[Congressional Record (Bound Edition), Volume 157 (2011), Part 8]
[Senate]
[Pages 11337-11339]
[From the U.S. Government Publishing Office, www.gpo.gov]




                             TAX INCREASES

  Mr. KYL. Madam President, first, let me reassure my friend and 
colleague, the leader of the Senate, that it is our view that the debt 
ceiling will be extended, and Leader McConnell wanted to make that 
crystal clear in his discussions with Leader Reid, so the two of them 
could work together on a plan that the Senate could pass and send over 
to the House, to ensure that our debt ceiling would be increased and, 
thus, assure the markets they need not be concerned about that fact. As 
I have said many times, Republicans are not going to be the ones who 
would throw us into default.
  Yesterday, I spoke on the floor about the reason Republicans are 
opposed to raising taxes. The President himself, last December, said 
raising taxes in a time of economic downturn would be a mistake, the 
wrong thing to do. We are still in that economic downturn. In fact, 
things are worse now than they were then. It is similar to a doctor 
treating a patient. When we diagnose what is wrong, we deal with what 
is wrong. We don't try to fix something else. Our problem is spending; 
it is not taxes. That is why we need to focus on spending rather than 
taxes. At the conclusion of my remarks, I will ask unanimous consent to 
put an op-ed from the Wall Street Journal into the Record. It is 
written by Michael Boskin, who makes the point very clearly that our 
problem is spending, not taxes, and that we should be focused on 
reducing spending growth, especially in entitlements. He is a professor 
of economics at Stanford University and senior fellow at the Hoover 
Institution and he chaired the Council of Economic Advisers for the 
first President Bush. I will refer to that in a moment.
  Yesterday, I said there were three reasons why Republicans were not 
willing to raise taxes at this time. The first was that the problem, as 
I said, is spending, not taxes. Spending has increased under President 
Obama from 20 percent of GDP--the historic average--to 25 percent in 
just 3 years. That has been the reason we have had a deficit of $l.5 
trillion each of those years, and we will see deficits in that order of 
magnitude for as far as the eye can see.
  The second reason not to raise taxes is that when we talk about whom 
the taxes actually apply to, it turns out they don't just apply to 
millionaires and billionaires. I pointed out that there were 319,000 
households that reported over $1 million in income tax. Again, that is 
319,000. But the tax the President is talking about would apply to 3.6 
million taxpayers--more than 10 times that many. So the point is, 
frequently, Democrats like to aim at the rich--the so-called 
millionaires and billionaires--and they end up hitting a whole lot of 
other folks who aren't in that category of millionaire and billionaire. 
It has happened before with the alternative minimum tax, which was 
originally to apply to 125 people, I think, and now it hits between 20 
million and 30 million households. That is the second reason.
  I might add, by the way, my friend, the majority leader, said a 
moment ago there is nothing wrong with taxing yachts or airplanes and 
that he would, in fact, rather have an airplane than a yacht. I 
remember the experience we had with that. We were going to hit the 
millionaires. In 1990, we raised the tax on yachts and other luxury 
items. All the people who made boats in Maine, Massachusetts, and other 
States lost their jobs. I think it was something over 9,000 jobs that 
were lost in the boat building industry. Congress quickly repealed 
that. Within 3 years, we had to repeal that big luxury tax. We weren't 
hitting millionaires and billionaires; we were hitting the people who 
actually made the yachts.
  Right after 9/11, Congress passed an accelerated depreciation 
provision for the general aviation industry. The idea there was to make 
sure 9/11 didn't hit that industry too hard and jobs would be saved. In 
the President's stimulus bill, that accelerated depreciation provision 
for business jets was reauthorized. That is the thing we are talking 
about here, when we talk about business jets.
  The President has said business jets should not receive that kind of 
tax treatment. The people who he said would be benefited by the 
stimulus package with jobs created or saved are the people who will 
lose their jobs if that particular tax treatment is taken away.
  Maybe we should look at that. I am not against looking at that tax 
treatment. If we should look at it and decide it is not appropriate, 
maybe people will lose their jobs, but we may want to get rid of it; we 
should use whatever reduction there is in that to create lower rates 
for corporations across the board, as the President indicated, because 
then we can be more competitive with corporations abroad that have much 
lower corporate tax rates than the United States.
  That gets me to the third reason we should not raise tax rates: 
because it will kill jobs, hurt the economy. If we want to put people 
back to work, we cannot impose more regulatory or tax burdens on the 
very businesses that create the jobs. Two-thirds of the jobs coming out 
of a recession are created by small businesses. Fifty percent of the 
income of the small businesses is reported in these top two income tax 
brackets that would be affected by the President's proposal to raise 
taxes. They would be hit by this and, as a result, they would not hire 
as many people.
  There are a couple items from today's paper that I will use to 
illustrate the point. From the Phoenix Business Journal, it says: 
``U.S. small businesses out of gas on job creation.'' They point out:

       Small-business owners continue to be pessimistic about the 
     economy. . . . New jobs are not to be found on Main Street . 
     . . Economic uncertainty was cited as the biggest obstacle to 
     hiring. . . .

  One of America's more colorful entrepreneurs, Steve Wynn, in Nevada, 
who is one of the majority leader's constituents, a self-described 
Democrat, says that ``this administration is the greatest wet blanket 
to business and progress and job creation in my lifetime.'' He says in 
his report to his company shareholders on the company's quarterly 
conference call that ``my customers and the companies that provide the 
vitality for the hospitality and restaurant industry in the United 
States of America, they are frightened of this administration, and it 
makes you slow down and not invest your money.'' He goes on.
  I have talked to Mr. Wynn. He is very concerned about the regulatory 
and tax burdens being imposed upon not just his industry but across the 
board. That is what is inhibiting economic growth.
  One of the taxes proposed by the administration was evaluated by this 
administration's Small Business Administration, the Office of Advocacy 
of the SBA. They said:

       It could ultimately force many small businesses to close.


[[Page 11338]]


  Why would the administration propose a tax increase on, in this case, 
retailers and manufacturers, primarily, that could ultimately force 
small businesses to close, according to the administration's own SBA? 
It doesn't make sense.
  For all three reasons, we should not be raising taxes. The President 
was right last December, and the reason is because spending is the 
problem, not taxes; that we end up aiming at the millionaires and 
billionaires, but we hit a broader swathe of our economy; and, third, 
because it would kill job creation and inhibit economic growth to 
enable us to get out of this recession.
  The final point I would make here relates to that. It is the Wall 
Street Journal op-ed of July 18 by Michael Boskin.
  Madam President, I ask unanimous consent to have printed in the 
Record this op-ed piece at the conclusion of my remarks.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  (See exhibit 1.)
  Mr. KYL. The point he makes here--and I will quote a couple of 
points--is regarding the President's demand that we raise taxes, and he 
says, ``His timing couldn't be worse.'' Let me quote from this.

       Two problems arise when marginal tax rates are raised. 
     First, as college students learn in Econ 101, higher marginal 
     rates cause real economic harm. The combined marginal rate 
     from all taxes is a vital metric, since it heavily influences 
     incentives in the economy--workers and employers, savers and 
     investors base decisions on after-tax returns. Thus tax rates 
     need to be kept as low as possible, on the broadest possible 
     base, consistent with financing necessary government 
     spending.

  The second point he makes is that as tax rates rise, the tax base 
shrinks, and ultimately you have a much smaller group of people paying 
at those very highest levels. He goes on to point out some examples of 
somebody in the upper brackets in the State of California, which is a 
high-tax State. When you add in the California taxes, the payroll taxes 
to fund ObamaCare, ultimately the President's idea of uncapping Social 
Security payroll taxes, the combined marginal rates would rise to a 
stunning 58.4 percent. Then, if you added in the requirements to pay 
for the additional costs of the excess spending the administration has 
proposed, the taxes could drive the combined marginal rate to more than 
70 percent by 2035 and 80 percent by 2050. I mean, there is a point at 
which people will stop working for that next marginal dollar because 
most of it goes to Uncle Sam.
  He also takes the example of a teacher in California earning $60,000, 
and when you add in all those other things, the marginal rate goes to 
an astounding 71 percent. He says:

       At the margin, virtually everyone would be working 
     primarily for the government, reduced to a minority partner 
     in their own labor.

  I will quote one of his conclusions and then conclude.

       Higher tax rates are the major reason why European per-
     capita income, according to the Organization for Economic 
     Cooperation and Development, is about 30 percent lower than 
     in the United States.

  The point is that imposing more taxes on the economy not only 
inhibits job creation, but it reduces productivity because Americans 
stop working that extra hour or that extra day since most of what they 
earn is going to be given to Uncle Sam. That is part of the problem and 
one of the reasons the European standard of living is 30 percent lower 
than here in the United States. Do we want to get to where Europe is? I 
think the answer is no.
  So we have to deal with extending the debt ceiling. We should try to 
reduce spending so that we don't have this future cloud hanging over 
our head and, frankly, to prevent having to come back to increasing the 
debt limit every few months or years. But the way to do that is not by 
raising taxes, which will not raise the revenues--it will inhibit 
economic growth--but, rather, by focusing on the real problem, which is 
spending, which has increased from 20 to 25 percent of GDP in just 3 
years, and getting spending under control.
  I mentioned yesterday, for example, that the President had taken a 
lot of things off the table. My friend the majority leader said a 
moment ago that the President has decided he is willing to compromise 
about reducing spending. I don't think he is. I have been sitting in on 
those negotiations. I haven't seen that.
  We proposed three things--just three things--that wouldn't touch 
beneficiaries: Medicare, Medicaid, and uninsured benefits going to 
people who aren't supposed to get them, or overpayments. You can save 
over $100 billion a year by simply not paying people what the law says 
they shouldn't receive, just stopping the overpayments, or paying 
people who aren't eligible for one of those three services. You are not 
touching anybody who is currently eligible for Medicare, Medicaid, or 
uninsured benefits. You are not touching them. They receive their full 
benefits. But let's simply watch out for taxpayer dollars.
  The problem is, it is like renting a car. Has anybody here ever 
washed a rental car? When you rent a car and you go home, is washing it 
the first thing you do? If it gets a little dirty, do you wash it 
before you turn it back in? No. This is someone else's money, and 
people aren't watching it. It is taxpayer money that is now 
administered by the Federal Government through Medicare, Medicaid, and 
unemployed insurance, and the reality is that people aren't trying to 
stop the waste, fraud, and abuse.
  All that is taken off the table. No, the administration says, we 
don't want to talk about that because we don't want people who receive 
those benefits to have to sacrifice. Well, the people who are receiving 
the benefits aren't sacrificing. The taxpayers are the ones who are 
sacrificing by contributing money to the government that is then 
wasting.
  There is plenty of reform out there to stop wasteful Washington 
spending. If the administration would be willing to do those things, 
then I think we could find enough savings so that we wouldn't have to 
even be talking about tax increases, which for the three reasons I 
mentioned are so harmful to our society, to our families, to our 
businesses, and to our economy.
  So I hope we will continue this debate on the so-called cut, cap, and 
balance legislation that does require cutting spending, constraining it 
over time, and ensuring that over the long term--over the next 5, 10, 
15, 20 years--these savings don't all evaporate because we go back to 
our big spending ways. At least a balanced budget amendment would 
prevent us from doing that. So I fully support the legislation that 
will be brought forward. I presume it will pass the House of 
Representatives this evening, and I am looking forward to the debate 
here in the Senate so that we can try to adopt that same legislation.

                               Exhibit 1

             [From the Wall Street Journal, July 18, 2011]

                 Get Ready for a 70% Marginal Tax Rate

                         (By Michael J. Boskin)

       President Obama has been using the debt-ceiling debate and 
     bipartisan calls for deficit reduction to demand higher 
     taxes. With unemployment stuck at 9.2% and a vigorous 
     economic ``recovery'' appearing more and more elusive, his 
     timing couldn't be worse.
       Two problems arise when marginal tax rates are raised. 
     First, as college students learn in Econ 101, higher marginal 
     rates cause real economic harm. The combined marginal rate 
     from all taxes is a vital metric, since it heavily influences 
     incentives in the economy--workers and employers, savers and 
     investors base decisions on after-tax returns. Thus tax rates 
     need to be kept as low as possible, on the broadest possible 
     base, consistent with financing necessary government 
     spending.
       Second, as tax rates rise, the tax base shrinks and 
     ultimately, as Art Laffer has long argued, tax rates can 
     become so prohibitive that raising them further reduces 
     revenue--not to mention damaging the economy. That is where 
     U.S. tax rates are headed if we do not control spending soon.
       The current top federal rate of 35% is scheduled to rise to 
     39.6% in 2013 (plus one-to-two points from the phaseout of 
     itemized deductions for singles making above $200,000 and 
     couples earning above $250,000). The payroll tax is 12.4% for 
     Social Security (capped at $106,000), and 2.9% for Medicare 
     (no income cap). While the payroll tax is theoretically split 
     between employers and employees, the employers' share is 
     ultimately shifted to workers in the form of lower wages.

[[Page 11339]]

       But there are also state income taxes that need to be kept 
     in mind. They contribute to the burden. The top state 
     personal rate in California, for example, is now about 10.5%. 
     Thus the marginal tax rate paid on wages combining all these 
     taxes is 44.1%. (This is a net figure because state income 
     taxes paid are deducted from federal income.)
       So, for a family in high-cost California taxed at the top 
     federal rate, the expiration of the Bush tax cuts in 2013, 
     the 0.9% increase in payroll taxes to fund ObamaCare, and the 
     president's proposal to eventually uncap Social Security 
     payroll taxes would lift its combined marginal tax rate to a 
     stunning 58.4%.
       But wait, things get worse. As Milton Friedman taught 
     decades ago, the true burden on taxpayers today is government 
     spending; government borrowing requires future interest 
     payments out of future taxes. To cover the Congressional 
     Budget Office projection of Mr. Obama's $841 billion deficit 
     in 2016 requires a 31.7% increase in all income tax rates 
     (and that's assuming the Social Security income cap is 
     removed). This raises the top rate to 52.2% and brings the 
     total combined marginal tax rate to 68.8%. Government, in 
     short, would take over two-thirds of any incremental earning.
       Many Democrats demand no changes to Social Security and 
     Medicare spending. But these programs are projected to run 
     ever-growing deficits totaling tens of trillions of dollars 
     in coming decades, primarily from rising real benefits per 
     beneficiary. To cover these projected deficits would require 
     continually higher income and payroll taxes for Social 
     Security and Medicare on all taxpayers that would drive the 
     combined marginal tax rate on labor income to more than 70% 
     by 2035 and 80% by 2050. And that's before accounting for the 
     Laffer effect, likely future interest costs, state deficits 
     and the rising ratio of voters receiving government payments 
     to those paying income taxes.
       It would be a huge mistake to imagine that the cumulative, 
     cascading burden of many tax rates on the same income will 
     leave the middle class untouched. Take a teacher in 
     California earning $60,000. A current federal rate of 25%, a 
     9.5% California rate, and 15.3% payroll tax yield a combined 
     income tax rate of 45%. The income tax increases to cover the 
     CBO's projected federal deficit in 2016 raises that to 52%. 
     Covering future Social Security and Medicare deficits brings 
     the combined marginal tax rate on that middle-income taxpayer 
     to an astounding 71%. That teacher working a summer job would 
     keep just 29% of her wages. At the margin, virtually everyone 
     would be working primarily for the government, reduced to a 
     minority partner in their own labor.
       Nobody--rich, middle-income or poor--can afford to have the 
     economy so burdened. Higher tax rates are the major reason 
     why European per-capita income, according to the Organization 
     for Economic Cooperation and Development, is about 30% lower 
     than in the United States--a permanent difference many times 
     the temporary decline in the recent recession and anemic 
     recovery.
       Some argue the U.S. economy can easily bear higher pre-
     Reagan tax rates. They point to the 1930s-1950s, when top 
     marginal rates were between 79% and 94% or the Carter-era 
     1970s, when the top rate was about 70%. But those rates 
     applied to a much smaller fraction of taxpayers and kicked in 
     at much higher income levels relative to today.
       There were also greater opportunities for sheltering income 
     from the income tax. The lower marginal tax rates in the 
     1980s led to the best quarter-century of economic performance 
     in American history. Large increases in tax rates are a 
     recipe for economic stagnation, socioeconomic ossification, 
     and the loss of American global competitiveness and 
     leadership.
       There is only one solution to this growth-destroying, 
     confiscatory tax-rate future: Control spending growth, 
     especially of entitlements. Meaningful tax reform--not with 
     higher rates as Mr. Obama proposes, but with lower rates on a 
     broader base of economic activity and people--can be an 
     especially effective complement to spending control. But 
     without increased spending discipline, even the best tax 
     reforms are doomed to be undone.

  Mr. KYL. Madam President, I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mrs. MURRAY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

                          ____________________