June 11,2008

Grassley Warns of Family, Small Business Tax Increases in a Democratic Administration

Floor Statement of Senator Chuck Grassley:
More hits on the American Family Budget From Planned Tax Increases
Delivered Wednesday, June 11, 2008

Last night I discussed the spike in gas prices. These increased costs are hammering most Americans, including too many Iowans. This Iowan has seen it first hand at the gas station in New Hartford.I read reports that the stimulus rebate checks are being eaten at the pump.In addition to thishit from gas price hikes, America’s families are facing a big hit from a planned tax hike. I’d like totake a few minutes today to talk about that additional hit on the family budget. You’d think no onewould increase taxes in a time of economic distress. Record tax hikes, in an era of higher gas prices,would seem to be a recipe for economic disaster.

Believe it, though. The other side, including their presidential candidate, proudly and passionately,wants to raise taxes. How, you might ask? By increasing tax rates and taxing investment income.So if the other side prevails in the November elections, we’ll be on the path to a tax hike. Taxesshould rise by almost 10 percent -- with virtually every American paying more.I’d ask folks in the media to take a serious look. It’s in the Congressional Budget Office reports.It’s the effect of letting the bipartisan tax relief expire.

How much more taxes would we have to pay? A lot more, say folks on the other side.Especially those Americans who are defined by the other side as making a lot of money.But what’s a lot money?

The Democrats say that if you’re a family making at least $250,000 a year, you make a lot of moneyand don’t pay enough taxes. That puts you in the current 33% tax bracket. But can Americansmaking less than $250,000 a year be sure they won’t pay more taxes? What’s to say the other sidewon’t tax Americans making say, $100,000 a year? Or even $50,000 a year? The bipartisan taxrelief made sure that all Americans are paying less in taxes. In 2001 and 2003, Congress did the rightthing and reduced the tax liability for all hard-working Americans.

This tax relief should NOT be labeled the BUSH TAX CUTS. Yes, President Bush had a great dealof involvement and deserves some credit. But I want to remind people, that Congress passed the2001 and 2003 tax relief. The Finance Committee, divided 50% Republican and 50% Democrat atthe time, completely re-wrote President Bush’s plan. Max Baucus, the current chairman, was mypartner on the 2001 bill. We overcame the White House’s desire to write a Republican-only bill andskip the Committee process. So stop calling the tax relief the “BUSH TAX CUTS.” This label ispolitically motivated to confuse the American taxpayer about bipartisan tax relief.

This label is repeated over and over again. The head of the Senate Democrats’ campaign outfit beatshis partisan drum with this phrase. You know he relies on polls to drive his partisan message. Thelabel is likewise parroted over and over and over again in press reports. The Sunday political talkshow hosts are even getting into the act.

If I had a nickel for every time I heard “BUSH TAX CUTS” – especially from the political pundits– I’d single-handedly be able to pay-off the national debt. Colleagues and friends in the media,please lay off the false label of BUSH TAX CUTS. Instead, look at the substance.

Here’s the substance. The 2001 and 2003 tax relief put more money into the pockets of hardworkingAmericans. How? By lowering the tax rates, providing marriage penalty relief, andproviding the child tax credit. I don’t hear much press discussion about how much money hardworkingAmericans are going to have to pay if the 2001 and 2003 tax relief expires. I ask mediafolks take a look at this data. It is real. It means dollars and cents to virtually every Americantaxpayer. That cushion in the family budget will be critical to deal with the burden from higher gasprices.

Here’s the data – If the 2001 and 2003 tax relief expires, a family of four with household incomeof $50,000 will pay $2,300 more in taxes. That’s A LOT of money for a family earning $50,000.Here’s a chart that shows it.

These families have hit a brick wall of higher gas prices. If the other side prevails, these familieswill run smack dab into a tax brick wall.

Here’s more data – a single mother with two children earning $30,000 will pay $1,100 more in taxesif the tax relief expires. This single mom with two kids will be crushed by a brick wall of highertaxes.

There’s a lot of talk about the need for change in economic policy. Seems like change, no matterwhat it means, is good on its face.

Many in the media and Beltway punditry fawn over the soaring rhetoric of the eloquent Democraticpresidential candidate. Indeed, there is almost a cult of personality surrounding the charismaticjunior senator from Illinois. These folks in the media and Beltway punditry need to cut through thefog. They need to look at what the Democratic notion of changed economic policy will mean tofolks beyond the Beltway. Look at this change, not from the perspective of high-paid latte liberalcrowds in the bluest areas of the bluest states. Look at what this change means in the offices,factories and farms in the Heartland. That’s what I ask of many in the media and the punditry.

Now, gas prices are also squeezing the country’s main job creators. I’m referring to small business.Small business has a tax hike to worry about as well. This tax hike piles on top of higher energycosts that are slamming small business. According to the Treasury Department, about 70% oftaxpayers who are “flow-through” business owners are in the top 5% of taxpayers. So my friendson the other side of aisle – along with their presidential candidate – are effectively saying that theywant small business owners to pay at least 13 percent more in taxes.

Small business owners aren’t Bill Gates or Warren Buffett. Small business owners are hard-workingAmericans who live on Main Street. They are vital to our economic well-being. Small businessemploys a vast majority of America’s workers. If small business owners have to pay more moneyto the government, that’s less money they can use to hire someone. If that person is not hired, whathappens? The individual is unemployed. Has no income. Has no health care. Instead, that workerstands in the unemployment line and collects an unemployment check. Like I said, all of these taxhikes on small business would pile on top of the gas price hikes already crippling small business.Why should they pay more taxes? Is this change good because they can afford it? That’s what theother side will say.

But it makes no sense. What they’re saying is because these taxpayers can quote-unquote, affordit, these taxpayers should be paying an even greater percentage of the federal government’s taxes.But what does “afford it” mean? Don’t we want all taxpayers, not just those making $250,000 ormore, to pump their disposable income back into our economy? Do we want to steer taxpayers –including upper-income taxpayers – toward lower-return, tax-favored investments?

Do we want to steer their money away from re-investing in small businesses or start-up companies?By the way, I want to compliment one of Senator Obama’s surrogates. I’m referring to GovernorTim Kaine of Virginia. On Fox New Sunday, Governor Kaine indicated that Senator Obama wouldpropose a 0% capital gains rate for small start-up companies.

Under current law, a 7.5% rate applies. Now, we Republicans could look at this proposal. Butunfortunately for the American people, Governor Kaine said Senator Obama would substitute thisrate with a 33% increase in capital rates for other investments. The substitution would be bad forother investors, so let’s focus on the pro-growth side of the proposal and consider dropping the ratefor start-ups from 7.5% to 0%.

But the political talking point that we hear again and again, raise taxes on the country’s toptaxpayers to generate “needed” revenue, is communicated to the American public. It is said enoughtimes and repeated by the press, so many times, that many Americans believe it. It is not the faultof that portion of the American public that believes it. It’s refreshing that a vast majority ofAmericans think the general idea of a tax increase is a bad idea – especially in these economic times.But the notion that there are no downsides for taxpayers – or for economic growth – if income taxesgo up by 10% is a notion that the other side believes. Many in the media seem to accept this notionwithout further examination. If middle- and upper-income taxpayers see a bigger tax bill, do theybelieve that our economy will be better off?

It is clear lower tax rates have generated record tax revenues. I challenge some of the media whoare skeptical about tax relief to take a look. Here is a chart that illustrates that lower taxes havegenerated record tax revenues.

This chart illustrates that federal tax revenues have been – and generally continue to be –coming intothe federal Treasury at or above the historical average of 18.2 percent of GDP. Now what the heckdoes that mean? It means that lowering the tax rates has not gutted federal tax revenues. So don’tbelieve the Chicken Littles who say the sky will fall if we keep taxes low. It means that keepingtaxes low -- even for Americans earning $250,000 a year – has brought in record-breaking revenue.It also means that the government doesn’t need to raise taxes in order to generate revenue.

Now I can’t let my colleagues on the other side– and some of the skeptics in the press, for thatmatter – say to the American public that if you earn less than $250,000 a year, you won’t see highertaxes. Why? There are millions of investors earning less than $250,000. They earn dividends andcapital gains. Let’s take a closer look. In 2003, Congress reduced the top tax rate on capital gainsfrom 20% to 15%. Congress also tied dividend income to the capital gains tax rate – that is, 15%.For low-income taxpayers, the tax rate on capital gains and dividends is currently zero. That’sZERO, with a capital Z. Millions of low-income taxpayers receive dividends and capital gains. Allof these taxpayers were not making over $250,000. I’ll shed light on this fact with a chart.

Nationally, over 24 million tax returns reported dividend income. In Iowa, for instance, over299,000 families and individuals claimed dividend income on their returns. Here’s another chartdealing with capital gains. Nationally, 9 million families and individuals claimed capital gains.Over 127,000 of them were folks from Iowa. I have fought both Democrats AND Republicans toensure that our country is set on the right course. That course is economic prosperity. I’d like tosee a real discussion of the negative implications of changing current economic policy. With highgas prices squeezing taxpayers, it’s more compelling than ever. Let’s clear away the fog about theexpiring bipartisan tax relief. Broad-based tax increases aren’t gauzy “feel good” economic policychanges. Let’s examine the benefits of keeping taxes low.

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