At a time when Wisconsinites are facing economic uncertainty, a high unemployment rate and a rise in the costs of living, the last thing our country needs are tax increases. The President’s budget imposes a heavy cost for its commitment to intrusive government – diminishing economic opportunity by imposing the largest tax hike in American history. This budget imposes $1.9 trillion in new taxes on families and small businesses, while adding new complexities to an already broken tax code. At the same time, the President’s budget would increase the debt held by the public by $9 trillion over ten years and would never set the budget on a path to balance. Instead of chasing higher spending with ever-higher taxes, Congress needs to make our tax code fair, competitive and simple. Unfortunately, our current tax system fails on these three elements.
Looming Tax Increases
In Wisconsin, approximately 90 percent of businesses file their federal income taxes as individuals, not as corporations. These businesses that file their federal income taxes as individuals employ more than 50 percent of the Wisconsin workforce. Imposing tax hikes on employers and making the tax code even more complicated will only hurt job creation and our economic recovery. Unfortunately, this is exactly what has happened under new laws enacted by President Obama.
Most of the tax increases enacted since January 2009 are included in the new health care law, the Patient Protection and Affordable Care Act (H.R. 3590). This law will enlarge government, increase Federal spending, deficits and debt. It initiates a government takeover of the health care sector (one-sixth of the U.S. economy); increases total spending by $2.6 trillion; raises taxes by more than a half-trillion dollars over the next 10 years (the largest tax increase in history) and cuts more than a half-trillion dollars from Medicare to finance a new entitlement. For these reasons, I voted against this legislation. The largest single tax hike in the health care law ($210 billion) results from the 0.9 percent increase in the Medicare payroll tax on wages for employers and small businesses, and a new 3.8 percent Medicare surtax on net investment income. The threshold amounts for these surtaxes are not indexed for inflation so these taxes that are aimed at “wealthy” individuals today, will reach increasing numbers of middle-income taxpayers over time, just as the Alternative Minimum Tax has.
The new health care law also provides $10 billion to expand the IRS, which will be in charge of verifying that every American taxpayer has obtained health insurance defined under this new law. Taxpayers who fail to prove that they have the health insurance required under the health care law, face a new tax up to up to $2,250 or 2 percent of the taxpayer’s income (whichever is greater). The new law, however, includes an exemption for illegal aliens and incarcerated individuals. Incarcerated individuals are exempt because they receive taxpayer-funded health care in prison. Though illegal aliens cannot receive a tax credit or Medicaid coverage under the health care law, they may receive emergency room care, but do so without paying the same penalty that uninsured Americans must pay. According to the Congressional Budget Office and Joint Committee on Taxation, nearly half of the taxes collected from this law, would be paid by households earning less than 300% of the Federal Poverty Line ($66,150 for a family of four).
The President’s budget proposal for Fiscal Year (FY) 2013
At a time when strong leadership is needed in the White House, President Obama’s proposed budget, in the words of The Washington Post, “falls short.” Failing to heed the warnings of economists and the concerns of our fellow Americans, the President’s budget accelerates our country down the path to bankruptcy. In the three years since President Obama was sworn into office, the national debt has increased 45 percent, from $10.6 trillion to more than $15 trillion. The President’s FY2013 budget contains massive tax increases, does nothing to pay down our crippling national debt, and continues the trend of out of control government spending. By his own projections, this budget would propel the national debt to $26 trillion by 2022. Along with adding $11 trillion to the national debt, his budget would impose a $1.9 trillion tax hike, creating more uncertainty for American families and businesses. The House recently had the opportunity to vote on President Obama’s budget proposal for FY2013, and unanimously rejected the President’s proposal, by a vote of 0 – 414, a clear indication that Republicans and Democrats alike did not believe the President put forth a credible plan to address America’s challenges.
The “Buffett Rule”
The President and his party continue to insist that raising taxes will somehow boost economic growth. They insist that the best way to grow the economy is to take more money from hardworking Americans and use it to fund the President’s out of control spending. The problem is that this tax increase, known as the “Buffett Rule,” would not just raise taxes on “wealthy Americans,” but would raise taxes on small business owners and investments during the worst unemployment crisis since the Great Depression. Democrats fail to acknowledge that we are facing a deficit and debt crisis because we spend too much, not because we tax too little. And while some continue to champion the Buffett Rule as a serious solution to reducing the deficit, the truth is that this tax increase, over a ten year period, would only reduce our nation’s projected deficit by less than one percent (0.7%).
To put into perspective just how ineffective the Buffett Rule would be, consider how much revenue this new tax would generate compared to how much our federal government spends in one year. Over a ten year period, the Buffett Rule would generate an average of $5 billion in revenue per year, and the FY2013 federal budget is projected to spend $3.803 trillion. That means that, in FY2013, these tax increases would pay for only 0.131 of federal spending. Of the 8,760 hours contained in one year, the Buffett Rule could only pay for just over 11 hours of federal spending. Instead of policies aimed at growing government and raising taxes on families and businesses, we must advance policies that boost private-sector job growth. Policymakers must put aside these gimmicks and work together to meet our generation’s defining challenge of restoring America’s promise and ensuring greater opportunities for generations to come.
Path to Prosperity
House Republicans have pledged to lead where the President has failed. The budget advanced by the House of Representatives on March 29, 2012 helps spur job creation, stops spending money the government does not have, and lifts the crushing burden of debt. The Path to Prosperity cuts more than $5 trillion in spending from the President’s budget over the next 10 years, putting the budget on the path to balance and the economy on the path to prosperity. Specifically, the budget:
Restores Economic Freedom – The Path to Prosperity fosters a better environment for private-sector job creation by lifting the debt-fueled uncertainty and advancing pro-growth tax reforms.
Changes Washington’s Culture of Spending – The budget stops Washington from spending money it does not have on government programs that do not work. It locks in spending cuts with enforceable spending controls.
Strengthens Health and Retirement Security – The budget puts an end to empty promises from Washington, offering instead real security through real reforms. The framework established in this budget ensures no disruptions to existing health and retirement benefit programs for those beneficiaries who have organized their retirements around them, while at the same time building stronger programs that future beneficiaries can count on when they retire.
Provides for the Common Defense – With American men and women in uniform currently engaged with a fierce enemy and dealing with emerging threats around the world, this budget takes several steps to ensure that national security remains the Federal government’s top priority, including the rejection of proposals to make thoughtless, across-the-board cuts in funding for national defense.
Lifts the Crushing Burden of Debt – The budget tackles the existential threat posed by rapidly growing government and debt, applying the nation’s timeless principles to this generation’s greatest challenge. It ensures that the next generation inherits a stronger, more prosperous America.
Making the Tax Code Fair, Competitive and Simple
Fair Tax Code
The tax code is full of deductions, credits and loopholes that let politically-connected companies avoid paying taxes. Every dollar that businesses spend lobbying for a better tax deal is a dollar they’re not spending on making a better product. And, since every dollar hidden in a loophole doesn’t get taxed – politicians make up for this lost revenue by increasing overall tax rates. So we need to close these loopholes. The U.S. corporate income tax, incorporating federal, state, and local taxes, equals just over 39 percent, the highest rate in the industrialized world. (The U.S. has overtaken Japan, which recently lowered its corporate rate.) On top of sending almost 40 cents out of every dollar earned to the government, businesses pay additional taxes including investment taxes and payroll taxes.
Competitive Tax Code
The budget we passed in the House of Representatives calls for closing the loopholes and lowering the tax rates. The President’s bipartisan Fiscal Commission proposed something similar. Its plan would reduce the corporate tax rate to as low as 26 percent, and to lower the top individual rate that many small businesses pay to as low as 23 percent. If we lower tax rates, does that mean the wealthy pay less in taxes? It does not if we close loopholes. The people who use most of the loopholes are those in the top tax brackets. The money parked in these tax loopholes is taxed at zero. If you take away the tax loophole and lower everybody’s tax rates, that money is taxed. It is taxed at a fair, more simple, more competitive tax rate so they can compete in this global economy. The President, however, would allow the top marginal income tax rate to rise to nearly 45 percent in 2013. This would be a direct hit on Wisconsin small businesses and jobs because 90 percent of businesses in Wisconsin pay the individual income tax, not the corporate income tax. These small businesses employ more than half of all private sector workers.
Simple Tax Code
Individuals and businesses spend over six billion hours and $160 billion, every year, trying to understand and comply with the tax code. Congress should simplify the tax code, not just by closing loopholes, but also decreasing the number of different tax brackets. Fewer brackets, along with lower individual rates, will make the tax code less complicated, and let more people keep more of the money they earn. America has had tough recessions before and we know that the secret to growing jobs and prosperity in America are through the ingenuity and the hard work of our businesses – of our small businesses, of our large businesses, of job creators. Our tax system should not reward people for coming to Washington and getting special favors. We want a tax system that rewards Americans for hard work, risk taking, entrepreneurship, investment and innovation. These ideas made America great in the past. We need these kinds of ideas going forward if we want to grow our economy in the future and compete in the 21st century global economy.