[Congressional Record (Bound Edition), Volume 155 (2009), Part 14]
[Senate]
[Pages 19364-19366]
[From the U.S. Government Publishing Office, www.gpo.gov]




                TAX INCREASES ON HIGHER INCOME AMERICANS

  Mr. HATCH. Mr. President, I rise today to express my alarm about the 
possibility that this Congress will raise tax rates on higher income 
Americans in order to partially finance the cost of health care reform. 
Even though some of our colleagues on the other side of the aisle may 
not currently see the serious damage to our economy and our society 
that such a proposal could create, I want to spend a few minutes 
explaining why such a course of action would be a grave mistake.
  We began hearing talk of raising taxes on the so-called wealthy last 
year during the presidential campaign. Then-candidate Obama made a 
number of promises regarding taxes. Perhaps most prominent among these 
were the following three pledges: He would cut taxes for small 
businesses and companies that create jobs in America; he would cut 
taxes for middle-class families, and no family making less than 
$250,000 per year will see their taxes increase; and families making 
more than $250,000 will pay either the same or lower tax rates than 
they paid in the 1990s.
  I have been around this town for a long time, and I have seen a lot 
of presidential candidates make lots of promises. It is easy to greet 
such pledges with a degree of skepticism. However, I have seldom, if 
ever, seen promises regarding tax cuts and tax increases made more 
prominently, more clearly, or more often than those made by the 
President when he was on the campaign trail last year.
  And yet, it was only a matter of a few weeks before the promise to 
keep tax rates below the 1990s level for higher income families was 
broken. In his budget outline for fiscal year 2010, which was released 
on February 26, 2009, the President included a proposal to partially 
pay for health care reform. This proposal would lower the value of 
itemized deductions for families with incomes over $250,000.
  When this proposal is combined with the President's promise to allow 
the 2001 tax cuts to expire for families making over $250,000, we are 
looking at effective tax rates well above those paid by higher income 
families in the

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1990s. Thus, the President broke his pledge within weeks of 
Inauguration Day.
  While it is true that none of the health care reform proposals 
introduced so far in Congress includes the limitation on itemized 
deductions, this presidentially preferred offset proposal has been 
discussed in the Senate as a possible way to finance health care 
reform.
  More importantly, the health care reform package that has been 
reported by two House committees and is working its way through a third 
includes an offset that is even more blatantly in violation of the 
President's pledge. This is a surtax on the adjusted gross income of 
single taxpayers earning more than $280,000 and of families earning 
more than $350,000.
  This surtax starts at a rate of 1 percent at the lowest thresholds, 
but it is set at 5.4 percent for income in excess of $1 million. This 
new surtax has been projected by the Joint Committee on Taxation to 
raise $544 billion over 10 years. I know we are getting far too 
accustomed to seeing scores in the hundreds of billions of dollars, but 
let me say that number again: $544 billion. That is over half a 
trillion, with a T. For those who might be watching or listening at 
home, that is 544 followed by nine zeroes.
  Whether at the 1 percent level, at the 5.4 percent level, or 
somewhere in between, this surtax also starkly violates the President's 
pledge to not increase tax rates above their 1990s levels. In fact, 
when combined with the phase-out of itemized deductions, which the 
President has also proposed bringing back from the grave, this surtax 
could increase the top marginal income tax rate to more than 46 
percent. When State taxes are added, the top rate in many States would 
likely exceed 50 percent.
  Some may say that this surtax is not the President's idea, and that 
it therefore should not be blamed on him. Well, it may have not been 
his idea, but I have not seen the White House repudiate it in any way. 
All indications from 1600 Pennsylvania Avenue are that the President 
supports this huge new tax increase.
  Do I bring this matter to the attention of my colleagues today merely 
because I am irritated to see the President violating one of his 
campaign promises? No. As I mentioned earlier, I have seen a lot of 
campaign promises made and a lot of campaign promises broken.
  Perhaps it is because I am worried about the estimated 12,900 Utah 
tax filers or the just over 2 million Americans who would be affected 
by this surtax. After all, some are saying, this is just over 1 percent 
of taxpayers, and after all, they are rich, and they can afford it, 
right?
  Well, yes, I am concerned about them. A tax on adjusted gross income 
is unfair, and it is discriminatory. If we wish to raise tax rates we 
should do it in a straightforward and transparent way. A tax based on 
gross income provides for few or no deductions, and it jolts our long-
established differential between ordinary income and income from 
capital. It is a raw revenue grab justified on the socialistic idea 
that these people earn more than the rest of us so they should be 
forced to share it with those less fortunate than they are.
  But this also is not my primary reason for bringing up this matter 
today.
  I bring this to the attention of the Senate for two reasons. First, 
high tax rates on upper-income earners, particularly when combined with 
the ever-increasing progressiveness of our tax system, are destructive 
to the economy and to our society.
  Second, a good share of these higher income taxes will be paid by 
small businesses which will harm job creation. Today I want to talk 
about the problems of too much tax progressivity. In a subsequent floor 
speech, I will address the issue of how this tax will hurt small 
businesses and job creation.
  We often hear from those on the left that our tax system is not 
progressive enough. Essentially, proponents of a more progressive tax 
system believe that the Internal Revenue Code taxes lower income 
taxpayers too much and higher income taxpayers too lightly. In essence, 
they believe the so-called wealthy among us are not paying their fair 
share of taxes.
  However, the facts simply do not support this viewpoint. According to 
data released by the IRS for 2006, which is the latest year available, 
the highest-earning one percent of income earners received 22 percent 
of all the income in America. This sounds like a great deal of income 
concentrated into the hands of a few, and it is.
  One would think and hope that an equitable tax system would require 
this top one percent of income earners, who are earning 22 percent of 
all income, to pay at least 22 percent of all the income taxes. If they 
paid exactly this amount, ours would be considered a proportional tax 
system. If they paid less, we would call it a regressive tax system. If 
the top earners paid more than the proportion that they earned, the tax 
system would be considered progressive.
  I do not know anyone who truly believes that a completely regressive 
tax system is fair. No one should be asked to bear a higher portion of 
the tax burden than what he or she receives in income. However, I know 
that certain taxes are regressive, even if our overall system is not.
  In contrast, many Americans think the only fair tax system is a 
progressive one. The more you make, the more you ought to pay. I can 
understand this and I do not necessarily disagree with it, within 
reason.
  On the other hand, I believe that a strong case can be made that a 
proportional tax system is the fairest tax system. Many of my fellow 
Utahns agree with this idea. I have received thousands of letters over 
the years asking why we should not have a flat tax that requires 
citizens to pay a fixed proportion of their income in taxes. 
Conceptually, I think they are correct.
  Even though many Americans like a progressive tax system, I think 
they might be shocked to see just how progressive ours has become. I 
mentioned before that the top one percent of income earners received 22 
percent of all income in 2006. However, this group paid 40 percent of 
all income taxes paid in America. Almost twice the proportion paid as 
earned. This is not just progressivity. This is progressivity on 
steroids. And it is harmful and unfair.
  And, we are not just looking at the top one percent to see this 
problem. The top 10 percent of income earners received 47 percent of 
all income, but they paid 71 percent of all tax. Again, this is way 
beyond what I believe fair-minded people would call a reasonable amount 
of progressivity.
  However, this is not the worst of it. In fact, this is only half of 
what I will call the equitable taxation equation. This is because so 
far, we have only talked about the half of the equation that raises 
money from taxpayers. What about the other half of the equation, where 
the money is spent?
  In a 2007 study, economists at the Tax Foundation looked at both the 
tax side of the equation and the spending side. Their findings are very 
interesting. Using total Federal taxes rather than just income taxes, 
the study found that the top 20 percent of income earning households 
paid on average $57,512 in Federal taxes.
  However, the average Federal Government spending received by these 
households was just $18,573.
  The lowest 20 percent of income-earning households, on the other 
hand, paid an average of just $1,684 in Federal taxes, but received an 
a amazing $24,860 average per household in Federal Government spending.
  Another way of saying this is that the top earning 20 percent of 
households received 32 cents in Federal Government spending for every 
dollar in Federal taxes paid, while the lowest earning 20 percent of 
households received $14.76 in Federal Government spending for every 
dollar they paid in Federal taxes.
  Plain and simple, this means the top-earning fifth of Americans get 
back only a third of what they pay in taxes while the bottom-earning 
fifth are receiving a bounty of nearly 15 times what they pay. This is 
redistributionism gone wild.
  And this study takes into account all Federal taxes, not just income 
taxes. If

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the study included only the Federal income tax, the amounts would be 
skewed even farther because the income tax is much more progressive 
than are other Federal taxes.
  Moreover, this study used tax-and-spending numbers from 2004. Our tax 
system has become more progressive since then. It is very apparent to 
me that our tax system is very progressive already. And when it is 
viewed in this larger context, along with the Federal spending, it is 
nothing short of ultra progressive.
  So the question I have for my friends and colleagues on the other 
side of the aisle is this: just how progressive is progressive enough? 
I realize that some will not be satisfied until we reach a total 
redistribution where there is no more rich or poor among us. And while 
that idea might sound really fine, it would create total havoc to our 
government and our society, and I think we all know it.
  How far can we take this idea of progressivity before the system 
collapses of its own weight? Our tax system, and indeed our entire 
system of government, depends on the voluntary cooperation of its 
citizens. An underlying if unstated foundation of the American 
government is the idea that the great majority of us will work hard, 
take care of our families, willingly if grudgingly pay our taxes, 
cooperate with the law, and do our best to make it all work.
  What happens to our society if those who are in the top 25 percent, 
who are now paying 86 percent of the general cost of government, see 
that their burden is about to grow ever bigger, and that they soon may 
be part of only 10 or 15 percent who are carrying all the rest of us?
  Where does incentive go as we approach this situation? Is there a 
tipping point where hard-working and successful Americans will say: 
Enough is enough. I am no longer willing to be a chump and carry the 
load for everyone else. Why don't I also stop pulling and get in the 
wagon and get the free ride?
  We have already seen a strong movement toward removing more and more 
lower-earning Americans from the income tax rolls. The Making Work Pay 
credit and other refundable tax credits give cash back where no taxes 
have been paid. They serve as a negative income tax.
  According to the Tax Policy Center, for calendar year 2009, the 
number of Americans who are not subject to the Federal income tax 
exceeds 43 percent. This number will likely grow significantly as a 
result of the enactment of the Making Work Pay credit earlier this 
year. If the President and his followers in the Congress have their 
way, there will be millions more who will be allowed to stop pulling 
and get on the wagon to be carried by the few who work.
  This means that the number of American households that contribute 
nothing to our general cost of government, to our defense, and to the 
thousands of programs that are funded by the income tax is approaching 
50 percent. Asking fewer and fewer to carry more and more of the load 
is dangerous in a free society. We are approaching that point where the 
majority can simply vote for higher taxes to fund higher spending with 
no personal cost to them. When that happens, our representative 
Republic is in grave danger.
  There are lots of good economic reasons why we have to be careful 
about raising taxes too high on those who are bearing the burden of the 
cost of government. I will talk about those at another time. The one I 
am talking about today is a simple one, but it is the scariest to me.
  The simple fact is that there is a limit on how much we can ask 
successful people to contribute to the cost of general government, just 
as there is a limit to how few people will be willing to pull a wagon 
that gets heavier each time we let someone leave the ropes and climb on 
board for the free ride.
  Ideally, we should all have to carry our own weight. While this may 
not be possible or practical, we surely cannot expect a willing but 
diminishing minority to continue to pull a heavier and heavier wagon up 
a steeper and steeper hill without a breakdown. I urge my colleagues to 
think carefully before going along with an idea that loads more of a 
tax burden on the few who seem to be able to afford it. If we go too 
far down this path, we are all going to end up in a ditch.
  Madam President, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mrs. Shaheen). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. WHITEHOUSE. Madam President, I ask unanimous consent that the 
order for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. WHITEHOUSE. Madam President, I ask unanimous consent to speak as 
in morning business for up to 15 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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