[Congressional Record (Bound Edition), Volume 155 (2009), Part 13]
[Senate]
[Pages 17825-17827]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        TAXES AND HEALTH REFORM

  Mr. GRASSLEY. Mr. President, I rise to discuss the high rate of 
taxation that is about to take place if the House of Representatives 
passes its health reform bill. I would also raise the issue about the 
effect the same level of taxation--not quite as high--would have under 
the budget adopted by this body back in March. I wish to address the 
tax hikes, particularly as they apply to small business, that President 
Obama and my colleagues on the other side of the aisle have proposed.
  The latest tax hike proposal is the House Democrats' graduated surtax 
of up to 5.4 percent on those making more than $280,000. For those 
Americans who are married but file separate returns, this surtax 
increases taxes for those making over $175,000.
  I refer to this surtax as a small business surtax because it hits 
small business particularly hard. Here is how the House's small 
business surtax works. In 2011 and 2012, singles making between 
$280,000 and $400,000 will pay an extra 1 percent, those singles making 
between $400,000 and $800,000 will pay an extra 1.5 percent, and those 
singles making more than $800,000 will pay an extra 5.4 percent. Then 
in 2013 and after, these rates go to 2 percent, 3 percent, and 5.4 
percent, respectively. The only way the rates do not go up to these 
levels is if one of the President's advisers, the Director of OMB, says 
in 2012 that there will be more than $675 billion in health care 
savings by the year 2019 in the bill the House has recently written. 
That is right, in addition to the tax questions, we have the House 
leaving up to a partisan Presidential adviser--not the President 
himself or a nonpartisan organization such as CBO--that taxes stay up 
or can go down.
  Another troubling aspect of this charade is that this does not deal 
only with actual savings achieved but instead calls for a partisan's 
2012 estimate of savings to be achieved through the year 2019. The 
Joint Committee on Taxation, a nonpartisan professional group here on 
the Hill that advises Congress, correctly ignores this charade in its 
estimate of the House small business surtax and correctly assumes that 
the rates are actually going to go up after 2013.
  In 2011 and 2012, then, for married couples, the small business 
surtax kicks in at 1 percent for those making $350,000 to $500,000, it 
rises to 1.5 percent for married couples making between $500,000 and $1 
million, and it goes up to 5.4 percent for those making over $1 
million. Then in 2013 and later, the rates go up to 2 percent, 3 
percent, 5.4 percent, respectively. As discussed above, the only way 
these rates do not go up in 2013 is if the OMB Director decides they 
should not go up.
  Let's look at this tax increase from the venue of small business. I 
know people listening, as well as my colleagues, think: You talk about 
people making $1 million or half a million dollars, why can't they pay 
another 2, 3, or even 5 percent? It is a situation where small business 
in America creates 70 percent of the jobs. It is a case of where most 
small business operates on cash flow, not investment from the outside 
as normal corporations would. So we are talking about the health of our 
economy, and we are talking about getting the economy out of this 
recession we are in.
  By the way, the President and I agree that 70 percent of the new 
private sector jobs are, in fact, created by the small businesses I 
have just described. However, where the President and I differ is that 
I believe small businesses' taxes should be lowered, not raised during 
this time of getting the economy back on track--particularly when you 
look at the stimulus bill that was passed back in February. It doesn't 
appear to anybody as if it is doing any good yet, like creating the 
jobs it was supposed to do, like keeping unemployment under 8 percent, 
which is now 9.5 percent, and only one-half of 1 percent of that $787 
billion stimulus package

[[Page 17826]]

was to help small business. We ought to be doing something, if we want 
to revitalize the economy, that helps small business, and increasing 
taxes on small business will not do that.
  In 2001 and 2003, Congress enacted bipartisan tax relief designed to 
trigger economic growth and to create jobs by reducing the tax burden 
on individuals as well as small businesses. This included the across-
the-board income tax reduction which reduced marginal tax rates for 
income earners at all levels. I know people do not believe this, but if 
you look at the allocation of the tax by the highest 1 percent of the 
people, even after the 2001 tax cut, you saw that highest 1 percent 
still paying a larger proportion into the Federal Treasury, of income 
tax, than they were doing prior to that. So even with tax reduction, 
you end up with a more progressive Tax Code--which nobody is willing to 
admit, but we can back that up by figures. It also, in 2001, included a 
reduction of the top dividends and capital gains tax rate to 15 percent 
and a gradual phaseout of the estate tax.
  Unfortunately, the way you have to write tax bills under the 
reconciliation process around here, those tax bills enacted in 2001 and 
2003 will expire December 31, 2010, and automatically we are going to 
get the biggest tax increase in the history of the country without even 
a vote of Congress because of sunset.
  Some have referred to this bipartisan tax relief as ``the Bush tax 
cuts for the wealthy.'' However, it seems to be easily forgotten around 
here, but this tax relief was bipartisan tax relief and provided tax 
relief for all taxpayers. They have also suggested that the tax relief 
provided for higher income earners, including many small businesses, 
should be allowed to expire. The President has proposed increasing the 
top marginal tax rates from 33 to 36 percent and the other one from 35 
to 39.6 percent.
  We have a chart here you can refer to, so all these numbers I am 
giving, you have a reference point for them.
  The President has also proposed increasing the tax rates on capital 
gains and dividends to 20 percent and providing for an estate tax rate 
as high as 45 percent and an exemption of only $3.5 million.
  Also, the President and allies on the Hill have called for fully 
reinstating the personal exemption phaseouts--we call them PEP, for 
short--personal exemption phaseouts for those making over $200,000. 
Then there is another phaseout called the Pease phaseout, named after a 
former Congressman from Ohio, for those making more than $200,000. So, 
under the 2001 tax law, when these phaseouts come back in after 2010, 
you actually end up with higher marginal tax rates of almost 2 percent. 
It is not 39.6 as the high marginal tax rate; it is something much 
higher--41 or 42 percent.
  You know what you do, you get the smokescreen of saying you don't 
quite have a 40-percent marginal tax rate, but in fact you do have 
higher than 40 percent. There seems to be something magical about not 
exceeding that 40 percent for the benefit of public relations, but it 
will be exceeded greatly with this 5.4 percent the House is putting in, 
in their health care bill.
  However, like other provisions in the law, PEP and Pease are 
scheduled to come back in full force, as I just said, in 2011--again, 
without a vote of Congress. With PEP and Pease fully reinstated, 
individuals in the top two rates could see their marginal effective tax 
rates increase by 24 percent or more.
  Once again, I refer my colleagues to the chart. For example, a family 
of four who is in the 33-percent tax bracket in 2010 could pay a 
marginal effective tax rate of 41 percent after 2010 because of PEP and 
Pease. This rate would go higher if that family had more children, and 
this is before the small business surtax is even factored in.
  Some of my colleagues, particularly on the other side of the aisle, 
have defended this proposal by claiming that they will only raise taxes 
on wealthy taxpayers who make more than $200,000 a year. For the vast 
majority of people who earn less than $200,000, raising taxes on higher 
earners might not sound so bad. However, there are consequences for 
what we do around here. That means many small businesses will be hit 
with a higher tax bill. These small businesses create 70 percent of all 
new private sector jobs. These small businesses that are sole 
proprietors, S corporations, partnerships, and limited law corporations 
would get hit with the President's proposal to raise the top two 
marginal tax rates, if their owners make more than $200,000.
  In addition, there is just under 2 million small C corporations that 
are subject to double taxation. To the extent that these C corporation 
owners make over $200,000 and pay themselves a salary, they would get 
hit with a tax increase on the top two marginal tax rates proposed by 
the President. Also, owners of small C corporations who receive 
dividends or realize capital gains and make over $200,000 would pay a 
20-percent rate on these dividends and capital gains after 2010, under 
these tax-hike proposals. Currently, these pay a rate of 15 percent.
  All of this wasn't bad enough for small business. Why emphasize small 
business? It is the job creation machine of the economy. Why emphasize 
small business? They operate cash flow, generally. They don't have 
outside investors. And why emphasize small business? Because it takes 
entrepreneurs to create jobs. I had the opportunity for 10 years, from 
1961 to 1971, to be a union assembly line worker at a little company 
called Waterloo Register in Cedar Falls, IA. We made furnace registers. 
I use that company--locally owned, people who got together to create 
jobs--as an example. They gave me an opportunity to earn a small 
livelihood for 10 years of my life. It takes people who have means to 
create jobs. I have never worked for anybody who was low income or in 
poverty. You have to have the incentive of people in this country to 
put resources together to create income for themselves and, in the 
process of expanding, increase jobs for everybody else. So you 
understand where I am coming from, from the standpoint of small 
business.
  The House of Representatives has proposed a graduated surtax of up to 
5.4 percent on those making over $280,000. To people listening, 
$280,000 is a lot of money, probably the top 3 or 4 percent of the 
people. But if they are a small business and they are operating with 
cash flow, cutting into that cash flow is a job killer. With this small 
business surtax, a family of four in the top two brackets will pay a 
marginal tax rate in the range of 43 and 46.4 percent in 2013. I am not 
prepared to say this right now, but maybe when I end I will say 
something about the State income tax on top of that, to show how high 
are the taxes these ideas are taking us to.
  When you go to 43 and 46.4 by 2013, this would result in an increase 
of the marginal tax rates by a minimum of 23 percent and a maximum of 
33 percent.
  Candidate Obama pledged that ``Everyone in America--everyone--will 
pay lower taxes than they would under the rates Bill Clinton had in the 
1990s.'' I am going to show you, if this goes into effect, it is 
probably the highest rates, going back to the time Carter was 
President. The small business surtax proposed by House Democrats would 
violate President Obama's pledge. Therefore, I stand with President 
Obama in opposing the small business surtax proposed by House 
Democrats.
  According to National Federation of Independent Businesses survey 
data, 50 percent of the owners of small businesses that employ 20 
workers to 249 workers would fall into the top two brackets, backing up 
what I have continuously said during my dialog with the people. 
According to the Small Business Administration, about two-thirds of the 
Nation's small business workers are employed by small businesses with 
20 to 500 employees. Do we want to raise taxes on these small 
businesses that create new jobs and employ two-thirds of all small 
business workers?
  The National Federation of Independent Businesses recently came out 
with its June report that showed that small businesses continue to have 
net job losses as well as reduced compensation for those who are still 
on the payroll; in other words, not part of the 9.5 percent 
unemployment we have since

[[Page 17827]]

the stimulus bill passed. With these small businesses already suffering 
from the credit crunch, do we think it is wise to hit them with the 
double whammy of up to a 33-percent increase in marginal tax rates.
  Newly developed data from the Joint Committee on Taxation 
demonstrates that 55 percent of the tax from the higher rates will be 
borne by small business owners with incomes over $250,000. This is a 
conservative number because it doesn't include flow through business 
owners making between $200,000 and $250,000 that will also be hit by 
the Democratic budget's proposed tax hikes. If the proponents of the 
marginal rate increase on small business owners agree that a 23-percent 
to 33-percent tax increase for half the small businesses that employ 
two-thirds of all small business workers is not wise, then they should 
either oppose these tax increases or present data that show a different 
result. I wish to fight for lower State tax rates and higher estate tax 
exemption amounts to protect successful small businesses so people who 
work a lifetime can pass on without liquidation at the time of death.
  In a time when many businesses are struggling to stay afloat, it does 
not make sense to impose additional burdens on them by raising taxes. 
Odds are they do nothing then but cut spending. And when their cash 
flow goes down, probably layoffs happen. They will cancel orders for 
new equipment as well, cut insurance for their employees, and stop 
hiring. Instead of seeking to raise taxes on those who create jobs in 
our economy, our policies need to focus on reducing excessive tax and 
regulatory barriers that stand in the way of small businesses and the 
private sector making investments, expanding production, and creating 
sustainable jobs. We should continue to fight to prevent a dramatic tax 
increase on our Nation's job machine, the small businesses of America. 
This includes working to protect small businesses from higher marginal 
tax rates, an increase in capital gains and dividend tax rates and an 
increase in the unfair estate tax rate that will penalize the success 
of small businesses.
  In fact, I have recently introduced S. 1381, the Small Business Tax 
Relief Act of 2009, to lower taxes on these job-creating small 
businesses. My bill contains a number of provisions that will leave 
more money in the hands of these small businesses so these businesses 
can hire more workers, continue to pay the salary of their current 
employees, and make additional investments in these businesses. The 
National Federation of Business has written a letter supporting my 
bill.
  Quoting from the letter:

       To get the small business economy moving again, small 
     business needs the tools and incentives to expand and grow 
     their business. S. 1381 provides the kind of tools and 
     incentives that small businesses need.

  We all want to see the job numbers from the Department of Labor 
moving in positive directions. We all want to see the unemployment rate 
plummet. I firmly believe the best way for us to do that is to prime 
the job-creating engine of our economy by focusing on small businesses. 
My small business bill, if enacted, will lead to new jobs. This is in 
the right direction. The House health care reform bill, with the 5.4-
percent tax increase, is taking us in the wrong direction. These will 
be real, countable, verifiable jobs that will be created.
  In contrast, President Obama has proposed tax increases that will 
cause small business jobs to be lost. The newest tax hike proposed is 
the small business surtax. As with other tax hikes on small business, I 
oppose the small business surtax. I urge my colleagues on both aisles 
to do the same.
  I ask unanimous consent to print in the Record the NFIB letter from 
which I quoted.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                            National Federation of


                                         Independent Business,

                                    Washington, DC, July 10, 2009.
     Senator Charles Grassley,
     Ranking Member, Senate Committee on Finance, Washington, DC.
       Dear Ranking Member Grassley: On behalf of the National 
     Federation of Independent Business (NFIB), the nation's 
     leading small business advocacy organization, I am writing to 
     thank you for introducing S. 1381, the Small Business Tax 
     Relief Act of 2009.
       Small business is the source of economic growth and job 
     creation, but the NFIB Small Business Economic Trends (SBET) 
     survey has been near historic lows since September, with 
     plans to hire and make capital expenditures showing little 
     sign of improvement. To get the small business economy moving 
     again, small businesses need the tools and incentives to 
     expand and grow their businesses.
       S. 1381 provides the kinds of tools and incentives that 
     small businesses need. Specifically, increasing and making 
     permanent section 179 expensing will provide small businesses 
     with the incentives and certainty to make new investments in 
     their business. Providing a 20 percent deduction for smaller 
     flow-through businesses and reducing the tax rate on smaller 
     C corps will allow all small businesses to keep more of their 
     income to invest back into the business. Finally, providing 
     full deductibility of health insurance for the self employed 
     provides tax equity, lowers the cost of health insurance, and 
     improves an important deduction for these business owners.
       These and other provisions in the bill will reduce the tax 
     burden on small businesses. This is especially important in 
     the current economic environment with many small businesses 
     struggling to find access to credit. Allowing business owners 
     to keep more of the money they earn provides an immediate 
     source of capital that will be invested back into the 
     business.
       Thank you again for your continued efforts to support small 
     business owners and to reduce their tax burden. I look 
     forward to working with you to see that this bill becomes 
     law.
           Sincerely,
                                                    Susan Eckerly,
                             Senior Vice President, Public Policy.

  Mr. GRASSLEY. I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida.

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