Middle Class Tax Cut Act--Motion to Proceed--Continued

Floor Speech

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Mr. THUNE. Mr. President, I rise today to talk about the need to extend the current tax rates and to reject the tens of billions of dollars in higher taxes the President and Senate Democrats want to impose next year. I believe the upcoming vote or votes will be some of the most important votes the Senate holds this year.

As early as tomorrow, we will hopefully vote on tax plans that represent two competing philosophies. One plan, introduced by Majority Leader Reid and supported by Senate Democrats and the President, proposes higher taxes on American entrepreneurs, investors, and small business owners.

The Democratic plan represents the philosophy that if only the government could raise enough money, Congress could somehow spend our way to prosperity. It is a viewpoint that holds that the Federal Government can spend hard-working American tax dollars better than they can. Rather than leaving the money in the private economy where it can be invested or spent by private citizens, this view holds that the government should instead bring these dollars here to Washington, DC, to redistribute them through the Federal bureaucracy. This philosophy was probably best articulated by the President recently when he said, ``If you've got a business--you didn't build that. Someone else made that happen.'' In other words, no one is extraordinary by virtue of their hard work and accomplishments. When someone works hard and succeeds, we should not celebrate that person as an example to others, we should instead take from him or her in order--again, as the President said--to ``spread the wealth,'' to quote another of his lines.

I am hopeful that the tax-and-spend philosophy of the Reid tax plan, however, will not be our only option. I hope we will also have the opportunity to vote on legislation introduced recently by Senator Hatch and Minority Leader McConnell. This plan takes a very different approach by following the view that now is not the time to raise anyone's taxes. This view holds that our American free enterprise system works best when government gets out of the way, leaving Americans free to pursue their hopes and dreams. One way we can leave Americans free to pursue their dreams is by not raising their taxes next year. And we especially should not raise taxes when Americans are struggling to get by.

Ironically, the view that we should extend current tax policy at a time when the economy is weak was articulated, interestingly enough, by the President just 2 years ago when he signed an extension of all of the tax rates. At that time, President Obama said that raising taxes would have ``been a blow to our economy just as we're climbing out of a recession.'' Interestingly enough, real GDP growth when he made that statement was around 3.1 percent. That was the average when the President made the statement that if we raised taxes, it would have ``been a blow to our economy.'' Well, real GDP growth this year is on a pace to average 2 percent and possibly less. Those numbers are consistently being revised and being revised downward. If it did not make sense to raise taxes when our economy was recovering, why does it make sense now to raise taxes as our economy is slowing? How does it make sense to raise taxes in an environment where over 23 million Americans are out of work or underemployed, when the unemployment rate has been stuck at over 8 percent now for 41 consecutive months?

The votes tomorrow are incredibly important--not because either plan is likely to become law immediately but because Americans deserve to know where their Senators stand when they go to vote this November. Do you stand for stable tax rates that encourage work and investment or do you stand for increasing taxes on the very businesses we rely on for job creation? Do you stand for a free enterprise system that rewards hard work and innovation or do you stand for making it more difficult for small businesses to grow and succeed? These are the important choices that will have a real impact on hard-working Americans and on our economy at large.

Consider the Reid tax plan. According to the Joint Committee on Taxation, this plan will impose a tax increase on nearly 1 million business owners. Proponents of this increase are going to argue that it will only affect a small segment of our economy. Yet the Joint Tax Committee estimates that the President's tax increase in the Reid plan will hit more than 50 percent of all income earned by businesses that pay their taxes at individual rates. These are so-called passthrough businesses, and they apply to S corporations, partnerships, sole proprietorships, and LLCs. They are the ones who are going to see their cost of business go up next year for no other reason than the desire by the Senate Democrats to ``tax the rich.''

Small businesses, which accounted for two-thirds of the net new jobs over the last decade, will be particularly impacted by these tax increases. According to a survey of small businesses by the National Federation of Independent Business, 75 percent of small businesses are organized as passthrough businesses. NFIB also found that the businesses most likely to be hit by the Reid tax increases are those businesses employing between 20 and 250 employees. According to the U.S. census, the data that they collect, these businesses employ more than 25 percent of the workforce. So the million small businesses that, according to the Joint Committee on Taxation, will see their taxes go up under this proposal employ 25 percent of the American workforce and account for over 50 percent of all passthrough income. So you are going to see taxes go up dramatically on over 50 percent of passthrough income and on small businesses that employ 25 percent of the American workforce.

Does that make sense in this economy? It should be no wonder that the political party advocating this kind of tax policy has also presided over the weakest economic recovery literally since the end of World War II.

The impact of the Reid tax increase on small business will be bad enough, but unfortunately these tax increases will have significant ramifications for our entire economy. According to a study released earlier this month by Ernst & Young, the Reid tax plan would hurt our economy in the long term. According to Ernst & Young, the tax increases in the Reid plan would reduce economic output by 1.3 percent. This would mean $200 billion less in economic activity if translated into today's economy. The Ernst & Young study estimates that the tax policies in the Reid plan would reduce employment by one-half percent, meaning roughly 710,000 fewer jobs.

The study estimates the Senate Democrats' approach will reduce the Nation's capital stock by 1.4 percent and investment by 2.4 percent, and this approach will reduce aftertax wages by 1.8 percent. So we will be reducing investment, costing the economy over 700,000 jobs, and reducing aftertax wages for hard-working Americans in this country. Yet here we are talking about a tax increase that would do dangerous damage and harm to our economy.

I would say, these aren't partisan statistics compiled by Senate Republicans. These are the estimates by a respected accounting firm as to what will happen if we follow the tax policies proposed by Senate Democrats and the President. We will have less economic growth, fewer jobs, and a lower standard of living in the long run. These numbers simply confirm common sense. If we want individuals and businesses to spend and invest more, we shouldn't raise the amount of the income they have to pay to the Federal Government, and that is what this does.

We have major tax policy decisions to make, decisions reflected in the votes we will take tomorrow. Do we want to encourage capital formation in this country? In other words, do we want to encourage investors to put their capital at risk so that businesses will have money to make new investments? Well, by raising the capital gains tax rate from 15 percent to 20 percent for some investors, the Reid bill will make it less attractive to invest in our economy. According to an Ernst & Young study from February of this year, the top rate of capital gains will rise from 56.7 percent on January 1 of next year, after taking into account corporate, investor, and State taxes. This will be the second highest combined capital gains tax rate in the world among OECD and BRIC nations. America already has the highest corporate tax rate in the developed world. It appears as if the Senate Democrats are going for No. 1 when it comes to capital gains taxes as well.

If there is anything I can say that is positive about the Democrats' tax increase plan, it is that at least they rejected the President's proposal to nearly triple the tax on dividends paid by upper income Americans. Even Senate Democrats, who are not shy about raising taxes, understand the President's proposal to impose a top rate of over 40 percent on dividend income would be terrible for millions of seniors who rely on dividend-paying stocks and for those American companies that rely on dividends to raise capital.

Instead, the Reid bill would increase the top rate on dividends from 15 percent to 20 percent. I believe this tax increase is bad policy, but it won't be nearly as harmful as the President's approach would have been.

On another issue of critical importance, however, the Senate Democrats have decided to run to the left of this liberal administration, and this is on the issue of the estate tax, better known as the death tax. The Reid plan would impose a huge new death tax on family farms and businesses next year. Under current law, businesses and farms are exempted from the death tax on the first $5 million of the value of an estate. Values above this amount are taxed at a top rate of 35 percent.

I believe we ought to completely eliminate the death tax, and I have introduced legislation, with 37 of my colleagues, to do so. But the current death tax treatment exempts the large majority of family farms and businesses from the tax. The Reid plan, however, would allow the death tax to revert to the provisions in effect before 2001.

This means, under the Reid plan, that family farms and businesses will face a top death tax rate of 55 percent on estates above $1 million in value.

This is a massive death tax increase on tens of thousands of small businesses and family farms across America. In fact, according to the Joint Committee on Taxation, the Reid plan will increase the number of estates subject to the death tax in 2013 from 3,600 estates under current law to 50,300 estates under the Reid proposal.

According to the Joint Committee on Taxation, the Reid plan will subject 20 times more farming estates to the death tax in 2013--a 2,000-percent increase. The Reid plan will subject 9 times more small businesses to the death tax--a 900-percent increase.

If the death tax policy in the Reid plan were made permanent over the next 10 years, the number of small businesses subject to the death tax will increase from 1,800 to 23,700, and the number of family farms subject to the death tax would increase from 900 to 25,200. That is all data put together and reported out by the Joint Committee on Taxation.

The reason for this massive expansion of the death tax is because the $1 million exemption amount is much too low, given the value of successful farms and small businesses today. I will use my State of South Dakota as a good example. Take family farms in South Dakota. According to the Department of Agriculture, the average size of a farm in my State is 1,374 acres. According to the USDA, the average value per acre of cropland in South Dakota is about $1,810. This means the average value of a farm in my State is nearly $2.5 million. So if you have a death tax law that only exempts $1 million and has a 55-percent top rate on everything above that, imagine what that is going to do to the average farm in a State such as South Dakota. And South Dakota is not unique in that regard. We have seen land values rise across America's heartland, from Nebraska to Missouri to Montana.

Let's be clear: The Reid bill would subject many more families to a punitive double tax--the death tax--when a loved one passes away. It will make it much more difficult to pass family farms and businesses from one generation to the next. And we should never forget that most family farms are land rich and cash poor. Lots of assets, land values, and those sorts of things, but what you don't want to see happen is a family farm that can be passed on to the next generation have to be liquidated to pay the IRS because of a punitive death tax. That is precisely what this policy, as proposed by the Democrats' plan, would do.

The USDA estimates 84 percent of farm assets are comprised of farm real estate. That is where most farm and ranch families have their assets. That means family farms don't have extra cash on hand to pay the death tax. Instead, they will have to sell off land or take on additional debt in order to pay these higher taxes. That is exactly what we don't want to see happen in this country.

I don't believe the President's proposal--which is a $3.5 million exemption and a 45-percent top rate--is adequate, but it is much better than what Senate Democrats in the Reid plan have proposed.

Let me summarize, if I might. Tomorrow we are going to vote on the Reid proposal to raise taxes at a time when Americans are hurting and our economy is fragile. The Reid proposal will impose higher taxes of more than $50 billion on successful small business owners and families. It will hurt our economy, reducing economic growth and job creation at the same time it lowers wages for hard-working American families. It will impose a new death tax of $31 billion on 43,100 family farmers, ranchers, and small businesses.

We will also vote, I hope--I hope--on the Hatch-McConnell alternative plan to keep tax rates where they are, to prevent a tax increase on any American next year. In addition to keeping tax rates where they are, the Hatch-McConnell proposal provides instructions to the Finance Committee to report out fundamental tax reform legislation by 12 months from the date of enactment of the bill. The Hatch-McConnell approach is the correct approach: Prevent a tax increase now and move to fundamental tax reform next year.

Of course, extending current tax law temporarily is only a short-term fix. What is needed is comprehensive tax reform, much like the Tax Reform Act of 1986. Real tax reform will drive economic growth higher, will lead to robust job creation, and will result in more revenue to the Federal Government.

But real tax reform is going to require Presidential leadership, something that has, unfortunately, been lacking over the past 3 1/2 years. Perhaps next year we will have a President truly willing to commit to tax reform, a President who is not content with simply releasing a 23-page framework for corporate tax reform.

But until we get to comprehensive fax reform, the least we can do now is to ensure Americans do not face a massive new tax hike during a weak economy. I hope we will get that vote tomorrow. I hope Senate Democrats will find their way to give us a vote on extending the tax rates for all Americans so that small businesses aren't whacked with a big tax increase next year, so that our economy doesn't get plunged perhaps into a recession, and we don't see that unemployment rate tick even higher.

Those are the results, those are the outcomes, those are the types of things that are going to happen, according to all the independent analysis, with the tax proposal that is before us today.

Remember, there is always this idea that somehow, if we raise more taxes, we will be able to pay down more of the debt. Well, I have to say, it has been my experience that when there is money around Washington, DC, it gets sucked up and it gets spent. I think a lot of Americans would welcome the idea of seeing their taxes going to pay down the debt, but what we will see is a massive tax increase on Americans used to grow government here in Washington, DC. That is not what the American people want, and that is not what we in the Senate should be for.

Mr. President, I yield the floor.

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