[Congressional Record Volume 155, Number 164 (Thursday, November 5, 2009)]
[Senate]
[Pages S11139-S11141]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           HEALTH CARE REFORM

  Mr. CRAPO. I, too, would like to talk about health care. As we speak 
here in the Senate, the House is preparing to debate and reportedly 
vote by late this week or early next week on a massive new health care 
bill that will dramatically expand the size of our government, 
dramatically increase taxes, and establish a government-controlled 
insurance system.
  While in the Senate we are not yet clearly aware of what the bill we 
will be debating is because it is still being crafted behind closed 
doors, we have an idea, and we are pretty sure some of the elements 
that are going to be included in it are the same elements we debated in 
the Finance Committee and the HELP Committee as those committees worked 
on their product here. In that context, we expect we will see also here 
in the Senate a massive new expansion of the size of government, up to 
$1 trillion or more. If it is anything like what the Finance Committee 
bill was, we will see taxes increased on the American public by over 
$500 billion, we will see cuts in Medicare, which we discussed 
yesterday, of over $400 billion, and a significant expansion of the 
control of the Federal Government over our health care economy. Today, 
I want to focus on just the tax piece of this situation.
  One of the most common provisions we have seen here in the Senate 
that we clearly expect will be in the final bill is the proposed 40-
percent excise tax on high-cost or ``Cadillac'' health care plans. This 
has been defined as health care plans that are valued at more than 
$8,000 for an individual or valued at more than $21,000 for a family.
  It is important to note these thresholds are not indexed to the 
increasing cost of health care spending but instead are indexed to 
inflation plus 1, which means that over time this will, similar to the 
alternative minimum tax, eat further and further into the American 
public's health care plans, which will then be taxed.
  The Joint Tax Committee has scored this tax to generate $201 billion 
of revenue to pay for that portion, $201 billion of this new Federal 
spending proposal. Many think that because it is called an excise tax 
on health care plans, it is not going to impact them. They will be 
surprised to learn that in my questioning of the Joint Tax Committee, 
we were told the vast majority of this $201 billion tax is expected to 
be collected directly from the middle class, individuals who will be 
paying more income and payroll taxes.
  Let's figure out how that can be. It turns out that as we analyze the 
way this tax is going to work, employers that will face a 40-percent 
excise tax on the health care they provide to their employees will 
begin to adjust the value of their health care plans so they avoid the 
tax. As they do so, they will reduce the health care they are providing 
to their employees and, presumably--and we expect they will--increase 
the wages they are paying to their employees so their employees' net 
compensation is not changed. The result of that, though, is that since 
the health care portion of the compensation is not taxed and the income 
portion of an employee's compensation is taxed, the employee will 
actually pay higher taxes, both on the income and on the payroll tax 
level.
  Maybe a real-world example will demonstrate. In my State of Idaho, 
the Census Bureau says the median household income is about $55,000 per 
year. In this case, let's take an example of a single woman who 
currently earns $60,000 per year in annual compensation from her 
employer. We have an example represented by this chart. Let's assume 
she has a $10,000 valued health policy. Her total compensation package 
from her employer is going to be $60,000-$50,000 in wages and $10,000 
in employer-provided health care benefits. She is taxed on $50,000 and 
gets the $10,000 health care benefit without taxation. What will happen 
in the bill, as I have indicated, is this $10,000 health care policy 
will be subject to a 40-percent excise tax. In order to avoid that 
excise tax, the company will simply react by reducing her health care 
policy to below $8,000 and increase her income.
  Let's put up another chart to see what the likely reaction of the 
employer will be: Not to pay the insurance fee, as many here are 
saying, but simply to skip that and direct her tax dollars to the 
Federal Government. If this new high-cost plan is to be enacted, the 
theory is her employer will make the adjustments to change her overall 
compensation package in a way that she ends up with higher wages.
  Let's put the next chart up to show how this would work. Under this 
proposal, her health care benefits are going to go down. Let's assume 
the company reduces her health care benefits from $10,000 in value to 
$6,000 in value and gives her the extra $4,000 in income. Her health 
care benefits will go down. She will pay more taxes because she now has 
$4,000 more of her package that is subject to compensation. The net 
value of her compensation will go down because of increased taxes. The 
result is, we are going to see millions of Americans pay this excise 
tax squarely in contravention of the President's promise that no 
individuals who make less than $200,000 will pay income taxes or 
payroll taxes or, in the President's words, ``any other kind of 
taxes.''
  So we are clear on this, the estimates are that 84 percent of this 
tax is going to be paid by those who are earning less than $200,000 per 
year. As a matter of fact, if we look at those who make less than 
$50,000 a year, we expect somewhere in the neighborhood of 8 million 
Americans will fall into this category. If we look at the number who 
make less than $200,000 per year, we expect that number will be above 
25 million Americans who will be paying more taxes, both payroll and 
income taxes, and receiving less health care benefits from their 
employer.
  The net result is, the President's promise that one can keep their 
health care if they like it will not be honored because of this 
provision. People will see, necessarily, that their employers will 
begin reducing health care packages to make them fit the tax structure 
this bill will create.
  Secondly, there is the President's promise that if you make less than 
$200,000 as an individual or $250,000 as a family, you will pay no 
taxes under this proposal. As we have seen with this one example--and 
there are a number of other examples in the proposal being developed--
in this one example of $201 billion worth of the new taxes in the bill, 
those making less than $200,000 will pay over 80 percent of it, and it 
will come directly out of their pockets and their compensation package 
with their employer.
  In the time I have remaining, I wish to focus on one additional 
element. There is also a proposal to increase the bar for deductions of 
health care expenses. In other words, those who deduct their expenses 
and itemize their deductions can today deduct that portion of their 
income over 7.5 percent of their income that is represented by their 
health care expenses. This bill will increase that to 10 percent and 
generate over $15 billion of additional taxes in that format. Who is 
the most likely to pay these taxes? People who have relatively low 
health care costs are going to end up not meeting that 7.5-percent 
threshold, now to be brought to 10 percent, and probably will not be 
able to benefit from the deductibility of their health care. But those 
who face medical crises, those who have health care expenses that 
exceed the value of 10 percent, will see their deductibility reduced 
again by these proposals. The net result: Millions of Americans making 
less than $200,000 a year will pay more taxes.
  I encourage the Senate, as we move forward in the debate, to 
recognize that the tax provisions contained in it are squarely going to 
hit those in the middle class.
  The PRESIDING OFFICER (Mr. Warner). The Senator from Iowa.

[[Page S11140]]

  Mr. GRASSLEY. Mr. President, I am sorry the Presiding Officer, the 
Senator from Virginia, has to listen to me twice on the same subject.
  When I am referring to a bill, I am referring to the 2,000-page House 
bill.
  Small business is very vital to the health of our economy. The 
President and I agree that 70 percent of new private sector jobs are 
created by small business. Small business is the employment machine of 
the American economy. However, where the President and I differ is, I 
believe small business taxes should be lowered, not raised, to get our 
economy back on track. You will hear from my discussion, this 2,000-
page bill raises taxes on small business.
  The President and my colleagues on the other side of the aisle have 
proposed increasing the top marginal tax rates from 35 percent to 39.6 
percent, respectively. We can see that on the chart under the proposed 
Obama budget, 39.6 percent is where they would raise them. They have 
also proposed increasing the tax rates on capital gains and dividends 
to 20 percent and providing for an estate tax rate as high as 45 
percent and an exemption of that estate tax of $3.5 million. Also, the 
President and congressional Democrats have called for fully reinstating 
the personal exemption phase-out. I will refer to the personal 
exemption phase-out as PEP. They would do that for those making more 
than $200,000 a year. In addition, they have called for fully 
reinstating the limitation on itemized deductions, which is known as 
Pease after a former Congressman Pease of Ohio, for those making also 
more than $200,000.

  Under the 2001 tax law, PEPs and Pease are scheduled to be completely 
phased out in 2010. That means the tax rate for current 35-percent-rate 
taxpayers would go up, as we can see on the chart, to 41 percent. For 
the vast majority of people who earn less than $200,000, raising taxes 
on high earners might not sound so bad. However, this means many small 
businesses will be hit with a higher tax bill. From the standpoint of 
it being where they create 70 percent of the new jobs, that is bad not 
only for those taxpayers, that is bad for the entire economy.
  As if this was not bad enough for small business, the tax increases I 
have already talked about, the House Democrats, in this 2,000-page 
health care reform bill, have proposed a new surtax of 5.4 percent. 
With this small business surtax, a family of four in the top bracket 
will pay a marginal tax rate of 46.4 percent by the year 2011. So we go 
from current law of 35 percent to automatically, if Congress doesn't 
intervene, 39.6 percent; and then eliminate the PEPs and Pease, 41 
percent; and then do what the House Democrats want to do, 46.4 percent, 
a marginal tax rate that is very high and very negative to employment 
by small business.
  This tax change would result, cumulatively, in an increase of 
marginal tax rates of 33 percent, a 33-percent increase over what taxes 
people pay right now.
  Owners of the many small businesses, whether regular--which could be 
so-called C corporations--or other entities that receive dividends or 
realize capital gains, would face a 25-percent rate increase under this 
House bill. So we have a 15-percent capital gains rate today on 
dividends going up almost 70 percent by January 1, 2011.
  Campaign promises are pretty important. Candidate Obama pledged on 
the campaign trail that:

       Everyone in America--everyone--will pay lower taxes than 
     they would under rates Bill Clinton had in the 1990s.

  That is quite a promise. That is good for business, if it is lower 
than what Bill Clinton had. The small business surtax proposed by House 
Democrats, however, violates President Obama's pledge he made as a 
candidate. Therefore, I want Members to know I stand with President 
Obama in opposing the small business surtax proposed by House Democrats 
in this bill, this 2,000-page bill.
  According to the National Federation of Independent Businesses--they 
made a survey--their data shows that 50 percent of the owners of small 
businesses that employ 20 to 249 workers would fall into the top 
bracket. The red bar shows 50 percent of all small employers fall into 
that bracket. According to the Small Business Administration, about 
two-thirds of the Nation's small business workers are employed by small 
businesses with 20 to 500 employees.

  Do we want to raise taxes on these small businesses that create new 
jobs and employ two-thirds of all small business workers?
  In his radio address a few months ago, the President noted small 
businesses are hurting. They are hurting because we are helping Wall 
Street, but we are not helping Main Street with all the things we are 
doing in Congress. Of course, there is no argument from this side of 
the aisle on that point.
  President Obama recognized in that speech the credit crunch on small 
businesses continues, despite hundreds of billions in bailout money to 
big banks. With these small businesses already suffering from the 
credit crunch, do we want to think it is wise to hit them with a double 
whammy of a 33-percent increase in their marginal tax rate?
  Just yesterday, we received data from the nonpartisan official 
congressional tax scorekeepers, the Joint Committee on Taxation, that 
said $1 out of every $3 raised by the massive $461 billion House 
surtax--and that is in this 2,000-page bill--would come from small 
businesses. That is a conservative, a very conservative estimate 
because other kinds of income that these business owners receive, such 
as capital gains and dividends, are not included in that figure.
  If the proponents of the marginal rate increase on small business 
owners agree that a 33-percent tax increase for half--half--the small 
businesses that employ two-thirds of all small business workers is not 
wise, then they should either oppose these tax increases or present 
data that shows different results.
  This House bill of 2,000 pages and the surtax included in it piles on 
the heavy taxes small businesses will face. In a time when many 
businesses are struggling to stay afloat, does it make sense to impose 
an additional burden on them by raising their taxes? Odds are, they 
will cut spending. In other words, the small businesses will cut 
spending. They will cancel orders for new equipment, cut health 
insurance for their employees, stop hiring, and lay off people.
  Instead of seeking to raise taxes on those who create jobs in our 
economy, our policies need to focus on reducing excessive tax and 
regulatory barriers that stand in the way of small businesses and the 
private sector making investments, expanding production, and creating 
sustainable jobs--creating sustainable jobs, which is what I refer to 
as small business being the job-creating miracle of our economy.
  So I want you to know, regardless of this 2,000-page House bill, with 
these big tax increases in it, I will continue to fight to prevent a 
dramatic tax increase on our Nation's job engine, the small businesses 
of America.
  I hope my friends on the other side of the aisle will follow 
accordingly.
  Mr. President, I ask unanimous consent that a statement from the 
Joint Committee on Taxation, backing up some of the figures I used in 
my speech, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                    Congress of the United States,


                                  Joint Committee on Taxation,

                                 Washington, DC, November 3, 2009.

                               Memorandum

     To: Mark Prater, Nick Wyatt, and Jim Lyons
     From: Tom Barthold
     Subject: Revenue Estimate
       This memorandum is in response to your request of October 
     30, 2009, for an estimate of the percentage of revenue raised 
     from the 5.4-percent AGI surtax included in the ``Affordable 
     Health Care for America Act'' attributable to business 
     income.
       For purposes of this analysis, business income consists of 
     income from sole proprietorships (Schedule C); farm income 
     (Schedule F); and income from rental real estate, royalties, 
     partnerships, subchapter S corporations, estates and trusts, 
     and real estate mortgage investment conduits (Schedule E), as 
     would be reported on lines 12, 17, and 18 of the 2008 Form 
     1040. We do not count as ``business income'' income from 
     interest, dividends, or capital gains that may flow through 
     certain pass-through entities but which is reported elsewhere 
     on an individual's return.
       Under the ``Affordable Health Care for America Act,'' a 
     5.4-percent surtax would be imposed on adjusted gross income 
     (``AGI'') in excess of $500,000 ($1,000,000 in the case of a 
     married taxpayer filing a joint return). For purposes of 
     responding to your request, we have assumed that net positive 
     business income is ``stacked'' last relative to the other

[[Page S11141]]

     income components of AGI. For example, a married taxpayer 
     filing jointly with $2 million of AGI including $500,000 of 
     net business income would have one-half of the taxpayer's 
     $54,000 surtax liability under the ``Affordable Health Care 
     for America Act'' attributed to the taxpayer's net business 
     income.
       We estimate that one-third of the $460.5 billion estimated 
     to be raised in fiscal years 2011-2019 from the 5.4-percent 
     AGI surtax under the ``Affordable Health Care for America 
     Act'' is attributed to business income.

  Mr. GRASSLEY. Mr. President, I yield the floor.
  The PRESIDING OFFICER (Mr. Kirk). The Senator from Indiana.

                          ____________________