July 17,2012

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Hatch: New Report Confirms Disastrous Consequences for American Families Under President’s Tax Hike Plan

In Speech, Utah Senator Says, “Unfortunately, the President’s economic ethics are significantly hampering our economic recovery with disastrous consequences for America’s families.”

WASHINGTON – In a speech on the Senate floor today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, said a new report released by Ernst & Young confirms the President’s small business tax hike plan will further cripple the American economy and hurt much-needed job growth. The study found that the President’s tax hike proposal would shrink the economy by 1.3 percent and shed 710,000 from the American workforce.

“Study after study confirms that the President’s policies prioritize spreading the wealth around over growing the economy and creating jobs,” said Hatch. “Republicans want to grow the economy and create jobs so that American families can thrive. However, to judge from their single-minded pursuit of tax increases, President Obama and his liberal allies appear to value a politics of class envy and wealth redistribution. Having Washington bureaucrats manage the economy in the name of wealth equalization is their first priority, regardless of any evidence that this tax policy undercuts economic growth and job creation. Unfortunately, the President’s economic ethics are significantly hampering our economic recovery with disastrous consequences for America’s families.”

President Obama has repeatedly pushed his proposal to raise taxes on the top two marginal tax brackets.  Under the President’s plan, nearly 940,000 flow-through businesses and 53 percent of all flow-through business income would be hit by the President’s proposed tax hikes, according to the Joint Committee on Taxation. According to the National Federal of Independent Businesses, up to 25 percent of the workforce is employed by businesses that will be affected by the President’s proposed tax hikes.

In addition to economic and job loss, the Ernst & Young study found the President’s tax hike plan would also decrease investment by 2.4 percent and lower Americans’ standard of living by slashing wages by nearly 2 percent.

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

Mr. President, the American people are struggling. Our economy is barely keeping its head above water. Millions of citizens remain out of work. President Obama has spent trillions in taxpayer dollars, and there is nothing to show for it.

He talks about investments — investments in infrastructure, in roads, and in bridges.
Well he has spent trillions. Where are the roads?  Where are the bridges?  Where is the new electrical grid? This reckless spending is a sin of commission.

But the administration’s sins of omission are perhaps worse. With businesses and families lacking any certainty about their tax rates next year, the President and his liberal allies have nonetheless steadfastly refused an extension of the 2001 and 2003 tax relief.

Even worse, they are so committed to raising taxes on small businesses — the same small businesses that must be cultivated to get our economy and job growth moving again — that he and his Democratic allies in the Senate have put their feet down and are denying tax relief to anyone unless they get their way on tax increases. And make no mistake about it. Increasing taxes is what they intend to do. They live to raise taxes.  

It is almost as though their only source of pleasure is hiking taxes.  Taking money out of the private sector and controlling it for their liberal agenda is like some power trip for the left.
 And don’t fall for that red herring fiscal responsibility argument advanced by my friends on the other side.  If you look at comparable policy between the Hatch-McConnell amendment and the Democratic leadership’s position, they differ by about $41 billion for the policy for 2013.  That $41 billion represents 1.1 percent of the spending proposed in the President’s budget for 2013.  The House budget rejected by our friends on the other side would reduce the deficit by restraining spending by $180 billion, more than four times the deficit reduction that would be achieved through the tax hikes insisted upon by Democrats.
But what does that tax increase mean in terms of harm to the economy? My friends on the other side of the aisle should consider this. Today, a study commissioned by the National Federation of Independent Businesses, the S Corporation Association, and the U.S. Chamber of Commerce, confirmed again that the President’s attempt to stick it to the rich, is going to end up skewering small businesses and the families that work for them, or would like to work for them.

This report, published by Ernst & Young and authored by Dr. Robert Carroll and Gerald Prante, found that if the President gets his way, the economy will be 1.3 percent smaller than it would be and there would be 710,000 fewer jobs.

Study after study confirms that the President’s policies prioritize spreading the wealth around over growing the economy and creating jobs.

The Vice President spoke yesterday about the values of Republicans and the values of Democrats. Naturally he spoke pejoratively about Republican values.

I disagree with him on his negative assessment, but I do agree that there is a clear distinction — a clear choice — between the values embraced by Republicans and Democrats.

Republicans want to grow the economy and create jobs so that American families can thrive. However, to judge from their single-minded pursuit of tax increases, President Obama and his liberal allies appear to value a politics of class envy and wealth redistribution.

Having Washington bureaucrats manage the economy in the name of wealth equalization is their first priority, regardless of any evidence that this tax policy undercuts economic growth and job creation.

Unfortunately, the President’s economic ethic is significantly hampering our economic recovery with disastrous consequences for America’s families.

Today Ben Bernanke, the Chairman of the Federal Reserve, testified before the Senate Banking Committee. As the Senate’s Democratic Leadership and the President ignore the fiscal cliff, Chairman Bernanke’s words are somber reminder of what we face if we do not address the fiscal cliff.

He testified that the recovery “could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken.”
He stated that the public uncertainty about the resolution of these issues is a negative drag on the economy. And he concluded that addressing this cliff “earlier rather than later would help reduce uncertainty and boost household and business confidence.”

But instead of addressing these critical economic issues, the Senate spent another day show voting on the same doomed piece of partisan legislation. Rather than take on the hard work of addressing the fiscal cliff that our economy is approaching, we spent precious time yesterday debating the DISCLOSE Act.

For those who are not aware, this is a bill that had one purpose — to discourage political engagement by President Obama’s opponents.  It takes a pretty bad bill to unify the ACLU and the NRA against it.

But the DISCLOSE Act has brought the lion and the lamb together against it. It is bad enough that we spent all of yesterday debating a bill that has no shot of becoming law. It is even worse that we devoted nearly an entire day to debating that same bill again.

In the meantime, the American people continue to suffer under this weak economy. And to defend their lack of action, the President and his allies have engaged in some revisionist fiscal history.  I want to begin by correcting the record on this revisionist fiscal history. I will follow that with a discussion of the other side’s insatiable appetite for taxes and spending.

We have recently been debating whether we should adopt the President’s policy to raise taxes on small business.  We have also discussed the tax monster that is stalking the American People under the guise of Obamacare.   In both of these debates, we have heard a good deal of fictional accounting.

These accounts share much with other stories we have heard from the other side over the past decade.  You hear it from our friends in the majority whenever the Senate discusses spending or tax policy.  I have noticed that the arguments boil down to two points.  My friend and colleague, the former Chairman and Ranking Member of the Senate Finance Committee, Senator Grassley, came up with this thumbnail description of this creative historical account.

First, all of the so-called good fiscal history of the 1990s was derived from the partisan tax increases of 1993. And second, all of the supposedly bad fiscal history taking place within the past 10 years is to be blamed on the bipartisan tax relief plans originally enacted during the last administration and continued under the present administration.

You could go one step further and, as a policy premise, refine that thumbnail description to two short sentences.   First sentence — lower taxes are bad.   Second sentence — higher taxes are good.  

Not surprisingly, these revisionist historians support higher taxes and higher government spending.  And not surprisingly, the revisionists oppose cutting taxes and cutting government spending.
I direct folks to Senate floor remarks I made on Valentine’s Day last year.  It is important to reiterate the main point of those remarks.  Our friends on the other side assert that raising taxes was the key to a growing economy in the 1990s, and raising taxes could work this magic again.

A quick look at data from the 1990s shows that this assertion can be summarily dismissed.   According to the Clinton administration’s Office of Management and Budget — or OMB — the impact of the much-bragged about tax hike bill of 1993 was minimal.  The Clinton Administration’s OMB concluded that the 1993 tax increase accounted for only 13 percent of deficit reduction between 1990 and 2000.   Thirteen percent puts the 1993 tax increase behind other factors such as defense cuts, other revenue, and interest savings.  The data clearly show that tax increases did not drive deficit reduction.

So as a matter of fact, only 13 percent of the positive fiscal history of the 1990s is due to the partisan 1993 tax increase.  That’s it.  Thirteen percent.   It’s right here.

Well, what about the last decade?  The period of 2001-2010 saw a lot of deficits.  From what you hear from our friends on the other side, those deficits are a direct result of the tax relief that benefitted virtually every American taxpayer.  Yet, CBO data tell us a different story.
On May 12, 2011, CBO released a recap of the changes over the last decade.  At the start of 2001, as everyone agrees, CBO projected a surplus of $5.6 trillion.  Over the decade, deficits of $6.2 trillion materialized.  That’s a swing of $11.8 trillion.  What did CBO say were the causes?  

My friends on the other side might be surprised to learn that the answer is not primarily tax relief. Higher spending accounts for 44 percent of the change.   Let me repeat that.  Higher spending was the biggest driver of the deficits of the last decade.  

Economic and technical changes in the estimates accounted for 28 percent of the change.  So all tax relief, including the tax relief passed by Democratic Congresses and tax relief signed into law by President Obama, accounts for 28 percent.  The tax relief legislation, much maligned by our friends on the other side, accounts for less than half of the fiscal change attributable to tax relief.  Specifically, the bipartisan tax relief bills of 2001 and 2003, including the AMT patches in those bills, accounted for 13.7 percent of the fiscal change of the last decade. That’s not Orrin Hatch speaking.   It’s the non-partisan Congressional scorekeeper, CBO.  

So how much of the bad fiscal history of the last decade is attributable to tax relief?   Twenty-eight percent. That’s it.  And that includes the tax cuts in partisan bills like the stimulus.  

If you isolate the bipartisan bills that are the object of sharp criticism by our friends on the other side — the 2001 and 2003 tax cuts — you will find that those bills account for only 13.7 percent of the fiscal change in the last decade.

Abnormally low levels of spending contributed significantly to the surpluses of the 1990s.  Abnormally high spending drove the deficits of the past decade.  Abnormally high spending is driving our current deficits, and it will drive our future deficits as well.  

To my friends on the other side, if we focus instead on hiking taxes way above their historic average, we are misreading and mistreating the problem.  The reason for our previous surpluses was low spending.  And the reason for our current deficits is high spending.  We cannot tax our way to fiscal health.
Mr. President, I now turn to a second issue that demands a response. It is a corollary of the theme underlying the revisionist fiscal history I just discussed.  It is the insatiable appetite for taxes and spending that we see from the President and my friends on the other side.

Last week, President Obama once again called for tax increases in order to fund his so-called progressive vision of government.  I am specifically speaking of the President’s latest proclamation that the tax relief of 2001 and 2003 – tax relief supported by the President and 40 Senate Democrats in 2010 --  should not be extended for people earning $250,000 or more a year.  This was breathlessly reported in some quarters of the fourth estate as if it constituted news.  In my opinion, the more proper and accurate response would be to borrow from President Ronald Reagan, when he said There you go again to Jimmy Carter in a 1980 debate.  

Perhaps ironically, President Reagan was responding to President Carter’s comments on a National Health Insurance proposal.  President Reagan was more right than even he knew.  
Getting back to taxes and the role of government, President Reagan was essentially making the same point that this chart makes.

No matter what problem faces the left, the answer is always the same.  More taxes are always needed in order to increase the size and scope of the government in people’s lives.  
The Supreme Court recently affirmed the point of this chart – the liberal solution to rising healthcare costs and lack of coverage were tax increases.

The propensity of President Obama and his ideological allies to raise taxes is nothing new, and is widely acknowledged.  Back in August 2008, David Leonhardt wrote a piece in The New York Times that quoted then candidate Obama.

 “If you talk to Warren, he’ll tell you his preference is not to meddle in the economy at all – let the market work, however way it’s going to work, and then just tax the heck out of people at the end and just redistribute it…That way you’re not impeding efficiency, and you’re achieving equity on the back end.”  

In order that people may peruse the whole story, I ask unanimous consent that the internet web address to Mr. Leonhardt’s piece be printed in the record.  For those of us not invited to the local Dairy Queen for a Blizzard with the Oracle of Omaha, the Warren cited in this quote is none other than Warren Buffett.

You know, the same Buffett from which the Buffett Rule or Buffett Tax is named. Setting aside the ridiculous notion that Americans are as oblivious to taxes as cattle are to the purposes of the slaughterhouse they are being led into, this quote very accurately illustrates the liberal attitude toward taxes, which is that they always need to go up.  

The chart behind me illustrates government revenue as a percentage of GDP.  There are some fluctuations but over the last 40 plus years revenues have been roughly stable.  You can see in the past 10 years a dip around the time the so-called Bush tax relief was enacted, followed by a rebound as the tax cuts promoted growth, followed by a dip in revenues as the recession set in.  

According to the CBO, as of June 5, 2012, federal revenues averaged 17.9 percent of GDP over the past 40 years.  The same CBO report -- The 2012 Long-Term Budget Outlook -- forecasts that, under current law, federal revenues will be 18.7 percent of GDP next year in 2013, and will be 23.7 percent of GDP in 2037.  Now someone could say that current law is not realistic, in that some tax provisions that are scheduled to expire will likely be extended.  To account for this, CBO has an alternative fiscal scenario which assumes the extension of certain tax policies through 2022.  

CBO assumes that this would lead to federal revenues increasing to 18.5 percent of GDP in 2022, with that level being preserved going forward.  We definitely know that President Obama does not support the assumptions that are part of CBO’s alternative fiscal scenario because earlier this week he called for taxes to increase on hundreds of thousands of small business owners.

The question remains, why do my friends on the other side think that taxes always need to go up?  The answer to this question is more complex than I am going to discuss right now, but part of the answer is that taxes need to go up in order to increase the size and scope of government in the lives of Americans.  

Here is another chart that compares State and Federal government revenues, which we have just examined, with total government spending.

We can see that over the past 40 years, it looks like spending has been inclined to move upward, but only in the past few years does it jump to unprecedented heights. Virtually every action taken by the Obama Administration and the Senate Democratic leadership has amounted to an increase in the size and scope of government.  The continuing government takeover of healthcare is just the most prominent example.  On all fronts, President Obama’s expansion of government is on the march, trampling whatever gets in its way.

The chart behind me is a combination of federal and state spending.  If we’re just talking about the federal government, in the CBO document I cited earlier, it is projected that debt will eventually reach 200 percent of our economy, that healthcare spending will rise to record levels, and that Medicare and Social Security are on a path to disaster.  Getting back to the chart that combines State and Federal spending and revenues, what I find particularly striking is the large gap between the spending and revenue lines.  Once again, as CBO has indicated, that gap is likely to increase to more than twice the size of our whole economy.

Finally, here is a chart of federal and state government spending as a percentage of GDP. I apologize for being repetitive, but if there one message that should be taken from my speech today, it’s one that I and others have been making for a long time.  That message is that the United States does not have a tax problem.  It has a spending problem.  

We keep hearing that Republicans are too beholden to an anti-tax ideology, and that any resolution of our debt crisis will require that Republicans get with the program and acknowledge the need for increased taxes. As I have shown, this characterization of our fiscal and political problems is not even close to half right.

By far, the greatest cause of our fiscal shortcomings is increased spending. Our increasingly precarious fiscal situation did not arise from a dramatic decrease in taxes, but rather is being caused by a dramatic increase in federal spending.  There is a continual effort underway to deny this reality.  But reality it remains.

And I have a chart that summarizes the latest tactic being used to convince people that exploding government spending is not the disaster it appears to be. As John Stossel has pointed out, people like free stuff.  The problem with free stuff from the government is that nothing is free, and to quote John Stossel “It’s an Uncle Sam scam.”  Stossel was specifically discussing the ability of people to exploit a tax credit for electric vehicles in order to acquire golf carts, but the principle applies to any instance where the government supposedly provides something for nothing.  This is where the cartoon of the rich guy behind me comes in.  Goodies from the government are a lot less appealing when there is a price tag attached, and many people would like to decide how they are going to spend their own money.  The left’s preferred solution to this little quandary is to have someone else foot the bill.  

For President Obama, that someone else is, in his words, the rich,  which includes the small businesses that are vital to our economic recovery. Unfortunately, that approach is just as realistic as the cartoon I am using to illustrate my point.  While many of us may not while away our leisure time down at the club playing whist with monocled robber barons, a lot of us probably know of small businesses in our communities that employ us or our neighbors and provide goods and services that consumers want and our economy demands.  

When liberals are talking about this guy in the top hat with the monocle, they are really talking about the hard-working small business owner.  So when President Obama talks about increasing taxes on the rich, he’s really talking about increasing taxes on around 940,000 small business owners.  A lot of people who would not pay the Obama tax increase work for someone who would be hit by it.  What we have seen is that President Obama and his allies want to increase the size of government, and in part, they want to fund this expansion with higher taxes on so-called rich people.  

I want to conclude my remarks with a question. If we are getting more government, what are we getting less of?   I want to go back to the chart I displayed earlier of government spending as a percentage GDP. We can see that government spending is going up, but what is going down as a result?  What does the area in the top of that chart, which is diminishing, represent?  
This is a subject that lends itself to prolonged discussion, but for one answer, we can go back to Mr. Leonhardt’s piece in The New York Times.  This is the same piece from August 24, 2008, and contains a quote from then candidate Obama critiquing his friend Warren’s argument.  

President Obama said, “I do think that what the argument may miss is the sense of control that we want individuals to have in determining their own career paths, making their own life choices and so forth.  And I also think you want to instill that sense of self-reliance and that what you do will help determine out-comes.”

If candidate Obama was in the midst of an internal struggle over the appropriate role of government back in 2008, that struggle is over.  Self-reliance lost, and taxing the heck out of people and redistribution won.  It runs through the theme of his revisionist fiscal history.  And it is the ethic underlying the insatiable appetite my friends on the other side have for taxes and spending.

This, in and of itself, is not really anything new for liberals and progressives.  So, once again, I’ll quote my friend, President Ronald Reagan, in my response to the President’s plan to tax the heck out of people in the name of redistribution. There you go again. I yield the floor.