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| December 1st, 2010 |
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Media Contact(s): Mark Eddington and Antonia Ferrier, (202) 224-5251 |
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HATCH OUTLINES OPPOSITION TO DEMOCRATS' LATEST SMALL BUSINESS TAX INCREASE PROPOSAL
Utah Senator Urges Democrats to “Throw Down the Partisan Weapons,” Take Up an Extension of all the Tax Relief |
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WASHINGTON – In a speech on the Senate floor this morning, U.S. Senator Orrin Hatch (R-Utah), the incoming Ranking Member of the Senate Finance Committee, outlined his strong opposition to Senate Democrats’ latest tax hike proposal, the so-called millionaires tax, that will hit the most productive small businesses with a massive tax increase and urged Congress to quickly pass a straight extension of all the current tax policies at least through the next presidential elections.
“Mr. President, the way is clear. To my friends in the Democratic Leadership, I say throw down the partisan weapons. Don’t sharpen them with a more partisan, edgy proposal, like the so-called ‘millionaire’s tax.’ On our side, we’d like to keep the current low tax rates in effect. We, however, recognize that the legislative calendar of this session is about to end. We are ready to take a short-term time out with a seamless short-term extension of current tax relief. I ask our friends on the other side to do the same.”
Below are Senator Hatch’s full remarks:
Mr. President, we are a few hours into the month of December 2010. Normally, the month of December means holiday times for most American families. For Jewish Americans, Hanukkah starts at sundown. As anyone who visits a department store knows, Santa Claus is already as much a fixture as the shelves and lights. The Congressional Christmas tree will be lit in a few days.
This should be a happy time for families. But the festive mood is dampened by the high unemployment and slow economic growth.
Too many businesses are struggling. Too many investors are holding back their capital. Too many workers are idled. And here in Washington, we hear too much talk and take too little action to effectively address these problems.
For almost four years, our friends on the other side have failed to take action on the tax increase that will soon hit virtually every income taxpaying American.
There is a bipartisan resolution staring us all in the face. It is the only bipartisan compromise. I’m talking about a seamless extension of current bipartisan tax policy that was enacted in 2001 and 2003. How is it the only bipartisan compromise?
Look no further than the statements of members themselves. I’m aware of no Republican in the House or Senate favoring less than a full prevention of the widespread tax hikes set to kick in 31 short days.
Democrats are split. That’s why we’ve seen no action for almost four years. It seems they may be split three ways.
I’ve heard rumors that many Democrats in both bodies would privately prefer current law. That is, they would prefer to leave the law as it is and let the tax hikes kick in. But that is a privately-held sentiment. The politics of advocating a tax increase on virtually every American income taxpayer aren’t, shall we say, compelling. This is the first group.
The second group is aligned with President Obama’s budget. That position would guarantee a marginal rate hike on all small business owners with incomes above $200,000 if single or $250,000 if married. That’s the second group.
A significant number of Democratic House and Senate Members have signaled that a short-term seamless extension of all current law tax relief is their preferred course. That’s the third group.
Republicans generally support a permanent tax freeze. That position is embodied in Leader McConnell’s bill. I’m pleased to be a cosponsor of that bill. But we Republicans know that, as good as that policy is, we will not likely find at least 18 Democrats to join us. We likely won’t get 60 votes for it now.
The wisdom of the bipartisan compromise is that it keeps intact the political glue that made the bipartisan tax relief possible in the first place.
Republicans supported the original plan because of the mix of two key tax relief policies. The first policy was tax relief for America’s families. The second policy was tax relief designed to spur economic growth.
The fact that we are divided now is due to the Democratic Leadership’s insistence that the growth incentives part of the compromise be broken off. They want to break it off, using language like “decoupling,” and discard the pro-growth policy.
That is the essence of the difference.
Democrats are split, but the Democratic Leadership is united on the point of breaking off the pro-growth piece of the policy.
In an effort to avoid the obvious compromise, two members of the Senate Democratic Leadership have put forward a new proposal. The proposal would apply the pending rate hikes to single taxpayers at $500,000 of income and married couples at $1 million of income. This latest partisan proposal is said to be necessary for fiscal reasons. Finance Committee
Republican staff, using data from the non-partisan Joint Committee on Taxation, conducted a preliminary analysis of this proposal. They concluded that less than half the revenue sought by the Democratic Leadership would be raised by this proposal. That tells me the reason behind this new proposal may be ideological.
Now, some may ask why don’t Republicans give in and agree to hike taxes on those earning over $500,000 or $1 million. Certainly, it puts a fine point on the usual political game of class warfare.
To those of us, on this side of the aisle, the sting of the proposal’s political shot is far outweighed by its economic harm. Why is it so important?
Let me turn to two broad principles where Democrats and Republicans generally agree. The first principle is that a healthy growing economy is a very good antidote to our fiscal ailments. The second principle is that small business will be the source of new jobs. Don’t think you’ll find much daylight between Republicans and Democrats on these principles.
Now, let’s consider the merits of this so-called “millionaire” tax in light of these bipartisan principles.
Fiscal history shows, without question that revenues will grow and temporary social safety net entitlement spending will drop if the economy grows. I have a chart that shows this history. If you follow this chart, you will see revenue is very sensitive to the changes in growth. Growth goes up. Revenue goes up. Growth goes down. Revenue goes down.
It is well established that capital is the lifeblood of business. According to Answers.Com and I quote:
“CAPITAL is the life by which the body {of business} operates. A business without finance is like a body in coma. No matter how great the environment is, the entity is considered dead. It is the blood that keeps men alive. Drain the blood and watch life end for even the strongest and most privileged human that exists.”
No one disputes the notion that taxpayers with incomes above $500,000 for singles and $1 million for married couples are a small fraction of the taxpaying population. But they account for a lot of capital gain income.
A proposal to raise the marginal rate on capital gain income by 33% on this group may seem like it would have minimal impact on the pool of capital income. Internal Revenue Service (IRS) data indicate the contrary is true. The latest data from IRS Statistics of Income (SOI) division are revealing.
According to SOI, taxpayers at $1 million and over accounted for fifty six and one-half percent (56.5%) of the net long-term capital gain income for 2008. This figure reached close to 70% the year before. Keep in mind that statistic understates the impact. The reason is that the capital gain income for single taxpayers with income between $500,000 and $1 million isn’t counted.
The proposed so-called millionaire’s tax would pile up rates on this large pool of capital income. I have a chart that illustrates the impact. The chart shows the current tax rate for this group of taxpayers rising to almost 24% in a little over two years. That means an almost 60% higher tax take on earnings from capital.
If capital is the lifeblood of business, does it make sense to make the investment of it dramatically less attractive? Considering the current slow growth, jobless recovery, should we put in place policy that drives down the after-tax rate of return on capital?
I’ve talked only about the hike on capital income. Since flow-through small business income would be adversely-affected by the tax hikes on ordinary income.
It’s true that these small business owners would be earning over $500,000 if single and over $1 million if married. They represent a significant portion of the ownership of small businesses that will create new jobs. According to the non-partisan Joint Committee on Taxation, the President’s tax hikes would hit half of flow-through small business income. I don’t have the same calculation for this revised proposal. But do we have the margin for error, Mr. President? In this rough patch of our economic history, shouldn’t the policy bias be towards business expansion? Why should we send the opposite signal? In this economic climate, what justifies a higher marginal rate of 17% on the most successful of our small business? Why hit the small businesses most likely to expand and hire?
Mr. President, the way is clear. To my friends in the Democratic Leadership, I say throw down the partisan weapons. Don’t sharpen them with a more partisan, edgy proposal, like the so-called “millionaire’s tax.” On our side, we’d like to keep the current low tax rates in effect. We, however, recognize that the legislative calendar of this session is about to end. We are ready to take a short-term time out with a seamless short-term extension of current tax relief. I ask our friends on the other side to do the same.
I yield the floor.
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