[Congressional Record Volume 163, Number 192 (Monday, November 27, 2017)]
[Senate]
[Pages S7322-S7324]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
Consumer Financial Protection Bureau and Tax Reform
Mr. CORNYN. Madam President, the Senator from New York is my friend,
and we have worked together on a number of occasions, but I must
disagree with a number of things he said today.
First of all, the Consumer Financial Protection Bureau was a partisan
creation by Democrats during the Obama administration that had
virtually no Republican support. What they did is that they created a
modern-day emperor, somebody immune from congressional oversight and
the appropriations process. Now that Mr. Cordray is leaving, following
the election of a Republican President, they are taking exception to
the fact that this President has the authority under the law to appoint
his successor. Instead, they are insisting that somebody chosen by Mr.
Cordray--this modern-day financial emperor--should be able to make a
choice and foist that on this administration when, clearly, this
administration was elected to office in part in response to the
overreach of the previous Obama administration.
This is a perfect example of how nimble my colleague can be with the
facts. The fact is that he comes here and complains about the fact that
this tax bill we will be taking up is not partisan enough for him, when
Senate Democrats have made it clear that they don't want to do anything
that would give any credit to this administration or the Republican
majority.
Rather than taking the opportunity to find common ground and govern,
they, essentially, have taken up the resistance, leaving the results of
the election last November basically unresolved, in their minds, at
least, even though the American people have clearly moved on and expect
this administration, which was elected to office, along with a
Republican majority in the House and the Senate, to actually govern.
I remember days and times when, after we had elections, we actually
figured out that we needed to govern and weren't focused then on the
next campaign. Apparently, our colleagues across the aisle have simply
forgotten that. That is the bad news. The good news is that it is not
too late for them to change their ways and join us and bring historic
tax reform to the American people.
This week, we will be considering the Senate's version--voted out of
the Senate Finance Committee last Thursday night--of our Tax Cuts and
Jobs Act, which is the first major overall of our Nation's Tax Code in
more than 30 years. It cuts tax rates across the board, reducing the
burden on American job creators and middle-class families alike.
Under our proposal, it has been estimated that folks back in my home
State of Texas will see more than 76,000 new jobs created. After-tax
income for middle-class families should rise by nearly $2,600. Now,
that may be chump change here inside the beltway; our friends across
the aisle may turn their nose up and say: Who would want to do this for
$2,600 additional tax savings. But I can tell you, my 28 million
constituents in Texas don't believe that $2,600 in tax savings for a
family of four is chump change. They think of that as ways to increase
their take-home pay, improve their standard of living, prepare for
retirement, and help their children go to college. That is what that
means to them.
This bill will also reduce the tax burden on small businesses and put
American companies on a level playing field with their foreign
competitors, ultimately growing our economy here at home.
Ironically, we heard some of the same old tired rhetoric in the
Finance Committee, where we were talking about corporate giveaways and
things like that, only to remind our colleagues on the Senate Finance
Committee that they themselves had proposed similar tax cuts for
American businesses so they could get more competitive in an
international global economy. We had to remind them, after they derided
this idea that we would want to be more competitive in the global
economy, that it was Barack Obama, in 2011, who called for Democrats
and Republicans to come together to cut the corporate tax rate because
it was the highest one in the world and it was causing businesses to
invest abroad--indeed, to leave the United States to set up their
headquarters abroad just to avoid the highest tax rate in the civilized
world.
There has been a lot of disinformation and misinformation out there,
which I would like to take the opportunity to correct on a couple of
accounts.
One major reform we have included in the latest version of our tax
reform bill is the repeal of ObamaCare's individual mandate. Make no
mistake, the individual mandate penalty is literally a tax on low-
income Americans. It is a tax because Chief Justice Roberts and the
U.S. Supreme Court called it a tax.
Democrats have made two arguments: first, that repealing this mandate
is a tax increase. Only in the parallel universe known as Washington,
DC, would cutting the tax be called a tax increase. Second, they said
the repeal kicks people off their insurance coverage, which is
demonstrably not true.
But let's start with the first argument, that the repeal somehow
represents a tax increase on the poor. It is a pretty strange thing to
say that eliminating a financial obligation simultaneously entails an
additional fiscal burden; in other words, that a tax cut is really a
tax increase. Only here in the parallel universe of Washington, DC,
could that possibly be true. It defies all logic.
What actually happens under our plan is that certain low-income
individuals do get a tax cut. If they voluntarily decide not to buy
ObamaCare coverage, they will receive an additional tax cut because
they will no longer be penalized by their own government for failing to
buy an insurance policy they can't afford. It is worth noting that, in
2015, 80 percent of people paying the ObamaCare individual mandate tax
made less than $50,000 each year. Eighty percent made less than
$50,000.
There were 6.7 million people in 2015 alone that paid this additional
tax mandate because they couldn't afford to purchase the government-
mandated coverage. If the mandate is repealed, these folks would have
more money to spend, and they will benefit from income tax rate
reductions in addition. If our colleagues across the aisle would work
with us, these same people would find more affordable coverage that
suited their needs rather than have to buy a one-size-fits-all policy
that prices them out of the market. But that is another story.
The second ridiculous argument is one you may recall the minority
leader saying shortly before Thanksgiving. He made the statement that
we are kicking 13 million people off of their health insurance. But
that is just not true, and it doesn't tell the whole story.
First of all, no one is being kicked off of their health insurance
coverage. Instead, people will no longer be fined by their own
government for not buying government-approved health insurance. That is
based on the correct view that people shouldn't be coerced by their
very own government to buy something they may not want and can't
afford. Like I said, in a more rational world, Democrats and
Republicans would work together to come up with an alternative that
would provide people with more choices at a better price.
Democrats might say: Well, what about premiums? Will they not rise if
the mandate is eliminated and people drop out of the market because of
this problem? This is one of the problems created by the Affordable
Care Act at its very beginning. But the issue of rising premiums is
significant. A recent proposal offered by the senior Senator from
Maine, Ms. Collins, along with Senators Alexander and Murray, would
attempt to stabilize the health insurance marketplace. It would reduce
the risk for insurance companies by providing funds to insurers for
high-risk enrollees. Their bipartisan stabilization proposal would
appropriate money for something called cost-sharing reduction
subsidies, and these payments could provide short-term certainty to
insurers and prevent premiums from rising. In fact, premiums would go
down. It has been scored by
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the Congressional Budget Office as reducing the deficit by $3.8 billion
over the next 10 years. That is why this proposal deserves our serious
consideration, and I hope we will turn to it following our debate and
vote on the Senate's tax reform bill.
Apart from the repeal of the mandate, there are other parts of the
plan I would like to highlight. One involves another popular myth that
certain provisions of our proposal are just disguised corporate
welfare. I alluded a minute ago to the hypocrisy of some of our
Democratic colleagues, claiming that this is corporate welfare or a
giveaway, when they themselves supported a similar provision in
previous proposals. This claim is completely and deliberately
misleading. As the Wall Street Journal pointed out last week, the irony
is that this bill would do more to stop corporate tax gaming than
anything done by the Obama administration during the previous 8 years.
First, if we cut corporate taxes, the incentive for companies to game
the system and move capital, income, and intellectual property abroad
is reduced. The bill institutes a territorial system that also includes
so-called base erosion rules. These are safeguards against abuse that
prevent companies from shifting domestic income through foreign
affiliates to lower tax jurisdictions and then bringing the profits
home without paying taxes.
Our Senate bill would impose an effective 10 percent rate on
intangible property of U.S. multinationals held overseas. That is on a
one-time basis. In return, companies would be able to repatriate their
future income from those places tax-free. In other words, they would be
taxed once rather than twice. This lower rate will help to prevent the
erosion of our corporate tax base and so will other provisions
regarding patents and intellectual property, which will prevent the
flight of intellectual property abroad and will entice foreign
companies to move their patents to the United States, along with the
associated economic activity and jobs. In sum, as I said earlier, this
bill changes incentives, making it less likely that businesses will try
to game the system and move capital to foreign, lower tax
jurisdictions.
We need to look at this proposal as a whole--not just one provision
in isolation--because you can't judge the merit of the plan without
considering it as a whole.
Two days ago, we got a letter from nine world-class experts on tax
policy and economics. They sent a letter to Treasury Secretary Steve
Mnuchin. In that letter, they praised the plan's objectives to enhance
the prospects of both increased economic growth and household incomes--
more take-home pay. Not only that, but they said that, based on their
analysis, our plan is likely to achieve those objectives, too. The
signatories include a former Treasury Secretary, as well as a former
Director of the Congressional Budget Office and distinguished
economists from Harvard, Columbia, and Stanford. I think that all agree
with the bottom line, which is that the Senate bill cuts taxes for
every income group and that it will increase economic growth and keep
jobs and American companies here at home, all while making America more
competitive.
Those who argue otherwise, I think, are resigned to the status quo,
which is a stagnant economy characterized by slow growth and wages that
will never rise. That is what we have had for the last 11 years. Under
no circumstances should we stand by idly and permit it to continue.
Historically, the United States has seen growth of the economy hover
around 3 percent since World War II, but right now it is roughly 1.9
percent. What that slow economic growth means is fewer jobs, lower
wages, and less competitiveness for the United States in the global
economy. If we get back to 3 percent growth or higher, we can begin to
solve multiple problems at once. For example, we can do something about
our lackluster defense spending.
It is something the chairman of the Senate Armed Services Committee,
Senator McCain, and others--including people like me and the Presiding
Officer--care an awful lot about. We have simply tried again and again
to cash the peace dividend when there is no peace, when, in the words
of Gen. James Clapper, former Director of National Intelligence, he
said: The array of threats is more profound than he has seen in 50
years in the intelligence service of the United States. We can't spend
the amount of money we need to keep America safe to fight our Nation's
wars and to defend our shores at home unless we meet that need. We
can't do it when our economy doesn't grow. Not only will economic
opportunities increase for Americans of all stripes, we will also have
additional revenue to address our national debt.
If we can get our economy growing again, we can actually pay down
that debt, but this debt is not a product of tax cuts and defense
spending, as some would lead you to believe. It is a symptom of our
inability to pass entitlement reform. In other words, we have a
spending problem; we don't have an inadequate taxing problem.
Indeed, during the 8 years of the Obama administration, when the
national debt doubled, I didn't hear one peep out of our colleagues
across the aisle on the national debt. It is refreshing to hear that
they are concerned about that, once again, but we have a partial answer
to that, which is getting the economy growing again so the Treasury
will increase its returns, and we can begin to pay down some of those
deficits and debt.
To regain our standing in the world, we need to get our financial
house in order. The first step is to pass this tax reform package,
which will show our seriousness and determination in jump-starting our
economy as a way to address our fiscal challenges.
I hope our colleagues on both sides of the aisle will join me in
supporting the Senate's version of this bill because America's future
prosperity partially depends on our ability to get this done. What kind
of country do we want? Do we want one that is vibrant and dynamic and
full of energy or do we want one that simply putters along? A lot is on
the line this week as we debate and vote on the Senate's tax reform
bill.
Madam President, I ask unanimous consent to have printed in the
Record the letter I referred to from nine prominent economists, which
was published on November 26 in the Wall Street Journal, called: ``How
Tax Reform Will Lift the Economy.''
There being no objection, the material was ordered to be printed in
the Record, as follows:
How Tax Reform Will Lift the Economy
[Editor's note: The following is a Nov. 25 letter to Treasury Secretary
Steven Mnuchin]
Dear Mr. Secretary:
The present debate over tax reforms proposed by President
Trump's administration and embodied in bills that have passed
the House of Representatives and the Senate Finance Committee
has raised the basic question of whether the bills are ``pro-
growth'': Would the proposals raise current and future
economic activity and generate federal tax revenue that would
reduce the ``static cost'' of the reforms? This letter
explains why we believe that the answer to these questions is
``yes.''
Economists generally think of fundamental tax reform as a
set of tax changes that reduces tax distortions on productive
activities (for example, business investment and work) and
broadens the tax base to reduce tax differences among
similarly situated businesses and individuals. Fundamental
tax reform should also advance the objectives of fairness and
simplification.
The quest for such fundamental tax reform has been pursued
by policy makers and economists for decades. Examples include
the Tax Reform Act of 1986, proposals for reducing the double
taxation of corporate equity by the Treasury Department and
the American Law Institute (enacted in part in 2003), the
``Growth and Investment Plan'' from President George W.
Bush's Advisory Panel on Federal Tax Reform, and arguments
from President Obama's administration to lower corporate tax
rates. The proposals emerging from the House, Senate, and
President Trump's administration, fall squarely within this
tradition.
Reducing Corporate Tax Rates, as Proposed, Will Increase Economic
Activity
While the overall House and Senate tax plans contain
numerous household and business provisions, we focus on the
corporate tax changes, returning to other provisions before
concluding. A key concept in this context is the ``user cost
of capital,'' which essentially measures the expected cost to
firms of making additional investments in equipment. A
considerable body of economic research concludes that
reductions in the user cost of capital raise output in the
short and long run. Several of the proposals that have
emerged in the current debate are key to lowering the user
cost of capital. For example, expensing, which allows firms
to deduct the full cost of investment at the time it is made,
lowers the user cost of capital relative to depreciation over
time. A lower corporate tax rate also lowers the user cost of
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capital, which not only induces U.S. firms to invest more,
but also makes it more attractive for both U.S. and foreign
multinational corporations to locate investment in the United
States.
There is some uncertainty about just how much additional
investment is induced by reductions in the cost of capital,
but based on an extensive body of scholarly research, many
economists believe that a 10% reduction in the cost of
capital would lead to a 10% increase in the amount of
investment. Simultaneously reducing the corporate tax rate to
20% and moving to immediate expensing of equipment and
intangible investment would reduce the user cost by an
average of 15%, which would increase the demand for capital
by 15%. A conventional approach to economic modeling suggests
that such an increase in the capital stock would raise the
level of GDP in the long run by just over 4%. If achieved
over a decade, the associated increase in the annual rate of
GDP growth would be about 0.4% per year. Because the House
and Senate bills contemplate expensing only for five years,
the increase in capital accumulation would be less, and the
gain in the long-run level of GDP would be just over 3%, or
0.3% per year for a decade.
Is this estimate of the growth effect realistic? According
to one leading model using an alternative framework, the
proposal would increase the U.S. capital stock by between 12%
and 19%, which would raise the level of GDP in the long run
by between 3% and 5%. Yet another model, this one used in the
analysis of the ``Growth and Investment Plan'' in the 2005
President's Advisory Panel on Federal Tax Reform, found that
a business cash-flow tax with expensing and a corporate tax
rate of 30% would yield a 20.4% increase in the capital stock
in the long run and a 4.8% increase in GDP in the long run.
More conservative estimates from the OECD suggest that
corporate tax changes alone would raise long-run GDP by 2%.
In short, there is a substantial body of research suggesting
that fundamental tax reform of the type being proposed would
have an important effect on long-run GDP. We view long-run
effects of about 3% assuming five years of full expensing,
and 4% assuming permanent full expensing, as reasonable
estimates.
Another advantage of the corporate rate reduction embodied
in the House and Senate Finance bills is that it would lead
both U.S. and foreign firms to invest more in the United
States. In addition, U.S. multinational firms would face a
reduced incentive to shift profits abroad, which would raise
federal revenue, all else equal.
In the foregoing analysis, we assumed a revenue-neutral
corporate tax change. Deficit financing of part of a
reduction in taxes increases federal debt and interest rates,
all else equal. For the House and Senate Finance bills, this
offset is likely to be modest, given that the United States
operates in an international capital market, which means that
the impact of changes in interest rates resulting from
greater investment demand and government borrowing are likely
to be relatively small.
Lowering Individual Tax Rates Also Offers Generally Positive Economic
Effects
The House and Senate bills also contemplate a number of
individual tax provisions that can affect economic activity
and incomes. In recognition of the fact that non-corporate
business income is substantial in the United States, both
bills would reduce taxation of non-corporate business income
and increase the amount of capital expensing allowed. While
difficult to quantify, as the bills specify different
effective tax rates, these provisions would increase
investment and GDP above the level associated with the
corporate tax changes discussed above. Also on the individual
side, both the House and Senate bills reduce marginal tax
rates on labor income for most taxpayers, increasing the
reward for work. Increases in labor supply, in turn, increase
taxable income and tax revenues. One should note, however,
that some taxpayers would face increases in effective
marginal tax rates because of base-broadening features of the
bills, such as limits on the federal tax deductibility of
state and local income taxes. On balance, though, we believe
that the individual tax base broadening embodied in the
proposals would enhance economic efficiency by confronting
most households with lower marginal tax rates. In addition,
fairness would be served by reducing differences in the tax
treatment of individuals with similar incomes, and
simplification by reducing the number of individuals who
itemize for federal tax purposes.
Confirming a Pro-Growth Objective Is Important for the Path Forward
You have consistently stressed that the objective of tax
reform should be to enhance prospects for increased economic
growth and household incomes. We agree with this objective,
which is consistent with the traditional norms of public
finance going back to Adam Smith. We believe that the reforms
embodied in the House and Senate Finance bills would achieve
this objective. The increased growth, in turn, would lead to
greater taxable income and federal tax revenues, which would
reduce the static cost of lost federal tax revenue from the
reform.
We hope these analytical points of support for the growth
effects of tax plans being discussed are useful to you and to
the Congress as you complete the important economic task of
fundamental tax reform. We would be happy to discuss our
conclusions with you at your convenience.
Robert J. Barro, Paul M. Warburg Professor of Economics,
Harvard University
Michael J. Boskin, Tully M. Friedman Professor of
Economics, Stanford University; Chairman of the Council of
Economic Advisers under President George H.W. Bush
John Cogan, Leonard and Shirley Ely Senior Fellow, Hoover
Institution, Stanford University; Deputy Director of the
Office of Management and Budget under President Ronald Reagan
Douglas Holtz-Eakin, President, American Action Forum,
former director of the Congressional Budget Office
Glenn Hubbard, Dean and Russell L. Carson Professor of
Finance and Economics (Graduate School of Business) and
Professor of Economics (Arts and Sciences), Columbia
University; Chairman of the Council of Economic Advisers
under President George W. Bush
Lawrence B. Lindsey, President and Chief Executive Officer,
The Lindsey Group; Director of the National Economic Council
under President George W. Bush
Harvey S. Rosen, John L. Weinberg Professor of Economics
and Business Policy, Princeton University; Chairman of the
Council of Economic Advisers under President George W. Bush
George P. Shultz, Thomas W. and Susan B. Ford Distinguished
Fellow, Hoover Institution, Stanford University; Secretary of
State under President Ronald Reagan, Secretary of the
Treasury under President Richard Nixon
John. B. Taylor, Mary and Robert Raymond Professor of
Economics, Stanford University; Undersecretary of the
Treasury for International Affairs under President George W.
Bush
Mr. CORNYN. I yield the floor.
The PRESIDING OFFICER. The Senator from Massachusetts.