Senator Ron Wyden

Statement by U.S. Senator Ron Wyden
on Tax Policy at the Cleveland City Club

April 14, 2006

Washington, DC – Remarks as prepared for U.S. Senator Ron Wyden's (D-Ore.) policy speech at the City Club of Cleveland follows:

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U.S. Senator Ron Wyden
Prepared Remarks for the City Club of Cleveland
Friday, April 14, 2006

FORWARD INTO THE PAST:TAX REFORM OUR FOUNDING FATHERS WOULD BE PROUD OF

Friends, the year is 1776. Across the 13 colonies under the banner “no taxation without representation” our forefathers fought the British. They died for the freedoms we enjoy today, including taxation with representation.

Friends, I think we can all agree that right now taxation with representation isn’t working too well, either. I’m going to set forth this afternoon how we can turn things around.

One day the Supreme Court will declare it to be cruel and unusual punishment to make anyone listen to a Senator speak for more than 20 minutes on any topic, let alone tax reform. To avoid even the appearance of guilt, I’ll keep this short and leave plenty of time for your questions – softballs preferred. Seriously, I’d like to hear your thoughts today and learn from you.

As we meet, millions of overstressed Americans are facing a weekend of unmitigated torture: they will be finishing their taxes. Already desperate for more time with the family or their religious activities, most people will find themselves, after a good night’s sleep, spending the next 72 hours tracking down W2 forms, 1099’s, alternative minimum tax schedules, Form 5213, Form 8621-A, and my personal favorite, Form 8716, where you can have a quote “Election to Have a Tax Year Other Than a Required Tax Year.” I guess that means if you just keep electing you never have to pay taxes!

By the time Americans mail in their taxes Monday, they will have spent more this year on tax compliance than our government spends on higher education. Americans will spend more to prepare their taxes than the annual revenue of Wal-Mart, which is the largest company in America. The Tax Foundation, an independent organization which analyzes these things, reports that 6 billion hours are put into tax compliance annually. The amount of time Americans spend doing their taxes is greater than the combined working hours of all those who make cars, computers, airplanes and steel in this country.

Recently, my staff stacked up just a portion of the tax code, and when stacked volume on volume, it dwarfs my 6’4” feet four inches!

This is not what the Founding Fathers thought government was supposed to be doing for its citizens. To the Founding Fathers, what America chose to tax, credit or refrain from taxing was supposed to reflect favorably on our basic values. Who among us thinks that is the case today?

I want to describe how our tax laws have been hijacked, with common sense taxation left behind in the dust. I’ll describe how today’s tax system undermines our children’s future prosperity by favoring short-term gains for a few over long-term wealth for the many.

I’ll describe how the tax code hammers hard-working, middle class Americans who deserve a break – especially after five years in which their wages have not kept up with inflation. Then I want to enlist you in a cause: a campaign to take back what the Founding Fathers fought for, reason and fairness in the tax code

This campaign begins with a simple requirement: all Americans should be able to complete their taxes in an hour or less on one piece of paper or the digital equivalent. Even if you consider Capitol Hill a logic free zone, Congress should be able to craft a tax system where you take your income from all sources, subtract a handful of deductions, take a few credits, add it up and send it off to the government. I know this is possible because I proposed exactly such a system I call the “Fair Flat Tax Act.”

The bill would slash the current 6 tax brackets to 3 -- 15, 25 and 35 percent. It would get rid of a host of loopholes and special rates – so you won’t have to know the difference between exclusions, exemptions, deductions, deferrals, and credits, or have to hire an accountant to figure it out for you. My bill would keep the handful of deductions and credits that have proven to help American families -- the home mortgage interest deduction, the charitable contribution deduction, and the credits for education and earned income.

By getting rid of the clutter in the tax code, the plan also gets rid of the clutter on your tax form. Under my plan, you would just have to fill out a one page 1040 form. One page. A reporter from Money Magazine tried it for the April edition of the magazine and it took him just 15 minutes. I tried it and I completed my taxes in around 30 minutes. This last fact is truly revolutionary because no one can remember the last time a member of the tax writing Senate Finance Committee actually completed their own tax return.

You can find the one page 1040 Form at my website at Wyden.Senate.Gov. I’d find it very helpful if you’d check it out and give me your thoughts on how America can save billions of dollars and end the bureaucratic water torture that is tax compliance today.

My tax plan would also end what is now adding greatly to the fairness of our tax code – the alternative minimum tax. While the AMT was originally created to prevent millionaires from avoiding paying any tax, the AMT now forces middle income taxpayers to literally do their taxes twice and to forfeit the full benefits of middle class tax deductions like home mortgage and state and local tax deductions. Millions of middle class Americans are getting the surprise of their tax lives this year with whopping, unexpected tax bills and by 2010, it will be difficult to find married couples with children and a home that aren’t snagged by the AMT. Very few of them feel like millionaires.

In addition to forcing some simplicity into the tax system, the tax code needs to be purged of its bias against hard-working, middle class Americans. These folks get most of their income from wages, not investments. Right now, the tax rate on day’s wages can be more than 20% higher than the tax rate on investment income. If you don’t believe me, listen to what the second richest man in America, Warren Buffett, told me: he is taxed at a lower rate than his receptionist! When young people graduate next month from Cleveland State and get their first job, they are likely to be taxed at a higher rate than Mr. Buffett, too.

The fair approach to this inequity is to treat income earned from wages and wealth equally, and that is what I have proposed in the Fair Flat Tax Act.

We can give working people and the middle class meaningful tax relief, make paying taxes less taxing on everyone, and begin the long process of reducing the deficit. My tax proposal has been reviewed by the Congressional Research Service, and their economists have calculated that it would actually reduce the deficit by about $100 billion over 5 years, making a serious down payment in terms of deficit and debt reduction.

I want everybody in America to be able to accumulate wealth. Unfortunately, much of the middle class can’t do that today with just a hard day’s work. Middle class families are being pounded by economic forces that are unprecedented in our lifetime. For example, for more than forty years, when there have been gains in profits and productivity in America, the middle class has benefited. No more. With middle class families hit by rising medical costs, escalating gasoline prices at the pump, increasing credit card debt, and negative savings, many have turned to borrowing on their only truly valuable asset -- their home. They can’t get a break and then there’s one more, big bill they’re hit with: their tax bill.
I care about this as a legislator and because I identify with these families personally. In Oregon, middle class families come to my community meetings and describe how they are trying to lift themselves up, as I did. Only they are finding that the ladders of opportunity that were available to me growing up are not there for them today.

Like many of you, I am the child of immigrants. My parents fled Nazi Germany for America, and after teaching himself English, my Dad joined the U.S. Army, writing leaflets that were dropped from our aircraft telling the Nazis all was hopeless and that they should surrender. Later, my Dad became a writer and started a small publishing company. He won some awards for his historical non-fiction works, but there were no big best sellers and no Nobel prizes. But he earned enough for our family to move to the suburbs and we all joked that this made us coddled.

I was especially lucky with my education. I started at the University of California at Santa Barbara on a basketball scholarship with the delusion I could play in the NBA. When reality set in, my mom had gotten a job as a librarian at Stanford, and I transferred there. As a child of a Stanford employee, I was able to go to that fantastic college tuition free. I saved some more money by living at home.

Lots of times, the breaks didn’t go our way. My brother was a schizophrenic and my dad’s publishing company didn’t make it. My dad spent virtually all of his savings to pay for medical treatments for my brother. Like the middle class folks coming to my community meetings now, I didn’t grow up around great wealth, or really any wealth to speak of.

I did have hardwired into my DNA the belief that if you just worked hard enough you could get ahead – just like my Dad did when he taught himself English as a young immigrant.

As a result of the unique economic transformation under way in America today, millions of middle class people can’t get ahead through no fault of their own. One way to give the middle class a deserved break is to end what’s inherently unfair: a tax code that favors wealth over work, a tax code that discriminates against wage earners. Under my Fair Flat Tax Act, a dollar made by a cop walking the beat in Cleveland will be treated like a dollar made investing in stock in companies like Google.

In addition to mind-boggling complexity and a healthy thrashing of the middle class, the tax code serves up policies that undermine long-term American prosperity. Our government lets thousands of narrowly focused special interest groups collectively set America’s investment agenda through the tax code. As students learn in Economics 101, rather than direct money towards its best use, tax breaks tilt the field toward special interests.

Here’s how: Every year, tax legislation comes before the Congress. The lobbyists, as the Abramoff scandal reminds us, descend. They all tell Members of Congress that unless their clients get a new tax break, America’s economy will collapse, and a parade of horribles will be visited upon the land. Often they say with a straight face that without the tax break, America will be more vulnerable to terrorists. Democratic and Republican Presidents, supported by Democratic and Republican Congresses, don’t want that, so they just keep ladling out more tax breaks. In the last 20 years there have been more than 14,000, three for every working day!

Pork is pork no matter what part of the pig it comes from, and it’s time to stop playing games and stop feeding at the trough.

Twenty years ago a bipartisan group of courageous politicians forced the lobbyists and the rest of America to take a time out from playing games with our tax laws. Lead by two Midwesterners, Ronald Reagan and Bill Bradley, the group banded around a shared hatred for a tax system that was unfair, economically counterproductive and mind-bogglingly complex. Do those conditions sound familiar?

They eventually attracted other men and women—like Bob Packwood of Oregon and Dan Rostenkowski of Illinois. In one of the greatest displays of bipartisan teamwork and political skill in the last century, they passed the Tax Reform Act.

The legislation treated all income similarly, reduced the number of tax brackets, wiped out tax shelters, and took millions of low-income people off the tax rolls.

I’m working today with someone who holds Dan Rostenkowski’s seat today -- Congressman Rahm Emanuel to do the same thing today. I’d like to see Democrats and Republicans in 2006 pick up the tax reform spirit that helped America get ahead twenty years ago. My jump shot is not as good as Bill Bradley’s, but I know the value of bipartisan teamwork.

Conditions are right for both political parties to come together and overhaul the tax code again. Our proposal appeals to the Democratic base by giving pocketbook relief to the hardworking middle class and simplifying their lives. Our proposal appeals to the Republican base because we want to hold down tax rates, particularly marginal rates, and if Ronald Reagan can pull off tax reform in the middle of his second term why not George Bush?

So far, for a guy often described as a pretty tough guy, President Bush has been scared of his shadow when it comes to real tax reform. While I don’t agree with everything that came out of his tax reform commission, at least they had the guts to go beyond the political pandering and embrace the elimination of some of taxes sacred cows. Tough guys don’t talk about tax reform year after year, create a commission to make recommendations, and then run into hiding because of a little controversy.

There is nothing for the President to be afraid of. Tax reform would certainly be an easier bipartisan lift than Social Security. Unlike Social Security, no Member of Congress will see protesters marching outside with placards saying “I love the tax code”.

It’s time for a return to economic sanity. Let’s overhaul the tax code—and stop—for our children and our future—playing games with America.

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