[Congressional Record Volume 168, Number 101 (Tuesday, June 14, 2022)]
[Senate]
[Pages S2942-S2943]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. GRASSLEY (for himself, Mr. Barrasso, Mr. Daines, Mr.
Lankford, Mr. Young, and Mr. Cassidy):
S. 4393. A bill to amend the Internal Revenue Code of 1986 to modify
the maximum capital gains tax rate, to modify the tax on net investment
income, and for other purposes; to the Committee on Finance.
Mr. GRASSLEY. Mr. President, I come to the floor to tell my
colleagues about a bill I am introducing today to encourage savings. To
set the stage for the necessity of that bill, I am going to speak for a
minute about the obstacles that this administration's economic
policies--particularly inflation--have put in that give need for such
legislation.
On Friday, we learned that inflation surged to 8.6 percent, a new 40-
year high for inflation. Inflation is the No. 1 concern that I hear
from Iowans as I do my 99-county tour throughout the State over the
course of a year. I hear how rising prices, particularly for food and
energy, are cutting into budgets, making it difficult to make ends
meet.
Moreover, I hear from Iowans who are concerned that inflation is
eating into their savings. That gets to the purpose of the legislation
I am going to soon talk about. This is particularly true for seniors
who are living on fixed budgets and are dependent on their savings and
investment income to keep their heads above water.
Yet President Biden and congressional Democrats continue to ignore
the damage done by their reckless tax-and-spending agenda. Sadly, their
solution for inflation is just more of the same old Democratic tax-and-
spend agenda. We still hear rumors that there may be some version of
Build Back Better. Just think. If that original version of Build Back
Better had passed, we would have had another $4.5 trillion in
additional spending feeding the fires of inflation. Thank God for 50
Republicans and Senator Manchin that that has not happened.
Several Democrats have argued for hiking taxes to combat inflation.
However, their proposed tax hikes on job creators would suppress
business investment, lowering productivity. This would be
counterproductive at a time when consumers' demands far outpace supply.
We need more production, not less, to combat unchecked inflation.
Moreover, the proposed Democratic tax hikes would be passed on to the
middle class in the form of lower wages and higher prices. These tax
hikes would further squeeze a middle class that is already enduring the
worst of inflation.
I just complimented Senator Manchin for putting a stop to Build Back
Better. When it comes to some of the original tax policies we have
heard from the Democrats, we can thank Senator Sinema, another
Democrat, for stepping in and bringing at least some common sense to
tax policy, even though it wasn't a complete change of that tax policy.
Raising taxes on job creation isn't the only misguided tax proposal.
While many consumer products are in short supply, ill-conceived
Democratic proposals are not.
In addition to reckless tax hikes on businesses broadly, Democrats
have proposed providing consumer gas rebates, forgiving student loan
debt, imposing windfall profit taxes on oil and gas, and implementing
price controls. None of these proposals would help tamp down inflation.
Instead, they would only make things worse--much worse.
Instead of providing relief, gas rebates would increase demand,
driving prices higher. Forgiving student loans would have a similar
effect and would be horribly counterproductive and, at the same time,
would be very unfair to those students who have already paid off their
student loans.
Yet you don't have to take Chuck Grassley's word for it. Prominent
Democratic economist Larry Summers has said that student debt
cancelation would be ``regressive, uncertainty creating, untargeted and
inappropriate at a time when the economy is [already] overheated.''
Windfall profit taxes and price controls may be the worst of all of
the proposals.
That should have been learned from the Nixon administration when he
froze prices and wages. It was a disaster--part of the cause of the
great inflation of the 1970s. There were disastrous consequences then
as a result of what happened in the 1970s. Anyone who lived through
that time can tell you how these policies made things worse by reducing
supply. The result was of rampant shortages, most notably with gas
lines all around the block.
When addressing inflation, Congress must be guided by the principle:
First, do no harm. The Democrats' proposal has failed this principle
miserably.
The fact of the matter is that, once the inflation fire gets started,
it is hard to put out. Just think: Just a few months ago, inflation was
transitory, and then it got up to 6 percent, 7 percent, 8.3 percent.
Then somebody said last month that it was going to cool off, but it is
up to 8.6 percent. The Federal Reserve is best suited for reining in
inflation given its control over the money supply.
As Milton Friedman said:
Inflation is always and everywhere a monetary phenomenon.
This doesn't mean Congress is helpless when it comes to responding to
inflation. The most important thing that Congress can do is stop
spending like drunken sailors. Even better would be to trim the budget
to eliminate unnecessary spending.
Congress can also provide targeted inflation relief. However, it must
be done in a way that won't add to our growing debt or further fuel the
flames of inflation. One way to do this is by providing targeted
inflation relief that incentivizes and rewards taxpayers who save
rather than spend.
With today's high inflation, many in the middle class could see most
or even all of their savings and investment gains wiped out by the
inflation that is upon us. Yet, even though middle class savers may be
losing money in real terms, they are still taxed on all gains and
interest income as if inflation doesn't exist. This creates a perverse
incentive that encourages taxpayers to consume today rather than to
save today. This can push up the demand for goods and services, forcing
prices higher and further fueling inflation.
To help counter the current bias in favor of consumption, I now come
to my proposal, a proposal subjecting most middle class savings and
investment income to zero tax.
Now, this isn't a silver bullet in the fight against inflation.
Ultimately, the Federal Reserve will have to do the heavy lifting.
However, unlike counterproductive Democrat policies, my proposals would
incentivize and reward saving. As a result, it would get relief to the
middle class without further fueling consumer demand or reducing
production and supply.
The title of the bill is the ``Middle-Class Savings and Investment
Act.'' Under that bill, taxpayers in the 22-percent individual income
tax bracket and lower would pay zero tax on their long-term capital
gains and dividend income. Moreover, my proposal would allow
individuals to exclude a reasonable amount of interest income from tax.
For 2022, the combination of those proposals means an individual with a
taxable income of below $89,075 or a
[[Page S2943]]
married couple below $178,150 would largely be able to save tax-free.
In addition to exempting the middle class from the tax on most of
their savings and investment income, my proposal would enhance and
expand the saver's credit. This provides a tax credit to low- to
middle-income taxpayers who contribute to a tax-favored retirement
account. My proposal would increase the maximum credit amount by $500
for married taxpayers and expand eligibility to more taxpayers.
Finally, my proposal would address a massive marriage penalty that is
gradually catching ever more taxpayers by surprise thanks just simply
to inflation. Under ObamaCare, Democrats imposed a new 3.8-percent tax
on investment income of taxpayers earning over $200,000 single or
$250,000 married. Congress never indexed these thresholds for
inflation; thus, given current inflation, it is likely it won't be long
before millions of middle-class taxpayers find themselves squarely
within the grasp of that marriage penalty. To prevent this, I index the
income threshold for this tax to inflation. Moreover, I eliminate the
marriage penalty by raising the threshold for married taxpayers to
twice that for single earners.
Of course, any relief provided must be fully paid for to ensure that
we aren't just adding unsustainable debt and deficits. This is why my
proposal is fully paid for by extending the $10,000 cap on State and
local tax deductions beyond the current scheduled expiration at the end
of 2025.
The SALT deduction is a highly regressive tax subsidy that primarily
benefits high-income taxpayers. According to the nonpartisan Joint
Committee on Taxation, more than half of the benefits from lifting the
SALT cap would go to those making over $1 million a year. Extending the
current cap on SALT--an otherwise highly regressive tax benefit--to
provide immediate inflation relief to the middle class should be a no-
brainer to all of my colleagues.
I urge Members on both sides of the aisle to support this proposal.
____________________