[Congressional Record (Bound Edition), Volume 151 (2005), Part 20]
[Senate]
[Pages 27281-27282]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        PREVENTING TAX INCREASES

  Mr. KYL. Mr. President, I want to take some time to discuss the 
importance of preventing tax increases that are scheduled to occur over 
the next several years.
  The budget resolution conference agreement reached in April provides 
reconciliation protection for $70 billion of tax reductions over 5 
years, with the direction that the allocation be used to prevent tax 
increases during the budget window. This sent a signal to investors 
that capital gains and dividends tax rates would be extended through 
2010. I am disappointed that the legislation approved by the Senate 
does not meet that expectation. Fortunately, the bill approved by the 
Ways and Means Committee in the other body does, and I pledge to all 
investors that I will continue to work for that outcome. Indeed, the 
Senate majority leader pledged that he would not bring the bill back 
from conference without an extension of these investment tax rates. 
Similarly, the administration released its Statement of Administration 
Policy on the bill, which urged Congress to extend the lower rates for 
capital gains and dividends, noting, ``These extensions are necessary 
to provide certainty for investors and businesses and are essential to 
sustaining long-term economic growth.''
  The tax reconciliation bill is intended to prevent tax increases by 
extending ``widely applicable'' tax provisions. My colleagues might 
find it interesting that more taxpayers benefit from the lower rates on 
dividends and capital gains than benefit from any of the provisions 
included in the tax reconciliation bill approved by the Senate. For 
example, nationwide, fewer than 8 million filers were helped by the AMT 
hold-harmless provisions in 2003, while more than 30 million filers 
reported dividend income and more than 22 million reported capital 
gains Income.
  Nationwide, 17 percent of all tax filers reported capital gains in 
2003, the most recent year for which statistics are available. Of all 
filers reporting capital gains income in 2003, 30.1 percent had 
adjusted gross income under $30,000 compared to just 8.7 percent who 
had AGI of $200,000 or more. In Arizona, 18 percent of all filers 
reported capital gains income, and of those reporting capital gains 
income, 32 percent had AGI under $30,000.
  The story is similar for tax filers reporting dividend income. 
Nationwide, 23 percent of all filers reported dividend income in 2003. 
Of all filers reporting dividend income in 2003, 30.6 percent had AGI 
under $30,000 compared to 6.9 percent who had AGI of $200,000 or more. 
In Arizona, 22 percent of all filers reported dividend income and, of 
those filers reporting dividend income, 32 percent had AGI under 
$30,000.
  But beyond the number of taxpayers who have benefited directly, the 
most important thing to know about these lower rates that were enacted 
in 2003 is that they are working. At the lower rates, the tax penalty 
imposed on the additional investment earnings--the reward from taking 
on additional risk--is smaller, and thus makes the risk more 
attractive. When investors get to keep more of their reward, they are 
encouraged to invest more; with more investment, businesses have an 
easier time attracting the capital they need to expand, create new 
goods and services, and also create more jobs. It is all of this 
additional economic activity that creates economic growth.
  All Americans have benefited as the economy has rebounded with the 
help of these tax policies. Whether you embraced these lower rates at 
the time or not, everyone must now acknowledge that since the 2003 tax 
relief legislation was signed into law, gross domestic product has 
grown by more than 3 percent for 10 straight quarters, most recently 
expanding at a 3.8-percent annual rate in the third quarter. The United 
States remains the fastest growing major industrialized country in the 
world. Business investment had fallen in nine consecutive quarters 
before the 2003 bill's passage, but cutting taxes on capital helped 
reverse that decline. In the last nine consecutive quarters, business 
investment increased at a 6.9-percent annual rate.
  The strong economy has had a very positive effect on the Government's 
finances, as more revenue is flowing into the Treasury even at the 
lower tax rates. As a share of the Nation's GDP, the 2005 deficit was 
2.6-percent--down from the 3.6-percent share in 2004. In fiscal year 
2005, taxpayers sent $274 billion more in revenue to Washington than 
the year before and $100 billion more than the Congressional Budget 
Office predicted. Clearly the American taxpayers are doing their part.
  Yet some of my colleagues claim that we cannot afford to keep these 
lower rates, even though they have spurred economic growth, because we 
are still running a deficit. If We are to keep these tax rates, they 
argue, we must raise taxes someplace else. What they are seeking is a 
flawed form of budget discipline called paygo or pay-as-you-go. I am 
consistently rated one of the most fiscally responsible Senators by 
nonpartisan watchdog groups, but I don't support paygo because it has 
nothing to do with budget discipline when applied to taxes. The fact 
is, paygo simply does not work. Americans are not undertaxed; our 
problem is that Congress spends too much, and paygo will do nothing to 
control the fastest growing part of the Federal budget: mandatory 
spending. Paygo only applies to new spending or tax cuts; it does not 
apply to existing mandatory programs that grow unchecked year after 
year without Congress acting. Mandatory spending will grow from just 
over half of total Federal spending this year to two-thirds of total 
Federal spending by 2015, and paygo will do nothing to control it. So 
paygo is a false solution that is designed to prevent us from extending 
tax cuts--from making sure tax rates do not increase automatically--but 
that does nothing to prevent spending from increasing automatically.
  I talked earlier about the extension of the dividend and capital 
gains tax rates that I expect to be added to the reconciliation bill in 
conference. I also want to mention some of the provisions that are 
already in the bill. It extends for 1 more year the increased exemption 
amounts for the alternative minimum tax that are scheduled to expire at 
the end of the year. Clearly, Congress must address the problem of the 
AMI in a comprehensive way, but until we can agree on a solution we 
must not allow the increased exemption amounts to expire. If we allow 
these exemption amounts to fall back to their pre-2001 levels, millions 
of middle-income American families will get hit by the AMT. The bill 
also prevents the AMT from eroding certain credits.
  The tax reconciliation bill also includes an extension of the 
increased small business expensing amounts. Under current law, small 
businesses can deduct the cost of qualified investments in the first 
year they are made, up to $100,000 indexed for inflation. After 2007, 
this amount will drop back to $25,000. The bill extends the increased 
amount through 2009. Allowing them to expense a greater portion of 
their investments enables small businesses, which create most new jobs, 
to invest and grow.
  The bill also includes an extension of the saver's credit. The 
saver's credit is a nonrefundable tax credit that encourages low-income 
taxpayers to make contributions to an employer-provided retirement 
savings plan or an IRA. The tax reconciliation bill extends the credit 
through 2009; it is currently scheduled to expire at the end of 2006.
  The bill also extends the above-the-line deduction for college-
tuition expenses. Under current law, the provision that allows a 
taxpayer to take an above-the-line deduction for the cost of college 
tuition expires at the end of 2005. The tax reconciliation bill would 
extend it through 2009, which will make it easier for families and 
students to plan for their educational expenses.
  The bill extends for an additional year an entire group of business 
tax incentives that generally expire on a yearly basis. Many of these 
provisions should be made permanent, and some

[[Page 27282]]

others probably could be allowed to expire. Some of the provisions that 
I strongly support include the 15-year depreciation-recovery period for 
restaurant improvements, the 15-year depreciation-recovery period for 
leasehold improvements, and the extension and improvement of the 
research and development tax credit.
  Finally, the Senate-passed tax reconciliation bill includes several 
business tax incentives designed to encourage investment in the 
hurricane-ravaged area of the southeastern United States. These include 
financing incentives and depreciation provisions to encourage business 
investment, and are very time-sensitive. We must encourage businesses 
to rebuild in the gulf coast area; these particular incentives have 
proven successful in other areas and I expect they will be successful 
in the Gulf region as well.
  So, Mr. President, this tax reconciliation bill is not perfect, but 
it does include several very important provisions. I am confident we 
will make the necessary improvements by adding an extension of the 
lower rates for dividends and capital gains once we get the bill into 
conference with the House.

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