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May 4, 2011

Tax Benefits and Burdens

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Mr. GRASSLEY. Madam President, I have had the privilege over most of my tenure in the Senate of serving on the Finance Committee and working with a good Senate leader such as Senator Baucus. I now have the privilege of serving on the committee but not as ranking member or chairman, just as a member. I compliment Senator Baucus for his leadership on this whole business of tax reform and for holding the hearings he is holding.

Today, a very important hearing is being held on the question of is the distribution of tax burdens and benefits equitable. The topic of today's hearing--whether the distribution of tax benefits and burdens is equitable--is very appropriate and is a very important topic.

However, I would argue there is a more important question we should be debating, and we should be answering this question: What is the purpose of the Federal income tax? We can't talk about whether taxpayers are paying their fair share if we don't know why we want them paying taxes in the first place.

We are in a situation now where people are talking about increasing taxes on higher income people because, supposedly, they can afford it. Probably they can afford it, but I get sick and tired of the demagoguery that goes on in Washington not just by Members of Congress but by too many people who think higher income people ought to be paying more taxes. According to the Joint Committee on Taxation's latest analysis, 49 percent of households are paying 100 percent of the taxes coming in to the Federal Government, while 51 percent are not paying any income tax whatsoever.

How high do taxes have to go to satisfy the appetite of people in this Congress to spend money? In particular, how high do marginal tax rates have to go to satisfy those clamoring for higher taxes from the wealthiest; how high

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to satisfy you? And you know who you are.

There is an article by Investors Business Daily to which I want to refer. According to this article--not talking about the taxation of a certain amount of income--if the government confiscated all the income of the people earning $250,000 a year or more, that money would fund the Federal Government today for a mere 140 days. Do you know what you would have? You wouldn't have those people trying to maximize their income because why would they maximize it if the government was going to confiscate it.

So that is a very basic question: How high do taxes have to go to satisfy the appetite of people in this Congress to spend money?

Funding the government should be one of if not the primary goal of our income tax laws. Of course, that leaves out this whole business of whether the Federal Government's purpose is the purpose of redistributing income.

Note here that I am specifically focusing on the income tax. This is because payroll taxes are not used to fund the government. Social Security and Medicare taxes are, in fact, insurance programs. Because they are insurance programs, the taxes they pay are insurance premiums because individuals who pay them expect to benefit when they reach a certain age.

It is clear some believe the Tax Code should be used to reduce the growing income disparity between the lowest and highest income quintiles. This assumes a key objective of the Federal Government, through the Federal income tax laws, should be to ensure that income is distributed equally throughout our citizenry. In other words, these folks actually believe the Federal Government is the best judge of how income should be spent. That is not what our Founding Fathers or original authors of the tax laws intended.

In addition to considering the purpose of tax revenue, we ought to, in fact, have some principles of taxation by which we abide. These principles of taxation would be a much stronger foundation than the day-to-day decisions about whether we ought to raise taxes on a certain number of people. So I abide by the principle that has been a fact of our tax laws for 50 years--that an average of 18.2 percent of the GDP of this country is good enough for what the government needs to spend.

Now, I say that because with a 50-year average it hasn't been harmful to the economy, as we have seen this country expand and expand and expand economically over that period of time.

Quite frankly, it ought to be clear that 18.2 percent of the GDP of this country coming in for us to spend is not a level of expenditures that taxpayers have revolted against. So we take in that 18.2 percent for 535 of us to decide how to spend, and the other 82 percent is in the pockets of the taxpayers to decide how to spend or to save. If 535 Members of Congress were to decide how to divide up the resources of this country, we would not have the economic growth that we have had in our economy. With 137 million taxpayers deciding how to spend or how to save, and how much of each, the economic growth of this country is enhanced tremendously because of the dynamics of the free-market system. If we were going to go the greater route of increasing that 18 percent very dramatically, we would be moving increasingly toward the Europeanizing of our economy, and I think that would be very bad.

In evaluating whether people are paying their fair share, experts frequently look at whether a proposal improves the progressivity of our tax system. Critics of lower tax rates continue to attempt to use distribution tables to show that tax relief proposals disproportionately benefit the upper income. We keep hearing that the rich are getting richer while the poor are getting poorer. This is not an intellectually honest statement because it implies that those who are poor stay poor throughout their lifetimes, and those who are rich stay rich throughout their lifetimes. And that is just not the case.

To illustrate this point, I quote from a 2007 report from the Department of the Treasury titled, ``Income Mobility in the U.S. from 1996 to 2005.'' I quote the key findings:

There was considerable income mobility of individuals in the U.S. economy during 1996 through 2005 period as over half of the taxpayers moved to a different income quintile over this period.

Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.

Among those with the very highest incomes in 1996--the top 1/100 of 1 percent--only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.

The degree of mobility among income groups is unchanged from the prior decade.

The prior decade meaning the prior study by the Treasury Department from 1987 through 1996.

Economic growth resulted in rising incomes for most taxpayers for the period of 1996 to 2005. Median income of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

Therefore, whoever is saying--and we hear it every day on the floor of the Senate--that once rich, Americans stay rich; and once poor, they stay poor, is purely mistaken. The Internal Revenue Service data supports this analysis. A report on the 400 tax returns with the highest income reported over 14 years shows that in any given year, on average, about 40 percent of the returns were filed by taxpayers who are not in any of the other 14 years.

In other words, 40 percent of those people who are in the highest brackets are not in the highest brackets ever in that 14-year period of time. So once rich, not always rich.

I welcome this data on this important matter for one simple reason: It sheds light on what America is all about: vast opportunities and income mobility. Built by immigrants from all over the world, our country truly provides unique opportunities for everyone. These opportunities include better education, health care services, and financial security. But, most importantly, our country provides people with the freedom to obtain the necessary skills to climb the economic ladder and live better lives.

We are a free nation. We are a mobile nation. We are a nation of hard-working, innovative, skilled, and resilient people who like to take risks when necessary in order to succeed. Bottom line, we have an obligation as lawmakers to incorporate these fundamental principles into our tax system instead of just asking: Are the rich paying enough?

Madam President, I yield the floor.

(Senate - May 3, 2011)

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