[Congressional Record Volume 150, Number 133 (Thursday, November 18, 2004)]
[Senate]
[Pages S11465-S11468]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TAX CODE OVERHAUL

  Mr. DORGAN. Mr. President, this morning in the newspaper we read a 
report of that which we know, that the administration is going to 
propose a Tax Code overhaul. I think almost every American would 
believe that it is worth overhauling the Tax Code. The Tax Code is so 
complicated, and it desperately needs an overhaul.
  The headline reads: ``Bush Plans Tax Code Overhaul. Changes Would 
Favor Investment, Growth.''
  It says:

       The Bush administration is eyeing an overhaul of the tax 
     code that would drastically cut, if not eliminate, taxes on 
     savings and investment . . . .

  I want to read just for a moment an op-ed piece that appeared in the 
Washington Post. It is an op-ed piece written by I believe the second 
richest man in the world, Warren Buffett. Warren is a charming, 
delightful man. I had the opportunity to get to know him some. He has 
been incredibly successful as an American businessman. He wrote an op-
ed piece about taxes and the tax burden that I want to read into the 
Record.
  I ask unanimous consent to print his entire op-ed piece in the 
Record. It is entitled ``Dividend Voodoo.''
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the Washington Post, May 20, 2003]

                            Dividend Voodoo

                          (By Warren Buffett)

       The annual Forbes 400 lists prove that--with occasional 
     blips--the rich do indeed get richer. Nonetheless, the Senate 
     voted last week to supply major aid to the rich in their 
     pursuit of even greater wealth.
       The Senate decided that the dividends an individual 
     receives should be 50 percent free of tax in 2003, 100 
     percent tax-free in 2004 through 2006 and then again fully 
     taxable in 2007. The mental flexibility the Senate 
     demonstrated in crafting these zigzags is breathtaking. What 
     it has put in motion, though, is clear: If enacted, these 
     changes would further tilt the tax scales toward the rich.
       Let me, as a member of that non-endangered species, give 
     you an example of how the scales are currently balanced. The 
     taxes I pay to the federal government, including the payroll 
     tax that is paid for me by my employer, Berkshire Hathaway, 
     are roughly the

[[Page S11466]]

     same proportion of my income--about 30 percent--as that paid 
     by the receptionist in our office. My case is not atypical--
     my earnings, like those of many rich people, are a mix of 
     capital gains and ordinary income--nor is it affected by tax 
     shelters (I've never used any). As it works out, I pay a 
     somewhat higher rate for my combination of salary, investment 
     and capital gain income than our receptionist does. But she 
     pays a far higher portion of her income in payroll taxes than 
     I do.
       She's not complaining: Both of us know we were lucky to be 
     born in America. But I was luckier in that I came wired at 
     birth with a talent for capital allocation--a valuable 
     ability to have had in this country during the past half-
     century. Credit America for most of this value, not me. If 
     the receptionist and I had both been born in, say, 
     Bangladesh, the story would have been far different. There, 
     the market value of our respective talents would not have 
     varied greatly.
       Now the Senate says that dividends should be tax-free to 
     recipients. Suppose this measure goes through and the 
     directors of Berkshire Hathaway (which does not now pay a 
     dividend) therefore decide to pay $1 billion in dividends 
     next year. Owning 31 percent of Berkshire, I would receive 
     $310 million in additional income, owe not another dime in 
     federal tax, and see my tax rate plunge to 3 percent.
       And our receptionist? She'd still be paying about 30 
     percent, which means she would be contributing about 10 times 
     the proportion of her income that I would to such government 
     pursuits as fighting terrorism, waging wars and supporting 
     the elderly. Let me repeat the point: Her overall federal tax 
     rate would be 10 times what my rate would be.
       When I was young, President Kennedy asked Americans to 
     ``pay any price, bear any burden'' for our country. Against 
     that challenge, the 3 percent overall federal tax rate I 
     would pay--if a Berkshire dividend were to be tax-free--seems 
     a bit light.
       Administration officials say that the $310 million suddenly 
     added to my wallet would stimulate the economy because I 
     would invest it and thereby create jobs. But they 
     conveniently forget that If Berkshire kept the money, it 
     would invest that same amount, creating jobs as well.
       The Senate's plan invites corporations--indeed, virtually 
     commands them--to contort their behavior in a major way. Were 
     the plan to be enacted, shareholders would logically respond 
     by asking the corporations they own to pay no more dividends 
     in 2003, when they would be partially taxed, but instead to 
     pay the skipped amounts in 2004, when they'd be tax-free. 
     Similarly, in 2006, the last year of the plan, companies 
     should pay double their normal dividend and then avoid 
     dividends altogether in 2007.
       Overall, it's hard to conceive of anything sillier than the 
     schedule the Senate has laid out. Indeed, the first President 
     Bush had a name for such activities: ``voodoo economics.'' 
     The manipulation of enactment and sunset dates of tax changes 
     is Enron-style accounting, and a Congress that has recently 
     demanded honest corporate numbers should now look hard at its 
     own practices.
       Proponents of cutting tax rates on dividends argue that the 
     move will stimulate the economy. A large amount of stimulus, 
     of course, should already be on the way from the huge and 
     growing deficit the government is now running. I have no 
     strong views on whether more action on this front is 
     warranted. But if it is, don't cut the taxes of people with 
     huge portfolios of stocks held directly. (Small investors 
     owning stock held through 401(k)s are already tax-favored.) 
     Instead, give reductions to those who both need and will 
     spend the money gained. Enact a Social Security tax 
     ``holiday'' or give a flat-sum rebate to people with low 
     incomes. Putting $1,000 in the pockets of 310,000 families 
     with urgent needs is going to provide far more stimulus to 
     the economy than putting the same $310 million in my pockets.
       When you listen to tax-cut rhetoric, remember that giving 
     one class of taxpayer a ``break'' requires--now or down the 
     line--that an equivalent burden be imposed on other parties. 
     In other words, if I get a break, someone else pays. 
     Government can't deliver a free lunch to the country as a 
     whole. It can, however, determine who pays for lunch. And 
     last week the Senate handed the bill to the wrong party.
       Supporters of making dividends tax-free like to paint 
     critics as promoters of class warfare. The fact is, however, 
     that their proposal promotes class welfare. For my class.

  Mr. DORGAN. It reads:

       Let me, as a member of that non-endangered species, give 
     you an example of how the scales are currently balanced.

  He means with the Tax Code. Again, this is the second richest man in 
the world.

       The taxes I pay to the federal government, including the 
     payroll tax that is paid for me by my employer, Berkshire 
     Hathaway, are roughly the same proportion of my income--about 
     30 percent--as that paid by the receptionist in our office. 
     My case is not atypical--my earnings, like those of many rich 
     people, are a mix of capital gains and ordinary income--nor 
     is it affected by tax shelters (I've never used any). As it 
     works out, I pay a somewhat higher rate for my combination of 
     salary, investment and capital gains income than our 
     receptionist does. But she pays a far higher portion of her 
     income in payroll taxes than I do.

  His point is that he and the receptionist pay about the same 
percentage of their income. Understand, this is the second richest man 
in the world and his receptionist in his office.
  Then he says:

       Now the Senate says that dividends should be tax-free to 
     recipients. Suppose this measure goes through and the 
     directors of Berkshire Hathaway (which does not now pay a 
     dividend) therefore decide to pay $1 billion in dividends 
     next year. Owning 31 percent of Berkshire, I would receive 
     $310 million in additional income, owe not another dime in 
     federal tax, and see my tax rate plunge to 3 percent. And our 
     receptionist? She'd still be paying the 30 percent, which 
     means she would be contributing about 10 times the proportion 
     of her income that I would to such government pursuits as 
     fighting terrorism, waging wars and supporting the elderly. 
     Let me repeat the point: Her overall federal tax rate would 
     be 10 times what my rate would be.

  I read that into the Congressional Record because I thought it was a 
fascinating description by Warren Buffett, one of the richest men in 
the world, about the issue of deciding that dividends should get 
extraordinarily preferential tax treatment. In fact, some say we should 
eliminate the tax on savings and investment, therefore, exempting 
interest, dividends, and capital gains from tax.
  We have a lot of people who do different things. Some people work 
hard. Some people invest and clip coupons. Some people get up and 
shower in the morning. Some people work hard in difficult jobs, labor 
jobs and others that require them to shower at night. Some people work 
outside. Some people work indoors. Some people have income from wages. 
Some people have income from dividends or earnings or royalties of some 
type.
  So the question is how should the Tax Code treat all of this? I ask 
this question: Which is more worthy, work or investment? Or are they 
equally worthy? And if so, if work is as worthy as investment, then why 
would one decide to treat investment income with such preferences in 
the Tax Code? And why would one decide to tax work and exempt 
investment? Why would one decide to say we are going to take out this 
activity called work and sock it with a tax, and we are going to take 
out this activity called investment and make it tax exempt? What is the 
value system that says let's tax work but exempt investment?
  I think the value system, although I do not subscribe to this, is one 
that says the most important element in this business cycle of ours, in 
this free enterprise system, is investment.
  Investment is very important, there is no question about that. But 
so, too, is work. Let me read something I put in the Congressional 
Record in 1996 in the Senate. It was about a fellow who I think is a 
hero. I have only met him once. I did not know him at all at that 
point. I read about him in the Minneapolis Tribune as I came through 
the Minneapolis Airport one morning. His name is Robert Naegele, and 
this relates to the point of value of work relative to value of 
investment.

  Robert Naegele and his wife Ellis did something very extraordinary, 
something that surprised me when I read it in the Minneapolis Star 
Tribune that morning at the Minneapolis Airport. He owned a company 
called Rollerblade, a very successful company, the largest company 
producing inline skates in America, rollerblades.
  Most people know about rollerblades. I happen to like to rollerblade. 
I enjoy rollerblading. So he owned and was chairman of this company 
called Rollerblade.
  He sold the company after it was very successful, and he made an 
enormous amount of money. Just before Christmas in the year 1996, just 
after he sold this company and made a substantial amount of money, he 
decided he was going to return some of the profits from the sale of 
that company to the employees who worked in that company. He did not 
tell any of the workers about it. They began opening what they thought 
were Christmas cards from the previous owner of this company, Mr. 
Naegele and his wife.
  It turns out it was, in fact, a Christmas card with a check. The 
check was computed on the basis of the number of months these people 
had worked for the company. It was an amount of money that he wanted to 
return to the employees as a result of the profit he had made from 
selling this company that made rollerblades.

[[Page S11467]]

  The checks were as high as $20,000 to those who had worked there a 
long period of time. He said: By the way, I have prepaid the taxes on 
this bonus. So this is a check that is free and clear. I have paid the 
taxes on it for you. He said: I did this because while I was very 
fortunate to run a very successful company, I understand that this 
company was successful because of the wonderful men and women who 
worked there. They worked in the plant. They worked in shipping. They 
worked in manufacturing. They worked in the finance area. They made 
this company. They were this company. They helped make me successful, 
and I made a lot of money. But I want to share it with those workers.
  I thought, what a wonderful story. What a heroic thing to do, to 
finally recognize something that has been so lost in this country in 
recent years: the value and the worth of the workers who perform the 
work, who make these companies.
  These days, employees are too often treated like a wrench: Use it, 
use it up, throw it away; it is just another tool. Mr. Naegele 
understood an employee is not just another tool. An employee is a part 
of the personality and productivity of that company. The work is as 
important as the investment. It is workers and management. It is 
workers and investors. All of it together makes a company and makes a 
company successful. Very seldom do you see that ethic exist these days 
in how people look at these companies. But I put something in the 
Senate Record on January 10, 1996, paying tribute to this fellow.
  I tell that story today because it describes the value of work and 
the understanding of what work contributes to this country, to the 
innovation of its business community, and to the capability of what 
America can offer its employees in the free enterprise system.
  The question of how we tax is very important. We must build roads, we 
must provide for our country's common defense, we must build schools 
and educate children, we must provide health care to those who cannot 
provide for themselves--there are things we must do. So we must pay a 
tax.
  The question of how we impose that tax burden on the American people 
is very important. And this ethic, somehow this notion, this value 
system that says, oh, by the way, let's tax work and exempt investment, 
is one that I think relates directly to values.
  What is the value system that tells us work is less worthy than other 
enterprises? Work is not less worthy than other enterprises. It is an 
important part of what has helped build this country.
  I do not diminish at all entrepreneurs and investors. They are an 
important part of this. But so, too, is the important labor force in 
this country.
  I taught economics for a brief period in college. Samuelson, Econ. 
101, you teach the streams of income and what generates the streams of 
income. You teach the business cycle--all of these issues. Nothing has 
really changed very much over the years except there is a change with 
respect to those who want to create a new reality here, suggesting that 
somehow there is one element of this system of capitalism that is so 
much more important than the others. I do not believe that is the case. 
I believe all of this fits together like the picture of a puzzle. A 
significant part of America's progress has been the worker and the 
ethic of work and the value of work.
  We will work together to overhaul this country's tax system. But I 
will not be a part of a system that says let's decide to impose a 
burden on the receptionist in the office that is 10 times the burden we 
will impose on the world's second richest man. That is not a value 
system that makes sense to me.
  Oh, some will come here and say: But we have to do that to 
incentivize growth. That doesn't incentivize growth. That retards 
fairness, but it doesn't incentivize growth.
  We have a lot to do to fix this tax system of ours. I proposed in the 
past and will again a way with respect to the current income tax system 
to remove the burden of some 70 to 80 million Americans from even 
having to file a tax return. We don't need to have the streets clogged 
on April 15 for people to get to the post office to get their tax 
returns postmarked. We can and should dramatically simplify this tax 
system. But we should not take a giant step in the direction of 
deciding there are some who will pay a substantial amount more than 
others, in reverse order here, with the highest amounts being paid by 
those who are least able to afford it, and the lowest amounts being 
paid by those who are most able to afford it.
  We are blessed to be a part of this great country. We could have been 
born anywhere. We could live anywhere. We share this planet with 6 
billion people and, through God's grace, somehow we ended up here. 
There is not another place like it. It is our job to take what we have 
inherited and make it better.
  They say we inherit this from our folks and borrow it from our 
children. This great democracy of ours, including the progress over two 
centuries now that I am very proud of, requires nurturing and constant 
attention. Yes, one of the controversial and difficult areas has always 
been, How do you raise the revenue to do that which is necessary in our 
Government?
  We can debate about how large government should or should not be. My 
colleague from Oklahoma will follow me today. He is working, probably 
today--I suspect almost every day for months and months, on this 
question of, How do we construct a new highway program? What amount of 
money is necessary? With what formula shall it be distributed? That is 
really important work. That is an investment in the infrastructure of 
this country that is very important.
  When he and others get a bill that we can finally get to the floor 
and create, I hope a 6-year program--then we have to figure out how we 
pay for that just as we have to pay for everything else. The question 
isn't whether there should be a tax system. There is a system by which 
we collect taxes. The question is how should that system be constructed 
so that it is fair to all Americans.
  I look forward to a debate this coming year in which we talk about 
tax reform and changing our tax system because I think this is a system 
that is ripe for change. But it is critically important that we have a 
discussion about the tax burden and what is fair.
  The President announced today he is going to have a commission, which 
is a good thing. I hope that all viewpoints will be involved in that 
commission. You can get a commission to propose almost anything here in 
this town. I saw a few of the names on that commission, and I certainly 
think it needs some more energy and some more thought from other points 
on the compass.

  But I would say to the President, I think the Congress will welcome a 
debate about overhauling the Tax Code. But if it is proposed that we 
decide, for example, that dividends, interest and capital gains income 
shall be eliminated from the tax rolls, we will welcome that debate 
with a very aggressive discussion about what is the value of work and 
why should we diminish the value of work.
  I indicated earlier today about the ``good enough'' description, by 
Ma Ferguson, the former Governor of Texas. I will not recall that story 
again, but if a 5.25-percent tax rate is good enough for companies who 
move their jobs overseas, why is it not good enough for all Americans? 
If a zero-percent tax rate is good enough for those earning dividends, 
why is it not good enough for the wages of workers.
  Let me just show you, if you exempt investment income from taxation, 
the top 10 percent get most of the benefit--$463 billion in realized 
dividend, capital gain and interest income. The bottom 90 percent have 
far less.
  So you see, if you eliminate dividends, for example, from taxation, a 
massive amount of the tax breaks goes to the same old corner that it 
always goes, those who have the most.
  Bob Wills and his Texas Playboys used to have a line in their 1930s 
song:

     The little bee sucks the blossom
     And the big bee gets the honey.
     The little guy picks the cotton
     And the big guy makes the money.

  Every time we focus on tax reform we find the same thing, especially 
in recent years.
  Let me again say I am all for changing our Tax Code in ways that are 
thoughtful. We ought to simplify it. But we ought to resist efforts 
that will make it more unfair and strive to move

[[Page S11468]]

towards efforts that will make the burden fair to all Americans. That 
has certainly not been the case in recent years. My hope is when we 
next see a proposal dealing with America's Tax Code that we will see 
something that represents some semblance of fairness. Otherwise there 
is likely to be a debate breaking out in the Senate, which would be a 
very healthy thing, in my judgment.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Oklahoma.
  Mr. INHOFE. Mr. President, I have a number of things to address. I 
have been listening with great interest to my very good friend from 
North Dakota. I bow to his superior knowledge in economics. I was not 
aware that he was a professor of economics, or taught economics. They 
say confession is good for the soul. I will say to my friend from North 
Dakota, I went to nine different colleges and universities, all of them 
night school where I was stationed when I was in the military. I 
remember once I got out I backed a truck up to the University of Tulsa 
and shoved off all my transcripts, and they looked at it and said: You 
are an economist. So that is where I got my background in economics.
  Mr. DORGAN. If the Senator will yield for a moment, I would say I was 
actually not a professor. I did teach economics at the college briefly, 
but I was able to overcome that experience.
  Mr. INHOFE. Well, good.
  I would like to make a couple of comments. That is not what I am here 
to talk about today. But this President has a commitment to do 
something about our tax system. I know there is a lot of class warfare 
that goes on and people are always talking about taxes and that the 
poor people are paying all the taxes. It is kind of interesting that 
this President wants to make a dramatic change in the tax structure. 
When I go back to my State of Oklahoma, no matter where I go the people 
are all united in saying they really want to have something different.
  The interesting thing is, I was riding yesterday with a CPA from 
Oklahoma and said: If we are successful in dramatically simplifying the 
Tax Code, why would you support that because you might be out of work?
  He said: I would gladly do it. I can always find something else. It 
is unfair and it is a system that needs to be cleaned up.
  I would only caution people who are watching what is going on in this 
Chamber, when we get into a discussion of changing the Tax Code, every 
time there is someone who suggests that you lower the marginal rates of 
taxation, they assume that this is an unjust burden on the lower income 
people.
  In fact, when this President did it he was lowering the tax rate on 
people who paid taxes. Obviously, if you don't pay taxes, you can't 
lower the rate. That is what he was faced with.
  Also, we learned a lesson following World War I when they raised 
taxes. It brought a lot of revenue into the system to fight World War 
I. When it was over, they decided they would go ahead and reduce the 
taxes because they did not need the revenue anymore. They were shocked 
to find out when they reduced the taxes that the revenue increased.
  Then again, a very smart President, one I admired very much, was the 
President of the United States by the name of Kennedy. When President 
Kennedy was in office we were expanding a lot of the things in the 
social programs in this country. He said we have to have more money, 
and we have to raise more revenue to take care of these programs. John 
Kennedy was a Democrat, not a Republican. He said the best way to raise 
revenue was to reduce marginal rates. So he reduced marginal rates, and 
sure enough, that opened it up and revenue increased.
  Another person came in the White House, Ronald Reagan, in 1980. He 
said the same thing. He actually reduced the top bracket rate from some 
95 percent down to about 25 percent; and all other brackets, too. 
Everybody got in on that good deal. The largest tax reduction in the 
history of America successfully reduced taxes and increased revenue.
  The evidence of that, if you look at the total revenue that came from 
marginal rates in the 1980s, was $244 billion. In 1990, it was $466 
billion. It almost doubled in that decade, that 10-year period. It was 
the largest reduction of taxes in this Nation's history.
  I hope those who will be engaging in class warfare and are going to 
be talking about how this is unfair and how the rich need to be paying 
more taxes keep in mind that the people who are paying the taxes are 
middle-income Americans. These are the people who need the relief. They 
need to have more opportunities to do more with the money. That is how 
you increase revenues.
  I hear a lot of people complaining about this President and the fact 
we have the deficit. Obviously, we have the deficit for three reasons.
  No. 1, we had a recession. This President inherited a recession. That 
started in March of 2000. With the economic activity low, you have to 
use the formula that for each 1-percent increase in economic activity 
it produces $46 billion in new revenue. So it was way down.
  No. 2, he had succeeded President Clinton where he had cut the 
defense spending down to the bone with the myth floating around that 
somehow the cold war was over; we didn't need a military anymore. We 
were down to about half the Army divisions, down in tactical airwings, 
and half in ships, down 300 from 600. Then we realized we were in a 
more hostile world. By the time President George W. Bush had to start 
rebuilding the military, our modernization programs had stopped.
  Then 9/11 came along. Here we are in a war.
  I can tell you that the three factors which caused the deficit are 
factors that we are overcoming as we are speaking. But you might as 
well hold your breath for a while because the war is going to last a 
while.

                          ____________________