Max Baucus

Mr. BAUCUS

Mr. BAUCUS. I ask the Senator from Kentucky, does he reserve time on this amendment.

Mr. BAUCUS. I thank the Chair. Mr. President, the chairman of the committee, Senator Grassley, and I worked very hard to come up with a bill that both of us could support. Given all the dynamics that exist in this body and given the two-party system that we are operating under, it has not been easy. During the process of coming to this agreement, the chairman has given a lot--I am sure he would like the top rate to be lowered a lot more quickly, and I have given a lot as well. Despite how progressive it is, I would like this bill to be tilted more toward education, more toward pension reform, more toward middle-income taxpayers. Having said all that, I do believe the Senator from North Dakota has a good amendment, and I support it. It is true that the people who need relief most in this country under the estate tax are family farmers, ranchers, and family businesses. That is where the estate tax really hurts. They are the people who need the support. His amendment directly goes to the main issue before us; namely, helping families. It is also an improvement compared with the current bill because the current bill repeals the estate tax only in the last year. A lot of American families can't wait ten years to pass on their businesses to their children. Senator Dorgan's amendment does it. By offering his amendment, he does away with a very complicated carryover basis provision contained in this bill. We tried that in 1970. We enacted a carryover basis to the heirs of property after estates had been distributed. It didn't work. In fact, we repealed it. It was so complicated, it was a mess. By keeping the current stepped-up basis--again, Mr. President, I personally think he has a good amendment. It is not what we agreed to in committee. It is difficult to strike this balance between supporting my good friend in the committee and the bill we came up with on the one hand, and the one issue on which I do believe the Senator from North Dakota makes good sense. This was the last issue Senator Grassley and I negotiated--the estate tax provisions. It is extremely complicated, difficult, with very high passions on both sides. I think a good resolution for all of us in the Senate, frankly, is to support the amendment by my friend from North Dakota. In the final analysis, it improves the bill which more of us could support. I yield the remainder of my time.

Mr. BAUCUS. Mr. President, may I ask how much time remains on the Dorgan amendment?

Mr. BAUCUS. I ask the Senator from North Dakota, does he have an amendment he wishes to offer?

Mr. BAUCUS. The same is true for our side. We yield back the remainder of our time.

Mr. BAUCUS. Mr. President, I yield to my good friend from New Mexico.

Mr. BAUCUS. Mr. President, because my time is limited I would like to get back to the point I was making originally about the distribution of this bill. As this chart behind me shows, for taxpayers with incomes of $25,000 or less, $50,000 or less, $75,000 or less, or $100,000 or less, this bill, which is the red, shows that a greater proportion of tax reductions apply to those taxpayers. For those taxpayers with incomes of $100,000 to $200,000 or taxpayers with incomes above $200,000, again, the red shows they receive less in tax benefits compared with the administration's plan--again showing that this bill is progressive. That is, compared with current law and compared with the Bush plan, this bill does give more tax reductions percentage-wise to people with incomes under $100,000, and those at $100,000 or more will get less in tax reductions than the Bush plan or current law. It does show that this is a progressive bill. I yield the floor.

Mr. BAUCUS. The Senator is absolutely correct. Personally, I do not support full repeal of the estate tax. I support reforming the tax so it protects our family farms, ranches and other businesses. I understand the Senator is going to offer an amendment later today that will eliminate full repeal, while addressing the concerns of family businesses. I intend to support that amendment.

Mr. BAUCUS. If I may respond, by far most of the cost of the estate tax provisions in the bill, in the current 10 years which the bill covers, results from raising the unified credit. Only a very small portion results from repeal of the estate tax. It is also important to recall this whole bill is sunsetted after 10 years. And so the claims of $600, $900 billion in the second 10 years are interesting, if you project current law out that far, but not particularly relevant since the bill terminates at the end of 2011 and all of its provisions will need to be reinstated.

Mr. BAUCUS. No, he does not.

Mr. BAUCUS. Certainly.

Mr. BAUCUS. Mr. President, I would like to address two arguments that have been made against the distributional benefits of this bill. First, opponents of the bill have made the argument that it does little to alleviate the payroll tax burden, which is the largest tax burden for many middle- and low-income Americans. It is true that about 80 percent of Americans pay more in payroll taxes than they do in income taxes. It is also true that for about 20 percent of Americans their sole Federal tax liability burden is the payroll tax; it is not income tax. The argument that is made is that this bill does nothing for those people whose principal Federal tax is the payroll tax. That argument is simply incorrect. In fact, the bill before us makes three important changes that directly offset the impact of payroll taxes so there are three measures in this bill which reduce payroll taxes for a significant number of Americans. First, we amend the child credit to make it significantly more refundable; that is, after you have used up your child credit against your income taxes, if there is still more child credit available, we say: Americans, if you are in that situation, you get a check from Uncle Sam. We also reduce the marriage penalty under the earned-income credit. It is a very important provision which makes the so-called marriage penalty much less of a burden for low-income families. The Earned Income Tax Credit allows people with insufficient income tax liability to still get the benefit of a tax cut by allowing a credit against their payroll taxes. Third, we simplify the earned-income tax credit. That is no small matter. Some people might argue that simplification does not have much effect. But I strongly disagree. This bill contains major simplifications to definitions and other provisions which will be a very significant aid to lower income people, allowing them to better utilize the earned-income tax credit. This means they will have more ability, again, to offset against payroll taxes. Put all these together and the bill before us includes about $109 billion in outlays over the 10-year period of this bill. In other words, about $109 billion is directed exclusively for offsetting payroll taxes. The second argument against this bill's distributional effects is also incorrect. This argument is that the tax cuts in the bill are regressive because they give a relatively larger cut to those at the very highest income levels. Specifically, it is argued that the bill gives the top 1 percent highest income taxpayers a whopping 33.5 percent of the tax cuts. Let's look more closely at that argument and deal with all the cards on the table. The above conclusion can only be reached if you include the distributional effects of the estate tax provisions. But there are two problems with that analysis. First, there is an ongoing dispute on how to distribute the impact of the estate taxes across income classes. This is because the estate tax is based on the size of the estate of the decedent there is no way to calculate the wealth of those who inherit the assets. In fact, the Joint Tax Committee does not do estate tax distributional tables for that exact reason. There are organizations in this city and in this country that do make those calculations. I have no objection to their trying, but we must remember that these calculations are based on assumptions that are hard to pin down. They are doing as good a job as they can, but they are trying to calculate something that our official scorekeepers refuse to estimate. But even assuming that the downtown organizations that make that analysis are correct, let's think a little more about it. Virtually all Senators in this body support either ``reform'' or repeal of the Federal estate tax. I believe it is almost impossible to support reform or repeal of the estate tax and then attack the distribution of tax benefits in the bill as regressive. Why do I say that? Because if you set aside the estate tax provisions--just take them off the table and deal with everything else in this bill--if you look only at the income and payroll tax effects, this bill is quite progressive compared with current law--not regressive, but progressive. Let's take a look at the numbers. If we set aside the estate tax provisions what do we find? Let's look at the top 1 percent of taxpayers; that is, those with an annual income of $373,000 or more. This covers the top 1 percent of taxpayers in America. Under current law, those Americans pay 26 percent of all Federal taxes. That doesn't just cover income taxes, it includes all Federal taxes, including payroll taxes, excise taxes, and even estate taxes. But if you set aside the estate tax provisions in this bill, these taxpayers do not get 33.5 percent of the tax cuts, as alleged. Instead, they get 19 percent, only 19 percent of the benefits, even though they pay 26 percent of all Federal taxes. People with lower incomes get much more under this bill than they do compared to current law. Let's take another look. According to the Joint Tax Committee, taxpayers with an income of $200,000 or more, that is the top 4 or 5 percent of all taxpayers today, pay about 32 percent of all Federal taxes. Under our bill, these taxpayers get about 22.5 percent of the tax cuts, again, a smaller share of tax cuts than the share of taxes they pay under current law. What is the point of all this? Basically I am saying that if you look at the whole bill, then this bill is very progressive with the exception of the estate tax provisions. That is, higher income people get a smaller proportion of the tax benefits when compared with current law and everybody below roughly $100,000 will get a greater proportion of tax benefits when compared with current law. As for the estate tax provisions, unfortunately, a number of my colleagues have been trying to have it both ways. They claim the bill is regressive, when its most regressive features are the estate tax provisions, but at the same time they push to have the unified credit go up to higher and higher numbers. I have heard Senators on the floor who roundly criticized this bill privately say: Gee, Max, can we raise the unified credit up to $6, $7, even $10 million? I don't think you can have it both ways.

Mr. BAUCUS. I yield myself about 5 minutes.

Mr. BAUCUS. Mr. President, I do not know any Member of the Senate who has more respect and regard for the Senator from West Virginia than myself. He is a Senator's Senator. He knows more about and defends this institution far more than any other Senator. He really lives for his people in West Virginia, for this institution, and for the country. I wish more people knew how hard the Senator from West Virginia fights for all those causes and all those beliefs in such a dignified way. I have the highest respect for the Senator. I understand his concerns about this bill. I share some of those concerns. I think most Members of the Senate privately share some of the concerns that perhaps this tax cut is a little too large because it is hard to predict what the budget surplus is going to be in the future. But we have provided for this amount in the budget resolution. It did pass the Senate. I know the Senator from West Virginia believes that budget was inappropriate and did not vote for it. As the Senator knows, more than any other Senator here, we still have that budget resolution that passed through the conference and we are in this Chamber with a tax bill that passed the Senate Finance Committee. There are a lot of provisions in this bill that are major improvements over the President's proposal and/or measures passed by the House. Most significantly, it provides a much better distribution of tax cuts so middle-income Americans receive a greater share of the benefit as opposed to wealthier people compared with the House-passed bills and that suggested by the President. We also make specific improvements to the Tax Code. One is the creation of a new 10-percent bracket. This is large. It is the single biggest piece of the bill. It provides for $438 billion of tax relief over 10 years to those persons who would be in the 10-percent bracket. Of course, those lower and middle-income Americans and, obviously, even the most wealthy receive some benefit because a new lower bracket rate affects everybody all the way up regardless of the amount of income. Seventy-five percent of the benefits in this bill go to people who earn less than $75,000. Seventy-five percent of the tax reductions in this bill go to Americans who earn $75,000 or less. There is an upfront stimulus by making a 10-percent provision retroactive to the first of this year. In addition, there is a significant increase in the child tax credit from $500 to $1,000. Friday, when I was heading home to Montana, somebody stopped me as I was getting off the airplane. I had to change planes at Salt Lake City to get to Montana. He said: Senator, I hope you get a tax credit in there. My wife is about to have a child. I said: We are going to increase that child tax credit over time to $1,000. He said: Boy, Senator, I really like that. I really appreciate that. Thanks for doing that. There are people who do benefit from this legislation. In fact, 16 million children receive benefits under this legislation, children who otherwise would not receive benefits under the other legislation. We also create incentives for education. One can deduct $5,000 from his or her income to pay for college tuition, which, clearly, is a help because higher education is getting so much more expensive. The pension provisions, IRA provisions, new stimulus for more savings, the marriage penalty, it is true, do not take effect, as my very good friend from West Virginia notes, until 2006. I have no doubt the Senator from West Virginia is going to fully utilize that provision in the code for many years, even after it takes effect in the year 2006. Of that I have no doubt. In addition, there are other provisions in the bill that are very helpful to Americans who really need a break. They revolve around the provisions that make the child tax credit refundable. There is $109 billion in this bill--most of it is new money--for parents, for single parents, single moms, single fathers who do not have a lot of income but are struggling to make ends meet. That is going to go a long way in keeping them off welfare rolls because it is tied in with the EITC, the earned-income tax credit. It is going to help a lot of Americans. That is all in this bill. To sum up, this is a good bill. It is not perfect, but it certainly will put a lot of dollars into people's pockets in tax reductions. It is more fair to Americans all across the board compared with the President's proposal and those measures passed by the House. It is good legislation. We are a very dynamic Nation. I have concerns about the size of the cut, for the reasons mentioned by my friend from West Virginia, and have some sympathy for the amendment he is offering for those reasons. I would like to give more stimulus to education, to make sure the Social Security trust fund is even better protected, the Medicare trust fund is even better protected. We are a very dynamic Nation. We are a very resourceful Nation. We will find ways to do what we know we should do, and that includes protecting Social Security, protecting the Medicare trust fund, and making sure, too, we do all we possibly can to help our children get the very best education possible. Of that I have no doubt. I remind Senators, if we do not pass this bill, which has been worked on thoroughly by the Senate Finance Committee, my guess is we will be faced with another tax bill which will be much less to the liking of about half the Members of this body, particularly on the Democratic side. It would be much closer to the measure proposed by the President. It would have a distribution that is much more weighted toward upper income Americans. It would be a bill much to the dislike particularly of the Senator from West Virginia. Life has choices. We are presented with choices, presented with alternatives. We have to make choices and choose the alternatives which make the most sense. I personally believe that given the choice between this legislation or some other legislation which would be closer to the desire of the President, if Democrats did not try to work to make this legislation better, this is a better choice; that is, this bill as opposed to essentially the President's bill. It is roughly $1.35 trillion--less than the President suggested but still a very significant tax cut. Although I think this is a better choice compared to the alternative--I deeply respect the Senator's views and I have the highest regard for him--I disagree with this amendment for the reasons I have stated. With the utmost respect, I must tell my good friend I do not support this amendment.

Mr. BAUCUS. Mr. President, I join the chairman of the committee in telling the Senator from Utah he has a good amendment. The R&D tax credit should be a permanent part of our law for a couple of basic reasons. One, we know jobs in the future depend upon research today. The more research today, the more technology will be enhanced, productivity enhanced, and more jobs in the market. That is pretty clear. Second, we want research in the United States more than other countries. It is fine to conduct research overseas if American companies conduct research overseas but we also want them to conduct research here. Other countries give far more lucrative benefits in credits and other incentives to companies in their countries for research and development than do we in America. We all know it is a fiercely competitive world; our economy is so globalized. If we are going to, A, stay ahead and, B, make sure those jobs are here in the United States, it makes good sense to have a credit for Research and Development as a permanent part of our law. I am a cosponsor with the Senator from Utah of his bill to make R&D tax credit permanent. I will work with the Senator to try to find a way to work this out so we can make it permanent.

Mr. BAUCUS. Mr. President, very briefly, I voted to lock in more money for education when we were on the budget resolution, by voting for the Harkin amendment. I wish that amendment would have passed, but unfortunately it didn't. As the Senator well knows, the place to lock in big amounts for programs such as education is during the budget debate. The budget resolution was the place we were successful in locking in $300 billion for prescription drugs. But this is not the budget we are debating here. This is the tax bill. And unfortunately, the amount of the tax cut was locked in during the budget debate, and that is what we must be comply with now. Mr. President, I yield back the remainder of my time.

Mr. BAUCUS. Mr. President, I will take 4 minutes. It is with deep regret that I must tell my good friend from Minnesota, in good faith and conscience, I cannot support his amendment, certainly not at this time. I agree with him that this tax bill is too big. In fact, I argued to the President that he ought to propose a much smaller bill for the first 5 years and then, if the budget surpluses materialize, we can look at another tax cut. That way, if the surpluses don't materialize, this country is protected. We certainly don't know with a great degree of certainty what the budget surplus is going to be 10 years out. The President did not agree with my suggestion, but it is a position that makes a lot more sense and is better public policy, if we were to pursue that direction. Unfortunately, we are not in that position today, as the Senator well knows. The main argument the Senator makes--one that has a lot of merit to it--is an argument that he and others made on the budget resolution. But that argument was not successful, and the budget resolution has passed with $1.35 trillion in tax cuts locked in. That is where we are today. I agree with him that this is still too large a tax cut, though at least it is smaller than the President's earlier proposal of $1.6 trillion, so that is some progress. There are other provisions in the budget resolution that do protect social needs. One is the $300 billion over 10 years for prescription drugs, an amount that was locked in during the budget debate. Agriculture is provided $74 billion over 10 years, though that is not likely to be enough. There is always the likelihood of disasters and other emergencies that will require us to re-evaluate that amount. As for the contingency fund of $500 billion that is in this bill, we all know that there are more claims to that $500 billion than there are dollars. That is a problem. Nevertheless, the contingency fund is also locked in by the budget resolution. It is important to remind ourselves that this tax bill will sunset after 10 years; that is, under the rules we provided for ourselves, unless this tax bill passes by 60 votes or more, then these revenue bills are terminated after 10 years. This means that, while it is legitimate to be concerned about the second 10 years, we necessarily review all of these provisions before that time because of the termination. It may not be the best tax policy to have tax laws that terminate in 10 years, but nevertheless those are the rules we have provided for ourselves to ensure that there is strong bi-partisan support for these measures. It is also important to recall that future Congresses are also going to make changes. Congress will meet again tomorrow. Congress will also meet next week, next month, and next year, and according to the conditions of the time, I am quite confident that Members of future Congresses will make changes to what we consider here today. There will be different Presidents during the 10 years of this bill, and they will have different priorities and a different agenda. Although it is not a lot of fun to raise taxes, Congress has raised taxes when Congress felt it was necessary, even under Republican Presidents--many times in the 1980s. This is a very dynamic country. The United States of America is probably the most dynamic country in the history of civilization. We are a big country, and we have a history of adjusting to difficulties. We are going to find ways to help education more than we have in the past, just as the Senator from Minnesota very correctly points out. It is important to remember that in our country, 93 percent of the dollars for elementary and secondary education are raised at the State and local level. Only 7 percent of elementary and secondary education dollars are Federal dollars. That is starting to change because the States are so strapped. We in Congress should accelerate that change, and this bill does so. There are deductions for college tuition, for example, and other education provisions in the bill that total some $30 billion. That is a start, and it includes a big, new initiative in the college tuition deduction, which is sure to be expanded in future years. To conclude, I must tell my good friend from Minnesota with a great deal of regret, it is not even in the jurisdiction of the Finance Committee to set up this fund. He is fighting the right battle for the right cause, but not in the right place. We will be more successful in future days and weeks and months to get more money for education, I am quite confident, and I will help him do so. Regrettably, we can't do it right here.

Mr. BAUCUS. Mr. President, how much time is there in opposition to the amendment?

Mr. BAUCUS. Fine.

Mr. BAUCUS. That is correct.

Mr. BAUCUS. I don't know what it means, I say to my good friend from Minnesota. All I know is that at this point no one wishes to speak against the amendment. I urge my friend, if he wants to continue speaking on the amendment, to do so. I wish I could help the Senator by dredging up opposition to this amendment, but I cannot find any.

Mr. BAUCUS. Mr. President, I do not see anyone in the Chamber who wishes to speak against this amendment.

Mr. BAUCUS. Mr. President, might I inquire, how much time is remaining on this amendment?

Mr. BAUCUS. Mr. President, I appreciate the Senator from New Hampshire for agreeing to shorten debate on this amendment. I will again outline why I must respectfully oppose the amendment. One, this is not part of the President's package, and we have resisted including provisions in this bill that are not part of the President's agenda except in very limited circumstances. Frankly, because there are no capital gains provisions in the underlying bill, this amendment is subject to a point of order. It is not germane. Second, the provision is temporary, and that adds complexity to a code that is complex enough. Third, there are many ways to deal with capital gains reductions. This amendment only represents one: to lower the rates for a certain period of time. Another would be to provide for an exclusion of some portion of capital gains income from taxes completely, either as a dollar exclusion or as a percentage exclusion. This particular form, that is, the exclusion from income, will tend to help middle-income taxpayers even more than the provision offered by my friend from New Hampshire, which will tend to benefit the wealthiest taxpayers who deal in stocks. Those Americans who pay capital gains on assets held in their mutual funds, even though the value is declining, are not going to be helped that much by this amendment. There are other ways to help them. In conclusion, I don't believe this provision represents sound tax policy. I urge Senators to not support this amendment so we can keep this bill intact, go to conference, and come back with a bill that is virtually identical, if not identical, to the Senate-passed bill. I yield back the remainder of my time.

Mr. BAUCUS. I object. That is not the way we do business around here.