Tax Reform

Floor Speech

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Mr. President, it is no surprise that Americans consistently rate jobs and the economy as top issues of concern.
A recent survey found that 50 percent of voters consider themselves to be living paycheck to paycheck, and about one-third of voters say they are just about $400 away from a financial crisis. That means a single, unexpected car repair or healthcare bill could easily put them in the middle of a financial emergency.

Too many Americans have seen their American dream dim in recent years. Hopes for a secure future have turned into worries about where the next rent or mortgage payment is coming from or whether it will be possible to save anything at all for retirement.

We don't have to resign ourselves to the status quo. We don't have to accept the long-term economic stagnation of the Obama administration as our economic future. We can get our economy going again, and we can set it up for strong growth for the long term. But that is going to require some work. It is going to require repealing burdensome and unnecessary government regulations that have slowed economic growth, and it is going to require reforming our complex, outdated Tax Code, which is increasingly strangling our economy.

The Tax Code might not be the first thing people think of when they think of economic growth, but it actually plays a huge role in every aspect of our economy. It helps determine how much money Americans have left over from their paychecks to save or invest or whether they can afford a car or a house. When it comes to businesses, it can be the key to determining whether a young business gets off the ground or an existing business has the money to grow and hire new employees.

Unfortunately, our current Tax Code is not helping our economy. It is doing the opposite. It limits Americans' opportunities. It punishes their success. It discourages investment and growth. It cripples small businesses. It encourages large businesses to send jobs overseas. It keeps our economy from reaching its full potential.
Reforming our Tax Code is an indispensable part of getting our economy back on the path to long-term health. Without comprehensive tax reform, the economic stagnation of the Obama years is likely to become the status quo going forward.

This fall, Republicans in the House and Senate are going to make comprehensive tax reform a priority, and any legislation we pass will be governed by five principles: First, any bill has to result in increased wages, jobs, and economic growth. Second, it must provide tax relief for the middle class. Third, it has to keep jobs here at home.
Fourth, it has to increase American competitiveness in the global economy. Finally, it has to simplify the Tax Code.
Republicans will be talking a lot about these principles over the coming weeks, but today I would like to take just a few minutes to talk about the first of these principles: making sure that tax reform legislation increases wages, jobs, and economic growth.

Flattening wage growth has been a problem in the United States for decades. During the 8 years of the Obama administration, wage growth was almost nonexistent.

Economic growth was also weak throughout the Obama administration. During the last year of the Obama administration--years, I might add, after the recession ended--economic growth was averaging a dismal 1.5 percent. That is barely half of the growth needed for a healthy economy or for what we have seen historically in this country, going back to the end of World War II.

While things have been looking up a little bit lately, we still have a long way to go to get back on the right track. Things need to get better, and they need to get better faster. We want things to get better for the long term. During the Obama administration, there were periods of reasonable economic growth, but they were quickly followed by weak periods.

That is not good enough. We need to put our economy on a strong, healthy footing for the long term. What does the Tax Code have to do with all of this? How is it discouraging wage growth, job growth, and economic growth?
I want to talk about three big ways it is discouraging growth. To start with, tax rates on businesses, large and small, are too high. Our Nation has the highest corporate tax rate in the industrialized world-- at least 10 percentage points higher than the majority of our international competitors. Small businesses face tax rates that can range even higher--up to 44.6 percent for small businesses.

It doesn't take an economist to realize that high tax rates leave businesses with less money to invest, less money to spend on wages, less money to create new jobs, and less money to put back into new property or equipment for their businesses.

This situation is compounded when you are an American business with international competitors that are paying a lot less in taxes than you are. It is no surprise that U.S. businesses struggling to stay competitive in the global economy don't have a lot of resources to devote to creating new jobs and increasing wages.

On top of our high business tax rates, there is another major problem with our Tax Code that puts American businesses at a competitive disadvantage globally--our outdated worldwide tax system.

What does it mean to have a worldwide tax system? It means that American companies pay U.S. taxes on the profit they make here at home, as well as on any profit they make abroad once they bring that money home to the United States.

The problem with this is twofold. First, these companies are already paying taxes to foreign governments on the money they make abroad.

Then, when they bring that money home, they end up having to pay taxes again on at least part of those profits and at the highest tax rate in the industrialized world. This discourages them from bringing their profits back to the United States to invest in their domestic operations. Instead, our Tax Code gives them a strong incentive to leave that money abroad and to invest in foreign workers and foreign economies.

The other problem is that most other major world economies have shifted from a worldwide tax system to what is known as a territorial tax system. In a territorial tax system, you pay taxes on the money that you earn where you make it and only there. You aren't taxed again when you bring money back to your home country.

Most of American companies' foreign competitors have been operating under a territorial tax system for years. So they are paying a lot less in taxes on the money they make abroad than American companies are.

That leaves American companies at a disadvantage. These foreign companies can underbid American companies for new business simply because they don't have to add as much in taxes into the price of their products or services.
In addition to discouraging growth with high tax rates and with our outdated worldwide tax system, there is another major way our Tax Code discourages growth, and that is by leaving small businesses with very little cash on hand.

I have mentioned the high tax rates that small businesses face, which already restrict their cash flow. The accounting rules in the Tax Code just compound that problem. Under current law, small and medium-sized corporations are often required to pay tax on income before they receive the cash, and they cannot deduct all of their expenses when they pay the invoices. It can take years or even decades for them to recover the cost of their investments in equipment and facilities.

For instance, right now the cost of a computer is recovered over 5 years and tractors, over 7 years, if you are in the ag sector of the economy, and commercial buildings, over 39 years.

The consequences of deducting investments over so many years is that businesses can be left extremely cash-poor in the meantime, and cash- poor businesses don't expand. They don't hire new workers, and they don't increase wages.

Any bill Republicans consider has to fix these elements in our Tax Code that are discouraging growth. It has to lower rates for businesses, both large and small. It has to shift our outdated worldwide tax system to a territorial tax system so that American businesses are not at a competitive disadvantage in the global economy and so that American businesses have an incentive to invest their profits at home in American jobs and American workers, instead of abroad. Any bill we consider has to address the cost-recovery rules that are keeping small businesses cash-poor, often for years at a time.

I have already introduced legislation to help startups and small to medium-sized businesses recover the cost of their investments faster.

It is legislation that I hope will become part of the final bill that we consider in the Senate. I am looking forward to working with Chairman Hatch and my colleagues on the Senate Finance Committee as we work to draft the final bill.
The American people have had a rough few years, but economic worry doesn't have to become the status quo for the long term. American workers and job creators are as dynamic and creative as ever. We just need to clear the obstacles from their path, and comprehensive tax reform will allow us to do just that. I look forward to helping to bring the American people real relief this year.

I yield the floor.

I suggest the absence of a quorum.

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