Max Baucus

Mr. BAUCUS

Mr. BAUCUS. What is the request?

Mr. BAUCUS. Mr. President, I cannot answer that kind of hypothetical because there is no way of knowing what else might be in that bill the President may not like, just as there's no way of knowing whether President Clinton would have vetoed a capital gains reduction standing alone. Presidents don't have the ability to line-item veto, so it is very hard to answer that question. But my basic point is clear: This bill contains no capital gains provisions, and for that reason, the amendment is nongermane. As I mentioned earlier, the amendment offered by my good friend from New Hampshire adds much greater complexity to the tax bill than already exists by making capital gains reductions apply only for a short period of time. We have had a difficult enough time as it is in this bill to try to fit a more progressive bill into the confines of $1.35 trillion over 11 years. We wanted to provide for marriage penalty relief, refundability of the child tax credit and expansion of the Earned Income Tax Credit, lower marginal rates, increased pension benefits, education deductions for college tuition. It has been very hard to fit in all those provisions. Now the Senator from New Hampshire would add more complexity by making this capital gains provision active only for a short period of time. I believe a major amendment such as this one needs to be thoroughly vetted before we impose a new capital gains structure through this bill. Many different ideas on how to treat capital gains have been proposed. For example, some Senators have suggested capital gains exclusions, either in the form of a dollar amount exclusion or as a percentage exclusion. This type of capital gains reform actually makes the code much more simple. It is easier to administer, and it might make more sense for more taxpayers; that is, the first x amount of dollars of capital gains could be excluded when computing one's income taxes, or one could say the first 50 percent of capital gains could be excluded. Years ago, we did have a percentage exclusion, and it made sense. And it represented another way of providing lower capital gains taxes, in the form of an exclusion as opposed to a straight lowering of the rates. A lot of Americans who holders of mutual funds are concerned about capital gains today because, while the value of their mutual funds declined last year, in many cases they nevertheless paid capital gains taxes on stocks the portfolio manager traded in order to maximize the value of the fund. So even though the shareholder's value declined, he is still paying capital gains taxes in many cases. This doesn't seem to make a lot of sense, but the taxpayer gets to deduct those losses at a later date when he sells the shares. It has been suggested that we should try to help these taxpayers too, perhaps by allowing them to defer the gains that the portfolio manager provided to the shareholder by trading securities in the portfolio. That would be a way to deal with the capital gains taxes millions of Americans in that situation are facing, even though the shares of their mutual funds are declining. Providing this type of deferral would tend to help middle-income taxpayers a lot more than the amendment offered by the Senator from New Hampshire, which will tend to help wealthier taxpayers. There are other ways to deal with capital gains taxes too, which have been proposed but not considered this year by the Finance Committee. This is a major modification to the Tax Code designed to stimulate the transfer of assets, yet it hasn't been considered by the Committee of jurisdiction to determine whether this particular approach is the best one to take. I don't think it is good public policy to write such a major provision on the Senate Floor without the Finance Committee's participation. I think it would be much wiser for us to defer this until later this year, or maybe next year, when there is an opportunity to debate it more fully. The Joint Tax Committee has produced a study on the simplification of the Tax Code, and I will point out again that some of the greatest complexities in the code are the result of our capital gains provisions. In part, this complexity results because of the differential between capital gains rates and ordinary income rates. The greater that differential, the more taxpayers try very creative ways to move their assets so they are not taxed at ordinary income rates, but rather capital gains rates. And this effort to re- characterize income can stretch the meaning of normal tax concepts. This amendment would exacerbate these efforts because the gap between rates would be greater and people would have more incentive to try to manipulate the characterization of their income in order to improperly minimize their taxes. My main point is that this is an attractive idea on its face. Clearly, lowering capital gains rates would stimulate the transfer of assets and may accelerate growth, at least in the short term. But this is not the time and place for this amendment. As for the revenue issues, the Senator has touched on the issue of dynamic scoring versus static scoring methodologies. This brings up an age-old problem we deal with in Congress--that is, how to determine what the revenue impact will be when we change the Tax Code. Those who support dynamic scoring claim that tax cuts, whether in capital gains rates or otherwise, actually raise revenue rather than losing it because of the interactive effect of economic growth. The Joint Tax Committee, in what is almost an art more than a science, generally does a good job of taking into consideration those taxpayer behaviors that are the most reliable when they attempt to estimate the impact of a provision. I think we have to trust the Joint Tax Committee, which is the agency we all depend upon to determine scoring, which says that the provision actually loses revenue in the context of this bill. I appreciate the effort of my friend from New Hampshire, but I truly believe this time this is not the time and place for this amendment. I will raise a point of order at the appropriate time. I reserve the remainder of my time.

Mr. BAUCUS. Certainly.

Mr. BAUCUS. I yield myself 10 minutes. Mr. President, I note with some amusement the last Senator criticizing the previous President for not being more sympathetic to capital gains reductions. I remind my good friend, the current President also does not seem to have much interest in further capital gains reductions because he, in his big tax bill, did not include any capital gains reduction provisions. Some time down the road he may suggest it. But in this big tax bill, which certainly is one of the major pieces of legislation the President would like to see enacted, this administration does not include any capital gains provisions.

Mr. BAUCUS. Mr. President, how much time remains on each side?

Mr. BAUCUS. I appreciate the arguments of my good friend from New Hampshire. Clearly, as capital gains taxes affect the transfer of capital, that is of property, they can affect the degree to which this economy prospers. There is no doubt that capital gains tax rates are a factor in the acceleration of growth rates. I must point out, though, when the President proposed his tax cut bill of $1.6 trillion, he did not include any capital gains provisions--none whatsoever. I wouldn't want to second guess the President, but the point is he himself thought it made more sense to lower individual rates and not to lower capital gains rates at this time. I think, if you look at the bill the Finance Committee has brought to the Floor, you will see it is a bill designed to reduce individuals' income taxes. Whether it is the marriage penalty provisions, child credit rates, the new 10-percent bracket--they are all on the individual side. There are no corporate provisions, nor are there any affecting capital gains. Another problem I must point out about the proposal by my good friend from New Hampshire is that it is temporary. We have heard many people legitimately voice their concerns about the complexity of the Tax Code, and the capital gains provisions are responsible for their fair share of that complexity. If we have an on-again, off-again capital gains provision, it is not only going to add to the complexity, but it will add some uncertainty as well. People will not know what congressional policy is with respect to capital gains. That is less true with respect to other provisions. Let's take the R&D tax credit as an example. It is true that Congress over the years has been a bit inconsistent in the number of years for which it extends the R&D tax credit. Sometimes it is extended for 1 year, others a few years. There was a time a few years ago when it lapsed completely for a short period of time. Yet people know Congress will stand by the R&D tax credit so they have some ability to count on it when they do their planning. It is much less clear with respect to capital gains. The capital gains provisions have changed dramatically over the years, both in structure and in rates. People don't know what to expect with respect to how they will be taxed in the future. Finally, I must point out that this amendment is not germane to the underlying bill, and at the appropriate point I will make a point of order to that effect.

Mr. BAUCUS. Just for the sake of completing the record, I will speak in opposition.

Mr. BAUCUS. Not yet, not at this point.

Mr. BAUCUS. I don't know if we have 10 minutes. There are a lot of Senators desiring to speak.

Mr. BAUCUS. Mr. President, I thank my good friend from Nevada who has worked very hard in maintaining order in the Chamber. He has done a terrific job, and I compliment him. I start by expressing my respect for Senators, especially on the Democratic side, who made arguments against the bill and have proposed amendments to it. As the chairman of the committee and I have both said, this bill is a compromise. It is not perfect. It is not what anybody would want if he or she were writing it, but it is a compromise. There has been a lot of give and take. Nobody got everything he or she wanted because that is what compromises are all about. It is almost inevitable that there will be legitimate, good-faith disagreements about the resulting bill. This is a tax bill. There are lots of points of view. It is very complicated. There are going to be very passionate arguments made about various provisions of this bill on both sides. On top of that, we have been debating under very stringent conditions; that is, constraints of reconciliation. This debate is rushed. It is hard to get revenue estimates. Many Senators have come to me and said it is difficult to get revenue estimates from joint tax. I wish we were not in such a rush mode. I wish this bill could have been debated more thoroughly, but that is not with what we are faced. I understand the frustrations many of my colleagues have. I also say the criticisms of the bill are very well intended. I appreciate how thoughtful Senators have been in this debate. I especially thank the Democratic leader. As my colleagues will soon hear, he is no fan of this bill, but while voicing his strong opinions, he has fully respected other points of view, and that, to my mind, is the essence of leadership, and I highly compliment him. My point is this: This is a much better bill than that proposed by the administration. Some may vote no against this bill because the amount is too high, there is not a tax cut not too great. I respect that. I think the amount in this bill could be a bit lower. I am concerned about the size of the tax cut, as well. Given the budget resolution providing for $1.35 trillion over 11 years, I think this is a much better bill than we would have had if Senator Grassley and I had not been negotiating to get a compromise. Otherwise, we would be faced on this floor with another bill, a bill that is probably the administration bill or something very close to it. I say to my friends, particularly on the Democratic side of the aisle, there are two choices. One is to vote against the bill because the tax cut is too large, a view which I respect; the other is to vote for it because it is a lot better than what we otherwise would be facing on the floor. It is much more progressive. There are many very good provisions in the bill. The education provisions, for example, the 10-percent bracket which is made retroactive to the beginning of this year. It is much better than the bill we otherwise would have. The single biggest part of this tax cut is the $435 billion provision that provides for a cut from the 15-percent rate to the 10-percent rate. That is the biggest single provision in this bill. As a consequence, 75 percent of this tax cut in this bill goes to people who earn $75,000 or less. We also double the child credit and make it partly refundable, covering 16 million more children than the President's proposal. We expand and simplify the earned-income credit which may be the best program ever created to help lower income working families. These are for working families. This is not welfare but working families. We include a $35 billion package of education incentives. For the first time, one can deduct college tuition, up to $5,000. That is a good start, one of which I think all will be proud. We expand IRAs, expand 401(k)s. We reduce the marriage penalty. We address the Federal estate tax. These are a lot of the provisions. What is the practical effect? Under this bill, every individual and family who pays income tax will get a tax cut. That is more than 100 million individuals and families. Another 10 million get a higher tax refund because of refundable credits. That reduces the payroll tax. There are a lot of Americans whose bigger tax is the payroll tax compared to income tax. That helps them directly. Nineteen million taxpayers at the lower end of the income scale have marginal rates reduced from 15 percent to 10 percent. That is by a third. That is not an unimportant point. There is a lot of talk about the marginal rate, particularly at the top end. Let me repeat, for lower income taxpayers, the marginal rates, for 19 million taxpayers, are reduced by a full one-third. Not 1 percent but 33 percent. Thirty million families get a higher child credit. For 10 million, the credit is refundable. Four million low-income couples benefit from expansion of the earned-income tax credit. Three million benefit from the higher standard deduction. Forty million couples get relief from the marriage penalty. That is 40 million, no small number. Two million taxpayers benefit from the IRA limits. Another 8 million benefit from the new low-income saver credit. Twelve million seniors pay lower taxes on their Social Security income. I could go on. There are many other provisions in this bill that are very good. Some Senators criticized certain parts of the bill, but I think it is important to know there are also many provisions that are good in the bill, and those Senators who criticize the bill do not mention a lot of the provisions which I think otherwise they would also support. The present proposal may have been targeted to upper income taxpayers. This bill is not. It is written in a balanced way, and it cuts taxes and creates incentives for all Americans. All in all, taking both income and payroll taxes into account, this bill makes our tax system more progressive than the administration's bill. Every income group under $75,000 will pay a lower percentage of their overall tax burden. Every income group over $100,000 will pay a higher percentage of the overall tax burden than contained in the President's proposal. This bill, regarding income taxes and payroll taxes, is more progressive than the President's proposal. Now, briefly, the prospects for conference. It is common to say at this point in the process the Senate bill constitutes a very delicate balance and that nothing can be changed without jeopardizing the prospect of getting a bipartisan bill enacted into law. This time it happens to be true. The Senate is divided, 50/50. On our side of the aisle, there is some support for the bill, but it hinges on a series of careful changes that we made to provide that balance. If, in conference, that balance is lost, the prospects for passing the conference report may be lost, as well. I hope that does not happen. In conclusion, this bill is not perfect but it is balanced. It is a compromise. It is good for taxpayers. It is good for working families. It is good for the economy. I strongly urge Senators to support the bill. In conclusion, I pay my highest compliments to the chairman of the committee, Senator Grassley, who has worked more in good faith and back and forth, to and fro, frankly, than any other Senator I can think of in any other situation. He is a real credit to the State of Iowa and a real credit to the United States of America. I thank him for his cooperation and working together to get this bill where it is. I yield back the remainder of my time. The PRESIDING OFFICER. The Senator from Iowa.

Mr. BAUCUS. Mr. President, on behalf of Senator Conrad, I send an amendment to the desk and ask for its immediate consideration.

Mr. BAUCUS. I ask unanimous consent reading of the amendment be dispensed with.

Mr. BAUCUS. Mr. President, I send an amendment to the desk on behalf of Senator Conrad and ask for its immediate consideration.

Mr. BAUCUS. I ask unanimous consent reading of the amendment be dispensed with.

Mr. BAUCUS. Mr. President, I send up amendment No. 676.

Mr. BAUCUS. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with.

Mr. BAUCUS. Mr. President, this is the High-Speed Rail Investment Act. I have worked with Senator Biden to help work out provisions to make it acceptable to me, at least with respect to not infringing on the highway trust fund. I support the latest amendment, but it is not germane to the bill. I now withdraw the amendment.

Mr. BAUCUS. Mr. President, parliamentary inquiry: What is the pending business?

Mr. BAUCUS. Under the order, how much time does the Senator have and how much time is allocated to those in opposition?

Mr. BAUCUS. Yes.

Mr. BAUCUS. The pending amendment is the amendment offered by Senator Gregg, No. 656. At the appropriate time, I am going to make a point of order against the amendment. On the substance, I might add, however, that there are no capital gains provisions in the President's proposed tax cut bill. This would be adding a whole new subject, which, frankly, is difficult for us in the committee to incorporate along with the other provisions we have in the bill. Second, I might add that the provision offered by the Senator provides for a lower capital gains rate, which is temporary--only a couple, 3 years. In effect, we have heard a lot of criticisms of the bill because of phase-ins and phaseouts, now-you-get-it, now-you-don't, which in the main are legitimate criticisms. But they are there because Senators want other provisions; namely, marriage penalty relief and the child tax credit increased $1,000 over $500. They would like to have rates reduced, estate tax provisions, and they would like to have this new 10 years. Altogether, it is hard to fit everything within $1.35 trillion, to make it fit, because Senators so strenuously argue for other provisions. We have had these phase-ins and we hope at a subsequent date we can reduce them. I might add that we have begun to phase out the Pease amendment, and we phased out the personal exemption. I might add that this amendment adds another complexity. I don't think we want to do that. There are a lot of ways to address capital gains. One is offered by the Senator from New Hampshire. Another is to provide for exclusions up to a certain level, a 50-percent exclusion. Another way is, frankly, just to change the rates in other ways. I might say, because of the various different ideas of how to deal with capital gains, that should be dealt with on a more comprehensive basis, not as an amendment here, which has complexity and does not really help the taxpayers as much as other proposed capital gains amendments would. For those reasons, on the substance, I think this is not the right time. I also, at the appropriate time, will make a point of order against this amendment.

Mr. BAUCUS. Mr. President, the pending amendment is not germane. Therefore, I raise a point of order that the amendment violates section 305(b)(2) of the Congressional Budget Act of 1974.

Mr. BAUCUS. Will the leader yield?

Mr. BAUCUS. That means the first vote will take how many minutes?

Mr. BAUCUS

Mr. BAUCUS. Mr. President, I ask unanimous consent that Todd Smith, a law clerk, from the Democratic staff of the Senate Finance Committee be granted access to the Senate floor for the duration of the debate on H.R. 1836.