In Speech, Hatch Outlines Why Key to Lasting Deficit Reduction is Entitlement Reform, Not Tax Hikes

Utah Senator Says, “My colleagues insist that their demands for higher taxes are all about deficit reduction. But, let’s face it, if deficit reduction were the real goal, entitlement reform would also be on the table. After all, that is where the money is. That is where we have a chance to really reduce the deficit.”

WASHINGTON – In a speech on the Senate floor today, Finance Committee Ranking Member Orrin Hatch (R-Utah), outlined why the key to lasting deficit reduction is through concrete, structural entitlement reform and not raising taxes on Americans.
 
 “Once again, their message to the American people is that we have to keep the current [tax] system – which virtually everyone in the country agrees is a problem – unless Republicans agree to higher taxes,” said Hatch. “They want to hold simplicity in the tax code hostage to demands for even more taxes.  They want to hold efficiency in the economy, which stimulates growth and creates jobs, hostage to demands for the second tax hike of the year in order to pay for more spending and expand government even further. They want to hold competitiveness of our businesses at home and around the globe hostage to demands that flow-through businesses face yet another tax hike, even after having been hit already at the start of this year.”

Hatch continued, “My colleagues insist that their demands for higher taxes are all about deficit reduction.  But, let’s face it, if deficit reduction were the real goal, entitlement reform would also be on the table.  After all, that is where the money is.  That is where we have a chance to really reduce the deficit.”

Below are Hatch’s full remarks delivered on the Senate floor today:

Mr. President, over the last few years, I have come to the floor many times to advocate for comprehensive tax reform.  

I share the belief of many in the Congress that tax reform is a necessary step to ensuring economic growth and prosperity in the future.  That is why, as the Ranking Member of the Senate Finance Committee, I have made tax reform my top priority.

We are now at a crossroads when it comes to tax reform.   

Before us are two alternative paths.  

The first path is the one we took in 1986.

It is the path that former House Democratic Leader Dick Gephardt and former Treasury Secretary James Baker advised members of the House Ways and Means Committee and the Senate Finance Committee to take.  

As you’ll recall, they were two critical players in that last successful tax reform effort.  And, in 2011, they advised us to not mix deficit reduction and tax reform. To paraphrase these two former leaders, each is a hard enough task by itself, but doing them together is nearly impossible.  

So that is one path we can take – the path that separates our tax reform efforts from our deficit reduction efforts.

The other path we can take is to condition tax reform on the raising of additional revenues.  Sadly, that seems to be the preferred path of many of my friends on the other side of the aisle.

According to many Democrats here in the Senate, there can be no deal on tax reform unless they get a second significant tax increase this year.  

We heard just today from the Senate Democratic Leadership that they want the Senate Finance Committee to use the Senate budget, which included nearly a trillion dollars in tax hikes, as the model for tax reform.  

Essentially, what they’re saying is that, unless they get a big tax hike, we have to keep the tax system as it is, with all its complexity, inequities, and distortions.  Right now, this position held by many on the other side of the aisle is the biggest barrier to fundamental tax reform.  

Today, I’d like to take a few minutes to examine this position and to discuss the merits of conditioning tax reform on yet another significant tax increase.  

Last October, one of my friends on the other side put it this way:

“Tax reform 25 years ago was revenue-neutral. It did not strive to cut the debt. Today, we can’t afford for it not to. Our national debt today is approximately 73 percent of GDP—that’s nearly double what it was in 1986.”

At first glance, this argument may appear to be reasonable.  However, it falls apart under further examination.  

If my friends on the other side of the aisle were serious about deficit reduction, they wouldn’t focus their efforts on tax hikes.  If they really wanted to get a handle on our nation’s debt problems, they would work with Republicans to address the main drivers of our debt and deficits: our unsustainable entitlement programs.  

No one who has spent more than five minutes examining our nation’s finances seriously disputes that the main drivers of our current debt and deficits and the source of the coming fiscal calamity are federal entitlement programs, especially our health care entitlements, Medicare and Medicaid.  

I have a chart from the Bipartisan Policy Center that tracks the trend lines on federal spending.  

As the chart shows, in the coming years, health care entitlement spending will overwhelm our federal fiscal picture and consume an outsized share of our economy.

That’s represented by the blue line on the chart.  

All other categories of major federal spending either increase at significantly lesser rates or decline and stabilize.

So, as you can see, Mr. President, when it comes to deficit reduction and getting our debt under control, entitlement reform is where the bodies are buried.  Yet, if you listen to my friends on the other side of the aisle, the problem is not our entitlement programs.  The problem, they say, is that the American people simply aren’t being taxed enough.  

Of course, the actual numbers tell a different story.  

Over the last 40 years, federal revenues as a percentage of the gross domestic product have averaged roughly 17.9 percent.  While, in recent years, that number has decreased due to the struggling economy, tax revenues are on pace to rise above the historic average and settle at around 19 percent of GDP.

Let me repeat that: absent any changes to tax law, revenues are set to rise above historic levels relative to GDP.   

So, despite my friends’ claims to the contrary, the root of our current fiscal crisis is not a lack of revenues, it is unsustainable spending.  

More specifically, it is entitlement spending.  

And that, Mr. President, is why all serious bipartisan deficit reduction discussions over the last few years have included structural reforms to our entitlement programs.  

Without significant changes, programs like Medicare and Medicaid and Social Security will remain unsustainable. In order to strengthen and preserve these programs for future generations, we need to reform them.  If we don’t reform them, we face a fiscal disaster.  

All of the major discussions seeking to reach a so-called “grand bargain” on deficit reduction have come down to a mix of different policies.  But, while they’ve all had different approaches, all of them have included structural entitlement reforms.

When I talk about deficit-reduction discussions, I’m referring to the Bowles-Simpson plan, the Domenici-Rivlin plan, the negotiations led by Vice President Biden, the G-8 Senate talks, the negotiations between Speaker Boehner and President Obama, and the so-called Super Committee.  

Each of those grand bargain discussions divided deficit reduction policy issues into four categories.  These categories are: 1) discretionary spending, 2) non-health mandatory spending, 3) health care entitlement programs, and 4) revenue.  

Those have been the agreed-upon areas of focus in our deficit reduction efforts.  

Yet, if you listen to what my friends on the other side of the aisle have been saying recently, you’ll see that their focus is entirely one-dimensional.  

We don’t hear much talk any more about addressing discretionary spending.  

We certainly don’t hear much in terms of reining in entitlement spending.

No, their only focus is on raising taxes.  

More precisely, their most recent argument has been that we’ve already cut so much spending over the last few years that we are now at a point where tax hikes are the only viable deficit reduction option.  

Now, of course, with exception of the sequester cuts that took effect this year, we haven’t really seen any real spending reductions as of yet – just promises, which future Congresses can easily undo.    

Even though only a small portion of the promised  spending cuts have actually taken place, my friends on the other side of the aisle like to claim that they’ve all already happened.

Still, let’s take a look at the record. Let’s assume for a few minutes that all of the recently enacted deficit reduction is real and take a closer look at what’s been done with respect to the deficit reduction categories I referred to earlier.

In the last two years, two bills have been enacted with the purpose of major deficit reduction.  The first was the Budget Control Act of 2011.  The second was the fiscal cliff deal, or the American Tax Relief Act of 2012.  

According to CBO data and consultation with the Senate Budget Committee, here’s what’s been done so far.

The category that has been tapped the most is discretionary spending to the tune of $1.36 trillion of promised spending reductions over ten years. Once again, these are almost entirely promised spending cuts that have yet to be realized.  
If history has told us anything, it’s that future promises to reduce spending aren’t likely to be kept.  

If you don’t believe me, just look at the efforts by my friends on the other side of the aisle to undo even the small amount of spending cuts that are actually in place this year.  Indeed, Democrats in Congress have been actively looking for ways to eliminate these cuts to discretionary spending and, if history is any indication, they may very well be successful.  

Those who argue against these cuts typically do not want to merely provide greater flexibility over how the spending cuts occur.  They don’t want any cuts to occur, even though they are really only spending cuts relative to a bloated baseline that was supposed to be only temporarily elevated.     

Still, if you assume that, against all odds, these promised spending cuts remain in place, we will have reduced discretionary spending by $1.36 trillion relative to a baseline of bloated spending.   

The next highest deficit reduction category is revenues.  Revenues have been increased by roughly $600 billion over ten years.  This includes only the revenues generated by the fiscal cliff deal – it does not include the trillion dollars in new taxes enacted as part of Obamacare.

Unlike the promised discretionary spending cuts I cited earlier, this revenue number is very real and not just promises. While it may be a ten-year number that can theoretically be changed, history tells us that, once tax hikes are in place, they tend to stay there.

So, of the four deficit-reduction categories, we’ve already taken significant steps with regard to promised discretionary spending reductions and actual revenue hikes.  

Where are we with the other categories?

Like I said, healthcare entitlement spending is the biggest driver of future debts and deficits.  No one seriously disputes this.  And the trust funds in Social Security, which are to finance retirement and disability payments, are on clear paths to exhaustion, with the Disability Insurance trust fund scheduled to dry up in 2016.  

Yet, to date, very little of our deficit-reduction attention has been focused on entitlement spending.

So far, we have done absolutely nothing to deal with unsustainable Social Security promises, and we have done nothing to address insolvencies of the retirement and the disability trust funds.

And, so far, we have reduced healthcare entitlements by a mere $81 billion over the next ten years.  That amounts to roughly four percent of overall promised deficit reduction we’ve enacted. 

That amount is miniscule relative to the amount of scheduled spending in entitlements over the next 10 years.  

As the chart behind me shows, over the next decade, we’ll spend roughly $22 trillion on our three major entitlement programs.  That’s trillion, with a T.

Yet, as I just said, despite monumental claims about cutting spending and reducing deficits over the last couple of years, we’ve only been able to reduce entitlement spending by a mere $81 billion.

And, by the way, all of those spending reductions have come in the form of cuts to health care providers, not structural entitlement reforms.  

Once again, this approach is at odds with all the grand-bargain efforts we’ve seen over the last few years.  All of those efforts – every single one of them – put structural entitlement reform on the table. Yet, to date, my colleagues on the other side of the aisle have been unwilling to do the same.

Like I said, my friends like to brag about all the promised deficit reduction they’ve enacted thus far – even the deficit reduction they’re actively trying to repeal.  But, they refuse to even entertain a serious conversation about the main sources of our future debts and deficits.  

So, Mr. President, where are we?  

The Senate Finance Committee is engaged in a bipartisan effort to reform our nation’s tax code and bring some sense of sanity to our nation’s tax system.  Chairman Baucus and I have asked our colleagues to assist us in this effort by sharing their views on what elements of the current tax code should be preserved.

I want to thank my Republican colleagues on the Finance Committee for their input thus far.  I have been meeting with them individually on this issue and have really appreciated their thoughtful comments and advice.  

While I remain hopeful that we’ll be able to move on tax reform this year, I am disheartened by comments I’ve heard from my friends on the other side of the aisle.  Indeed, many of my Democratic colleagues have stated that they’re unwilling to engage in tax reform without assurances that it will include another massive tax increase.  

Once again, their message to the American people is that we have to keep the current system – which virtually everyone in the country agrees is a problem – unless Republicans agree to higher taxes.  

They want to hold simplicity in the tax code hostage to demands for even more taxes.  

They want to hold efficiency in the economy, which stimulates growth and creates jobs, hostage to demands for the second tax hike of the year in order to pay for more spending and expand government even further.

They want to hold competitiveness of our businesses at home and around the globe hostage to demands that flow-through businesses face yet another tax hike, even after having been hit already at the start of this year.   

My colleagues insist that their demands for higher taxes are all about deficit reduction.  But, let’s face it, if deficit reduction were the real goal, entitlement reform would also be on the table.  After all, that is where the money is.  That is where we have a chance to really reduce the deficit.

But, Mr. President, entitlement reform is not on the table.  Despite the stated desire of President Obama and a number of congressional Democrats for grand bargain on deficit reduction, when the rubber meets the road, they simply aren’t willing to engage in a real discussion about entitlement reform.

Sure, they’ll talk about cuts to providers and other cosmetic changes to these programs.  And, they’ll talk about modifying cost-of-living adjustments in Social Security if they get hundreds of billions of new tax revenue in return.  But, at the end of the day, structural entitlement reforms simply aren’t part of their deficit reduction equation.  

Despite many claims to the contrary, Republicans are willing to continue to engage, as they have in the past, in a bipartisan grand bargain for deficit reduction.  

Ask Senators Crapo, Coburn and former Senator Gregg.  They voted for Bowles-Simpson.  
Oddly enough, the remaining sitting Democratic Senator who voted for Bowles-Simpson has walked back from the entitlement reform concessions he made and has, instead, focused on calls for more and more revenues.

And, as a result, tax reform is being held hostage.      

Republicans and Democrats agree on the importance of tax reform. Our tax system is in dire need of reform.  It is, quite frankly, one of the major obstacles standing between us and sustained economic growth.  

Most Democrats claim that they agree with this sentiment.  But, their desire for more revenues apparently trumps this belief in the need for tax reform.    

Something has to change, Mr. President.  
As I’ve said before, we’ve been counseled by some of our former leaders not mix tax reform and deficit reduction.  I think that’s pretty good advice.    

Sadly, if the Democrats in Congress continue on their current course, neither tax reform nor deficit reduction will be possible.

Indeed, if they continue to condition tax reform on additional tax hikes and if they continue to refuse to engage in a real discussion about entitlement reform, very little is going to be accomplished on either front.

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