[Congressional Record Volume 168, Number 129 (Tuesday, August 2, 2022)]
[Senate]
[Pages S3869-S3871]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    INFLATION REDUCTION ACT OF 2022

  Mr. PORTMAN. Madam President, I come to the floor this evening to 
talk about the Democrats' latest reconciliation proposal. This is the 
tax-and-spend legislation you have probably heard about. It is called 
the Inflation Reduction Act, but don't be fooled by the name. It 
doesn't actually decrease the inflationary pressure we all feel at the 
gas pump, at the grocery store, clothes shopping. It actually makes it 
worse.
  Sadly, we have been down this road before. Early last year, the 
Democrats passed a massive $1.9 trillion package that was supposedly 
focused on COVID, but most of it had nothing to with COVID but provided 
a lot of stimulus. It was the largest spending package ever in the 
history of Congress, and, at the time it passed, a lot of us said: Wow, 
the economy coming out of that first stage of COVID is already picking 
up steam.
  In fact, the nonpartisan Congressional Budget Office was telling us 
that, by midyear last year, we would be back to where we were 
prepandemic--pretty strong economic growth--and yet the Democrats were 
insisting on another $1.9 trillion, almost $2 trillion, of spending.
  Remember, we had just passed a $900 billion spending bill to help 
with COVID, which was bipartisan, by the way. I was part of putting 
that together. And so when it came to this new one, we said: Whoa, 
don't do this. It is going to overheat the economy, overstimulate the 
economy--particularly because inflation is about demand mismatching 
supply.
  And this is exactly what was happening. You had demand growing and 
supply constricted, partly because of COVID, partly because of policy 
decisions that were being made.
  So we warned that this much stimulus in the economy was going to lead 
to inflation, and very sadly, we were right.
  By the way, it wasn't just Republicans who said that. Some prominent 
Democrat officials said that, including some who had been senior 
economic advisers in the Obama administration, in the Clinton 
administration, including Larry Summers, who was quite prescient when 
he said: Gosh, we shouldn't do this because this is going to heat up 
the economy and cause a lot of inflation.
  Democrats didn't pay any attention to those concerns then. They went 
ahead and passed that legislation. Remember, today, we are looking at 
inflation that is the highest it has been in 40 years, and here we are 
today about to do some of the same exact things: more spending, more 
taxes.
  It is $700 billion more in spending and about $326 billion in taxes--
new taxes on the economy.
  It will not reduce inflation. In fact, the nonpartisan Penn Wharton 
Budget Model predicts it will actually increase inflation over the next 
2 years and that, over time, it will be about even. But it won't 
decrease inflation. In fact, over the first couple of years, they say 
it will increase it.
  And the burden of the $326 billion in the tax increases is not just 
going to companies. It never does. It gets passed along. In this case, 
it falls, of course, to workers and to consumers. According to the 
nonpartisan Joint Committee on Taxation that we have to rely on up 
here--it is a nonpartisan group that gives us the analyses of these tax 
bills--it will hurt Americans in nearly every income bracket.
  In fact, they say more than half of the $300 million in new taxes 
will fall on folks making less than $400,000 a year. Why? Because, 
again, you are taxing a company, but the company passes that along to 
its workers and to its customers. And they are saying that more than 
half of that burden will fall on taxpayers who make less than $400,000 
a year.
  Why do I say that? Because that is the cutoff that President Biden 
has always put in place, saying that no tax increases will affect 
anybody who makes less than 400,000 bucks a year. This one does. Again, 
it is based on the Joint Committee on Taxation.
  As part of these tax hikes, manufacturing is hit particularly hard. 
The Joint Committee says that about 50 percent of the impact of this 
tax increase is going to be on manufacturing businesses.
  Now, this is interesting to me because we just passed a big bill. 
Some call it the CHIPS bill. Some call it the China bill. Some call it 
the Competition bill. But it was a bill to focus on what? Making our 
American companies more competitive, particularly our manufacturing 
companies. And we are spending a lot of money--hundreds of billions of 
dollars--to do that. And here we are turning around and saying: No. Do 
you know what? We are actually going to increase taxes on these 
manufacturing businesses.
  This proposed tax is very different from the existing corporate 
income tax, which is based on income that these businesses actually 
report to the Internal Revenue Service when they file their taxes. That 
income has been defined by Congress over the years. It doesn't use that 
as the measure of income. Instead, it looks at a company's financial 
statements and comes up with a new definition of income called the 
adjusted financial statement income.
  This type of financial reporting is far broader because these 
statements were designed for very different reasons. Taxable income 
that the IRS is in charge of, as opposed to financial income, is meant 
to raise revenue and provides in our Tax Code all kinds of tax 
preferences, incentives, disincentives for certain activity--like being 
able to deduct the cost of new equipment. That is something we want to 
encourage. So we allow companies to do that. Like being able to take a 
tax credit, let's say, for energy efficiency--we want to encourage 
companies to do that. So that is in the tax part as opposed to the book 
income part.
  The financial statement income is not determined by elected 
representatives. In other words, Congress doesn't determine how you 
calculate that tax. The financial statement income is actually 
determined by something called the Financial Accounting Standards 
Board, which is a private nonprofit recognized by the U.S. Securities 
and Exchange Commission as the accounting standard setter for public 
companies.
  Now, that works fine for determining accounting standards, but this 
change effectively puts these people in control of what the corporate 
tax base is, even though they are not elected Representatives. They are 
not even working for the government. They are a nonprofit.
  Because corporate income taxes and this book minimum tax are 
calculated using these very different types of information, the 15-
percent minimum tax, which is a book-tax minimum tax, can actually end 
up being larger for companies than the 21-percent income tax--again, 
because it calculates it differently.
  It is an example of Congress avoiding its responsibility, frankly. If 
we think that we should charge companies more taxation, let's look at 
the Tax Code and let's get rid of some of these tax preferences that 
people think don't work. Let's change the Tax Code. Let's not come up 
with another way to calculate what the tax ought to be--determined, 
again, by accounting standards that are done by this nonprofit group 
called the Financial Accounting Standards Board.

  Instead of examining the Tax Code we created and the deductions and 
credits that exist, it simply hands the reins over to this board. Most 
accountants and tax experts recognize this is

[[Page S3870]]

really a dangerous path. This is why, when it was proposed last year, 
264 accounting academics wrote to Congress to warn us not to do it. 
They warned of the dangers of politicizing this accounting board, how 
that would lower the quality of financial accounting. They warned that 
this would change company decision making to make companies less 
efficient because companies are now going to manage toward the 
financial statement, not toward the income tax.
  They also warned that it would add needless and significant 
complexity to the Tax Code. Well, of course, you are going to 
calculate, now, income on two bases, with very, very different 
measurement and factors considered.
  To their credit, actually, the American Institute of Certified Public 
Accountants, who actually stand to benefit from complexity, separately 
also wrote us just recently a letter saying: Please don't do this. This 
is the CPA organization in the whole country--again, people who would 
benefit from complexity--but they are saying this is just bad policy. 
Why would you determine a company's taxation based on the book income? 
That is not what that is for.
  We should listen to these warnings, and we should also learn from 
history. We tried this type of tax in the form of the 1986 tax reform. 
We actually tried this as a country. And do you know what? It lasted 2 
or 3 years, and then it was repealed. Why? Because it didn't work. The 
exact warnings that we just talked about ended up being true. The 
Assistant Secretary of Treasury for Tax Policy told the House Ways and 
Means Committee when it was repealed that the book tax they had then 
was ``having a detrimental effect on the quality of financial 
reporting.''
  The complexity was complained about and the fact that this was not 
fair and was not an appropriate way to measure a company's income.
  Now, more than 30 years later, Democrats seem to have forgotten 
history and are about to repeat the same mistake. The line you are 
likely to hear from some of my colleagues on this side of the aisle is 
that this tax is just designed to make big companies pay their fair 
share of taxes because it only applies to companies who have more than 
a billion dollars in net income. Well, that is fine. But guess who pays 
this tax. It is not corporations that bear the brunt of it.
  In reality, taxes on corporate income, such as this new book minimum 
tax, falls on workers and it falls on consumers. And there are lots of 
workers and consumers who are connected with these companies.
  Last year, there were over 200 companies listed in the Fortune 500 as 
having a billion dollars in profits or more, and, by the way, they 
employed more than 18 million Americans. You are talking about 18 
million people out there who will be affected by this, and these big 
companies also have a lot of consumers well beyond those 18 million. So 
it is the millions of people who are employees and who are customers in 
these businesses who bear the brunt of these tax increases as they are 
passed down to them in the form of lower wages, lower benefits, and 
higher prices for goods and services--exactly the wrong thing in this 
inflationary spiral we are living in now where everything costs more. 
Why would we want to add additional costs by saying we are going to tax 
these companies that are going to pass it along to their workers and to 
the consumers with higher prices?
  It doesn't matter whether you are taxing income or income on 
financial statements; the corporate income tax falls on these workers. 
Don't take my word for it. Again, the Joint Committee on Taxation just 
last year said that they expect about 25 percent of corporate taxes to 
fall on workers. This means lower wages, again, as this recession looms 
and as inflation hits the highest levels since 1981, 40-plus years.
  By the way, we just went through our second quarter of negative 
economic growth. Traditionally, that means a recession. That is how we 
define one. The administration refuses to call it a recession.
  I will just tell you, for people who live in my home State of Ohio--
particularly people on fixed income, lower and middle-income workers--
they are feeling it. For them, it is a recession.
  In addition to the Joint Committee saying that the corporate taxes 
fall on workers, the Congressional Budget Office--again, a nonpartisan 
group up here in Congress--has said that employees and workers bear 
more like 70 percent--70 percent--of the burden of corporate income 
taxes.
  There is a long list of analyses in between. In 2017, the 
Organization for Economic Cooperation and Development, or OECD, 
reviewed many of the available economic studies around the world that 
have been done and found that the best studies fall within this range 
of about 30 to 70 percent.
  Let me say that again. Overwhelmingly, economic studies support the 
idea that workers bear between 30 and 70 percent of the corporate tax 
hikes.
  So going after workers' wages is one heck of a strategy to bring down 
inflation. People are already hurting because wages are here and 
inflation is here. So wages haven't kept up with inflation. This will 
make it worse.
  Germany, by the way, did an analysis of corporate taxes recently and 
found that the burden fell hardest on low-skilled, young, and female 
employees, not the highest earners.
  The most important of these tax law changes is limiting what is 
called bonus depreciation. That is something that you would get as a 
company if you are in the regular income tax system but not under this 
new book tax calculation.
  What is bonus depreciation? Well, it allows companies to deduct the 
costs of investments, of new equipment in the year they are made. Under 
the book tax, they spread that deduction over the lifetime of the 
investment. In both cases, they are deducting the cost of it, but 
whether they can do it immediately under bonus depreciation or whether 
they have to do it over the course of many years matters a lot for 
investment decisions.
  Being able to deduct the cost of these investments immediately 
provides a big incentive for people to invest, and that is what has 
happened. This is not a loophole. I have heard this word: It is a 
loophole; we are just closing loopholes.
  This is not a loophole. This is a deliberate tax policy that we have 
put in place to help encourage companies to invest more in equipment 
and plan and therefore help the workers, therefore make America more 
competitive, and, actually, over time, it increases the tax revenue 
that comes in to our coffers.
  It is really important to encourage investment and economic growth 
but particularly important for manufacturers. That is why the Joint 
Committee on Taxation found that half of the burden of this new tax 
will fall on manufacturers because bonus depreciation is so important 
to them. This isn't unique to us. Every single developed country in the 
world offers a policy like bonus depreciation. Why? Because it works, 
because if they don't and other countries do, they can't compete.

  The United Kingdom is far more generous than ours, for example, for 
purchase of equipment. Across the assets that use this sort of what is 
called cost recovery, we are actually well below the average in the 
OECD, which is the group of about 40 highly developed countries like 
ours. We rank 21st now out of 38 for these types of incentives. This 
will make us even less competitive, meaning it is going to be better 
for manufacturers to invest in other countries that have better 
incentives rather than here in the USA. We want them to invest here. 
Again, we just passed legislation to provide more incentives to invest 
here, and now we are doing just the opposite through this book tax 
increase.
  Bonus depreciations traditionally had bipartisan support, and this 
sudden shift to call this bonus depreciation a loophole is a 
misrepresentation of what bonus depreciation does, why we have it, and 
how important it is for our manufacturers to compete. We expanded bonus 
depreciation in the 2017 Tax Cuts and Jobs Act. And then in 2018, the 
next year, and 2019, the next year after that, we had two of the best 
years ever for manufacturing investment, growing by 4.5 percent and 
then 5.7 percent, respectively. A lot of that growth was going on, 
prior to that time, overseas, particularly in China. And we brought 
investment back to the United States. This is why, according to the 
Joint Committee on Taxation, the manufacturing industry is so hit hard 
by this.

[[Page S3871]]

  According to the National Association of Manufacturers, in 2023, this 
tax increase would shrink GDP--that is our economic growth--by about 
$68 billion, would result in 218,000 fewer jobs, and it would have a 
labor decrease of about $17 billion. This is the National Association 
of Manufacturers telling us this week: Please don't do this. This is 
going to result in a job loss to over 200,000 jobs. We want to have 
more manufacturing jobs, not less.
  The workers hit hardest are those who work in manufacturing because 
this tax hike on physical assets will disproportionately hit 
manufacturing jobs. My home State of Ohio has a lot of manufacturing 
jobs. We are a big manufacturer. We are proud of that. We have a lot of 
factories. We like to make things. So it will particularly hit States 
like mine.
  But, remember, it is not just wages we are talking about. No. Workers 
get hit at both ends. They get hit as workers--wages and benefits--but 
also as consumers when they get paid and when they try to spend their 
money. Families facing record inflation today are facing higher prices 
as cost of corporate taxes get passed down to the consumer. Again, I am 
not going on gut feeling; although, it makes sense, doesn't it? If you 
tax an entity, it gets passed along in terms of the cost of the goods. 
I am talking about what economists are saying is going to happen when 
we increase taxes on American businesses.
  In a key study last year performed by economists at the business 
schools of the University of Chicago and Northwestern, they found that 
about 31 percent of corporate taxes fall on consumers through higher 
retail prices, and they warn that policymakers have been 
underestimating significantly how much of these taxes fall on 
consumers, on the people that buy these products that these companies 
make.
  Democrats are ignoring this evidence, pushing ahead with partisan 
legislation, without any Republican support, that will make inflation 
worse; that will hurt workers; that will raise prices.
  Again, it doesn't stop there.
  I can talk about how corporate taxes discourage investment, both 
domestic and foreign, in the United States, according to economists 
from the World Bank and from Harvard. I can talk about how, contrary 
everything the Democrats claim, corporate taxes make income inequality 
actually worse, increasing the income of the top earners and lowering 
the income of the low- and middle-income workers. This is based on a 
2020 study by an economist at the University of Michigan.
  I can talk about the opposite side of the equation, how lowering 
taxes for businesses of all sizes, as we did in 2017, supports economic 
growth. Going into the pandemic, we had 19 straight months of wage 
gains of 3 percent or more. Most of that wage gain was going to lower- 
and middle-income workers. We had the lowest poverty rate in the 
history of the country. We had good things going on because you had 
this economic growth. You had companies paying higher wages.
  In the years between the Tax Cuts and Jobs Act and the coronavirus 
pandemic, again, we not only saw just an end to these corporate 
inversions with companies going overseas, we saw jobs and investment 
coming back to the United States, and we kept inflation very low. That 
is a far cry from the estimate that was out last week from the National 
Association of Manufacturers, which, again, predicts that this book tax 
will result in a $68 billion hit to our economy with over 200,000 fewer 
jobs.
  Prior to the pandemic, pro-growth policies led to a really strong 
economy with steady growth, low inflation, and real wage increases of 3 
percent or higher. Instead of spending and tax hikes that are only 
going to add to this inflation, let's have a true Inflation Reduction 
Act that lowers costs to consumers by increasing supply to regulatory 
relief and other pro-growth policies that were working so well before 
the pandemic. Let's do what we know we have to do to get inflation 
down.
  It is a mismatch between demand and supply. We can, through positive 
pro-growth policies, increase that supply and get inflation down and 
ensure that American families have a better shot at their American 
dream. Instead, here we go again with the Inflation Reduction Act that 
will actually be the ``Inflation Increase Act.''

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