[Congressional Record (Bound Edition), Volume 154 (2008), Part 14]
[Senate]
[Pages 19385-19388]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  AMERICA'S SENIOR CITIZENS AND TAXES

  Mr. GRASSLEY. Madam President, I come to the Senate today to talk 
about an important segment of our Nation's population, America's senior 
citizens.
  Our senior population has seen a very rapid growth in the 20th 
century. As of the year 2000, there were about 35 million people who 
were 65 years of age or older. Compare this with 3.5 million people at 
the beginning of the 20th century. Today, about 37 million people are 
65 years or older. This amounts to about 12, 13 percent of our total 
population.
  In 2011, the first baby boomers turn 65. This will mark the beginning 
of an explosion in our senior population. By 2030, the senior 
population will be twice as large, growing from 35 million to 70 
million.
  You may ask why I am citing these numbers. My Senate colleagues may 
think I am setting the stage for a lengthy discussion about our 
entitlement programs--Social Security and Medicare. While the impending 
entitlement crisis does require my attention, along with the attention 
of every Member of Congress--and very soon--I wish to discuss another 
issue that is at the center of this year's political debate, and that 
is that mean word ``taxes''--yes, taxes on our senior citizens. I wish 
to explain to my Senate colleagues and my friends in the media how 
seniors are taxed under current law. I also would like to talk about 
how the Republican and the Democratic Presidential candidates' tax 
plans will affect our senior citizens.
  With a significant increase in our older population looming, those 
who are currently 65 and older--and those who will be turning 65 over 
the next 2 decades--should pay close attention to the tax changes that 
will be faced under a Republican administration and Senator McCain or a 
Democratic administration and Senator Obama as President. People should 
not only be wary of campaign promises, they must also understand the 
flaws in the various tax proposals being offered the voters this 
election season. Change may result in higher taxes.
  I wish to start by picking up from a speech I gave back in July. That 
speech featured Rip Van Winkle. I have a picture of Rip Van Winkle up 
here on a chart. In that speech, I explained how a charismatic, 
likable, articulate, young Governor from Arkansas barnstormed across 
America in 1992 as the Democratic Presidential candidate. That 
candidate--now former President Bill Clinton--had a battle cry: 
``putting people first'' and ``middle-class taxpayer fairness.'' It 
sounds familiar, doesn't it?
  Another familiar tune is what candidate Clinton was saying in that 
same year, 1992. He said, if elected, ``the only people who will pay 
more income taxes are those living in households making more than 
$200,000 per year.''
  If elected, the junior Senator from Illinois, the Democratic 
candidate, says that he will only raise taxes on families earning 
$250,000 or more.
  But once candidate Clinton was sworn in as President Clinton, that 
campaign promise was quickly discarded. In 1993, President Bill Clinton 
and a Democratic Congress enacted the largest tax increase in history. 
Those are not my words. I will quote the great chairman of the Finance 
Committee at that time, New York Senator Patrick Moynihan, who termed 
it ``the

[[Page 19386]]

largest tax increase in the history of public finance in the United 
States or anywhere else in the world.'' And much to the voters' 
surprise, the tax increase of 1993 was on people who earned more than 
$20,000, not just those earning more than $200,000, as candidate 
Clinton had said in that campaign.
  So the moral of this story is that candidate Clinton, who promised 
middle-class tax relief, raised taxes on the hard-working middle-class 
taxpayers once he became President Clinton. This was obviously change 
that you could not believe in.
  The reason I told that story was to tell this story back then. Not 
only did President Clinton raise taxes on the middle class, he raised 
taxes on seniors.
  That is why I am speaking to my colleagues about the impact of tax 
proposals on senior citizens that are an issue in this election. That 
is right, taxes were raised on seniors.
  What was this tax increase on seniors back in 1993? It was an added 
tax on Social Security benefits. Let me take a moment to explain how 
this tax currently works.
  Prior to the 1993 tax increase, married seniors with incomes less 
than $32,000 did not pay taxes on their Social Security benefits. For 
single seniors, those with less than $25,000 paid no taxes on their 
Social Security benefits. However, single seniors with incomes over 
$25,000 and married seniors with incomes over $32,000 paid income tax 
on only 50 percent, or maybe for the people paying it, it was on the 
whole 50 percent of their Social Security benefits. The revenue raised 
from this tax is directed into the Social Security trust fund.
  These rules remain in place today, but under the 1993 tax increase 
that President Clinton signed, senior citizens with incomes over 
$34,000 and married seniors with incomes over $44,000 were required to 
pay income tax on not 50 percent of their Social Security benefits but 
85 percent of their Social Security benefits. So this so-called tier 2 
Social Security tax is still part of our tax laws. The revenue 
generated from the tier 2 tax is directed to the Medicare trust fund.
  Let me pause for a moment to show how many seniors actually pay tier 
1, that is 50 percent, and tier 2, the additional 35 percent. We can 
see on this chart a number for 1994 and a number for 2005. In 1994, 
when the tier 2 tax became effective, almost 6 million seniors paid 
income tax on their Social Security benefits. This includes singles and 
married seniors.
  Compare this with 2005, the most recent year we have accurate data 
from the IRS. Around 12 million seniors paid the tier 1 and the tier 2 
Social Security tax. So you can bet your bottom dollar that seniors 
with incomes of less than $200,000 were surprised when they woke up to 
the fact that the tax increase of 1993 hit them.
  Why were they surprised? Candidate Clinton assured them their taxes 
would not go up. Not only did their taxes go up, they had to give back 
a significant portion of their Social Security benefits to the 
Government, benefits that they worked a lifetime to receive.
  Will America's seniors and the middle class, for that matter, wake up 
to higher taxes after the 2008 election? That is the key for my being 
here, to look at the tax debate going on in this election season for 
the Presidency. Will American seniors and the middle class, for that 
matter, have to wake up to higher taxes after the 2008 election?
  Much like Rip van Winkle woke up to a different, changed world, will 
Senator Obama's change be something seniors can believe in? Could 
history repeat itself?
  I wish now to explain how the 2001 and 2003 bipartisan tax relief 
benefits American seniors. The reason I call them the bipartisan tax 
relief bills is because it had bipartisan support, unlike the rhetoric 
of the campaign which is always referring to the Bush tax cuts.
  If these were the Bush tax cuts, they would have been a heck of a lot 
bigger tax cuts than the bipartisan tax relief that is now the law of 
the land.
  I wish to specifically focus on the reason for the 2003 tax relief 
because in 2003, Congress reduced the top tax rate on capital gains 
from 20 percent down to 15 percent. Congress also tied dividend income 
to the capital gains tax rate instead of the taxpayers' marginal tax 
rate. That is, of course, the same 15 percent as for capital gains.
  For low-income taxpayers, the tax rate on capital gains and dividends 
is currently zero. How does a lower capital gains and dividend income 
tax rate benefit our senior citizens who have contributed so much to 
this country? Census Bureau statistics show that about 23 percent of 
the taxpayers claiming dividend income are senior citizens; in other 
words, 65 or over. A nonpartisan research group, the Tax Foundation, 
shows that nearly 26 percent of all taxpayers claiming capital gains 
are seniors 65 or over. So a considerable number of seniors rely on 
investment income as a cornerstone of their overall income.
  The Democratic leadership may file on to this floor and tell you that 
the majority of seniors' income is locked away in retirement plans and 
IRAs and because of this, they don't need the favorable tax relief of 
capital gains and dividend income. I have news for anybody. First, as I 
pointed out, a large number of seniors rely on a stable flow of income 
that dividends provide. Add seniors' reliance on capital gains and you 
see that any reduction in investment income through higher taxes will 
hurt our hard-working senior citizens.
  Let me show my Democratic colleagues and friends in the media the tax 
savings that seniors currently enjoy due to lower tax rates. As we can 
see on the chart, seniors with incomes under $50,000 earning dividend 
income see the biggest tax savings. Their tax liability is 17 percent 
less than it would be if the favorable tax relief expired. This portion 
of the chart also illustrates how much more seniors rely on this 
favorable tax treatment than taxpayers of all ages. For all other 
taxpayers, their tax liability is 7.6 percent less, as we can see from 
the chart, the first bar.
  Let's look at seniors claiming capital gains. Same chart, as we can 
see. Seniors with incomes under $50,000 pay about 13 percent less in 
taxes than they would without the favorable tax relief in the 2003 
capital gains law. That is a significant chunk of change for our hard-
working seniors or, if they are retired, for having worked hard 
throughout their life.
  So we can see my Democratic friends don't have a leg to stand on. 
They come out here--we have seen them and heard them--like the big bad 
wolf and huff and puff about how seniors do not benefit from the 15-
percent capital gains and dividend income tax rate. But the facts, as I 
presented them, are clear, and we get this information from foundations 
and study groups. Seniors rely on capital gains and dividend income to 
maintain their standard of living and pay their medical expenses. 
Seniors benefit significantly from the favorable tax treatment on 
capital gains and dividend income, especially low-income seniors.
  The moral of this story is that lower tax rates on investment income 
means these seniors can keep more of their earnings to pay for life's 
necessities. Taking these tax benefits away from seniors by raising 
capital gains and dividends, these are people who will be hurt because 
they most typically live off of a fixed income and their standard of 
living would be severely impacted.
  My Democratic colleagues in Congress actually want to take away the 
2003 tax relief for seniors. For example, in March of this year, this 
body took a very important vote. I, along with my Senate colleagues, 
voted on an amendment to the budget that would have allowed the 15-
percent capital gains and dividend income tax rates to be extended 
beyond their sunset period of 2010. Every Democrat voted no. If the 
Democrats get their way, this favorable tax treatment will go away for 
seniors, raise taxes on seniors, and lower the standard of living of 
seniors. I voted to extend the 15-percent capital gains and dividend 
income tax rate.
  The senior Senator from Arizona voted yes. Interestingly, the junior 
Senator from Illinois voted no. My friend's vote is interesting because 
the junior Senator from Illinois is now

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barnstorming across America campaigning to be President, much as 
President Clinton did. On the stump, the Democratic candidate has 
stated he does not want the 15-percent capital gains and dividend 
income tax rates to go away, at least for families earning less than 
$250,000 a year. Let me repeat, the junior Senator from Illinois, whose 
word is his bond, voted with this budget vote last spring to allow the 
15-percent capital gains and dividend income tax rates to expire, but 
now he is saying he wants this tax relief to stick around.
  To a degree, I am glad for that change of heart, but the more I think 
about it, the more I wonder whether the junior Senator from Illinois 
will stick to this campaign promise if elected because he might find 
himself in a position like Candidate Clinton who failed to stick to his 
campaign promise when he became President not to tax the middle class. 
So maybe my Democratic friend will be the big bad wolf after all. Huff 
and puff and let the 15-percent capital gains and dividend income tax 
rate expire. I am not sure if a President Obama will be living in such 
a brick house. His house may be made of straw and his campaign promise 
of extending the 15-percent capital gains and dividend income tax rate 
for families earning less than $250,000 may be blown down.
  Former President Clinton's promise was blown down, and we saw the 
biggest tax increase in history. That is what Senator Moynihan, 
chairman of the committee at that time, said. I don't want history to 
repeat itself.
  Let's focus on how seniors would be affected under a Republican or a 
Democratic administration. Let me start with a Republican 
administration because Senator McCain's tax plan is straightforward. 
That is, the Senator from Arizona would continue the current 15-percent 
capital gains and dividend income tax rates beyond its sunsetting. He 
would also continue the tax rate of zero percent for low-income 
taxpayers. Yes, it is a very simple tax plan.
  The PRESIDING OFFICER. The Senator has used 10 minutes. We are under 
a time agreement.
  Mr. GRASSLEY. I ask permission to continue. I was told I would have 
until 10 after 6, and I will be done before 10 after 6.
  Ms. LANDRIEU. Madam President, may I inquire of the Senator, another 
5 or 10 minutes?
  Mr. GRASSLEY. Let's say 7 minutes, and if I am not done in 7 minutes, 
I will quit.
  Ms. LANDRIEU. I thank the Senator.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Madam President, seniors under the tax plan proposed by 
the senior Senator from Arizona would continue to benefit from lower 
tax rates. This would allow seniors to maintain their current standard 
of living. These taxpayers will be able to age with dignity.
  The Democratic Presidential candidate's tax plan for seniors is much 
more complicated. But first let's keep it simple. Although the junior 
Senator from Illinois voted to allow the 15-percent capital gains and 
dividend income tax rates to expire, he is now saying he wants to keep 
this favorable tax treatment for families earning less than $250,000.
  It seems the Senator from Illinois thinks the bipartisan tax relief 
is good and should continue for most taxpayers. However, his Democratic 
colleagues in the House and Senate don't seem to think so. After all, 
they voted to allow the 15-percent capital gains and dividend income 
tax rate to expire in that vote we had this spring.
  I ask, if Senator Obama is elected on November 4, will he be able to 
convince his Democratic colleagues to continue this favorable tax 
treatment? President Clinton was unable to stop a Democratic Congress 
from increasing taxes in 1993. And I wouldn't want history to repeat 
itself.
  I also want to spend some time discussing a proposal my friend from 
Illinois has discussed on the campaign trail. Senator Obama has 
proposed to exempt seniors with incomes less than $50,000 from income 
taxes. This sounds pretty good. I mean, for 2007, the median income for 
people 65 and over was close to $28,000. But if you take a closer look, 
there are a number of flaws.
  These are not my words. The Tax Policy Center, a nonpartisan think 
tank that has received notoriety for analyzing the tax plans of Senator 
McCain and Senator Obama, states that ``the proposal is poorly 
designed.'' They also say the proposal ``creates inequities between 
older and younger workers with the same income.'' The AARP, the 
powerful senior lobby, hasn't even highlighted the proposal in 
communications with its membership.
  But I wish to highlight this proposal and expose its flaws because I 
don't want our seniors to believe in a campaign promise that can't be 
delivered.
  First, the $50,000 exemption amount would not be indexed. This means 
it would erode over time, becoming less and less valuable to seniors.
  Second, the $50,000 threshold is a cliff. That means a senior earning 
$1 over $50,000 won't qualify for the exemption and that senior might 
stop working to make sure they do not go over that cliff.
  Third, the $50,000 exemption amount applies to both single and 
married taxpayers. This produces a marriage penalty that is unfair to 
married seniors.
  Finally, this proposal exempting seniors making less than $50,000 
from paying income taxes would add to the Social Security and Medicare 
deficits. This may not be such a big deal for seniors, but it is a big 
deal for those of us here in Congress who have to find solutions to the 
shortcomings of Medicare and Social Security.
  Let me tell my colleagues, and of course the media, how this proposal 
would add to the Social Security and Medicare deficits. As I discussed 
earlier, our current tax laws require seniors with incomes over 
$250,000 and $32,000 to pay income taxes on their Social Security 
benefits. According to preliminary data released by the IRS, close to 
14 million seniors paid income tax on their Social Security benefits in 
2006. This is because many seniors continue to work. Or they retire, 
but earn interest income, capital gains dividends, or rental income. 
Even half of their Social Security benefits are taken into account for 
purposes of determining whether a taxpayer must pay income taxes on 
their Social Security benefits.
  Now, there are many seniors who are earning less than $50,000 but 
more than $25,000 and $32,000. Currently, the income taxes these 
seniors pay on their Social Security benefits go directly to Social 
Security and Medicare. This means if these seniors are exempt from 
taxes, less tax revenue flows into the Social Security and Medicare. 
The trustees of these funds are already projecting that the Medicare 
trust fund will run out of money in 2019 and that the Social Security 
trust fund will follow in 2041.
  The Senator from Illinois may say he will make up for this revenue 
loss by raising payroll taxes on families earning more than $250,000 a 
year, but his campaign has recently stated that any increase in the 
payroll taxes on these workers would be phased in over 10 years. This 
means the revenue Senator Obama was relying on to make up the revenue 
loss that would result from the seniors' tax exemption won't be there. 
I am not sure about you, but making a campaign promise that will 
balloon the Social Security and Medicare deficits is not good judgment, 
especially when baby boomers are on the verge of turning 65.
  Now, I have saved the best for last, and I want to say it loud and 
clear so my friends in the media and our Nation's seniors can hear it: 
Seniors will see their taxes go down under Senator McCain's plan, 
especially married seniors. Low- and middle-income seniors who are 
married will be taxed less than under the Democratic tax plan. Senior 
citizens will also enjoy tax relief under the McCain tax plan.
  The Senator from Arizona is doing the right thing in reducing the 
corporate tax rates. After all, our Nation has the second highest 
corporate tax rate in the world. That causes companies to move their 
operations overseas. Both Senator Obama and Senator

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McCain have alluded to the competitive problem our corporations face 
because of high tax rates. There is an added benefit to reducing 
corporate rates. The answer is: a tax cut for middle-class seniors. 
Well, the incidence of the reduction of corporate tax rates falls on 
capital. The Congressional Budget Office tells me that the burden of 
the corporate tax falls on capital, and so does the Tax Policy Center.
  So because seniors hold investments in corporations--as evidenced by 
the fact that almost a quarter of all Americans claiming dividends are 
seniors--they will see the benefits of lowering corporate tax rates. 
This means they will see their taxes go down if the corporate tax rate 
is reduced. Married seniors in particular will see their taxes go down 
more than under the tax plan of the Senator from Illinois, and in some 
cases the senior taxes would go up under the Democratic tax plan.
  The Tax Policy Center has indicated that low-income seniors, those 
earning up to $32,000, would see their taxes go up by close to $150 
under Obama's tax plan. Contrast this with Senator McCain's plan, where 
these same low-income seniors would see tax cuts of over $150.
  The Senator from Illinois may not believe me. After all, he has 
promised no new taxes for families earning less than $250,000, and that 
these taxpayers would receive a tax cut. But here on this chart, it is 
in black and white. According to the Tax Policy Center, seniors with a 
total income up to approximately $24,500 and $32,000 would see a tax 
cut of $186 and $154 respectively. That is under the McCain plan. Under 
the Obama plan, these same seniors would see their taxes go up by $157 
and $131 respectively. That is a tax increase. And if your income is 
around $83,000, you will see a tax increase of $364 under Obama. 
Compare that to a $431 tax cut under the McCain plan.
  Let's look at single seniors. If you are a single senior with a total 
income around $21,000, you will see your taxes go up $118 under Senator 
Obama's tax plan and they will go down $140 under Senator McCain.
  So I ask the Senator from Illinois whether he would like to revise 
and extend his remarks. He says no new taxes and tax cuts for people 
making less than $250,000. But as we can see here, that is not true. 
And the tax increase is on one of the most vulnerable segments of our 
society: our seniors.
  I would like factcheck.org to post the Tax Policy Center's numbers on 
their Web site, and I want seniors in Pennsylvania, Florida, Ohio, 
Missouri, and my home State of Iowa to read this and study it. Don't 
buy a pig in a poke. Be wary of a unified government. We need to make 
sure that we install in the Presidency people who are going to keep tax 
rates low on seniors.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Louisiana.
  Ms. LANDRIEU. Madam President, I understand we have up to 10 minutes.
  The PRESIDING OFFICER. The Senator is correct.

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