Floor Speech of Sen. Chuck Grassley
The Goals of Tax Reform
Delivered Tuesday, Oct. 17, 2017
The budget we are debating this week paves the way for fundamental tax reform.

For more than a decade, both sides of the aisle have talked about the need for tax reform that provides tax simplification, tax fairness, and increases our economic competiveness.

Under President George W. Bush, we had the Bipartisan Tax Reform panel. Under President Obama, we had the bipartisan Simpson-Bowles Commission. Individual members have also authored their own plans, including a bipartisan bill authored by Finance Committee Ranking Member Wyden and former Senator Coats.

The Senate Finance Committee has also had countless tax reform hearings over this period. The Committee also held a series of bipartisan options papers discussions under then Chairman Baucus. Additionally, under Chairman Hatch we had the bipartisan tax reform working groups.

All this work has laid the foundations and informed the Unified Framework released by the so-called “Big Six.”

The influence of these prior discussions and proposals on the Big Six framework is evident.

For illustration, I have a chart here comparing the Bix Six framework, the Wyden-Coats bill, and the Simpson-Bowles plan.

As you can see, all proposals would consolidate the current tax brackets down to three.

Two plans provide for a top rate of 35%, while one provides for a top rate of 28%. Yet, the Big Six Framework is being criticized for its 35% top rate as a giveaway to the wealthy -- and it’s not even the one that proposes a 28% rate. That is reserved for the Simpson-Bowles plan.

Were Democratic members of the Simpson-Bowles Commission that voted for that plan voting to give huge tax cuts to the wealthy?

Do our Democratic colleagues expect us to believe that a 35% top rate is a sensible bipartisan compromise when offered by a Democrat, but a giveaway to the rich once it is associated with President Trump?

All three plans would also repeal the Alternative Minimum Tax (AMT).

Well, this is surprising. From listening to my Democratic colleagues I thought repealing the AMT was some nefarious plot to benefit President Trump. But, that just doesn’t square with reality.

Repealing the AMT has long had strong bipartisan support. While serving as Chairman or Ranking Member of Finance, Senator Baucus and I introduced bipartisan standalone legislation to repeal the AMT across several Congress’.

Our legislation garnered bipartisan support from across the political spectrum. The current Ranking Member and Minority leader even joined us in these efforts on occasion as cosponsors of the legislation.

At the time, the current Ranking Member even went so far as to say that “the AMT should be Congress’ number-one priority for tax reform.”

I agree with what the current Ranking Member said then, AMT repeal should be a top priority. It adds needless complexity to the tax code and often hits middle-income taxpayers rather than the wealthy as originally intended.

Even the Taxpayer Advocate has repeatedly called for its repeal, noting that it “does not achieve its original goal” and “stealthily increases marginal rates for middle income taxpayers.”

Similarities between the plans also exist in how they seek to reform the corporate tax system.

For instance, each seeks to significantly lower our corporate tax rate.

The Wyden-Coats bill calls for an 11 percentage point rate reduction in the corporate rate, bringing the rate down to 24%. The Big Six Framework aims for 20%.

Yet, according to the Ranking Member the corporate rate reduction in the Big Six Framework is “a massive corporate tax cut that overwhelmingly benefits shareholders.”

Last time I checked the distribution of the benefit from a corporate rate reduction is the same no matter what party or what President proposes it.

I don’t think the Ranking Member proposed a 24% corporate rate because he wanted to provide a “massive” benefit to shareholders. I also know for certain that isn’t why the Big Six Framework aims for 20%.

The truth is there has been a growing bipartisan consensus that our corporate tax rate is out of step with our major trading partners’.

At 35%, our corporate tax rate is the highest among developed countries. While we have been sitting at 35%, our major trading partners have been lowering their rates. On average, their rates are more than 10 points lower at less than 24%.

This puts American companies at a competitive disadvantage globally, costing American jobs. It has also strained our corporate tax system to its breaking point as we have battled corporate inversions and foreign takeovers.

Moreover, a growing body of economic literature has shown that a significant portion of the corporate tax does indeed fall on workers in the form of lower wages.

The non-partisan Joint Committee on Taxation and Congressional Budget Office assume 25% of the corporate tax falls on workers. However, many studies find workers could bear more than 70% of the burden.

While the exact burden borne by workers may be debated, the economic research is clear; a corporate rate reduction means a significant wage increase for workers.

In fact, the Council of Economic Advisers conservatively estimates workers could see their wages increase by more than $4,000 due to lowering the corporate rate to 20%.

In reality, there is very little in this tax framework that has not had bipartisan support in the past or is not well within the mainstream of bipartisan proposals before it.

This is why the accusations that the framework is nothing more than a giveaway to the rich are so dumbfounding.

Even more perplexing is that those that are screaming “tax cuts for the rich” the loudest have also been the most ardent supporters of maintaining one of the largest “loopholes” for the wealthy. Namely, the State and Local Tax (SALT) deduction.

I know the Minority Leader was down here the other week citing IRS statistics to claim the deduction was really a middle class benefit. But, the minority leader only told you part of the story.

Let’s look at some estimates by the liberal Tax Policy Center (TPC) whom my Democratic colleagues like to cite so often. According to TPC, 90 percent of the tax increase from eliminating the deduction would fall on taxpayers with income exceeding $100,000. And 40 percent of the total would be paid just by taxpayers with incomes exceeding $500,000.

Think of it this way. Those with incomes exceeding $500,000 make up less than one percent of all tax filers, yet receive 40 percent of the deduction’s benefit.

To better illustrate this I have a chart based on IRS data that looks at the benefits of the deduction by adjusted gross income (AGI). Prior to going to the chart, I think it is important to point out that only about 30% of taxpayers even itemize and have the SALT deduction available to them. My chart focuses on this 30%.

The first group I have highlighted on this chart is taxpayers with incomes below $50,000. Only about 12% of tax filers in this group claim the deduction. In other words, 88% of taxpayers in this category receive no benefit from SALT.

Now that 12% does get a fairly nice benefit. They are deducting on average a little over $3,000 in state taxes for a tax benefit of just under $500, assuming they are in today’s 15% bracket.

But let’s take a look further down the chart. You will see that the benefits afforded low to middle-income taxpayers are dwarfed by the benefits afforded to the “wealthy.” Or as some of my Democratic colleagues have come accustomed to referring to them, the millionaires and billionaires.

Where only 12% of taxpayers with incomes under $50,000 have any SALT benefit, over 90% of filers with income exceeding $500,000 claim the deduction. Tax filers in the $500,000 to $1 million range are on average deducting more in state and local taxes -- $53,000 – than the incomes of the taxpayers in our first group.

If we assume taxpayers in this second group are in the current law 39.6% tax bracket, that translates into a tax benefit of nearly $21,000. For those with incomes exceeding $1 million we’re talking about an average tax benefit exceeding $100,000.

So, if you are truly interested in eliminating tax loopholes for the rich, look no further than the SALT deduction.

Its elimination provides an opportunity to better target more tax relief to the middle class, making up for any benefit the middle class may lose from the deduction and then some.

The Big Six Framework provides the tools to do this, including nearly doubling the standard deduction, reducing the current 15% rate to 12%, and significantly increasing the child credit.

The Framework also grants significant leeway to the Finance and Ways and Means committees to explore additional options to ensure middle-income tax relief.

In addition to being a benefit that overwhelming goes to the wealthy, the SALT deduction also has the effect of disproportionately benefitting states with high state and local taxes. Essentially, the deduction allows wealthy individuals in high tax states to offload some of their state and local tax burden onto taxpayers in other states.

Here is a chart that lists the top ten states that benefit the most from SALT. Let’s see, we have New York way at top, a little lower is California, a little below that is Massachusetts.

It would seem to me our Democratic colleagues like to talk a big game about eliminating “loopholes” for the wealthy. But, when it comes down to it they are more interested in holding onto a tax subsidy that favors the tax and spend policies of overwhelmingly Democratic states.   back...
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