[Congressional Record Volume 157, Number 96 (Thursday, June 30, 2011)]
[Senate]
[Pages S4255-S4262]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                              Higher Taxes

  Mr. KYL. Madam President, we are going to be foregoing a July 4 break 
to go back home to visit with our constituents in order to stay here, 
ostensibly, to work on the problem of the accumulating budget deficit 
and huge debt that the United States has taken on and the need to do 
something about that, in conjunction with the President's request that 
we raise the national debt ceiling.
  What I would like to briefly address today is what seems to me to be 
an obsession on the part of the President to raise taxes. In fact, he 
is so fixed on this, it is so important to him to raise taxes, that he 
is willing to risk an economic crisis knowing that Congress will not 
raise taxes as part of this debt ceiling increase. And we should not. 
Not because we are trying to protect somebody but because higher taxes 
on an already weak economy would just make things worse.
  Now, we can point to a lot of what the President has done since he 
took office that has made things worse, but I do not know of a single 
economist who believes that American businesses will be more likely to 
hire people, will be more likely to create jobs, if they are faced with 
paying higher taxes.
  They will not. Everyone knows that. So when the President talks about 
raising taxes, he is talking about killing jobs, and I would like to 
speak about the three specific taxes that he has talked about. I know 
because I was the Senate Republican delegate in the meetings with the 
Vice President at which this was discussed.
  I am not going to break the commitment that we all made to each other 
to not discuss things that the President has not already made public. 
So I will not discuss the many things the Democrats took off the table. 
They talk about Republicans taking things off the table, I think they 
have already made it clear that, for example, they took any changes in 
ObamaCare off the table. I will not get into that. I will not discuss 
other things that were a part of our conversations.
  But since yesterday the administration's spokesman and the President 
specifically identified three of the things they did put on the table 
and wanted to discuss with us, I believe I might as well explain to you 
why we are not willing to raise these kinds of taxes. They are all job-
killing taxes. They would all inhibit growth, which is exactly the 
opposite of what we should be doing.
  What are these job-killing tax increases on small businesses and 
American families and other businesses? It is not, first of all, just 
on millionaires and billionaires and corporate jets. President Obama 
and our colleagues on the other side of the aisle are obviously using 
poll-tested rhetoric about only raising taxes on millionaires and 
billionaires and corporate jets. That sounds good. They want ordinary 
Americans to believe they will not be affected by the President's tax 
increase proposals. But the truth is, the provisions they put forward 
during the debt limit meetings with Vice President Biden would target 
small businesses and other job creators and many Americans who are far 
from being millionaires or billionaires.
  I should mention right off the top that they never discussed with us 
in these meetings anything having to do with corporate jets. So I have 
not gone to look to see how many American workers are employed in the 
general aviation business.

[[Page S4261]]

  I note that it was on a list that they gave us, but they never 
checked--I suspect that is more in the realm of political rhetoric 
since it does not, even under their proposal I have seen, raise very 
much money. But in any event, what have they actually discussed with 
us?
  Well, the first thing they discussed was repealing something called 
LIFO. LIFO is a term--last in, first out--that is used by accountants 
as one of the methods of inventory accounting. For years there has been 
a question--and more than one-third of American businesses use this 
particular method of accounting. It is perfectly appropriate and legal 
and so on. But there has been some talk: Well, should we have everybody 
use the same standardized method of accounting? There have been 
proposals to do that in the past.
  The problem is, what the Obama administration wants to do is not just 
to conform everyone to the same type of accounting but to actually go 
back and retroactively tax the businesses that have been using this 
accounting practice, which is perfectly legal, totally recognized by 
the IRS, and nothing is wrong with it. But they are going to go back 
and say: Because we are interested in rasing revenue, we are going to 
put a retroactive tax on all of you who have been using this method of 
accounting.
  They are more interested in getting money than in tax fairness, and 
that is why we are opposed to this. It would represent a retroactive 
tax increase on the 36 percent of American businesses that use this 
perfectly legal method of accounting.
  Now, who uses it? Mostly it is people in retail businesses and 
manufacturers, many of whom are small businesses, I might add. To show 
what the impact of this would be--by the way, we first talk about 
creating jobs in the retail sector where consumers come in and buy 
things and in the manufacturing sector where they are made. These are 
the very folks who use this method of accounting.
  Here is the effect that it would have on small businesses. In 
September 2009, the Small Business Administration's Office of 
Advocacy--which is under the Obama administration--wrote to the Tax 
Reform Subcommittee of the President's own Economic Recovery Advisory 
Board that repealing LIFO ``would result in a tax increase for small 
businesses that could ultimately force many small businesses to 
close.''
  Why on Earth would we impose a tax retroactively on folks who 
probably--at least according to the President's own Small Business 
Administration--would ultimately have to close their business as a 
result of the imposition of this tax? Why would we do that? Should that 
not at least be taken into account before you propose something such as 
this or are you so obsessed with finding somebody to raise taxes on or 
getting revenue that it does not matter?
  With unemployment at 9.1 percent, we should not raise taxes on 
America's job creators.
  Here is the second one they discussed: capping itemized deductions. 
They proposed capping itemized deductions for upper income taxpayers 
either at the 28 or 35 percent level. Obviously, this reduces the 
ability of taxpayers to buy homes, to make gifts to charity, to pay 
medical expenses, all of the things for which deductions are taken.
  As the Wall Street Journal editorialized on June 29:
  The political point of this exercise is to raise marginal tax rates 
without appearing to do so.
  That is exactly what would happen. That editorial points out that 
President George H.W. Bush agreed to a similar proposal as part of his 
1990 budget agreement that broke his ``read my lips'' promise not to 
raise taxes. But the fact is, half of all small business income falls 
into the top two brackets. So the ability of small businesses to grow 
and create jobs would obviously be harmed by this proposal.
  The fact is, most high-income taxpayers--individual taxpayers--
already lose the benefit of tax deductions and credits at their income 
level because of what is called the alternative minimum tax. Each year 
we eliminate the effect of the alternative minimum tax except on those 
making, I believe it is above $250,000. So the very people who would be 
capped are already capped under the AMT. Who would get hurt?
  Well, we know 50 percent of the taxes paid by small businesses are 
paid by these two upper brackets because they pay individually. It is 
those folks who cannot take this that would get hit by this because 
they have to take the deductions as part of their businesses. They 
would end up having their deductions capped and be unable, therefore, 
to invest that in hiring more people. Moreover, the tax increase would 
hit a much larger segment of American families than just millionaires 
and billionaires.
  According to the IRS, in 2008, the last year for which we have 
numbers, only 319,000 tax returns showed income of $1 million or more. 
But in that same year, the number of returns falling in the 33- and 35-
percent brackets, which are the brackets most affected by this 
proposal, numbered more than 3.6 million. In other words, more than 10 
times the number of filers would be hit if only millionaires and 
billionaires were affected.
  So while the President likes to claim he only wants to tax 
millionaires and billionaires, the fact is his proposal would hit small 
businesses and millions of Americans who are not millionaires. But as I 
said, most importantly, it affects job creation because the people who 
would be hit by this are the people who are small business 
entrepreneurs, who pay their taxes under these provisions, and would no 
longer be able to deduct their business job expenses.
  Why, with economic growth at just 1.9 percent in the last quarter, 
would Congress want to raise taxes on small businesses and on American 
families? It just does not make sense.
  Finally, oil and gas. It is always popular to talk about attacking 
Big Oil. Of course, millions of Americans and retired Americans own 
stock in oil companies, and raising taxes would have the effect of both 
reducing what they get in their pensions and so on, as well as 
undoubtedly result in higher gasoline prices because most of these 
kinds of taxes are passed right on through to the consumer.
  So they want to raise taxes on U.S.-based oil and gas companies--not 
foreign-owned companies--U.S.-based oil and gas companies. Obviously, 
this tax could result in higher gas prices which contradicts the reason 
for releasing oil from the Strategic Oil Reserve. Why do that if it is 
going to get canceled out by imposing a new tax?
  It could, obviously, hurt job creation because this industry supports 
over 9.2 million American jobs. It does not just target oil companies 
because they get some kind of special benefit. What these provisions do 
is eliminate a tax provision applicable to all businesses--any 
manufacturing business, for example, has the benefit of these 
particular three tax provisions.
  So why single out one particular group of taxpayers, only about five 
in number, who would no longer be able to take advantage of provisions 
that every other American business can take advantage of? They are 
broadly available to American businesses in one form or another. They 
are three specific things: First, the so-called section 199 deduction 
available to all manufacturers. Second, the U.S.-based businesses are 
generally able to prevent double taxation. When they have to pay taxes 
abroad, those taxes are then credited against their American tax 
burden. Third, most businesses can expense their research and 
development costs.
  These are the three things that would be taken away just from oil 
companies, the folks who find American oil so that we can drive our 
cars and conduct our businesses. So raising the cost of producing 
American oil would help our foreign competitors and make us more 
dependent on them, ship high-paying jobs offshore, increase our 
dependance on foreign oil, cause gas prices to rise, and hurt American 
families already suffering with high food and energy costs.
  Why would we want to do this except to demagogue a political issue? 
Because it sounds good to punish success. America has never been about 
punishing success. America has been all about creating opportunities, 
and this President's ideas of raising taxes as the sine qua non of an 
agreement to achieve an increase in the debt ceiling, as he has 
proposed, would be absolutely contrary to what we are all trying to do 
right now--which is to help our economy get healthy so that it can 
create more jobs, so we can reduce this

[[Page S4262]]

tremendously high unemployment rate that we have right now, put 
Americans back to work, and help our families ironically, by getting 
healthier economically, making more money, and producing more revenue 
for the Federal Government to tax under our existing taxes. So if we 
want economic growth, improvement in the economy, the last thing we 
should be doing when our economy is ailing now is imposing a higher tax 
burden on it.

  Why the President is so obsessed with this, I do not know. But I will 
tell you one thing: Republicans will resist these job-killing tax 
increases, not because we are trying to protect somebody--except the 
American people--but because we know that it is bad for our economy, 
for our families, for our businesses, and for job creation.
  I ask unanimous consent that the Wall Street Journal editorial to 
which I referred be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, June 29, 2011]

    A Stealth Tax Hike--The Return of the Deduction Phase-Out Gambit
       The White House wants Republicans to agree to tax increases 
     that no one wants to call tax increases, and for an insight 
     into this political method let's focus on one proposal in 
     particular--the phase-out of itemized deductions for upper-
     income taxpayers. We hope the tea party is paying attention, 
     because this kind of maneuver is why people hate Washington.
       The idea is that once taxpayers earn a certain amount of 
     money (say, $200,000), they would begin to lose the value of 
     the various deductions they're entitled to under the law. 
     These include such IRS Form 1040 line items as the personal 
     exemption, the deductions for state taxes and charitable 
     contributions, even those for spouses and children. Earn 
     enough money and soon the value of those deductions goes to 
     zero.
       The political point of this exercise is to raise marginal 
     tax rates without appearing to do so. The top statutory 
     individual rate would remain at 35%, so the politicians could 
     claim they hadn't raised rates. But for those losing their 
     deductions, the marginal rate would increase by between one 
     and two percentage points until the phase-outs were complete.
       We raise the alarm now because this sneaky bit of political 
     fiddling last became law during a previous bipartisan budget 
     summit--in 1990. Democrats proposed it then, too, and 
     President George H.W. Bush and his budget chief Dick Darman 
     agreed to it so they could appear to be raising tax rates 
     less than they really were.
       Those deduction phase-outs continued to be part of the tax 
     code until the 2003 tax law finally phased out the phase-
     outs. They are scheduled to return when the George W. Bush 
     tax rates expire at the end of 2012. While the statutory top 
     rate will then rise to 39.6%, millions of taxpayers will pay 
     a top rate closer to 41% as they lose their deductions. This 
     is in addition to the 3.8% payroll tax increase on investment 
     income that will hit millions of these same taxpayers when 
     ObamaCare gears up in 2013.
       Only six months ago, President Obama endorsed the extension 
     of the Bush rates (and the end of the phase-outs) for two 
     more years, but now his negotiators want to renege on that 
     deal. They want to reintroduce the phase-outs as part of a 
     debt-ceiling deal, apparently so they can claim they got 
     Republicans to agree to some ``revenue increases'' in return 
     for spending cuts. Some Republicans might be tempted to go 
     along claiming they didn't raise tax rates.
       They'll deserve only scorn if they do. Republicans will be 
     signing on to a tax increase, and one of the more dishonest 
     varieties at that. The phase-out gambit is an attempt to 
     shoe-horn more progressively into the tax code without 
     admitting it, and to do so in such a way that only tax 
     experts will know what's going on.
       One goal of the tax reform that Republicans and Mr. Obama 
     keep talking about is to simplify the tax code, but deduction 
     phase-outs make the code far more complicated. Phase-outs 
     make it impossible for taxpayers to add up their income, look 
     at the tax tables, and know what they owe. The IRS taxpayer 
     advocate service and even the head of the American Bar 
     Association's tax section urged their repeal in the 1990s.
       Democrats keep telling us Americans support raising taxes. 
     If that's true, the least they can do is try to raise them 
     honestly.

  Mr. KYL. I yield the floor.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Mr. BROWN of Massachusetts. Madam President, I thank Senator Kyl for 
his eloquent speech on the issues of the day that are obviously very 
serious for the American people.
  Madam President, I am here to speak on a couple of issues--first and 
foremost, regarding the Asset Forfeiture Responsibility Act of 2011, an 
act that I have filed and will speak on in a moment.
  I ask unanimous consent to speak as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BROWN of Massachusetts. Madam President, I want to comment on 
Secretary Gates' last day over at the Pentagon. I was over there doing 
some work, and I noted that he was being honored today. I thank him for 
his dedication and service to our country. He leaves behind an 
incredible record of service.
  Our military and families, while strained, have never been more 
prepared to fight and win in today's conflicts. From my interaction 
with him, I have gained an enormous level of respect for his tireless 
leadership and committed resolve on behalf of our men and women in 
uniform and their families.
  Mr. Secretary, thank you for your incredible service to this Nation. 
You have made us all proud.
  Madam President, today, one of our Nation's finest officers, GEN 
David Petraeus, leaves behind a distinguished record of military 
service and moves on to a new job. The wealth of experience he brings 
to this critical post will be invaluable as he and the other dedicated 
public servants at the Agency work to keep our Nation safe from harm. I 
have the utmost faith in his leadership and look forward to the 
contributions he will make to the Agency and to our country.
  (The remarks of Mr. Brown pertaining to the introduction of S. 1312 
are printed in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.)
  Mr. BROWN of Massachusetts. On a side note, I am hopeful that we will 
continue to work together and try to get through a lot of these fiscal 
challenges we have. I, for one, along with many others, look forward to 
finding common solutions to move our country forward and step back from 
the financial precipice we are approaching.
  I ask unanimous consent that the time during quorum calls be divided 
equally to both sides, and I yield the floor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Maryland is recognized.
  Mr. CARDIN. Madam President, I ask unanimous consent that I be able 
to speak as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.