Matt Rutherford's Solo Sail
Floor Speech
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Mr. THUNE. Mr. President, very soon the Senate is going to be voting on whether to invoke cloture on the motion to proceed to Paying a Fair Share Act of 2012, to enact the so-called Buffett rule. It is ironic that we would be debating that subject right now because there is so much work we ought to be doing that would actually address the fundamental problems our economy is facing right now.
If you look at the President's focus on this particular issue and you look at what his economic record consists of since he became President, here is what we are looking at. Gas prices are up 111 percent since President Obama took office. There are now 38 months in a row where we have had unemployment that exceeded 8 percent. We have seen college tuition go up by 25 percent. We have seen health care costs go up by 23 percent. The number of people on food stamps in this country is up by 45 percent. The Federal debt we are handing off to our children and grandchildren is up by 47 percent. That is this President's economic record.
It is ironic that we are here today talking about something even the White House admits is a gimmick that would do nothing to reduce the Federal debt, strengthen the economy, or move us toward the fundamental tax reform that is sorely needed for this country.
On April 1, just over 2 weeks ago, America claimed the dubious distinction of having the highest combined corporate tax rates among advanced economies when Japan implemented its corporate rate tax reduction. Yet, rather than debate how best to reform our Tax Code to help American companies compete in a global economy, we are instead spending our time on a politically motivated measure that everybody knows is not going to become law.
Before we consider why the Buffett rule is bad tax policy, let me start by acknowledging just how inconsequential this change in law would be. According to the Joint Committee on Taxation, the bill offered by Senator Whitehouse would raise tax revenue by $47 billion over the next 10 years. This means the legislation, if enacted, would raise each year about half of what the Federal Government spends every single day. Think about that for just a moment. President Obama has been flying around the country touting the importance of a proposal that, if enacted, would raise about half of 1 day's worth of Federal spending. So between now and this time tomorrow we will actually spend more Federal tax dollars than what this would bring in in an entire year.
Put another way, the revenue this legislation would raise each year amounts to .03 of 1 percent of the $15.6 trillion national debt--.03 of 1 percent of the Federal debt. This bill would raise less than 1 percent of the $6.4 trillion in deficits projected over the next decade under the Obama administration's budget.
This bill is clearly not about deficit reduction or taking any meaningful action to get our fiscal house in order.
What then is this legislation about? The President and many Democratic Members of Congress stated they believe the Buffett rule is about ``tax fairness.'' Their view is that wealthy Americans are not paying their ``fair share.'' Unfortunately for supporters of this legislation, the facts simply don't support that view.
According to the Organization for Economic Cooperation and Development, the United States already has the most progressive income tax system among its 34 member nations. In fact, in 2009 the top 1 percent of taxpayers by adjusted gross income paid 37 percent of all Federal income taxes even though they only accounted for 17 percent of all income. Let's take the top 5 percent of taxpayers. They paid 60 percent of all income taxes even though they only accounted for 32 percent of all income. In 2009, taxpayers with over $1 million in adjusted gross income accounted for 10 percent of income reported but paid 20 percent of income taxes.
In terms of effective income tax rates, the Congressional Research Service recently reported that the average effective tax rate among millionaires is already 30 percent. It is true that some millionaires such as Warren Buffett pay a lower effective tax rate because they get a large percentage of their income from capital gains and dividends. The lower tax rate on investment income is not a tax loophole; it is the result of a deliberate policy by Congress and past Presidents to encourage new investments in our economy.
In fact, in 1997, Democratic President Bill Clinton signed into law a reduction in the capital gains tax rate from 28 percent to 20 percent. What was the result of that rate reduction? Taxable capital gains nearly doubled over the next 3 years. Unemployment fell below 4 percent, and the increased Federal revenue from capital gains realization held a Federal budget surplus.
But rather than learning the lesson that lower taxes on investment income lead to more investment, the Buffett tax would take us in the opposite direction. The Buffett tax is nothing more than a backdoor tax on the nearly 60 percent of all capital gains and dividend income earned by upper income taxpayers. We can debate about how best to encourage new investments in clean energy and high technology or in other important sectors of our economy, but I hope we can all agree that raising taxes on these investments is not the best way to encourage them.
We should bear in mind that the current U.S. integrated tax rate is 50.8 percent, the fourth highest among OECD nations. It is bad enough that America has the highest combined corporate tax rate. Perhaps some supporters of the Buffett tax would also wish us to have the highest tax on investment income as well. Simply put, the Buffett tax is a solution in search of a problem. Wealthy Americans are already paying a huge share of income taxes. And for that small minority of wealthier Americans such as Warren Buffett who feel compelled to pay higher taxes to the Federal Government, I propose that we make it easier for them to do so.
Last October I introduced the Buffett Rule Act of 2011, which currently has 40 cosponsors here in the Senate. My legislation would create a box on the Federal tax forms that individuals or businesses could check if they wish to donate additional dollars to the Federal Government for debt reduction. We should make it as easy as possible for those who want to pay higher taxes to voluntarily make those payments, but let's not impose a new tax on entrepreneurs and small business owners who believe they can spend their own dollars better than Washington can.
Some have attempted to characterize this bill as a step toward comprehensive tax reform. When I say this bill, I am talking about the bill we are going to be voting on later. Unfortunately, it is exactly the opposite. Comprehensive tax reform is needed for many reasons, but one major reason is because we desperately need to simplify our convoluted tax system. How is a bill that adds a new layer of complexity to the Tax Code a step toward comprehensive tax reform? It is bad enough that we already have an alternative minimum tax that snares millions of American families. The Buffett tax, if it is enacted, would become an alternative alternative minimum tax. It would be a new layer of unnecessary complexity on top of an already existing layer of unnecessary complexity.
We should not forget that the alternative minimum tax was originally put in place back in 1970 to ensure that 155 wealthy Americans paid a higher rate of tax. Yet this year over 4 million Americans are going to be hit by the alternative minimum tax. In fact, if Congress does not act to enact the AMT patch for tax year 2012, the Congressional Budget Office projects that more than 30 million Americans will be subject to higher taxes due to the alternative minimum tax. Clearly Congress's record of targeting tax increases at only the very wealthy is not very good.
The Obama administration has stated that its intent is for the Buffett rule to replace the existing alternative minimum tax. Yet according to an analysis by the Joint Committee on Taxation, replacing the existing AMT with the Buffett tax would add nearly $800 billion to the deficit over the next 10 years. It is time for the gimmicks to stop and the Senate to get serious about the real tax issues that are facing us. The reality is we have a $5 trillion tax increase over the next 10 years--the largest tax increase in our Nation's history--staring us in the face come next year. If we don't act to extend the lower individual tax rates, the lower estate tax rates, the lower rates on capital gains and dividend and other expiring provisions, our economy will face a tax increase of over $400 billion in 2013.
Allowing 2001 and 2003 tax rates to expire would be an enormous tax increase on our economy equal roughly to 2.5 percent of the GDP. According to the Congressional Budget Office, allowing the new tax increase to go into effect would slow GDP from 0.3 percent to 2.9 percent. That would mean a loss of at least 300,000 jobs and could mean the loss of as many as 2.9 million jobs. This massive tax increase could mean the difference between a sustained economic recovery and falling back into recession.
Yet here we are today discussing a bill that would not
extend tax relief for hard-working Americans. It would not forestall a massive tax increase on our economy. The bill before us would do one thing and one thing only, and that is target higher taxes on a smaller subset of our population in order to serve a political purpose. It is time to end the class warfare of pitting one group of Americans against another and instead move forward with ensuring that tax relief is there for all Americans. I hope that once the cloture motion fails later today, we can pivot to what most American people want us to do and that is to enact measures that grow the pie, to expand our shared prosperity rather than the politics of envy and wealth redistribution.
The opportunity cost of all of these tax-the-rich proposals offered by our Democratic colleagues--whether the millionaire surtax or Buffett tax--is that they distract us from what should be our focus, and that is fundamental tax reform.
The former Director of the CBO, Doug Holtz-Eakin, recently released a study where he estimated that comprehensive tax reform could raise the rate of GDP growth by at least 0.3 percentage points annually. This faster rate of GDP growth would result in increased Federal revenues in the range of $80 billion to $100 billion each year, much more than the Buffett tax is projected to raise.
So I will say to my Democratic colleagues, if you want tax policies that raise more Federal government revenue, broad-based, comprehensive tax reform is the way to get there. But, of course, tax reform is going to be difficult and it will require Presidential leadership as much as it required Presidential leadership back in 1986. It is easier to promote measures such as the Buffett tax that do nothing to improve our tax or our economy but that make for a good 30-second political ad.
I understand why some of my colleagues want us to have this political debate today, but I hope we can move quickly to real progrowth tax reforms. That would be the best means by which to promote real tax fairness for all Americans. I believe all Americans want to see this Congress working in a way that expands the pie, not redistributes it.
We should be looking at ways we can grow the economy and make and create more jobs for more Americans, raise the standard of living, quality of life Americans enjoy in this country. It is clear the one way not to do that is to raise taxes on the people who invest and create jobs in this country, and that is precisely what this particular tax would do. It is the wrong approach. It is clearly motivated by political purposes, nothing more than to create a good 30-second political ad in an election year. If the American people see through this, they understand what plagues Washington, DC, is not a revenue problem, it is a spending problem.
For those who want to pay more, we have a way of doing that. Let's enact legislation that allows people in this country who have that kind of income to be able to check a box to contribute more in tax revenue toward tax reduction, but let's not impose and require and mandate these types of taxes on the people in this country who are creating the jobs and have an opportunity to help us grow this economy and put more people back to work. After all, that is what the American people want us to be focused on.
I yield the floor.
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