Here is what the NFIB, the voice of small business, had to say recently:  “Members of Congress fled with no action on important issues like expiring tax rates, leaving the 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.”

The American people don’t want a political dog and pony show.  The bottom line is this:  Stop the tax hikes!