In Speech, Hatch Warns of Dangers of Tax Hikes For Deficit Reduction

Utah Senator Says, “The decision to spend lasts only a moment. But the debt incurred to pay for these government programs lasts forever.”

WASHINGTON – As the President continues to push for tax increases for deficit reduction, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, warned of its dangers and outlined why tax expenditures are not spending in a speech on the Senate floor today. This speech is the first in a series he will deliver on so-called tax expenditures.  Hatch has repeatedly said that getting rid of tax expenditures should be done in the context of tax reform in order to bring down tax rates. 

Following are excerpts from Hatch’s speech:

On The Obama Administration’s Tax Hike Plan:

“President Obama and his liberal allies are calling for a balanced approach and a revenue piece to deficit reduction.  We hear this from the press all the time.  New revenues need to be a part of any deal to reduce the deficit.

“These are simply code words for a tax hike. It is clear that the professional left is insisting that President Obama include tax increases in any negotiated agreement to raise the debt ceiling. Threading this tax hike needle through an electorate resistant to giving government more money to spend is no easy task.”

On Truth about Tax Expenditures:

“By and large, the President avoids the effectual truth of his mission to get rid of tax expenditures — massive tax increases on the middle class American families to whom he promised immunity from tax increases when he was running for President. Instead, he and other members of the party of tax increases refer to tax expenditures as spending through the tax code. How seriously should we take this rhetoric?”

On The Difference Between Spending and Tax Expenditures:

“For one thing, the government never touches the money that a taxpayer keeps due to benefitting from a tax expenditure, whereas with spending, the government actually collects money from taxpayers and then spends it. Here is a more telling difference.  Reducing or eliminating a tax expenditure without lowering rates enough to reach a revenue neutral level will cause the size of the federal government to grow, while reducing or eliminating spending causes the size of the federal government to shrink.” 

On Comprehensive Tax Reform and Changes to the Code:

“I am open to looking at eliminating or reducing some tax expenditures as part of comprehensive tax reform, but only if tax rates are lowered enough to reach a revenue neutral level.  Alternatively, reduction or elimination of tax expenditures could be balanced with new tax cuts that are of equal or greater value to the revenue generated by the eliminated expenditures.  But if tax expenditures are reduced or eliminated, without tax rates being lowered enough to reach a revenue neutral level, that is a tax increase, plain and simple.   We have made clear that as a matter of law and political theory, tax expenditures are not spending.”

On Why Tax Expenditures Are Not Loopholes:

“Tax expenditures are not loopholes.  We are not talking here about some fancy tax scheme that a lawyer or accountant has discovered and now promotes to his clients as a way to game the system.  These are broad-based tax incentives that benefit many Americans.  The deduction for charitable contributions is not some loophole.  It was a deliberate inclusion in the Code that acknowledges the need for religious citizens to contribute to their churches.”

On The Need for a Balanced Budget Amendment:

“Facing a full-blown debt crisis, this is how Senate Democrats, following the President’s lead, have chosen to spend this week — debating a non-binding resolution. Episodes like this leave me convinced that the only real solution to our nation’s spending problem is a Balanced Budget Amendment to the Constitution. Only a specific constitutional restraint will force Congress to make the tough decisions necessary to restrain the size of government, restore the integrity of the states, and protect the liberties of American citizens.”

Below is the text of Hatch’s full speech delivered on the Senate floor this afternoon:

Mr. President, this Congress is currently engaged in as consequential a political debate as this nation has seen in decades.  Whether, and under what conditions, we raise the nation’s debt ceiling is a question that has consumed the markets and the nation. I serve the people of Utah, and I hear about this issue every day.

The sustainability of a government that has grown far beyond any reasonable — or constitutional — limits, and the cost of paying for all of this government, is foremost in the minds of the taxpaying citizens who will be left holding the bag even when President Obama is back in Hyde Park and members of Congress no longer serve.

The decision to spend lasts only a moment. But the debt incurred to pay for these government programs lasts forever. I wish that I could report to my constituents that Washington is serious about addressing this spending problem.

Unfortunately, in the last week we seem to have hit a new low. President Obama’s contribution last week was a press conference slash temper tantrum where he offered up policy proposals that might appeal to his left wing base but will do nothing to avoid our coming national bankruptcy.

Not to be outdone, Democratic leadership in the Senate has now offered up a non-binding resolution designed solely to score some cheap political points that will jazz up the activist left through demagogic class warfare against individuals with high incomes.
Facing a full-blown debt crisis, this is how Senate Democrats, following the President’s lead, have chosen to spend this week — debating a non-binding resolution.

Episodes like this leave me convinced that the only real solution to our nation’s spending problem is a Balanced Budget Amendment to the Constitution.

Only a specific constitutional restraint will force Congress to make the tough decisions necessary to restrain the size of government, restore the integrity of the states, and protect the liberties of American citizens.

To demonstrate my commitment to restoring constitutional limits on the federal government, I have signed the Cut, Cap and Balance pledge.  Along with a growing number of my colleagues in the Senate, members of the House, grassroots groups, and presidential candidates, I have committed myself to cutting spending, capping spending, and passing a balanced budget amendment as a condition for any debt limit increase.

As this debate over how best to address our growing debt and annual deficits continues, I want to address a technical but critical matter in these negotiations.  I am talking about tax expenditures.

Over the next few days, I am going to discuss this matter of tax expenditures in depth.  Today, I’m going to talk in general about what a tax expenditure is and what a tax expenditure is not.

I will next turn to the tax policy areas implicated by current tax expenditures.  For instance, home ownership is favored in our tax base.  There is a deduction for home mortgage interest, a deduction for real property taxes, and an exclusion for income from home sales.
 
The tax code also encourages charitable contributions.  Charitable deductions are available to citizens when they give to a non-profit crisis pregnancy center, when they put money in the basket at church, or when they give to their alma mater.

In a third speech, I will attempt to shed some light on a widespread misconception about tax expenditures.  That misconception is that tax expenditures disproportionately benefit high-income taxpayers.

But let’s not get ahead of ourselves.  This speech today is a speech about what a tax expenditure is.

Unfortunately, it is also a speech largely about Democrats’ plans to increase taxes.  President Obama and his liberal allies are calling for a balanced approach and a revenue piece to deficit reduction. 

We hear this from the press all the time.  New revenues need to be a part of any deal to reduce the deficit. These are simply code words for a tax hike.

It is clear that the professional left is insisting that President Obama include tax increases in any negotiated agreement to raise the debt ceiling.

Threading this tax hike needle through an electorate resistant to giving government more money to spend is no easy task.

Though his campaign team talks a big game about the popularity of tax increases, the President’s own words suggest otherwise.

Last week, in a shameful display of class warfare, the President did specifically call for some tax increases on the rich.

But that is the exception that proves the rule.

By and large, the President avoids the effectual truth of his mission to get rid of tax expenditures — massive tax increases on the middle class American families to whom he promised immunity from tax increases when he was running for President.

Instead, he and other members of the party of tax increases refer to tax expenditures as spending through the tax code. How seriously should we take this rhetoric?

Well, when the President said that he wanted to address the nation’s debt by reducing spending through the tax code, it proved too much even for Jon Stewart. This was Stewart’s analysis of the President’s contention that we could reduce the deficit by attacking spending through the tax code.

You managed to talk about a tax hike as a spending reduction.  Can we afford that and the royalty checks you're going to have to send to George Orwell? That's the weirdest way of... just say tax hike!  That's like saying, I'm not going on a diet.  I'm going to add calories to my excluded food intake!

For sure, it is easy to make fun, but what the President is trying to do with tax expenditures is no laughing matter.  Liberals talk about tax expenditures as though they are just getting rid of wasteful spending.  First, as a legal matter, tax expenditures are not spending.   Outlays, or checks cut from the Treasury Department, are defined as spending under the Congressional Budget Act. 

Yet, most tax expenditures only lose revenue, and do not include an outlay portion.  Tax expenditures that only lose revenue contain no spending, as defined by the Congressional Budget Act and as scored by the official scorekeepers for Congress — the Joint Committee on Taxation and the Congressional Budget Office.

And second, as a policy matter, when it comes to tax expenditures, one person’s loophole is another person’s opportunity to save for college and retirement, finance a home, and tithe to your church.

Here is the bottom line.  Taking away or reducing tax expenditures is a tax increase, unless a tax cut of an equal or greater amount is also enacted. One crucial myth that I would like to dispel is that tax expenditures are spending.

The federal government cannot spend money that it never touched and never possessed.  What tax expenditures do is let taxpayers keep more of their own money.  The American people are the ones that earn their money through their ideas, their risk, and their labor.  Whether you are a successful business owner or a part-time worker just starting out, the money that you earn is yours.  It is your money.  And only by your consent is the government permitted to take some of it in taxation to pay for certain public goods.

But Democrats have a different view, and it is this view — one that is fundamentally at odds with our classical liberal Constitution and our Founders’ respect for property rights — that contributes to the confusion over tax expenditures.

Liberals think that all of the money that you earn belongs to the government. You have no independent right to the fruit of your own labors, because only by dint of big government are you ever able to make something of yourself.  This view is foreign to most Americans — Republicans or Democrats.   It is a view that Alexander Hamilton, and Benjamin Franklin, and Abraham Lincoln would take issue with.  But this is the political philosophy of the modern left.

So when you hear tax hike proponents come to the Senate floor and say we are giving these businesses and individuals all this money in tax expenditures, they are incorrectly assuming that the government has that money to give in the first place.  The government does not have this money to give.  That money belongs first to the people that earn it — those businesses and individuals that are the American taxpayers. 

There are critical differences between spending and tax expenditures.  For one thing, the government never touches the money that a taxpayer keeps due to benefitting from a tax expenditure, whereas with spending, the government actually collects money from taxpayers and then spends it.

Here is a more telling difference.  Reducing or eliminating a tax expenditure without lowering rates enough to reach a revenue neutral level will cause the size of the federal government to grow, while reducing or eliminating spending causes the size of the federal government to shrink. 

I am open to looking at eliminating or reducing some tax expenditures as part of comprehensive tax reform, but only if tax rates are lowered enough to reach a revenue neutral level.  Alternatively, reduction or elimination of tax expenditures could be balanced with new tax cuts that are of equal or greater value to the revenue generated by the eliminated expenditures.  But if tax expenditures are reduced or eliminated, without tax rates being lowered enough to reach a revenue neutral level, that is a tax increase, plain and simple. 

We have made clear that as a matter of law and political theory, tax expenditures are not spending. Now let’s turn to an examination of what they are. Fortunately, we have definitions available.

The Joint Committee on Taxation generally defines tax expenditures as deliberate departures from generally accepted concepts of net income, usually by way of special exemptions, deductions, credits or exclusions.  Therefore, tax expenditures generally arise for individual income taxes and corporate income taxes. 

The Treasury Department differs from the Joint Committee on Taxation slightly in how it defines a tax expenditure.  For example, the Joint Committee on Taxation labels deferral as a tax expenditure, but Treasury does not.

But whichever definition one uses, it is clear that the President and the liberal proponents of tax increases are using their own politically motivated dictionary.

Tax expenditures have been erroneously described by many as loopholes.  This is deliberately inaccurate.  A loophole is something that Congress did not intend and would generally shut down, at least going forward, once it learned of the loophole.  Tax expenditures, by contrast, were generally placed by Congress into the tax code deliberately.  For example, the largest tax expenditure is the exclusion for employer-provided health insurance and benefits.  The second-largest tax expenditure is the home mortgage interest deduction. 

Tax expenditures are not loopholes.  We are not talking here about some fancy tax scheme that a lawyer or accountant has discovered and now promotes to his clients as a way to game the system.  These are broad-based tax incentives that benefit many Americans.  The deduction for charitable contributions is not some loophole.  It was a deliberate inclusion in the Code that acknowledges the need for religious citizens to contribute to their churches.

Even some of the smaller-dollar tax expenditures were designed by Congress to go to particular industries or types of taxpayers — for example, the tax expenditure to encourage the purchase of corporate jets that Democrats included in the Stimulus and that the President is now criticizing. 

Whether you agree with these particular tax expenditures or not, an honest debate requires recognition that they were designed by Congress with economic or social goals in mind and are not inadvertent loopholes.

As a matter of law, policy and constitutional government, I fundamentally disagree with those who are pushing these tax increases as part of a deal to raise the debt ceiling.
Our problem is spending that has grown out of control, not a lack of revenue.

According to CBO’s June 2011 Long Term Budget Outlook, taxes are already heading higher than they have historically been.  From 1971 to 2010, revenues as a percentage of GDP have averaged 18 percent.  Since the post-World War II era, from 1946 to 2010, revenues have averaged 17.7 percent of GDP.

Yet, CBO also projects that revenues as a percentage of GDP will exceed 20 percent by 2021.  Even if all the bipartisan tax relief contained in the 2001 and 2003 tax acts is extended, revenues as a percent of GDP will increase to 18.4 percent.

So I ask the question. With taxes already going higher than where they have historically been, should we raise them even more?   For me, the answer is no.  I know that most Utahns would agree. 

And I suspect that even most Democrats would as well.  They certainly would if President Obama and the liberals who pose as advocates for the middle class came clean about just how high taxes would have to go on working families to pay for the hard core left’s preferred level of government.

The numbers don’t lie. The deficit is a symptom of out-of-control spending that has grown dramatically in recent years, and is reaching crisis levels.

It is not a result of too little in taxes.  Democrats can close all the loopholes they want, and it still won’t balance the books. And the Democrats who are talking about the need to close loopholes and eliminate spending through the tax code need to be asked which middle class tax relief they want to get rid of as part of their deficit reduction plan.

Do they want to get rid of the charitable deduction?  Or maybe the mortgage interest deduction. Maybe they want to go after people’s 401(k)s or IRAs or 529s. What’s it going to be?

At his press event slash tantrum last week, the President answered none of these questions. He needs to. Otherwise, he needs to get serious about cutting spending. I yield the floor.

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