[Congressional Record Volume 163, Number 183 (Thursday, November 9, 2017)]
[House]
[Pages H8690-H8694]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               TAX REFORM

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 3, 2017, the gentleman from California (Mr. Sherman) is 
recognized for 60 minutes as the designee of the minority leader.
  Mr. SHERMAN. Mr. Speaker, I want to thank the Speaker for recognizing 
me and indicating that I can speak for an hour. We get caught up in so 
many issues here that we sometimes don't explore them in depth, and 
with 1 hour, I plan to look in depth first at the President's trade 
policy toward China, and then toward the Republican tax bill.
  The President is meeting again with President Xi from China. They 
will put out a beautiful joint statement, they will pose for 
photographs, and there will even be a business deal or two to announce.

[[Page H8691]]

  These are the two largest economies in the world. They involve tens 
of trillions of dollars. So every month, a few big things happen that 
are bad, and one or two big things happen that are good. There is 
always a particular business deal that you can package and wrap as a 
photo op.
  But the fact is that we have to look at the overall trading 
relationship. The trading relationship is this: we run hundreds of 
billions of dollars of trade deficit, and every billion dollars of 
trade deficit cost us 10,000 jobs.

  So let's look at what has happened while President Trump has been in 
office. We look each month at our trade and goods with the People's 
Republic of China, and we start with a deficit of just a bit over $22 
billion, and for the most recent statistics available, August of this 
year, we are up to almost $35 billion.
  What is interesting about this chart is that every month Trump has 
been in office, our trade deficit with China has grown. Now, he can say 
that he doesn't have the power to do anything about that; he just wants 
to be a pretend President, a pretense President, a posing President. He 
can pose for a picture, but he doesn't have the authority to do 
anything.
  That is completely wrong. Look at section 338 of the Tariff Act of 
1930, and you will see that the President acting alone could eliminate 
this deficit by imposing tariffs on Chinese goods now. But he won't do 
that because his plan--and what he has done over the last 2 years is he 
campaigns like he is Bernie Sanders at least on these issues, and he 
governs like he is from Goldman Sachs which, of course, many of his 
advisers actually are.
  Even after the campaign was over in November of last year, the 
campaign continues, and he continues to pretend to be in favor of the 
trade policies associated with Bernie Sanders and others, and he 
continues to govern in the interests of Goldman Sachs.
  Now, this chart does not reflect services because services trade 
between the United States and China is not available on a monthly 
basis, but the trend would be exactly the same: huge growth in the 
deficit month after month after month after month--February, March, 
April, May, June, July, and August of this year--and likely to continue 
for the other months that the President continues to serve and the 
statistics become available.
  Now, we are told perhaps that it is okay to give away all these 
American jobs because we would need Chinese help to deal with North 
Korea. Let's see how that is working out. The President, prior to this 
trip, had met with President Xi twice, and now we have a third meeting.
  After those first two meetings, North Korea explodes a hydrogen bomb 
and tests a missile capable of reaching major cities in the mainland of 
the United States all with the acquiescence of the Chinese Government. 
So whether you are concerned with our national security or whether you 
are concerned with jobs and trade policy, we can no longer have a 
President who poses and pretends and ignores the statutory authority 
that he has on laws that have been on the books since the 1930s.
  Now let's talk about the Republican tax bill. This is a bill which 
will raise taxes on millions of middle class families. Now, it gets 
worse in a few years. There is a bit of a bait-and-switch. They will 
want to tell you: Just look at how this bill will affect your tax 
return in 2019.
  If you plan to still be alive in 2027, take a look at the effect it 
is going to have then.
  Let's look at middle class families--not the poorest 20 percent in 
our country, not the richest 20 percent--that middle 60 percent. 
Roughly 30 percent of those families in the middle class are going to 
see a tax increase on their 2027 tax return, and that tax increase is 
calculated at an average of $1,300 per family.
  Let's look at the individual provisions to see how fair they are to 
middle class families. First, right off the bat, they take away the 
personal exemption which, on next year's tax return, the first year 
that this new bill would be effective, is worth $4,150 per person in 
your family. That is nearly $21,000 for a family like mine of five.
  They take away $21,000 of deductions even from the poorest families 
in America and from every middle class family as well. Now, they say 
they are going to replace that with a child tax credit. But if your 
children are over age 16, that credit is limited to a few hundred 
dollars next year, and then they make it zero 5 years from now. So if 
your kids are going to turn age 17 sometime in the next 5 years, they 
have got your name on this bill.
  They also do increase the standard deduction. But tens of millions of 
Americans don't even take the standard deduction. They choose to 
itemize their deduction.
  So one replacement is inapplicable in a few years to kids of a few 
years old, and the other is inapplicable to the millions of families 
that don't itemize their deductions. But even if it is applicable to 
you, you are losing for a family of five $2,100 roughly. What about a 
family of six, a family of seven, a family of eight? Another $4,150 per 
child, and they replace it with an increase in the standard deduction 
of $1,200 and a per-child credit of $600 or $300 or absolutely zero if 
your kids are over age 16 and it is a few years from now.
  Next, let's talk about moving expenses. The current code says that if 
you are working at a factory, it closes down, and it is moving 100 
miles, 300 miles away, and you have to move your home, if you have to 
find a new home to live in, you get to deduct your moving expense. They 
take that away. But what do they leave? If you own a factory, you shut 
it down, and you move it to China, then all of the moving expenses are 
tax deductible.

                              {time}  1330

  Don't let them tell you they are taking away the moving expense 
deduction. Sure, they are taking it away from individuals and 
employees, but they are leaving the moving tax deduction for those who 
are moving their factories to China.
  Of course, they take away the student loan debt interest deduction. 
If you are investing in yourself, in a family member, or in education, 
the interest deduction is wiped off your tax return. But if you are 
investing in a Chinese factory, the deductions are there for you. They 
are not anti-investment. They are just anti-investment in the skills 
and capacity of American workers.
  Next is the medical deduction. There is a deduction for medical 
expenses. It is available only to a few families with particularly 
large medical needs. You don't get the medical deduction unless your 
un-reimbursed medical expenses--thanks to the Affordable Care Act, most 
people have at least decent insurance. You still have some medical 
expenses that are out-of-pocket, but if your out-of-pocket medical 
expenses exceed 10 percent of your income, then to the extent of that 
excess, you can take a deduction.
  If your out-of-pocket, uncovered medical expenses are 13 percent of 
your income, you can deduct the 3 percent. That is not overly generous. 
It is not even applicable to most families.
  Who needs it?
  People with disabilities, families with children with special needs, 
and people with cancer and other severe diagnoses. That is who they 
target.
  They say: Well, if you make some money, and then you have to spend it 
dealing with medical services, dealing with therapies for special needs 
children, for disabled, for people with cancer. Well, just because you 
don't have the money because you had to spend it on medical services 
doesn't mean we can't tax you on the money. And they do.
  Well, there is another group of people who are unlucky enough to have 
extraordinary expenses, and that is casualty losses. If you have a 
small fire or some small casualty, you are not going to get a 
deduction. The deduction applies only when your casualty losses exceed 
10 percent of your income, and then only to the extent that they exceed 
10 percent of your income.
  We have had the wildfires in my State of California, not to mention 
the hurricanes in the Caribbean, and there are people who are going to 
say: Well, thank God that if the disaster had to hit our community, it 
hit us in 2017, because our casualty losses are deductible.
  But what about the next disaster?
  People with uninsured, out-of-pocket losses exceeding 10 percent of 
their income will not get a deduction.
  Here is the Republican response: Look, if it is an enormous disaster 
that happens to take your house and the

[[Page H8692]]

CNN cameras are there, then your congressional delegation can come beg 
for a special tax rule for those affected by that disaster.
  Well, first, what if your home burns down and CNN isn't there? It is 
not part of an enormous disaster? It is just something that hits you 
and a couple of neighborhoods?
  You will never get a special tax provision. We are not going to write 
one for three or four people, or 30 or 40 people, or 80 or 90 people 
affected by a small brush fire.
  But what if you are part of the next enormous catastrophe?
  Your congressional delegation will be here, having to decide whether 
to bargain to give you a chance to take the same deduction that has 
been in the Tax Code since the 1950s, or whether to bargain to try to 
get disaster relief to rebuild the infrastructure and the public assets 
in your community.
  Your congressional delegation probably doesn't have enough clout to 
do both. So which are they going to do?
  It is clearly wrong and unfair to tax people on that portion of their 
income that they have to use to deal with a truly extraordinary 
casualty loss.
  But there is another provision. This one hasn't been talked about 
much. That is the way in which they index Tax Code provisions for 
inflation.
  There are some of the provisions they don't index at all. So they say 
that you can take your property tax deduction and itemize it--only the 
portion up to $10,000. Well, $10,000 sounds like a lot of money, but 
they don't index it.
  So what about 10 years from now? What about 20 years from now?
  You say: Well, I won't be in my house 20 years from now.
  Yes, but the person you sell your house to will be there. If they 
say, ``My God, all the prices are higher, all the wages are higher, all 
the taxes are higher,'' that $10,000 limit on property taxes means, ``I 
can't deduct but half my property tax bill.'' That will be factored 
into the price of your house.
  As to the things affecting home ownership, no indexing. Everything 
that looks big now gets smaller and smaller every year as a result of 
inflation. Oh, by the way, this tax bill is going to cause more 
inflation.
  There are other provisions where they say they are keeping the 
indexing, but they change from CPI indexing to chained CPI indexing.
  What does that mean?
  It is a system for indexing the brackets less than what would be if 
just look at the Consumer Price Index.
  You say: I am only going to be in the 25 percent bracket under this 
bill. As I get raises to just compensate me for inflation, I will still 
just be in the 25 percent.
  No, you won't. If you are fortunate, your employer will adjust your 
wages for real inflation, but the brackets are only going to increase 
for chained CPI.
  We take away the State and local tax deduction. First, this is a 
departure, as other provisions are, from the concept that we should tax 
people based on their ability to pay. If you make a certain salary 
an 10 percent of it is taken out and used by your local and State 
governments, then your ability to pay is the 90 percent of your salary 
you get to keep.

  But they don't want to tax you on what you keep after State and local 
taxes. They want to tax you on the money that has already been spent on 
taxes.
  The effect of this is not just on the middle class families who are 
going to lose a tax deduction on their return and be taxed unfairly. If 
you read what is put out by the rightwing think tanks, they say: We 
know why we are pushing this State and local tax elimination. Because 
that will create a political atmosphere where States like California 
and New York and New Jersey will slash the amount of money that they 
spend on things like public safety and education.
  We won't just be affecting the people who are not taking the tax 
deduction. We will be turning to poorer families and lower middle class 
families who depend upon public schools, and it will just cause a 
political situation where less money is spent on local education.
  So this doesn't just affect those who it affects on their tax return. 
This affects everyone who lives in the community.
  As I have alluded to before, they take away a big chunk of the home 
mortgage deduction, particularly to the person you would sell your 
house to later. If you sell your house--and God knows what the 
inflation rate may be. It may be significant. It may be $500,000, which 
doesn't sound like a whole lot of money then, even though it does sound 
like a big chunk of money now. I remember when $50,000 for a home was 
thought to be a very high price. Anyway, the home mortgage deduction is 
limited for that buyer to $500,000 of mortgage. The property tax is 
limited to $10,000 of property tax.
  What effect is this going to have on the ability to sell your home, 
which, in many parts of the country, is your whole nest egg?
  People pay a big mortgage payment every month and they have equity in 
their home. Maybe they can retire because they have got 20, 25 percent 
equity in their home.
  Well, yesterday, before the Financial Services Committee, we had Mark 
Zandi testify, who is one of the leading economists in this country, 
the head of the economics operation at Moody's Analytics. He said that 
in major metropolitan areas, like the one I represent, we are going to 
see a double-digit decline in home values as a result of this bill. A 
lot of that is the limit on home mortgage deduction and the property 
tax. There are other elements of this bill that also adversely affect 
home prices. A double-digit decline.
  Then what does that do to the community?
  You may say: I don't own a home. I just work at a restaurant. I live 
in an apartment.
  Who is going to come to that restaurant and how big are they going to 
tip if they have just gone to Zillow and seen the value of their home 
and they have seen a double-digit decline?
  The whole community.
  This affects people from the New York metro area, the Philly metro 
area, Los Angeles, San Diego, and Orange County in California.
  You are sucking money out of the local economy and giving it to the 
Federal Government by taking away the State and local property tax 
deduction. You are then slashing the value of homes with a double-digit 
decline.
  What money is going to be in circulation to buy goods and services to 
support the entire regional economy?
  This is going to hit like a hurricane in areas of the country that 
did not experience one.
  My party is so focused on the great unfairness of this bill and the 
fact that it provides the bulk of its benefits to the top 5 percent and 
even the top 1 percent. That fact is hidden by the anomaly that most of 
the economic projections of this bill don't even look at the repeal of 
the estate tax. They only look at the income tax provisions. You can't 
just exclude a whole chunk of this tax bill in analyzing it.
  We, as a party, are so focused on the huge unfairness that we almost 
don't want to talk about the effect it will have on the overall 
national economy. This isn't just an unfair bill. That isn't just a 
bill that enriches the rich. This is a deficit-exploding, outsource-
promoting, job-killing, growth-reducing disaster for our Nation's 
economy.
  You want to know the effect of huge tax cuts on an economy?
  Look at Kansas. They slashed their taxes and now a Republican 
legislature is reversing it because of what that has done to tax 
receipts and to the Kansas economy.
  Let's take a look and see what effect this is likely to have at the 
national level. I turn to the Center on Budget and Policy Priorities, 
where they say that this tax cut is an ineffective way to spur economic 
growth and is likely to harm the economy if it adds to the deficit.
  Well, what is the plan in the budget Republicans all voted for?
  To deliberately use this tax cut to increase the deficit by $1.5 
trillion. But the Congressional Budget Office, under the Republican 
administration of this House and of this Congress, says it is going to 
do $1.7 trillion. They say: Well, let's look at it more dynamically.
  If you look more dynamically, it is going to increase the deficit by 
$2 trillion or $2.5 trillion, because it raises interest rates; it 
encourages offshore initial investment, stripping economic growth out 
of the United States, and for a host of reasons I will get to.
  The more you look at the tax cut, the more apparent it is that it 
will cut

[[Page H8693]]

economic growth and increase the deficit by even more than the $1.7 
trillion that the Congressional Budget Office, during Republican 
control of Congress, is currently estimating.
  Why is this?
  Well, first, because incentives to invest in the Tax Code have little 
or no effect on privatization, according to a Congressional Research 
Service report. The empirical evidence in numerous report shows that 
the 2003 tax cuts had little impact on investment or employment.

                              {time}  1345

  Now, I speak with a little bit of experience here because I lived 20 
years of my life in the tax world, most of it right at the intersection 
of investment and tax law.
  I sat with families and charged them a large amount per hour to 
describe what the latest tax law said and what effect it would have on 
different investments. And my experience as a CPA and tax attorney and 
certified tax law specialist by my State bar was identical to that of 
Warren Buffett, who said:

       I have worked with investors for 60 years, and I have yet 
     to see anyone, not even when capital gains rates were 39.9 
     percent or when they were 15 percent, as they are now, I have 
     never seen anyone shy away from a sensible investment because 
     of the tax rate on the potential gain. People invest to make 
     money, and potential taxes have never scared them off.

  Now, that is why, when you look at the effect of this bill, you come 
to the conclusion, as the Congressional Budget Office did in looking at 
the Bush tax cuts and whether to extend them or allow them to expire, 
that, if you have taxes and you use that money to pay the deficit, that 
does more to help the economy. It is more important to fight the 
deficit than it is to tell various families, often at the very high 
end, that they get a tax cut.
  Well, let's look at American economic history. I designed this chart 
here, and I focused it only after the 1986 tax cut for which Ronald 
Reagan is famous. There were many things about our economy back in the 
early 1980s, in the 1970s, and in the 1960s that aren't relevant today. 
We didn't have the trade policies back in the 1970s that we have today.
  So we look at the Ronald Reagan 1986 tax policy as slightly adjusted 
by George H.W. Bush. We look at the policies that we had--I know the 
1986 tax law. You think, well, that must have affected 1986. No, it 
really became effective in 1988. So you look at 1988 to 1993 and you 
see that we have economic growth of 2.67 percent.
  Then, in 1994, you see the effect of the Clinton tax policies adopted 
in 1993, and we see economic growth of well over 4 percent. And these 
figures here are real economic growth per year adjusted for inflation, 
4.4 percent.
  So then George W. Bush gets elected, and starting in 2001, his tax 
policies are adopted by this Congress and enacted into law, and we see 
that economic growth is only 1.7 percent.
  Now, those Bush tax policies continued in force until 2013 because 
Democrats allowed them to stay in force until we finally adopted Obama 
tax policies, effective in 2013. Those policies continue to be in force 
right up to today.
  The most recent statistics we have are up through September 30 of 
this year. The economic growth under those policies has been 2.22 
percent.
  So what we have seen here is that, when we adopt Republican economic 
policies and they become effective, we have substantially lower 
economic growth than when we adopt Democratic tax policies and when 
Democrats actually pass those policies and have the guts to pass those 
policies and put them into law.
  So you have got to admire the Republican Party. They are able to get 
Member after Member after Member to say, without any proof, that 
trickle-down economics works, that if you just cut taxes, you somehow 
help the economy.
  It doesn't matter if you can line up 100 Members to say the same 
falsehood at the same lectern in the same congressional Hall on the 
same House floor. What matters is the real history. And the real 
history is that the higher rates imposed under Democratic 
administrations have not just led to higher tax revenues, they have led 
to higher rates of economic growth.
  Well, why is this?
  Well, first, and perhaps most important, is having money available 
for business investment. There is a pool of savings capital available 
in our markets and in our economy, and the Republican proposal would 
come in and scoop $1.2 trillion of that--take it out of the markets, 
take it out of the banks where it could be lent to small businesses, 
take it out of the bond markets where it can be used for expansions by 
big business--and just use it to pay for the tax cuts.
  No wonder tax cuts that increase deficits hurt business investment 
and hurt the economy.
  But there is more. We then add to our national debt, and the national 
debt is forever. Not only do we have the increase in the debt of $1.5 
trillion to $1.7 trillion, but that debt will be here not just 10 years 
from now; it is there forever. Your great-grandchildren are going to be 
paying interest on that debt.
  Then we have the international impact. You see, their proposal 
provides for a zero percent U.S. tax on any money made by any factory 
as long as you move that factory abroad. If the wage rates are too high 
in China, you can put it in Vietnam.
  Now, in addition to saying you move your factory abroad, you pay zero 
tax on all the manufacturing profits because that manufacturing is 
being done abroad, we encourage moving the factory abroad. The work is 
being done abroad. We don't tax it.
  But in addition, what is an area of economic activity where Americans 
excel? It is the creation of intellectual property.
  Well, manufacturing might be done abroad; the design, the patents, 
the copyrights, the trade names, the marketing plans, the trade 
secrets, the intellectual property is created here. Under this bill, 
not only the profit you make on the foreign factory, but the profit you 
make from all that intellectual property can pay almost a zero percent 
American tax if you just take that patent and put it in a file in the 
Cayman Islands.
  Now, I don't want to say that our current system for taxing 
international transactions is anything that we can be proud of. The 
present system, if you make money in a U.S. factory, there is a tax of 
35 percent; you make it in a foreign factory, we also have a tax of 35 
percent, but you can defer it. So, right now, if you are just trying to 
decide where to put the factory, you have got a tax in the United 
States that you actually have to pay and a tax on a factory abroad that 
you will pay eventually.

  Well, what do they do? That take that 35 percent ``eventually'' tax 
and turn it into a zero percent ``forever'' tax. How much more 
incentive could they provide to move American factories overseas?
  Now, the present system also has a problem in that you can defer tax 
only on the money you keep offshore. So their solution is to say, well, 
bring it onshore. We will provide a little tiny tax on it, and then all 
the money you made overseas the last 10 or 20 years, no U.S. tax, and 
at least the money gets repatriated.
  Democrats are anxious to work with Republicans on repatriation. They 
could probably get a more Republican plan adopted than one that I would 
endorse in this speech, but why not tax the unrepatriated money? That 
way we would be saying, bring that money back or don't bring it back, 
you pay the same tax, so you might as well bring it back.
  What we can also do is move to worldwide unitary apportionment: 
eliminate all the tax gains, and most of them are international; 
eliminate all the reasons to move factories abroad and generate another 
$1 trillion every 10 years for our Treasury. That is the system that we 
ought to be moving to.
  I am not here to say our present system is wonderful. I am here to 
say that we should not adopt a Republican system because it moves us 
even further away from what would be a fair system that would not 
encourage offshoring.
  Another way in which we are affected internationally is that this tax 
bill would change currency values, change the exchange rate between the 
euro, the yen, the Chinese currency, and other currencies around the 
world in a way that will encourage Americans to import and discourage 
those abroad from buying our products--just another economic harm.

[[Page H8694]]

  Another economic harm is touted by the conservative supporters of 
this policy. They say that by cutting taxes, we will get the Federal 
Government and State and local governments to spend less money on 
infrastructure and education. Well, if you want to ask what is it that 
makes a country wealthier than others, it is, first and foremost, the 
education of its workers, and then, second, the infrastructure that is 
available to productive activity.
  In addition, as I mentioned before, they are going to cut the value 
of homes nationwide, most pronounced in the major metropolitan areas. 
What does that do to middle class spending, which drives our economy? 
It drives that middle class spending down. Who is going to go out to a 
restaurant if you have just been told that you have had a double-digit 
decline in the value of your home?
  This bill will also cause higher interest rates because the Federal 
Government is going to be borrowing another $1.5 trillion to $1.7 
trillion.
  Now, so there is a difference between me and my party leadership. 
They say that the main reason to vote against this bill is that it is 
unfair by giving huge tax breaks to the top 1 percent and increasing 
taxes for millions of American families. I say you should vote against 
this bill because it is a deficit-exploding, outsourcing-promoting, 
job-killing, economic growth-depressing bill. But I think we will 
agree, whether you vote against this bill because it is unfair or you 
vote against this bill because it is bad for our economy, you will be 
performing an important service to our country.
  Let me not neglect the fact that if you vote--that the bill isn't 
totally without being useful to somebody. It will reduce taxes for the 
Donald Trump family by over $1 billion in estate tax and tens of 
millions of dollars in income tax.
  Maybe that is not enough for you. Look at what it will do for the 
Koch brothers--far more than it will do for the Trump family. So if 
that is important to you, if that is the result you want to achieve, 
then vote for the bill.
  Mr. Speaker, I yield back the balance of my time.

                          ____________________