[Congressional Record (Bound Edition), Volume 158 (2012), Part 12]
[Senate]
[Pages 17071-17072]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            FISCAL SOLVENCY

  Mr. THUNE. Mr. President, I come to the floor today to talk about the 
debt crisis facing this country and why I believe any deal to avert the 
fiscal cliff must address serious entitlement reform. We should not let 
the discussion around taxes, which is sort of dominating the airwaves 
here in Washington, distract us from the fact that Washington has a 
spending problem, not a revenue problem.
  Every independent expert who examines America's long-term structural 
fiscal dilemma comes to the same conclusion: Entitlement programs are 
the drivers of our national debt over the long term.
  Those who argue that we can dig our way out of a $16 trillion debt--
and counting, by the way--by raising taxes are ignoring reality. 
According to the Congressional Budget Office's most recent forecast, 
under the current tax rates, revenues over the next 10 years will 
average roughly 18 percent of GDP. In other words, Federal revenues 
will return to their historical average without raising taxes on 
anyone. I will repeat that because I think it is an important point. 
Our tax revenues will go back to an average of 18 percent over the next 
decade, which is the historical average, and that happens with existing 
tax policy in place, without raising taxes on anyone. In fact, 
according to the Congressional Budget Office, under the current tax 
rates, revenues as a percentage of GDP will reach 18.6 percent by the 
year 2022--a decade from now. That is more than half a percentage point 
higher than the historical average.
  Clearly, our budget problems are not because we have too little 
revenue. Our budget situation today relates directly to Washington's 
addiction to overspending. In fiscal year 2007, before the recession, 
total Federal revenue was roughly $2.5 trillion and total Federal 
spending was approximately $2.7 trillion. Five years later, for fiscal 
year 2012, which recently ended, total Federal revenue was $2.45 
trillion--basically back to the prerecession levels, about the same 
revenue we had back in 2007--but total Federal spending was above $3.5 
trillion. In other words, tax revenue is back to where it was before 
the recession but Federal spending is now $800 billion higher than it 
was just 5 years ago, in 2007.
  Even the Washington Post on their editorial page, which is not 
something I usually agree with, agrees. In an editorial entitled ``Mr. 
Obama's Time to Lead on Entitlements,'' the Post argued:

       Since 60 percent of the federal budget goes to Medicare, 
     Medicaid and Social Security, there's no way to achieve 
     balance without slowing the rate of increase of those 
     programs.

  Speaking of entitlement programs, the Post editorial went on to say, 
``At some point he,'' referring to the President, ``has to prepare the 
American people--and his own supporters most of all--for the hard 
decisions required to put the country on a sound financial footing.''
  Even the Washington Post agrees that we must take on the driver of 
Federal spending, entitlement spending and, second, that the President 
has to lead on that issue. Unfortunately, the President has continued 
campaigning around the country for higher taxes, but until he gets 
serious about leading on the issue of entitlement reforms, we simply 
will not be able to reach an agreement to tackle our fiscal problems in 
a meaningful way.
  A look at the President's proposed tax hike demonstrates why we 
simply cannot tax our way out of a debt crisis. The President is 
proposing $68 billion in revenue next year by raising the top tax 
rates--in the process, raising taxes on nearly 1 million small business 
owners. The White House claims this will not have a major negative 
effect on America's business owners or their employees. But according 
to the National Federation of Independent Business, small businesses 
created two-thirds of the new jobs in the last decade, and those small 
businesses are the most likely to be hit by the new tax increases, and 
those are the small businesses that employ, by the way, 25 percent of 
the total workforce.
  According to a study by Ernst & Young, the President's proposed tax 
increases will result in 700,000 fewer jobs, a nearly 2-percent decline 
in wages and economic growth that is 1.3 percent lower than it 
otherwise would be. Yet despite the broad impact of these taxes on 
small businesses and our economy, this tax hike would only fund 
government operations next year for about a week. If the President got 
everything he wanted in the form of higher rates on income, higher 
rates on capital gains and dividends--all of those things go back to 
the higher rates--it would fund government for about a week. The 
President appears to have an obsession with raising income tax rates 
and claiming that it is the only way to get significant new revenues. 
But this is not true according to the administration's own budget.
  According to this administration's budget, the President's marginal 
income tax rate hike on high earners will raise $442 billion over 10 
years. As I mentioned, if we look at just the top two rates, we would 
raise about $442 billion over 10 years. If we average that out, it ends 
up being about $40 billion a year. Yet, according to the same budget, 
the President's proposal to limit the value of tax expenditures for 
higher income earners by itself raises $584 billion over 10 years. In 
fact, the marginal tax rate increases alone are only one-fourth of the 
total $1.6 trillion in new taxes that the President has proposed.
  So it is simply not true, as a factual matter or as a matter of 
arithmetic, that we need to raise marginal income tax rates to raise 
significant revenue. Yet the President continues to insist that 
marginal income tax rate increases be part of any fiscal cliff 
agreement. We have to wonder: Is it because of the arithmetic or is it 
because of a liberal ideology that considers higher income tax rates to 
be the holy grail of tax policy.
  The last thing we ought to do if we want to boost economic growth is 
to raise tax rates, especially marginal income tax rates. Marginal 
income tax rates matter because they have incentive effects. They 
affect a worker's decision to work an additional hour. The 
Congressional Budget Office explains that phenomenon in this way:

       Increasing revenues by raising marginal tax rates on labor 
     would reduce people's incentive to work and therefore reduce 
     the amount of labor supplied to the economy.

  Most Americans understand this logic intuitively. If we want less of 
something, raise the cost of producing it by taxing more heavily. If we 
raise marginal income tax rates, we will get less income as well as the 
labor that gives rise to that income. If we raise taxes on investment, 
we are likely to get less investment. It is time to recognize that we 
don't live in a static world. Taxpayers will adjust to higher rates 
and, in fact, this has already started to happen.
  Consider that in the last month we have seen a host of companies 
announcing special dividends or rushing to move up their dividend 
payments before the end of the year. There were 228 companies that 
announced special dividend payouts in the month of November. This 
compares to 54 companies in the month of October and 72 companies in 
November of last year. So we have three times as many companies 
announcing that they are going to do special dividend payouts in the 
month of November as we had last year. We have to believe this is a 
direct result of the administration's plan to raise the top dividend 
tax rate from 15 percent today to 43.4 percent next year. The top tax 
rate on dividends next year will nearly triple unless we take action to 
prevent that.
  Rather than raising taxes on America's small businesses, we should 
reform our Tax Code in a way that encourages economic growth and 
therefore generates new revenue. Instead of the President's approach to 
simply redistribute revenue, we should be focused on growing the 
economy over the long run thus increasing opportunities for wealth 
creation for all Americans. We know this approach can work because we 
have done it before. The Tax Reform Act of 1986 lowered rates, 
broadened the tax base, and resulted in one of the longest economic 
booms in American history.

[[Page 17072]]

  Harvard economist Dale Jorgenson recently estimated that the gains 
available from fundamental tax reform amount to as much as $7 trillion 
in current dollar terms. The Joint Tax Committee has projected that 
revenue-neutral tax reform that lowered rates and broadened the tax 
base could lead to an increase in GDP by as much as 3.5 percent in the 
long run.
  Mark Feldstein, former Chairman of the White House Council of 
Economic Advisers, calculated that lowering individual tax rates by 
only 10 percent, coupled with base-broadening measures to ensure 
revenue neutrality, would raise over $500 billion in new revenue 
related to growth over the next 10 years. That is lowering individual 
tax rates by just 10 percent. Increasing the rate of economic growth is 
the single most important thing we can do to ensure greater prosperity 
for Americans today but also for the coming generations.
  A recent report by Third Way, a center-left think tank, highlighted 
the importance of raising economic growth back to the post-World War II 
average of 3.3 percent. According to this report, increasing economic 
growth back to 3.3 percent starting in the year 2018 would result in 
nearly 2 million additional jobs by the year 2022 and roughly 5.3 
million new jobs by the year 2030. It will result in more than $600 
billion in new revenue by 2022 and more than $5 trillion in additional 
Federal revenue by the year 2030.
  Christina Romer, former Chair of the White House Council of Economic 
Advisers under President Obama, has equated a 1-percentage-point change 
in GDP with 1 million jobs per year. Given these estimates, there 
should be a bipartisan consensus that what we need is higher economic 
growth, not higher taxes. I would propose that the fiscal cliff is both 
a challenge and an opportunity. It is a challenge to get the Federal 
Government's runaway spending under control, but it is also an 
opportunity for us to make real entitlement reforms and to put in place 
a structure for comprehensive tax reform next year that will have 
enormous benefits for our economy.
  I hope the President of the United States will soon join the 
discussion that many of us have been having about comprehensive tax and 
entitlement reforms. Presidential leadership on both of these critical 
issues is long overdue and is essential.
  We cannot do big things in this country, such as entitlement reform 
or tax reform, absent Presidential leadership. President Obama has a 
unique opportunity in his second term to do some things that are 
desperately needed for this country and to put our country on a path 
toward fiscal solvency, a trajectory that will ensure a brighter, 
better, and more prosperous future for generations of Americans. In 
order to have that happen, we have to have the right policies in place, 
and those are policies that encourage jobs and economic growth.
  The President said in his postelection press conference that his No. 
1 priority was going to be jobs and the economy. I could not agree more 
with that statement. The way we achieve that is by getting fiscal 
discipline in place through budgetary restraint and by having policies 
in place that promote robust economic growth. If we look at what solves 
these problems, the best thing we can do is to grow our economy and 
then a lot of these debt and deficit issues become much smaller by 
comparison. It really does come down to growth, but we simply cannot 
grow the economy by raising taxes on small businesses, job creators, 
and people out there who are creating the jobs and impact literally 
millions of middle-class families who are employed by those very same 
small businesses.
  Millions and millions of Americans work for small businesses in this 
country. If the President has his way, those Americans would see their 
taxes go up. That is not something we want to see happen in a weak 
economy.
  In fact, it was only 2 years ago in 2010 when the President said that 
we ought to extend all of the tax rates because we should not raise 
taxes in the middle of a weak economy. At that time economic growth on 
an annualized basis was 2.4 percent. Economic growth now on an analyzed 
basis is 2. We have a weaker economy today than we did in 2010 when the 
President said raising taxes in the middle of a weak economy would be a 
mistake and a bad idea.
  I agreed with him then, and I hope he will come to the conclusion now 
that this is a bad solution. I know the President is insistent on 
higher tax rates, but as I pointed out earlier, if we raise the top two 
marginal income tax rates alone, we generate about $40 billion of 
revenue next year. If we add to that capital gains and dividend tax 
rate increases, we get about $68 billion in additional tax revenue next 
year, which funds government for just under a week. It simply does not 
solve the problem if we are talking about fixing the deficit.
  On the other hand, what it does do is make it more expensive and more 
difficult for American businesses to create jobs to get Americans back 
to work, to get our economy growing again, and to make this country 
prosperous for future generations.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Washington is 
recognized.

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