Over the ten years I was Chairman or Ranking Member of the Finance Committee, I worked with several Budget Committee chairmen. They were Senator Domenici, Senator Nickles, Senator Gregg, and Senator Conrad.
We did not always agree on every issue. But by and large, there was coordination between the Budget Committee and the Finance Committee. Unfortunately, the coordination receded somewhat starting in 2007. And since 2010, we fell into a four-year pattern of not producing budgets.
Coordination provided the means to allow the Finance Committee to realistically address the demands of tax, trade, health, and welfare policy. This usually happened in a bipartisan way. But, this year is different.
This budget resolution does not realistically address the needs of the Finance Committee.
Despite claims to the contrary, this budget is not balanced unless you believe balance is more of the same fiscal behavior of the last four years of Senate Democratic Leadership fiscal policy.
That policy has resulted in higher taxes, higher spending, and higher debt. Where there is fiscal pressure, it is placed on the Finance Committee.
The Finance Committee is called on to do all the heavy lifting. The principal lift is in heavy tax increases. The Finance Committee is reconciled with an almost $1 trillion tax increase. Reserve funds anticipate another $500 billion in tax hikes to pay for more spending.
The task put on the Finance Committee is described as curtailing or eliminating what is called “spending through the tax code” and “loopholes.” But if you look at the document and recent history, you’ll find a different story.
You’ll find tax increases. I’ll explain. First, I’ll account for revenue raisers the majority party has specified and supported with votes in this Congress and the last one.
That will tell us the unspecified and undefined tax increase this budget resolution is seeking. Once we have the undefined tax increase, I’ll define it. I’ll define it by taking the universe of tax base broadeners and working through the list. I’ll be able to show one of two conclusions.
One, the math doesn’t work and there aren’t sufficient revenue raisers to fill the revenue goal of my friends on the other side. Or, two, the budget resolution would need to go much farther down the income scale and tax middle income taxpayers.
All of us should take a careful look at the claims of the Democratic Leadership and see how the claims stack up to the cold hard numbers and analysis by the tax writing committee staff.
Let’s turn to those numbers. Over the ten year budget window, going out to 2023, the budget resolution demands revenue and related outlay savings of $975 billion. There are two reserve funds that total $580 billion in tax increases if tapped.
I’ll show this with charts.
The first chart has a well. Here’s the top of the well. You can see it is a long well and there’s some water way down there at the bottom. But most of the well is dry.
At the top of the well, you’ll see the number that represents the two sets of revenue raisers this budget assumes the Finance Committee will find. Put another way, this budget puts the burden on the Finance Committee to come up with $1.5 trillion in offsets over 10 years. This budget assumes the well of revenue raisers is full to the brim.
Now, as a farmer, I know something about the predictability of well water. You hope you’ll get rain and it’ll give you a decent level of well water.
And as a former Chairman and Ranking Member of the Finance Committee, I know something about revenue raisers.
In those positions, I led efforts to identify and enact sensible revenue raisers aimed at closing the tax gap and shutting down tax shelters. And as a senior tax writing committee member, I continue to look for ways to shut off unintended tax benefits.
Given my experience, I know what is realistic when it comes to revenue raisers. From 2001 through 2006, Congress enacted over 100 offsets with combined revenue scores of $1.7 billion over 1 year, $51.5 billion over 5 years, and $157.9 billion over 10 years.
What other revenue raisers have been identified and scored? The President’s last budget contained a package of a lot of revenue that the Joint Committee on Taxation said would raise $1.4 trillion over 10 years. The majority party has largely left these revenue raising proposals untouched over the past four years.
The majority party has, however, identified, specified and voted for tax hikes that amount to $108.3 billion. That’s $108.3 billion of identified and scored revenue raisers. That’s only about 7.8 percent of the amount that’s needed to make this budget work.
Based on these facts, what’s the likelihood that the Finance Committee will be able to come up with revenue raisers of this magnitude? In my view, from my 10 years as Chairman and Ranking Member, it’s not high. If that’s the case, what will happen?
The revenue side of the budget will be ignored, but the spending side will be followed. The net effect will be a massive tax increase, a bigger deficit, or both.
So, the revenue raising well is about 7.8 percent full. We’ve heard a lot about tax expenditures. As I’ve said before, the people have been told that there’s trillions of spending through the tax code.
I’m going to look at the individual income tax expenditures because the Administration and Democratic Leadership have said they want to leave the corporate tax expenditures for lowering rates.
Here’s a little irony. The Congressional Budget Act defines refundable tax credits as spending. It makes all the sense in the world because the tax benefits go to individuals who don’t pay income tax. These credits are actually paid out in the form of a check in excess of any income tax liabilities.
However, you won’t hear the majority advocate reducing, let alone, eliminating any of those refundable tax credits. In fact, the majority’s budget would increase them further. They represent significant tax expenditures.
I have a chart based on non-partisan Joint Committee on Taxation data. The chart shows the top ten individual income tax expenditures from 2013 to 2017.
These top ten tax expenditures represent 70 percent of the total individual tax expenditures. These top ten tax expenditures represent 70% of the total individual tax expenditures.
Number seven is the earned income credit. That is a refundable tax credit designed for low-income taxpayers.
Number 8 on this list is the premium tax credit enacted in ObamaCare. By 2017, this credit will actually make its way into the top five. Like the earned income credit, the premium credit is fully refundable. Number nine on the chart is the child tax credit which is partially refundable.
For each of these credits, more than half of the value of the benefit is paid out in the form of a government check exceeding tax liabilities. That is direct spending through the tax code. Yet, these credits are considered off-limits by the majority.
Let’s take a look at tax expenditure number one. That’s the tax-free treatment of employer-provided health care. Americans can look forward to $1 trillion of health care-related taxes coming due over the next ten years. All of this tax increase is thanks to 21 tax increases contained in ObamaCare. My guess is the majority doesn’t want to take on those.
How about number two? That’s tax deferred retirement savings vehicles. It’s defined benefit plans and section 401-k type plans. To be sure, some higher income taxpayers benefit. Defined benefit plans tend to dominate in the unionized world. Section 401-K type plans are more common now. Some high-income taxpayers benefit because they are the owners of the business, and we want them to set up and maintain the plans. About 4 percent of this tax expenditure goes to taxpayers at $1 million or more of income.
How about number three? It’s the preferential rate on capital gains and dividends. It’s true that higher-income taxpayers tend to have more capital gains. But a few months ago the rate rose 59 percent with the ObamaCare and fiscal cliff deal tax hikes kicking in. Do we want to choke off more savings and investment?
Let’s go to number four. That’s the deduction for state and local income and real property taxes. The New York Times editorial page is usually very in tune with the majority. An editorial on December 6, 2012, has a title that says it all: “Keep the state tax deduction.” My guess is that with the heavy hit on heavily taxed Blue State taxpayers, the majority will not want to visit that deduction.
Number five concerns the American dream of home ownership. It’s the home mortgage interest deduction. It disproportionately goes to middle income taxpayers. Do we really want to tank the tepid housing recovery?
How about number six? It’s the tax benefit from the Medicare benefits that the Federal government pays. We’ve heard a lot about the Medicare reforms contained in the Ryan budget from the majority. Does the majority want to cut the value of Medicare benefits by taxing them?
I’ve already discussed numbers seven, eight, and nine which are all refundable credits. They are the earned income tax credit, the premium tax credit, and the child tax credit. Significantly, the premium credit makes the list while only being in effect 4 out of the 5 years examined.
How about number ten? It refers to the step-up in basis that occurs on death time transfers. Higher-end taxpayers tend to pay the estate tax when they die. This policy ensures that they don’t pay a double tax on the transfer. Does the majority want to re-open the estate tax debate that we all thought had just ended a few months ago?
If we were to expand this list and look at the top 20 expenditures, we would account for 90 percent of individual tax expenditures.
They include such things as the charitable deduction, tax incentives for college, and the exclusion of capital gains on the sale of a home. Does the majority want to raise taxes on the backs college students? Or cause heartburn for middle income homeowners who sell their home?
If we step back for a minute, where does the budget take us? The terms of the budget documents tell us. The majority members say they want to eliminate or curtail spending through the tax code.
Yet, they themselves would vehemently oppose eliminating or reducing tax expenditures that are defined by our budget laws as spending.
I challenge the budget authors to tell me which tax benefits they want to curtail. Do they want to cut back the tax-free treatment of employer-provided health insurance? Do they want to cut back defined benefit plans or 401-K plans? Do they want to increase capital gains and dividends rates further? Do they want to cut back the state and local tax deduction? Do they want to cut back the mortgage interest deduction? Do they want to tax Medicare benefits? Do they want to raise the tax level on death-time transfers?
In conclusion, this budget represents a dramatic step backward for the American taxpayer. For the first time in 4 years, we’re debating a budget. Yet it repeats the same fiscal patterns of the first term of the Obama Administration. It spends too much. It taxes too much and it results in too much new debt.
As former Chairman and Ranking Member of the Finance Committee, I’m sorry to say this budget doesn’t even attempt to mesh the demands of the Finance Committee with the numbers in this budget.
I hope deficit hawks on both sides of the aisle are paying close attention. The only thing certain here is that the new spending will occur.
The deficit impact of not realistically dealing with the tax, trade, and health policy spending priorities of the Finance Committee disguises the deficit built into this budget.
I have many other concerns about the budget proposed by the majority. Today, I wanted to let the Senate know how the numbers on the revenue side don’t work. As we take up amendments, I’m hopeful that we can make this budget mesh with the Finance Committee’s policy demands. I yield the floor.