[Congressional Record (Bound Edition), Volume 155 (2009), Part 15]
[Senate]
[Pages 20563-20565]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       MIDDLE-CLASS TAX INCREASE

  Mr. ALEXANDER. Mr. President, a few minutes ago, I was waiting to 
give a television interview with MSNBC. The White House press 
secretary, Robert Gibbs, was on. He said a most astonishing thing. He 
was there, obviously, for the purpose of an impromptu press conference 
to correct what I thought was a truthful impression left yesterday by 
two members of the Obama administration. Both Mr. Summers and Mr. 
Geithner yesterday did not rule out the possibility of a middle-income 
tax increase. That was widely reported all over the country today. 
Apparently, they were taken to the woodshed this morning, and Mr. Gibbs 
was sent out to say: Oh, no, we are not going to raise taxes on middle 
income Americans.
  But that is misleading, at best, to the American people. Most people 
know that. An article in the New York Times on August 1, was titled: 
``Obama's Pledge to Tax Only the Rich Can't Pay for Everything, 
Analysts Say.''
  Among those quoted is Leonard Burman, ``a veteran of the Clinton 
administration Treasury and director of the nonpartisan Tax Policy 
Center.''
  ``This idea,'' he says, ``that everything new that government 
provides ought to be paid for by the top 5 percent, that's a basically 
unstable way of governing.''
  I am sure the Senator from Arizona remembers Isabel Sawhill's 
distinguished service. She had some comments on tax increases as well. 
``There is no way we can pay for health care and the rest of the Obama 
agenda, plus get our long-term deficits under control, simply by 
raising taxes on the wealthy,'' said Isabel V. Sawhill, a former 
Clinton administration budget official. ``The middle class is going to 
have to contribute as well.''
  I wonder if the Senator from Arizona, who is a veteran member of the 
Finance Committee, is surprised to see, first, the two top finance 
people for the Obama administration say we are not going to rule out a 
middle-class tax increase, and then all of a sudden today, the Obama 
administration says no, nope, we are going to rule that out again. What 
is going on?
  Mr. KYL. Mr. President, I say to my colleague, I had the same 
impression yesterday when I saw Mr. Geithner and Mr. Summers on 
television. They, frankly, were recognizing the reality of the 
situation. I did not think that much of it because the truth is, the 
people my colleague has quoted are absolutely right. You cannot do all 
the things the President wants to do without raising taxes, and 
inevitably that will be on the middle class.
  To put in the Record what both Treasury Secretary Geithner and Mr. 
Summers said--this is as reported by George Stephanopoulous, ``This 
Week'' host for ABC. He said:

       To get the economy back on track, will President Obama have 
     to break his pledge not to raise taxes on 95 percent of 
     Americans? In a ``This Week'' exclusive, Treasury Secretary 
     Tim Geithner told me, ``We're going to have to do what's 
     necessary.'' Then Stephanopoulous continues:
       When I gave him several opportunities to rule out a middle-
     class tax hike, he wouldn't do it. ``We have to bring these 
     deficits down very dramatically,'' Geithner told me. ``And 
     that's going to require some very hard choices.''

  Of course it is. Secretary Geithner is right. It is pretty hard to 
deny.
  Then the National Economic Council Director, Lawrence Summers, was 
asked by Bob Schieffer on CBS if taxes could be raised for middle-
income Americans. Summers said:

       There is a lot that can happen over time. It is never a 
     good idea to absolutely rule out things no matter what.

  Then he said that what the President has been completely clear on is 
he is not going to pursue any of these priorities--not health care--in 
ways that are primarily burdening middle-class families. That is 
something that is not going to happen.
  There seems to be a subtle switch here to, first of all, never say 
never and, secondly, say the tax burden is not going to primarily fall 
on middle-class Americans.
  I say to my colleague, when you look at some of the provisions that 
are in the House of Representatives bill on health care, in the Senate 
HELP Committee on health care, and some of the things that are being 
considered by the Finance Committee, in all three situations, you do 
have taxes on working American families, middle-class families.
  I think that what the Secretary and Mr. Summers said Sunday is 
actually more true than what the press secretary tried to make it out 
to be. It is simply the recognition of a reality--that you can't pay 
for all of this and not impose taxes on middle Americans.
  Mr. ALEXANDER. Mr. President, I agree with the Senator. His point is 
a valid one. It is not a matter or are they going to propose middle-
income tax increases. In the health care plans, we already see that 
happening. For example, in the proposed payroll tax or jobs tax on 
employers to pay for the proposed health care plan coming out of the 
House of Representatives, there is a very large tax. It could be up to 
8 percent of payroll. Quoting from the Wall Street Journal editorial of 
July 30:

       So who bears the burden of this tax? The economic research 
     is close to unanimous that a payroll tax is tax on labor and 
     is thus shouldered mostly if not entirely by workers.

  This is a middle-income tax increase already proposed. Then there is 
another issue that bothers me, especially as a former Governor. Our 
current Governor of Tennessee called it the ``mother of all unfunded 
mandates.'' If we add, as is proposed by both bills, another 20 million 
people to Medicaid--which is for low-income people, and the States help 
pay for that--that is more than 300,000 new people for Tennessee.
  The estimates we have gotten from Tennessee's department of Medicaid, 
TennCare, is that would cost enough money to equal the amount raised by 
a 5-percent new State income tax. If we actually pay doctors a 
sufficient amount to cause them to see these people who are dumped into 
Medicaid,

[[Page 20564]]

then Tennessee would need a total of a 10-percent new State income tax. 
That is another middle-income tax increase.
  Mr. KYL. Mr. President, I would just ask my colleague also if he is 
aware that there are some other proposals in these various Democratic 
bills. One is that all individuals would be required to buy medical 
insurance. There would be a penalty if they refused to do so that would 
go directly to their income tax. I believe the latest proposal I saw 
was 2.5 percent of your income tax. There would be a penalty imposed if 
you didn't buy insurance.
  Now, what happens to, let's say a young man or woman who has just 
graduated from college, who are no longer on their parents' insurance 
policy and they are now going to be required to go into a risk pool 
along with everybody else? Or let's say they have been paying a modest 
amount for their insurance through their college, perhaps. What is 
likely to happen when they are thrown into the pool of other Americans, 
all of whom are required to purchase insurance? Will their premiums go 
down, or what is the estimate of what will happen to the premiums of 
these young people?
  Mr. ALEXANDER. The Senator makes a good point. If you are young and 
in America and you are forced into the health plan that is passing the 
House, your costs are going to go up, and that is a mandate or a tax 
that absolutely will go up. So the Senator is exactly right.
  For every young person in America who is in this plan, their health 
care costs are, by definition, going to go up. Their health care costs 
are going to go up to help pay for older Americans whose benefits, I 
might add, are going to go down because half of the health care plan is 
going to be paid for by Medicare cuts. These Medicare cuts will not 
make Medicare solvent, but grandma's Medicare benefits are going to be 
cut to help pay for this new health program.
  Whether it is a benefit cut or a tax increase, there are a lot of 
middle-income Americans who are already looking at a very big change in 
their economic circumstances.
  Mr. KYL. Mr. President, I know we just have a couple of minutes left. 
There are several other examples--one that is being considered by the 
Finance Committee, I know. It is to amend the provision of the Tax Code 
by which if you itemize your deductions and you have medical expenses 
that exceed 7\1/2\ percent of your adjusted gross income, you would get 
to deduct that from your income tax.
  There are two different proposals pending in the Finance Committee. 
In both cases, there would be a new tax imposed. The problem is, 
according to the Joint Committee on Taxation, replacing the existing 
deduction with the new provision would increase taxes by $48 billion 
over 10 years. Who does it hit? Fifty-two percent of the taxpayers who 
claim the deduction earn under $50,000 a year. These are not the 
wealthy Americans the President was speaking of. Forty percent of the 
taxpayers who claimed the deduction are over the age of 65.
  I guarantee you in Arizona we are going to look at that provision 
because a lot of our folks are over 65 and they rely upon the income-
tax code to ensure if they have a catastrophic expense in any given 
year that they have the ability to deduct a portion of that.
  Mr. ALEXANDER. As the Senator knows, we have heard about limited 
taxes before. We actually have a millionaire tax on the books, passed 
in 1969, 40 years ago, where 155 high-income Americans were avoiding 
paying Federal income tax. There was the cry: So let's tax them. And so 
we did.
  Well, today that is called the alternative minimum tax. Every year we 
have to change it because this year it was going to affect 28 million 
Americans. People who are making $46,000 or $47,000 as individuals or 
$70,000 filing jointly were suddenly affected by the millionaires tax. 
So beware of the millionaires tax because it soon catches us all.
  Mr. President, I thank the Senator from Arizona for his time. I see 
Senator McCain, and I yield the remainder of my time to him. But before 
doing so, Mr. President, I ask unanimous consent to include the August 
1 New York Times article and the July 30 editorial from the Wall Street 
Journal, to which I referred.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, July 30, 2009]

                          The Pelosi Jobs Tax

       Even many Democrats are revolting against Speaker Nancy 
     Pelosi's 5.4% income surtax to finance ObamaCare, but another 
     tax in her House bill isn't getting enough attention. To wit, 
     the up to 10-percentage point payroll tax increase on workers 
     and businesses that don't provide health insurance. This 
     should put to rest the illusion that no one making more than 
     $250,000 in income will pay higher taxes.
       To understand why, consider how the Pelosi jobs tax works. 
     Under the House bill, firms with employee payroll of above 
     $250,000 without a company health plan would pay a tax 
     starting at 2% of wages per employee. That rate would quickly 
     rise to 8% on firms with total payroll of $400,000 or more. A 
     tax credit would help very small businesses adjust to the new 
     costs, but even a firm with a handful of workers is likely to 
     be subject to this payroll levy. As we went to press, Blue 
     Dogs were taking credit for pushing those payroll amounts up 
     to $500,000 and $750,000, but those are still small 
     employers.
       So who bears the burden of this tax? The economic research 
     is close to unanimous that a payroll tax is a tax on labor 
     and is thus shouldered mostly if not entirely by workers. 
     Employers merely collect the tax and then pass along its 
     costs in lower wages or benefits. This is the view of the 
     Democratic-controlled Congressional Budget Office, which 
     advised on July 13: ``If employers who did not offer health 
     insurance were required to pay a fee, employee's wages and 
     other forms of compensation would generally decline by the 
     amount of that fee from what they otherwise would have 
     been.''
       To put this in actual dollars, a worker earning, say, 
     $70,000 a year could lose some $5,600 in take home pay to 
     cover the costs of ObamaCare. And, by the way; this is in 
     addition to the 2.5% tax that the individual worker would 
     have to pay on gross income, if he doesn't buy the high-
     priced health insurance that the government will mandate. In 
     sum, that's a near 10-percentage point tax on wages and 
     salaries on top of the 15% that already hits workers to 
     finance Medicare and Social Security.
       Even Democrats are aware that his tax would come out of the 
     wallets of the very workers they pretend to be helping, so 
     they inserted a provision on page 147 of the bill prohibiting 
     firms from cutting salaries to pay the tax. Thus they figure 
     they can decree that wages cannot fall even, as costs rise. 
     Of course, all this means is that businesses would lay off 
     some workers, or hire fewer new ones, or pay lower starting 
     salaries or other benefits to the workers they do hire.
       Cornell economists Richard Burkhauser and Kosali Simon 
     predicted in a 2007 National Bureau of Economic Research 
     study that a payroll tax increase of about this magnitude 
     plus the recent minimum wage increase will translate into 
     hundreds of thousands of lost jobs for those with low wages. 
     Pay or play schemes, says Mr. Burkauser, ``wind up hurting 
     the very low-wage workers they are supposed to help.'' The 
     CBO agrees, arguing that play or pay policies ``could reduce 
     the hiring of low-wage workers, whose wages could not fall by 
     the full cost of health insurance or a substantial play-or-
     pay fee if they were close to the minimum wage.''
       To make matters worse, many workers and firms would have to 
     pay the Pelosi tax even if the employer already provides 
     health insurance. That's because the House bill requires 
     firms to pay at least 72.5% of health-insurance premiums for 
     individual workers and 65% for families in order to avoid the 
     tax. A Kaiser Family Foundation survey in 2008 found that 
     about three in five small businesses fail to meet the Pelosi 
     test and will have to pay the tax. In these instances, the 
     businesses will have every incentive simply to drop their 
     coverage.
       A new study by Sageworks, Inc., a financial consulting 
     firm, runs the numbers on the income statements of actual 
     companies. It looks at three types of firms with at least $5 
     million in sales: a retailer, a construction company and a 
     small manufacturer. The companies each have total payroll of 
     between $750,000 and $1 million a year. Assuming the firms 
     absorb the cost of the payroll tax, their net profits fall by 
     one-third on average. That is on top of the 45% income tax 
     and surtax that many small business owners would pay as part 
     of the House tax scheme, so the total reduction in some small 
     business profits would climb to nearly 80%. These lower 
     after-tax profits would mean fewer jobs.
       To put it another way, the workers who will gain health 
     insurance from ObamaCare will pay the steepest price for it 
     in either a shrinking pay check, or no job at all.

[[Page 20565]]

     
                                  ____
                [From the New York Times, Aug. 1, 2009]

Obama's Pledge To Tax Only the Rich Can't Pay for Everything, Analysts 
                                  Say

                           (By Jackie Calmes)

       Washington.--Behind Democrats' struggle to pay the $1 
     trillion 10-year cost of President Obama's promise to 
     overhaul the health care system is their collision with 
     another of his well-known pledges: that 95 percent of 
     Americans ``will not see their taxes increase by a single 
     dime'' during his term.
       This will not be the last time that the president runs into 
     a conflict between his audacious agenda and his pay-as-you-go 
     guarantee, when only 5 percent of taxpayers are being asked 
     to chip in. Critics from conservative to liberal warn that 
     Mr. Obama has tied his and Congress's hands on a range of 
     issues, including tax reform and the need to reduce deficits 
     topping $1 trillion a year.
       ``You can only go to the same well so many times,'' said 
     Bruce Bartlett, a Treasury official in the Reagan 
     administration.
       In the budget, Mr. Obama and Congress have already agreed 
     to let the Bush tax cuts for the most affluent expire after 
     2010, as scheduled, but to extend them for everyone else. The 
     top rates, now 33 percent and 35 percent, will revert to 
     Clinton-era levels of 36 percent and 39.6 percent.
       The critics do not have a beef with the government's taking 
     more from the wealthiest Americans, especially given the 
     growing income gap between the rich and everyone else. They 
     object to doing so for health care over other pressing needs.
       ``I want to tax the rich to reduce the deficit,'' said 
     Robert D. Reischauer, a former director of the Congressional 
     Budget Office who heads the Urban Institute, a center-left 
     research group. Similarly, Mr. Bartlett, a conservative 
     analyst who often chastises Republicans for their antitax 
     absolutism, supports overhauling the tax code to raise 
     revenues.
       As these analysts recognize, taxing the rich has its limits 
     both economically and politically, such that members of 
     Congress are not likely to tap that well again and again.
       Polls show strong majorities supporting higher taxes on 
     those earning more than $250,000 a year, Mr. Obama's target 
     group. Yet some Congressional Democrats are fearful of 
     Republicans' attacks that ``soak the rich'' tax increases 
     will douse small-business owners, too, even if the number of 
     those affected is far less than Republicans suggest.
       Also, higher rates like those in the House health care 
     legislation could lead to tax avoidance schemes, reducing the 
     government's collections and warping business decisions, 
     analysts say.
       The House measure calls for surtaxes ranging from 1 percent 
     on annual income of $280,000 to 5.4 percent on income of $1 
     million and more. The millionaires' surtax would push the top 
     tax rate to 45 percent, the highest since the 1986 tax code 
     overhaul lowered all rates in return for jettisoning a raft 
     of tax breaks for businesses and individuals.
       But the effective top rate would be higher still, counting 
     the 2.9 percent Medicare payroll tax and state and local 
     income taxes. In the highest-tax states of Oregon, Hawaii, 
     New Jersey, New York and California, it would be 57 percent, 
     according to the conservative Heritage Foundation.
       In the health debate, Democrats emphasize that they are not 
     just raising taxes on the rich, but cutting spending, too, 
     mostly for Medicare payments to doctors, hospitals and 
     insurance companies.
       Also, the Democrats say, at least they are trying to pay 
     for the health care initiative, rather than letting the 
     deficit balloon as the Republicans, along with President 
     George W. Bush, did when they created the Medicare 
     prescription drug benefit in 2003. That program will add a 
     projected $803 billion to the national debt in the decade 
     through 2019, according to the White House budget office.
       ``They charged theirs on the government's credit card,'' 
     Rahm Emanuel, the White House chief of staff, said of the 
     Republicans.
       Even so, Mr. Obama's vow to tax only the rich is a 
     variation ``of Bush's policy that nobody has to pay for 
     anything,'' said Leonard Burman, a veteran of the Clinton 
     administration Treasury and director of the nonpartisan Tax 
     Policy Center.
       ``Democrats are more worried about the deficits,'' Mr. 
     Burman added, but ``they put the burden on a tiny fraction of 
     the population that they figure doesn't vote for them 
     anyway.''
       Mr. Burman and others recall that in the creation of Social 
     Security and Medicare, Presidents Franklin D. Roosevelt and 
     Lyndon B. Johnson insisted that beneficiaries contribute 
     through payroll taxes, both to finance the programs and to 
     give all Americans a vested interest. The same philosophy 
     should apply to seeking universal health coverage, they say.
       This idea that everything new that government provides 
     ought to be paid for by the top 5 percent, that's a basically 
     unstable way of governing,'' Mr. Burman said.
       Mr. Obama recently dismissed concerns that taxing the rich 
     to pay for health care would foreclose that option when he 
     and Congress turn to deficit reduction. ``Health care reform 
     is fiscal reform,'' he said.
       ``If we don't do anything on health care inflation, then we 
     might as well close up shop when it comes to dealing with our 
     long-term debt and deficit problems, because that's the 
     driver of it--Medicare and Medicaid,'' Mr. Obama said.
       But his no-new-tax admonition for most Americans even now 
     complicates the behind-the-scenes work of the panel he 
     established to recommend ways to simplify the tax code and 
     raise more revenue.
       The panel, which is led by Paul A. Volcker, a former 
     chairman of the Federal Reserve, is to report by Dec. 4. 
     Overhauling the code, as in 1986, generally creates winners 
     and losers across the board; leaving 95 percent of taxpayers 
     unscathed will not be easy.
       That has already proved true in the health care 
     deliberations. Proposals to raise about $50 billion over 10 
     years by taxing sugared drinks foundered partly because the 
     levy would hit nearly everyone.
       And when Congressional leaders opposed Mr. Obama's chief 
     idea for raising revenues--limiting affluent taxpayers' 
     deductions--his campaign vow against taxing the middle class 
     made finding an acceptable alternative difficult.
       While the president endorsed House Democrats' surtax idea, 
     saying it ``meets my principle that it's not being shouldered 
     by families who are already having a tough time,'' he could 
     not embrace a bipartisan Senate proposal to tax employer-
     provided health benefits above a certain amount. He had 
     criticized a similar idea as a middle-class tax during his 
     presidential campaign.
       Yet taxing at least the most generous employer-provided 
     plans above a threshold amount would meet two elusive goals 
     for Mr. Obama: It would raise a lot of money and, economists 
     say, cut overall health spending by making consumers more 
     cost-conscious.
       Administration officials recently began promoting a 
     fallback. Rather than tax individuals, it would single out 
     insurance companies that sell ``Cadillac'' plans. David 
     Axelrod, a White House strategist, has described the proposal 
     in populist terms, saying it would hit ``the $40,000 policies 
     that the head of Goldman Sachs has'' and ``not impact on the 
     middle class.''
       That position, analysts predict, cannot hold over time.
       ``There is no way we can pay for health care and the rest 
     of the Obama agenda, plus get our long-term deficits under 
     control, simply by raising taxes on the wealthy,'' said 
     Isabel V. Sawhill, a former Clinton administration budget 
     official. ``The middle class is going to have to contribute 
     as well.''

  The ACTING PRESIDENT pro tempore. The Senator from Arizona.

                          ____________________