March 21,2013

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Hatch: Democrats’ Budget Nothing More Than A Call for $1.5 Trillion in Tax Hikes on the Middle Class

WASHINGTON – In a speech on the Senate Floor today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, said that despite Senate Democrats’ claims that the spending contained in their budget would be covered by closing so-called “loopholes,” the reality is that the budget calls for an increase of about $1.5 trillion in tax hikes. Hatch outlined how despite the rhetoric from Senate Democrats and the President, the reality is that their budget would hit middle class taxpayers with this tax hike.

“[I]f you look at a list of the largest tax expenditures, you’ll find a number of deductions and preferences that disproportionately benefit the middle class, not to mention several designed to benefit lower income taxpayers. That being the case, if my colleagues want to raise significant amounts of revenue by eliminating tax expenditures, they will have to do so by raising taxes on the middle class,” Hatch said.

Hatch added that Democrats should explicitly outline which so-called tax loopholes they would close. “If they’re really serious about closing so-called loopholes to the tune of over a trillion dollars, then list is where the money is. If we’re talking about raising that kind of revenue by eliminating tax expenditures, we’re necessarily talking about provisions that benefit the middle class.”

Below is the text of Hatch’s full speech delivered on the Senate floor today:

Mdme. President, as the Senate continues to debate the first budget resolution in more than four years, I am struck, not only by the things we know about the Democrat’s budget, but also the things we don’t know.

For example, we know that the budget would increase our debt by nearly $7 trillion over ten years and that it would continue on an upward trajectory thereafter.  What we don’t know is how, while amassing all that debt, our nation will be able to respond to unforeseeable crises and emergencies in the future.  

In addition, we know that the budget does next to nothing to address our runaway entitlement spending.  What we don’t know is how programs like Medicare, Medicaid, and Social Security would survive over the long term if this budget were to be followed.

And, finally, we know that this budget includes as much as one and a half trillion dollars in new taxes.  What we don’t know is where all that revenue will be coming from.  

Last week, before the budget was released, I came to the floor to talk about the rumors that the Democratic budget would include reconciliation instructions with regard to taxes.    

The concern I expressed at that time was that the budget would instruct the Finance Committee to close so-called tax loopholes in order to raise revenue and that this would, in effect, end ongoing bipartisan efforts on tax reform.  
As it turns out, my fears were not unfounded.  

Specifically, this budget instructs the Finance Committee to find nearly $1 trillion in new revenues to pay for additional spending.  

The deadline under these instructions would be October 1st of this year.  That clashes directly with the schedule Chairman Baucus and I have set out for bipartisan tax reform deliberations in the Finance Committee.

This budget would instruct the committee to set aside those reform efforts, and, instead, comb through the tax code looking for new revenues.

In addition, this budget includes Deficit Neutral Reserve Funds for stimulus spending and sequester replacement that total more than $500 billion.  And, according to the Budget Committee, this new spending would be paid for by closing so-called tax loopholes for the wealthy and corporations.

So, in addition to the nearly $1 trillion in reconciliation instructions, this budget includes a potential for another half trillion in new taxes.  

That means up to $1.5 trillion in fresh taxes from this budget that will be used to expand our already bloated government.  

The budget repeats the common refrain we hear from my friends on the other side of the aisle that our tax code is full of so-called loopholes that benefit only the wealthy.  

According to their arguments, these loopholes can be closed at any time to generate untold amounts of revenue without affecting the middle class or our economy.  

During last week’s Budget Committee markup, the Chairwoman claimed that they could hit their revenue target by “closing loopholes and cutting unfair spending in the tax code for those who need it the least…”

This statement is simply incorrect.  

First of all, a loophole is something created by accident or carelessness that is then exploited.  

When my colleagues talk about loopholes, they aren’t talking about backdoors created unintentionally or sneaky abuses of the tax code, they are talking about tax expenditures, all of which were deliberately placed into the code for specific reasons.

More often than not, my Democratic colleagues use the term “loophole” to describe items in the tax code that they don’t like.  But, that doesn’t make the label any more honest.  

Earlier this week, one of my friends on the other side of the aisle took this rhetoric about so-called loopholes up a notch.

He described the tax code as “this treasure trove of special deals and earmarks for the rich and well connected.”
He went further, saying “we are at the place where the lobbyists wheel the sweet corporate tax deals.”

He blamed Republicans for this, arguing that we were responsible for the existence of these so-called loopholes and earmarks.  

Now, admittedly, there are some narrow provisions in the tax code – too many if you ask me.  But, there are supporters of these provisions on both sides of the aisle.  

So, let’s be honest, Mr. President – there aren’t any real loopholes in the tax code, nor are there any earmarks.  There are simply tax expenditures.  

And, if you look at a list of the largest tax expenditures, you’ll find a number of deductions and preferences that disproportionately benefit the middle class, not to mention several designed to benefit lower income taxpayers.
That being the case, if my colleagues want to raise significant amounts of revenue by eliminating tax expenditures, they will have to do so by raising taxes on the middle class.  

If you look at this chart, you’ll see the revenue targets outlined in the Democratic budget.  

First off, there is $975 billion in reconciliation instructions to the Finance Committee.    

Below that are the additional revenues included in this budget.  As I mentioned, all told, if you include the specified revenue target for reconciliation and the potential increases elsewhere, the budget may include more than $1.5 trillion in tax increases.

Next we have a list of all the tax increases Senate Democrats have voted for over the last few years, including the elimination of tax breaks for oil and gas companies, increased taxes for carried interest, and the so-called Buffett Rule.  

All told, these failed tax hike proposals would raise about $108.3 billion in new revenues.  

At the bottom we see the difference between that number – the tax increases that Senate Democrats have actually voted for – and the potential tax hikes that are included in the budget.

Like I said, we can give the Democrats credit for having identified about $108 billion in tax increases they’d support.  But, that means that there is as much as $1.4 trillion in unidentified tax increases in this budget.

So, how will they reach their target?  

The budget doesn’t spell it out, which leaves more than enough room to speculate.  

For example, you might think that they’d simply adopt the idea from President Obama’s past budgets to cap itemized deductions for higher income earners at 28 percent.  

That seems unlikely for two reasons.

First of all, to date, very few Democrats in the Senate have come out in favor of that proposal.  Indeed, it would impact things like charitable contributions and pension deferrals that most have been unwilling to change.

Second, and more important, according to the Joint Committee on Taxation, that proposal would only generate about $423 billion in new revenues over ten years, which would leave my colleagues about a trillion dollars short of their revenue goal.  

Still, I can’t help but wonder if the tide has shifted with regard to this proposal.  

With the Senate budget staking so much on the elimination of so-called loopholes, it will be interesting to see how many Democrats shift positions and endorse the President’s proposal, even though it wouldn’t yield them nearly enough revenue to reach the targets outlined in the budget.  

Staying in the world of capping itemized deductions, there is also the proposal outlined by CBO in 2011 to cap all itemized deductions for all taxpayers at 15 percent.  This would effectively raise taxes on every tax filer in every bracket who itemize their deductions.  

Make no mistake, this would be a tax increase on the middle class, meaning it would violate the promises made by President Obama and other Democrats to protect the middle class from further tax increases.  

However, it would also generate enough revenue to be in the neighborhood of what the Democrats have outlined in their budget.   

All told, this proposal would, according to CBO, raise about $1.2 trillion in revenue over 10 years.

Given the outlandish revenue proposals in the budget, this idea, while punitive and damaging to the middle class, can’t be ruled out entirely.  

I have another chart here that lists the top ten tax expenditures according to the Joint Committee on Taxation. These ten items account for 71 percent of what Democrats have called “spending in the tax code.”  

What’s Number One on the list?  I’ll give you a hint: it’s not corporate jet depreciation or carried interest.

No, it’s the tax-free treatment of employer-provided health care.

What’s Number Two on the list?  It’s the tax-deferred benefit for retirement savings plans.

How about Number Three?  It’s the measure that provides relief against double taxation on investments.  I’m referring to the reduced rate on long-term capital gains and dividends.  

This rate went up recently – it was raised by 59 percent in the fiscal cliff bill.  Raising it even more is a sure-fire recipe for job destruction and even slower economic growth.

Number Four is the deduction for state and local taxes.

Number Five is the home mortgage interest deduction.

Number Six is the tax-free treatment of Medicare benefits.

So far, I don’t see a lot of expenditures aimed solely at benefitting the wealthy.  No, most of these provisions benefit a significant number of middle income earners.  

Three of the next four items on the list are refundable, meaning that the person filing the return can receive a check even if they owe no income tax.  

This is truly where there is spending in the tax code.

These provisions exclusively benefit lower and middle income earners – they are not available to those making over $200,000 a year.   

The point, Mdme. President, is not simply that there are a lot of popular tax expenditures.  I think people know that already.

No, my point is that, given the difference between the revenue target in the Democrat’s budget and the tax increases they’ve supported on the record, there’s no telling how they plan to actually raise their revenue.

If they’re really serious about closing so-called loopholes to the tune of over a trillion dollars, this list is where the money is.  If we’re talking about raising that kind of revenue by eliminating tax expenditures, we’re necessarily talking about provisions that benefit the middle class.

It can’t be raised through eliminating tax breaks for oil companies.

It can’t be raised by instituting the Buffett Rule.

It can’t be raised even by eliminating all itemized deductions for millionaires.      

I’m sure my colleagues will disagree with this assessment.  However, the burden is on them to show where I’m wrong.  

This is their budget and their revenue target.

If they want this budget to be taken seriously, the Democrats should come out and state specifically their plan for raising their $1.5 trillion in additional revenue.

You can’t simply say: We want the Finance Committee to figure out how to raise taxes by another trillion dollars to finance our spending spree.  

That is irresponsible and, like I said, it poisons the well for fundamental tax reform.

You can’t simply say: We want to turn off almost half-a-trillion of sequestration spending cuts, but we won’t say how we’ll pay for it.  

That is irresponsible and misleading to the American public.

Finally, Mdme. President, I would just like to point out that the budget would also mark a significant shift in the position held by many Democrats with regard to corporate taxes.

The Obama Administration has repeatedly expressed support for approaching corporate tax reform in a revenue-neutral manner.  Prominent Democrats on the Finance Committee have also publicly expressed support for revenue-neutral corporate tax reform in order to make America more globally competitive.
However, the Democrats’ budget states that “eliminating loopholes and cutting unfair spending in the tax code for the…biggest corporations must be a significant element of a balanced and responsible deficit reduction plan.”

You cannot have it both ways, Mdme. President.

Revenue-neutral corporate tax reform means paring back corporate tax expenditures and lowering the corporate tax rate.

Revenue-neutral corporate tax reform does not mean – and cannot mean – eliminating tax expenditures that some members don’t like because it polls well, and then using some or all of the resulting revenue gain to further expand the government.  

That is not tax reform of any kind – that is a tax hike, pure and simple.  

I will be interested to find out whether Democrats who have publicly expressed support for revenue-neutral corporate tax reform will support this budget.

More generally, I’d like to know where the Democrats stand on corporate taxes.  

Do they want to raise them, or do they want to make American companies more globally competitive?  You cannot do both.

Mdme. President, when you look at the tax provisions of the Senate budget, it’s clear that it is nothing more than a political document.

I suspect that my colleagues on the other side of the aisle know that they cannot hit their revenue targets without impacting the middle class.  I think they also know that you can’t do revenue-neutral corporate tax reform and, at the same time, raise more tax revenue from the corporate sector.  

I think they know that, in real-world terms, the tax provisions of this budget are several bridges too far.  
So, in the end, I have to assume that there’s a political calculation being made here.  

My colleagues apparently believe that it makes good political sense to talk about reducing the deficit on the backs of the wealthy and less popular corporations rather than making difficult choices on spending.  

Mdme. President, the American people need a real blueprint for our nation’s fiscal future, not more talking points.  Once again, I urge my colleagues on both sides of to reject this budget.