July 19,2012

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Hatch: Democrats’ Latest Tax Proposal a Joke

In Speech, Utah Senator Says, “We should be pursuing laws that will help, not harm, businesses and middle class taxpayers. And, the bill we are discussing on the floor today is not going to help.”

WASHINGTON – In a speech on the Senate floor today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, criticized Senate Democrats’ legislation (S. 3364) for its lack of seriousness and said a better use of time would be for Congress to stop the massive tax hikes that will hit every taxpaying American at the end of the year if Congress doesn’t act.

“As sound bites go, the President’s reelection campaign and the Senate Democratic leadership have apparently decided that they can make some political hay with this proposal.  But as substantive tax policy goes, this proposal is a joke,” said Hatch. “We should be pursuing laws that will help, not harm, businesses and middle class taxpayers. And, the bill we are discussing on the floor today is not going to help.”

Below are Hatch’s full remarks delivered on the Senate floor this afternoon:

Mr.  President, today we are debating a bill called the Bring Jobs Home Act.  We live in serious times.  We have a debt fast approaching $16 trillion, millions remain out of work, and economic and job growth have slowed to a crawl.

Times like these demand serious economic answers. So it is important that we all understand the utter lack of seriousness of this proposal. The only things serious about the Bring Jobs Home Act are its flaws.

The Bring Jobs Home Act would deny the deduction for ordinary and necessary business expenses to the extent that such expenses were incurred for outsourcing.  That is, to the extent an employer incurred costs in relocating a business unit from the United States to outside the United States, the employer would be disallowed a deduction for any of the business expenses associated with such outsourcing.

The Bring Jobs Home Act would also create a new tax credit for insourcing.  That is, if a company relocated a business unit from outside the United States to inside the United States, the business would be allowed a tax credit equal to 20 percent of the costs associated with such insourcing.

On the surface, this proposal may sound reasonable. As sound bites go, the President’s reelection campaign and the Senate Democratic leadership have apparently decided that they can make some political hay with this proposal.  But as substantive tax policy goes, this proposal is a joke.

First of all, the amount of money involved is trifling.  According to the non-partisan Joint Committee on Taxation, this bill’s deduction disallowance provision will only raise about $14 million per year.  That’s 14 million, not billion.  

Let’s put that in perspective. This bill is supposedly a critical tax incentive to create jobs here in the United States. Yet according to the JCT, it will only raise about $14 million per year. Meanwhile, President Obama’s campaign has now spent $24 million on ads attacking outsourcing.

The American people want us to address our fiscal situation and to create the conditions for robust economic and job growth. And how are the President and Senate Democrats spending their time?

Advancing a proposal that raises less money in one year than the amount the President’s campaign has spent attacking Republicans on this topic on television. If Democrats meant this as a serious revenue raiser for the government, we would all be better off if the Obama campaign had simply sent its $24 million to the Treasury Department for disbursement to insourcers rather than spent it on ads attacking American global businesses.

Simply put, this bill is misleading.  Its supporters would have you believe that under current law there is some special deduction that exists for moving jobs outside of the United States.  That is simply false.

Rather, there has always been a deduction allowed for a business’s ordinary and necessary expenses — and expenses associated with moving have always been regarded as deductible business expenses.  So allowing a deduction for these expenses is not the special thing.

It is the rule. Disallowing this deduction would be the exception, an extraordinary deviation from current tax policy.

Yesterday, I heard my friends from the other side say we need to end a tax deduction for jobs that a business sends overseas. I have a letter from the Joint Committee on Taxation, addressed to the bill's authors, that includes an analysis of their bill and a score.

I ask unanimous consent to enter a copy of the letter in the record. Paragraph two of the letter says and I quote:

Under present law, there are no specific tax credits or disallowances of deductions solely for locating jobs in the United States or overseas.  Deductions generally are allowed for all ordinary and necessary expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business, which includes the relocation of business units.

Now, perhaps my friends on the other side take issue with a description of tax policy from Congress' non-partisan official scorekeeper. Well, if they do, I invite them, or the President for that matter, to show me the provision of the Internal Revenue Code, which contains a deduction for shipping jobs overseas.

Maybe Joint Tax and I are wrong, so I will keep the tax code right at my desk, and if one of my friends wants to leaf through the code and show me the section that provides a deduction for shipping jobs overseas, I will stand corrected.

This administration is in the habit of pointing fingers every which way, blaming everyone but themselves for our weak economy and pathetic job growth. Just the other day, the Treasury Secretary blamed Europe and rising oil prices for our economic slowdown.

Yet he did not discuss the pall of uncertainty that Democratic politicians — including his boss — are putting over the economy with their refusal to extend the 2001 and 2003 tax relief unless they get their way on tax increases for small businesses.

According to an analysis by the American Action Forum, the fiscal cliff facing American taxpayers is now twice the size of total GDP growth this year.  If we drive over the fiscal cliff, as the President and Senate Democratic leadership are now threatening, the likelihood that small business will hire will decrease by 18 percent, and the effective marginal tax rate for many workers and small businesses will go over 50 percent.

At least in part — and I would say in significant part — it is the complete failure to provide certainty and pro-growth tax policies to America’s families and businesses that is dragging our economy down.

And proposals such as the one before the Senate today are not helping either.  They increase uncertainty for the businesses that will grow our economy and hire new workers.  It is another example of the Obama administration’s Washington-knows-best philosophy. 

Disallowing the business expense deduction means that income will now be measured less accurately.  Gross receipts minus business expenses equals income.  That’s what both accountants and economists tell us. 

But even though economists, accountants, and businesses all measure income one way, Washington will now measure it another way. Not only is this bad for business, but by disallowing deductions for certain business expenses, this proposal would measure income less accurately.  And when the government’s main source of revenue is the income tax, it is rather important to measure income accurately!

Ultimately, we know that this bill is devoid of serious content because it is the product of political, not economic, necessity.  This bill is a sound bite — not sound tax policy. There really aren’t a lot of dots to connect here.

Really, the genesis of this bill’s prioritization can be traced in a straight line from 1600 Pennsylvania Avenue to the President’s reelection headquarters in Chicago. This bill is called the Bring Jobs Home Act, but its Democratic proponents have not presented any evidence of the number of jobs, if any, that will return to America if the proposal becomes law.  During comments in support of the bill the sponsor referred to a chart that said, and I quote, [i]n the last decade, 2.4 million jobs were shipped overseas.

But the sponsor tellingly did not say that the bill will bring 2.4 million jobs back to America.  The proponents of this bill have not even told us that jobs will return to America if this bill becomes law, much less how many.   The answer is probably none, but that is exactly the sort of question we would have explored had this bill been produced by the Senate Finance Committee rather than by some campaign consultant in Chicago.  

It is disappointing that even though the sponsor of this bill is a member of the Senate Finance Committee, the bill’s sponsor chose to bypass that Committee.  This bill has come straight to the Senate floor without being vetted by the Committee.  Her colleagues on the Committee would likely have some valuable feedback for her.  Both staffs on the Committee would likely have valuable expertise that they could bring to bear on this proposal.  That is why I anticipate moving to commit this bill to the Finance Committee.

And how does this bill fit in with tax reform?  Many on the other side say they want tax reform.  I think it is fair to say that there is a consensus that tax reform means getting rid of tax expenditures so as to decrease tax rates.  The mantra is:  Broaden the base, and lower the rates.  But this proposal would create new tax expenditures.  It would narrow the base.  Another major goal of tax reform is simplification.  But this proposal would make the tax laws even more complicated.  This proposal is the antithesis of true tax reform. 

Rather than coming up with more sticks to punish American businesses that compete globally — as this proposal does — we should be coming up with more carrots to encourage American businesses, as well as foreign businesses, to make America a more attractive place to expand, hire, and invest.  And of course, the best way to do that, consistent with free-market principles, would be to lower the corporate tax rate.  But by creating new tax expenditures, as this Act would do, it becomes all the more difficult to lower the corporate tax rate.

If we really want businesses to locate and hire in the U.S., then we need to do what we can to make sure they are glad they incorporated in the U.S., and that their headquarters are in the U.S.  As it stands right now, because of our worldwide tax regime, many global corporations have their parent company in the U.S. as a matter of historical accident.

If they had they to do it all over again, they very well might decide to incorporate elsewhere in the world.  The way to address that, the way to make sure that the US is the place global businesses want to incorporate is to transition our current worldwide system of taxation to a territorial tax system. 

A territorial tax system would only tax businesses on the profits they make in the U.S.  This way, businesses would not be discouraged from incorporating in the U.S.  Now, if a business incorporates in the U.S., all of its worldwide profits are subject to U.S. tax. 

It is certainly true that a territorial tax regime must be done right, and that the devil is in the details.  But it is clear that territorial tax regime proposals could lead to greater investment in the U.S., and more headquarters jobs in the U.S.  A territorial tax regime would put American businesses in a more competitive position when competing internationally.  A territorial tax system would make us more consistent with major developed countries.

So it is amazing that President Obama has decided to demagogue this issue as well, undermining the future job prospects of millions of Americans for years to come, in order to secure his own job for another four years.

Not content to grossly misrepresent the issue of outsourcing, he is now doing the same with territorial taxation. For a person who claimed last week that he just cares so darn much about policy, he has an odd way of showing it when he campaigns.

In the 2008 election, he fundamentally misled the American people about key aspects of the health care proposal put forward by my friend and colleague from Arizona, Senator McCain.  In doing so, he kicked the legs out from a reasonable and growing consensus about how best to reform the nation’s health care system.  And he did so only for his own political gain.

His selfish attacks on a territorial tax system have a similar flavor, and they promise to make tax reform much more difficult in the future. It is hard to see how this President can lead the country on tax reform. 

He attacks territorial tax regimes.  With a $4.5 trillion tax increase looming at the end of the year — essentially freezing job creation and economic growth — his allies in the Senate are debating this effectively useless bill on outsourcing. 

His administration called for the so-called Buffett tax, essentially creating a new Alternative Minimum Tax that would provide trivial revenues and tax capital gains at higher rates than even President Carter wanted. 

After waiting years for a corporate tax reform proposal, this past February President Obama’s Administration put out a series of bullet points — their so-called Framework for Corporate Tax Reform.   All fluff, and no details.

Tax reform is critical if we want our economy to grow, and if we are going to get out of our current jobs deficit. But given this mediocre track record, I just do not think that the President can be relied upon to lead the nation on this issue.

Not in 2012. And not in a second term either. To the extent that the President’s tax agenda is not attributable to politics, it can be blamed on his odd view of our economy and the businesses that grow it.

I think it is fair to say that the President’s worldview is fundamentally out-of-step with that of ordinary American taxpayers. Just the other day, while campaigning in Virginia, the President laid out his economic vision.  Channeling the economic know-how of Harvard Law’s faculty lounge, he told the crowd, [i]f you've got a business — you didn't build that.  Somebody else made that happen.

As Charles Krauthammer put it, spoken by a man who never created or ran so much as a candy store. The President made clear for all to see just what he thinks of all the hard-working, risk-taking entrepreneurs who sacrifice daily to build their businesses.  

His perception is that the hard work and sacrifice of these business owners and their families has nothing to do with their success. Any success they have is owing to good luck and big government. My guess is that not only American business owners — but most Americans — disagree fundamentally with this assessment.

The President clearly does not understand, or deliberately ignores, economic incentives and the way that they lead to business growth and job creation. This is certainly on display in the policy that will forever define this President — Obamacare.

Good intentions are not enough, and Obamcare’s Small Business Tax Credit is a case in point.  This credit was designed to encourage small employers to offer health insurance.  The promise was that over 4 million employers would claim $2 billion in tax credits to help pay for health insurance. 

The reality?   Only 309,000 taxpayers claimed the credit, for a total of less than $416 million.  Why was the credit such a failure at achieving its well-intentioned goal? Well, a picture is worth a thousand words so please look at this chart. Can you imagine what a business owner must think when they encounter an administrative nightmare like this. 

The Obamacare tax credit for small business gives red tape a bad name.   Talk about a bureaucratic straight jacket.  No wonder the business community has failed to embrace Obamacare. 

Mr. President, this issue of Obamacare’s manipulation of the tax code and its historic tax increases are deserving of extended remarks.   For now let me just say that we should be pursuing laws that will help, not harm, businesses and middle class taxpayers. The bill we are discussing on the floor today, like Obamacare, is not going to help. I yield the floor.