Opening Statement of Senator Grassley during Senate Floor Debate on Fiscal 2009 Budget
Statement of U.S. Senator Chuck Grassley of Iowa
Ranking Member of the Committee on Finance
Senate Floor Debate of Fiscal Year 2009 Budget
Monday, March 10, 2008
Mr. President, Senator Judd Gregg is the Ranking Republican on the Senate BudgetCommittee. Since we are on the budget resolution, Senator Gregg would usually open debate forour side. He wanted to take the lead today but has a necessary conflict in his schedule. He askedme to substitute for him today and I am pleased to do so. Senator Gregg will deliver his openingstatement tomorrow.
Mr. President, I'm first going to talk about the process and recent history of Senatebudget resolutions.
Mr. President, almost all of the revenue side of the budget is Finance Committeejurisdiction. Most of the spending side of the budget is Finance Committee jurisdiction. Forthose of us who sit on that committee, we need to pay careful attention to the budget. ChairmanConrad, along with Senators Wyden and Stabenow are Finance Committee Democrats. I, alongwith Senators Bunning, Crapo, and Ensign, are Finance Committee Republicans.
When I was Finance Chairman, for the periods of part of 2001 and 2003 through 2006,there was coordination regarding the fiscal resources of and fiscal demands on the FinanceCommittee. That coordination occurred with respect to revenue levels, spending levels, andreconciliation instructions.
Did we always agree? The answer is no. Did we compromise when we haddisagreements? The answer is yes.
We did have some different priorities, but we worked through those differences duringthis committee's budget process. We came up with compromises that largely held together.
I might add, Mr. President, those compromise levels regarding revenues, spending, andreconciliation instructions were in synch with the Administration. My point is that we hashedout the fiscal differences here in the Budget Committee and on the floor. The committee andfloor debate, amendment votes - pro and con, made a very real difference. The product of thatprocess, the resolution, made a real difference.
Mr. President, those budget resolutions, though not perfect, provided me, as FinanceChairman, with the budget resources to deal with the policy demands on the Finance Committee.Most often, I used those resources to guide the Finance Committee, usually in abipartisan manner, to deal with short-term, mid-term and long-term problems.Last year was different. After the people spoke in the November 2006 elections,Democrats assumed control of the Congress and the Congressional budget.
This year we see some repetition of last year's dramatically different fiscal paths. Aswith the rest of the Budget Committee Republicans, I learned about this resolution for the firsttime when the Chairman put the markup document before the committee. Committee Democratswere consulted extensively, along with the Democratic Caucus. Most of the Republicans'knowledge, prior to markup, was derived from what we read in the press.
I don't say this to be critical of the Democratic Leadership. It is unfortunate, but perhapsnecessary, that budgets are usually partisan documents.
So, I'd say, with all due respect to the Chairman, the Chairman's mark was developedexclusively by Democrats, in a partisan fashion. Republicans used the markup to educateourselves, others on our side, and the public. We asked questions. I pursued questions abouthow this budget deals with the resources and demands that fall on Senator Baucus and myself asChairman and Ranking Member of the Finance Committee.
We offered a relatively small number of amendments. Most were defeated. Someaccepted. And, on reforming farm program payment limits, I'm pleased to say Senator Allard'samendment prevailed on a roll-call vote. That amendment improved this resolution though notenough to gain the support of Senator Allard, myself, or any other Republican.
Before I discuss the substance of the budget, I want to start off by complimenting theChairman and his staff. They conducted the markup in a professional manner. The Democraticand Republican members have sharp, well-intentioned reasons for coming down in differentplaces on the resolution. We were able to debate those differences in a full and fair manner. Iknow Senator Gregg would make these points if he were here.
So, Mr. President, we are at the Senate floor stage of the budget process. What I'd like todo is step back and take a look at the budget from three vantage points. It's kind of like wefarmers do before planting season when look at the condition of the soil and the prospects forvarious crops.
The first vantage point will be looking at what the budget purports to do. From thisangle, I'm going to look at what the Democratic Leadership says the budget is designed to do andwhether those purposes make sense from a fiscal policy standpoint. The second vantage pointwill be looking at how well the budget carries out its purposes. The third vantage point will belooking at what reconciliation would mean for the Senate.
Let's start off with the first question -- what does the Democratic Leadership say thisbudget is designed to do? What are the consequences of that fiscal policy?
The budget's proponents claim that it is all about fiscal responsibility. There are twobasic parts to the Federal ledger - revenue and spending. If we spend more than we take in, thenthe Treasury sells more debt. This has been the pattern for much of the Post World War IIperiod. If we spend less than we take in revenue, then the Treasury buys back debt.When you look at this budget over the short-term, it contains a material increase inspending. Over the next fiscal year, discretionary spending rises by 9 percent over last year'sspending. How many Americans got a 9 percent raise? How many American families raisedtheir discretionary household spending by 9 percent? On the spending side of the ledger,spending goes up. You would think proponents of fiscal responsibility would be looking atspending cuts, not 9 percent increases.
It's a different story on the other side of the ledger, the revenue side. Let me start offwith the one smidgeon of good news on the revenue side. The alternative minimum tax (AMT)patch expired on the first day of this calendar year. If the patch is not addressed, 25 millionfamilies, most of them, middle income families, will pay an average of at least $2,000 in AMTthis year. The Chairman reduced the revenue baseline by $62 billion which is the revenue lossfrom extending the patch. I thanked the Chairman in committee and thank him again on thefloor for that provision. Unfortunately, pay-go still applies, so there is a Senate hurdle, built intothis budget, to patching the AMT this year.
Mr. President, the rest of current law expired or expiring tax relief provisions will need tobe offset with other tax increases. There are also several bipartisan tax bills that would requireoffsetting tax increases under this budget. That's a large tax increase over the next fiscal year.My staff calculates that tax increase to be roughly $150 billion.
The definition of fiscal responsibility under this budget, over the fiscal year, is higherspending of $22 billion and higher taxes of $150 billion.
Is that a legitimate fiscal goal, Mr. President? Is that the notion of fiscal responsibilitythe American people were looking for when they turned Congressional power over to theDemocrats in November 2006? Did we in Congress misread the results? Did the people reallywant us to increase spending and raise taxes? That's not what I heard back home. What I heardfrom folks across Iowa was rein in the spending. Live within your means. That's what I heard.It seems to me that if you're going to assume the mantle of fiscal discipline, you ought totreat a dollar of new tax relief the same as a dollar of new spending.
And what do I mean by new spending? I mean spending above the CBO baseline. Andwhat do I mean by new tax relief? I mean new tax policy that loses revenue. I don't meanextension of existing tax policy.
Mr. President, we see the same pattern over the five-year period of the budget. Over fiveyears, the tax hike and spending increases grow exponentially.
On the spending side, discretionary spending grows by $211 billion. When you throw inthe special reserve funds, you can add another $300 billion in new spending on top of that.
Over the five years, the budget assumes a dramatic tax increase - at least $1.2 trillion. In2011, the bipartisan tax relief plans will expire. Some folks will call these provisions the Bushtax cuts. It is true President Bush signed both bills, but the bipartisan compromises occurred inthe Finance Committee. In 2011, President Bush will have been gone from office for a couple ofyears. He'll probably be hanging around his ranch in Crawford, Texas. You can call thispackage of tax relief for virtually every American the Bush tax cuts, but for the taxpayer, it willbe a tax increase.
I have a couple of charts here. The charts use the analogy of a brick wall to show theugly tax increase Americans will face.
In this chart, you see a family of four. Here's the husband, the wife and their twochildren. This family makes $50,000 in income. That's right about the national medianhousehold income today. For example, the Census Bureau stated that, for 2006, the nationalmedian household income was $48,200. Under the Democratic Leadership's budget, this familywill face a tax increase of $2,300 per year. That's a loss in their paychecks of about $200 permonth. It's a hit on their yearly budget of $2,300. Where I'm from, that's a lot of money.I have another example. Here we have a single mom with her two children. She earns$30,000 a year. In 2011, under this budget, she and her family run straight into a brick tax wall.That's a brick wall of $1,100 per year of taxes. That's almost $100 a month out of this family'sbudget.
So, when you hear folks rail against the 2001 and 2003 bipartisan tax relief plans, you'llhear a lot of talk about millionaires and the death tax. You won't hear the critics talk about thesetwo families. You won't hear these critics, almost all of whom voted against those two bills, talkabout these families.
Now, those on the other side will point to the Baucus amendment as the answer to the taxincreases I've pointed out. Isn't ironic that my friend, our Chairman, my partner from the 2001tax relief bill and several other tax relief bills, is the author of the key amendment? SenatorBaucus took a lot of heat for working with me in a bipartisan fashion in 2001. Many on the otherside who fought him and that bill were also denying the tax increase in last year's budget. So,they now turn to his amendment, as they did last year, to try and deflect the tax increase charge.
At budget markup, we were told the Baucus amendment would contain enough revenueroom, $323 billion, to accommodate extension of several components of the bipartisan tax reliefplans. We were told the 10 percent bracket, marriage penalty, child tax credit, and some deathtax relief would be covered.
There were provisions that were not intended to be covered. The excluded provisionswere the lower rates for capital gains and dividends, and the other marginal rate reductions.Now, some on the other side will describe this excluded group as top rate taxpayers andother high-income folks. Don't believe it. The facts are otherwise.
Low-income folks, including millions of seniors, pay no tax on their dividend or capitalgain income. If this budget stands, even with the Baucus amendment, millions of theselow-income taxpayers, especially seniors, will pay a 10 percent rate on capital gains and couldpay as high as a 15 percent rate on dividends.
I've got a couple of charts to show how wide the dividends and capital gains tax increaseswould be. This chart deals with dividends. It shows the number of taxpayers claiming dividendincome. Nationally, over 24,000,000 families and individuals reported dividend income. InIowa, for instance, over 299,000 families and individuals claimed dividend income on theirreturns. There are not 299,000 millionaire families and individuals in Iowa. Here's a chartdealing with capital gains. Nationally, we're talking about over 9,000,000 families andindividuals. In Iowa, we're talking about over 127,000 families and individuals.
There are many marginal rates, other than the top rate, that would rise if this budgetstands, even with the Baucus amendment. The 25 percent rate, which for 2007, starts at $31,850for singles and $63,700 for married couples, would rise 3 points to 28 percent. The 28 percentrate, which for 2007, starts at $77,100 for singles and $128,500 for married couples, would rise 3points to 31 percent. The 33 percent rate, which for 2007, starts at $160,850 for singles and$198,850 for married couples, would rise to 36 percent. The top rate would rise from its current35 percent level to 39.6 percent. To sum up, Mr. President, even with the Baucus amendmentadded to this budget, there would be marginal rate increases on millions of taxpayers. Thosemarginal rate increases would reach taxpayers with taxable incomes as low as $31,850 forsingles and $63,700 for married couples.
Now, what I just described is accurate only if the Democratic Leadership intends tofollow the letter and spirit of the Baucus amendment. If you look at last year's track record, theHouse neutered the effect of the amendment in the conference agreement. They created a RubeGoldberg type of mechanism to impede the amendment. Of course, after the budget conferencereport was agreed to all talk and action around the amendment ceased. So, Mr. President, Iwouldn't put much stock in the follow-through on the Baucus amendment.
Mr. President, this budget asks a lot of the taxpaying population, about $1.2 trillionworth. That's a big chunk on the revenue ledger. Compare that to what's going on the spendingside of the ledger. The answer is $211 billion more spending on the discretionary side. Nothingis proposed to rein in entitlement spending.
If the definition of fiscal responsibility is higher spending, no entitlement savings, anddramatically higher taxes, then this budget is fiscally responsible. Keep in mind that whileramping up $1.2 trillion on the taxpayer, the budget spends $775 billion of the Social Securitysurplus and grows the gross Federal debt by $2 trillion. For those on our side, this budget is notfiscally responsible. We don't agree that the definition of fiscal responsibility is higher spending,no entitlement savings, and dramatically higher taxes. For those of us on this side of aisle, youcan't solve all fiscal problems with the tax side of the ledger.
Now, I'd like to go to the second part of my discussion and analyze the tax side of thebudget. I'm looking at how this budget will carry out its objectives.
Let's take a look at the short-term. By short-term, I'm referring to the first fiscal year ofthe budget. I have a chart. A lot of folks from farm country get their water from wells. Whenthe well water is low, you can either dig it deeper, cut back water use, or pay to have the watertrucked in. This well shows the extra demands on the revenue side of the budget. That's thebucket. The bucket shows demands of $152 billion. These demands reflect the extenders forthis year and next year. The bucket contains next year's AMT patch. The bucket also coverspending bipartisan tax legislation. All of these items are listed on the chart.
The water in the well represents known specified and scored revenue raising proposalssupported by the Senate Democratic Caucus. Included are $32 billion in FinanceCommittee-approved offsets and $29 billion that have been approved elsewhere. That totalreaches $61 billion. When you net the offsets against the demands, you find an offset shortfall of$91 billion. The upshot of the analysis in this chart is that known offsets cover only about 40percent of the revenue needed to carry out pending time-sensitive tax legislation.
Some on the other side will probably respond with three counterpoints.
The first will be that the committee tax staffs will find the additional $91 billion. Thesecond will be a claim that off-shore shelter activity is a vast easily tapped revenue source. Thethird counterpoint will be that closing the tax gap can yield the necessary revenue.
On the first point, I'd refer everyone to the track record of the tax staffs from the periodof 2001 through 2006. During that period I chaired for four and one-half years and SenatorBaucus chaired for one and one-half years. During that period, we changed the tax shelter rulesand closed numerous corporate loopholes. If you don't believe me, ask the K St. crowd. Duringthat six year period, an active Finance Committee tax staff was able to achieve $51 billion inenacted revenue raisers. That figure should give everybody some perspective on what is doable.Secondly, some on the other side will argue that offshore activities will produce up to$100 billion a year. The anecdotes alluded to usually refer to fraudulent activities. Of course,tax fraud is a crime now. Perhaps, we could continue to make progress on this front with moreenforcement, but the figures bandied about have no Joint Tax or Treasury scoring that I'm awareof. I'll expand on this point in a separate discussion later on this week.
The third counterpoint is that the tax gap will yield a readily-available easily-tappedrevenue source. As a preliminary matter, let me say the tax gap is a serious tax policy andadministration issue. I have devoted a lot of time and energy to closing the gap over the last fewyears.
Unfortunately, as IRS officials have told us in several hearings, the tax gap number,currently estimated to be $290 billion (net) annually, is not the same thing as a revenue estimate.They have cautioned us to be careful about designing tax gap closure measures that are driven byunrealistic revenue targets in unrealistic time frames.
When we went through the tax gap discussion last year, these points were disputed bysome on the other side. With a Senate Democratic Majority in place for over a year, we mayhave a bit of a yardstick to use. Let's take a look at the claims on tax gap revenue and how we'vedone.
I have three charts for this exercise. The first chart is the tax gap reality check. Thischart takes the form of an inverted pyramid. At the top of the chart is the gross tax gap. That'swhat appeared in the budget resolution markup document. Last year, the IRS testified that theimprovements in collections have brought the tax gap down by $55 billion to a net tax gap of$290 billion.
As we work our way down the inverted pyramid, we go to tax gap proposals. There aretwo categories of proposals. The first is Treasury tax gap strategy set of proposals. On anannualized basis, these proposals raise $3.6 billion per year.
Some of these proposals have proved controversial on both sides of the aisle. Many arecomplicated and wide-ranging and may need further work. It is not by accident that they are stilla work in process. The second set of proposals came from the Joint Tax "white book." Thispamphlet, requested by Senator Baucus and myself a few years ago, was published in lateJanuary 2005. A note of caution is in order about the chart's figure. The $40.4 billionannualized figure includes many tax expenditure reform measures. Some tax gap proponentshave strongly opposed the mixing of these proposals with "pure" tax gap proposals. I will speakin more detail about these proposals later on in this week's debate. If one were to delete the taxexpenditure reform proposals from this figure, it would drop considerably. For purposes of thisexercise, I'm going to use the full set of Joint Tax proposals. If we do that and add them to theTreasury proposals, we come away with roughly $44 billion per year in tax gap-relatedproposals.
As a side note, a couple of recently-enacted tax gap proposals have run into roughsledding with the new majority. The first proposal is from the 2005 Joint Tax book. It dealswith withholding on contractor payments was enacted in 2006. Ways and Means Democrats areseeking to delay it.
In addition, many House and Senate Democrats are insisting on repealing another tax gapmeasure, this one dating to 2004, providing for supplementary private debt collectors. Ifenacted, Joint Tax scores that proposal as losing revenue.
As we work our way further down the inverted pyramid that I call the tax gap realitycheck, we total up enacted tax gap provisions. During the first year of the new majority, we find$572 million of enacted tax gap provisions. The enacted provisions represent two-tenths of onepercent of the tax gap. That's right, Mr./Madam President, two-tenths of one percent. Thatshould give us pause.
Now, let's take a look at the demands on the tax gap revenue in this budget. I haveanother chart. It totals up the proposed uses of tax gap revenue. This chart is in the shape of apyramid. Listed in the first category are annualized tax relief and spending demands in thebudget that are assumed to be offset, by, among other things, tax gap revenue. You can see thatthey total $314 billion per year. I've accounted for the Baucus amendment's annualized impactof $65 billion. So, the net demands on the annual tax gap are $249 billion.
Mr. President, if you've been following the charts and the arithmetic, you can see that thebudget uses almost all of the tax gap revenue. It uses about 85 percent.
Keep in mind, Mr. President, that the track record is that only $572 million of tax gapraisers were enacted last year. To give you perspective, you could look at the ratio of demandson tax gap revenue to revenue raised from enacted provisions.
The ratio, Mr. President, is 435 to 1. That's right, Mr. President, there are $435 ofproposed tax gap uses in the budget for every $1 dollar of enacted tax gap revenue.When you look over these numbers, it should lead to a healthy skepticism of using taxgap revenue as an instant revenue source. We ought to listen to the career Statistics of Incomefolks over at the IRS. When they tell us not to treat the tax gap number like a revenue estimate,they're on pretty solid ground. Doesn't mean we shouldn't be aggressive about the tax gap. Weshould. But the thirst for quick and dirty revenue raisers should not drive the strategy for dealingwith this important problem.
Mr. President, I'd like to step back and summarize the last two major points. The firstpoint is that this budget does represent the priorities of the Democratic Leadership. It is putforward with the stated objective of achieving fiscal responsibility. The budget dramaticallyraises taxes, increases spending considerably above an already-generous baseline, and doesnothing about entitlements. And most experts agree entitlement spending, left unchecked, willcannibalize the rest of the budget. From the perspective of the Republican Conference, thisfiscal blueprint is not fiscal responsibility.
The second point is that an examination of the budget, even from the perspective of itsproponents, shows it doesn't work. There is too much pressure on raising revenue. We haveraised revenue from closing corporate loopholes and anti-tax shelter measures. I'm proud of theFinance Committee's track record in that regard. We've enacted $51 billion in loophole closersand anti-shelter measures for the period of 2001-2006. There is not, however, enough loopholeclosers to offset the time-sensitive tax legislation that we face in the first fiscal year of thebudget. We've likewise found revenue in policing off-shore shelters and other activities, but itfits under the umbrella of loophole closers and other tax shelter oversight. Finally, the tax gap isan important problem that needs to be tackled. But targeting revenue from closing the tax gapneeds to be realistic. This budget anticipates revenue that is incredibly out-of-line with our trackrecord on the tax gap.
Mr. President, when you step back from the differences across the aisle on this budget,you probably won't be surprised to find similar differences among the Presidential candidates.
Generally, the candidates on the other side have proposed to take heavily from thetaxpayer under the guise of fiscal responsibility. This is true when they're talking about endingthe bipartisan tax relief plans of 2001 and 2003. It's true when they're talking about the sameloophole closers for a myriad number of expansions of existing entitlements or creating newones. Nowhere is there discussion of reining in spending. So, the tax side of the Federal ledgeris the only route to fiscal responsibility from the perspective of the candidates on the other side.
I'll give you one telling example. I have a chart that shows the revenue from the keyrevenue raiser from one of our colleagues on the other side. That proposal would repeal thebipartisan tax relief plans for taxpayers earning above $250,000. This proposal raises $226billion over 5 years and 10 years. A key fact is that the source of that revenue peters out over thenext few years because under current law the tax relief sunsets at the end of 2010.
Like the Democratic Leadership's budget, the candidates on the other side over-subscribethe revenue sources from proposals that are popular with the Democratic base. The deficiencycan only be made up in three ways. One, other undefined sources of revenue would need to betapped. Taxpayers should rightly be worried about that avenue. Two, the proposed spendingplan would need to be abandoned or curtailed. There is not much history, on the Democraticside, of this avenue being taken. Third, add to the deficit for the cost of the new programs.Unfortunately, this avenue has been taken far too many times.
Mr. President, we'll hear a lot of criticisms of our candidate, Senator McCain, from thoseon the other side. They'll argue, like the President's budget, a continuation of current law levelsof taxation "costs" the Federal Government too much revenue. They'll argue that the spendingincreases they propose are more important than the restrained levels of the President's budget.And they'll argue that, despite the record tax hikes in their budget, entitlement reform is a matterfor another day.
I have a chart that I believe helps set the basis of this larger debate. It shows theglide-path for revenue under current law. It shows that trend in the post World War II context.You'll see revenues average about 18.3 percent of the economy. You'll also see that the state ofthe economy affects revenues more than anything else. There are dips when we have been inrecession and peaks when growth was high. Our side cares about keeping the revenue line at areasonable level. We don't see the merits of an imperative behind a growing role for governmentin the economy.
The other side disagrees. They impliedly or explicitly reject our premise that the ofgovernment needs to be kept in check. I have another chart. It is a copy of an editorial, datedOctober 22, 2007, from the New York Times. The lead-off paragraph says it best. I quote:
"President Bush considers himself a champion tax cutter, but all the leading Republicanpresidential candidates are eager to outdo him. Their zeal is misguided. This country's meagertax take puts its economic prospects at risk and leaves the government ill equipped to face thechallenges from globalization."
The bottom line is the New York Times directly states the view behind this budget andthe position of the Democratic candidates. From this perspective, the historical level of taxationis not appropriate as a measure. The New York Times implies that the Federal Government mustgrow as a percentage of our economy, by at least 5-8 points. If we were to follow the pathsuggested by the Times, the government's share of our economy would grow by one-third.One-third, Mr. President. One-third. The Democratic Leadership's budget takes some big stepson that path. So do the campaign proposals of the Democratic Presidential candidates.
Our Republican Conference takes a different view. America is a leading marketeconomy. American prosperity and economic strength in our view is derived from a vigorousprivate sector that affords all Americans the opportunity to work hard, save, and invest more oftheir money. A growing economy is the best policy objective. It makes fiscal sense as well. Ihave one more chart. My last chart shows that, despite criticisms to the contrary, the bipartisantax relief plans drove revenue back up after the economic shocks we suffered in the early part ofthis decade. I'm referring to the stock market bubble, corporate scandals, and 9-11 terrorattacks. Revenues bounced back when the economy bounced back. The revenue outperformedCBO projections by a significant margin.
Folks on our side, including our Presidential candidate, do not take this data lightly. Webelieve the bias ought to be against growing the government, not the other way around.
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