Mr. WHITEHOUSE. Mr. President, on a late spring day 27 years ago, President Ronald Reagan addressed a group of high school students in Atlanta, GA. Many of the students in that audience that day were about to join the workforce, and President Reagan spoke about the “strange”--to use his word--tax system that would soon claim a portion of their paychecks.
In his speech President Reagan pledged: “We're going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share.”
He went on to note that under the country's complex tax rules, it was “possible for millionaires to pay nothing, while a bus driver [pays] 10 percent of his salary.” President Reagan called this inequity with millionaires paying lower rates than bus drivers--to use his word--”crazy.” He said, “It's time we stopped it.”
One year later, President Reagan signed into law bipartisan tax reform that closed many of the loopholes and ensured that the highest earning Americans paid a fair share. The 1986 tax reform deal set the tax rate on investment income--overwhelmingly earned by those at the very top of the income ladder--at the same rate as regular wage income.
Unfortunately, in the years that followed, lobbyists have been all over Congress, and Congress has restored many of the loopholes President Reagan cut. It has repeatedly reduced tax rates on investment income. The capital gains tax rate has gone from 28 percent in the bipartisan Reagan tax reform to 15 percent today. Once again, those at the very top of the income spectrum have opportunities to cut their tax bills that are not available to regular middle-class families.
Let's look at where we are today, a quarter century after the last major overhaul of our tax system.
In this photo is a building that has stories to tell. This is the Helmsley Building on Park Avenue in New York City. Because this building is large enough to have its own ZIP Code, we know from public IRS information gathered by ZIP Code that the very wealthy and successful individuals and corporations that call this building home--with an average adjusted gross income of $1.2 million each--paid, on average, a 14.7-percent total Federal tax rate in the last available year for which we have information. A 14.7-percent total Federal tax rate is less than the rate the average New York City janitor, the average New York City doorman, or the average New York City security guard pays. The system is upside down.
It is not just in the Helmsley Building. Each year, the IRS publishes a report detailing the taxes paid by the highest earning 400 Americans. Last May, the IRS published the most recent data on the top 400 taxpayers--for the year 2008. They had an average income of $270 million each. That is not bad. In fact, that is wonderful. That is part of what makes America great.
But here is the “crazy” part--to quote President Reagan. On average, these 400 extremely high earning Americans--making $270 million in 1 year--actually paid an average Federal tax rate of just 18.2 percent on adjusted gross income. We have spent a fair amount of time in the Senate debating whether the top income tax rate should be 35 percent or something else--for example, 39.6 percent, as it was in the Clinton boom years. But the ultra rich get around this top rate through a variety of tax gimmicks.
We looked at what level of income a single filer would have to make to start paying 18.2 percent or more in Federal taxes. It is $39,350. If we look at the Department of Labor levels, that is about what a truckdriver, on average, earns in Rhode Island. Mr. President, $40,200 is what an average truckdriver, according to the Bureau of Labor Statistics, earns in Rhode Island--more than the $39,350--which means they are probably paying a higher tax rate as a single truckdriver in Providence, RI, than a millionaire who made $270 million in the last year.
That is just not fair, not right, and that is not the progressive tax system we have always had. I recently heard from one such truckdriver in Rhode Island. Mike Nunes, who is a member of Teamsters Local 251, joined me for a roundtable discussion on tax fairness in Cranston, RI. Mike said: “I've been a middle-class worker here in Rhode Island since I was in my early twenties. My wife and I pay our taxes, and it's frustrating to hear that multi-millionaires are getting special treatment to pay a lower rate.”
Mike is right. I hear the same as I travel around my State. I know my colleagues hear the same as they meet with their constituents across the country. They all agree with President Reagan that a tax system that allows many of the highest income earners among us to pay less than a truckdriver must be fixed.
The problem goes beyond the top 400 income earners in the country. The Congressional Research Service confirms that roughly one-quarter of $1 million-plus earners--about 94,500 taxpayers--pay a lower effective tax rate than over 10 million moderate-income taxpayers. Reuters reported this:
Taxpayers earning more than $1 million a year pay an average U.S. income tax rate of nearly 19 percent.
The story goes on: “About 65 percent of taxpayers who earn more than $1 million face a lower tax rate than the median tax rate for moderate income earners making $100,000 or less a year.”
Let me read that again: “About 65 percent of taxpayers who earn more than $1 million face a lower tax rate than the median tax rate for moderate income earners making $100,000 or less a year.”
Our tax system is supposed to be progressive. The more one earns, the higher the rate one pays. That is not class warfare; that is tax policy. It has been that way for decades, if not even generations. We undermine that principle when we allow the highest income Americans to pay a lower tax rate than a truckdriver pays. It is no wonder that so many of the Rhode Islanders with whom I have spoken have lost confidence that our tax system gives them a straight deal.
With the top 1 percent of Americans earning 23 percent of our Nation's income and controlling 34 percent of our Nation's wealth--more than one-third--it would be difficult to argue that our system is too progressive.
Let's look at this other graphic. Of all of our Nation's wealth, the top 5 percent of Americans own over 60 percent of it. Of all of our Nation's wealth, the top 5 percent own more than 60 percent of all the wealth in the country. The top 1 percent control over one-third of it. The 400 families at the very top--the 400 I talked about earlier--own almost 3 percent of all America's wealth just among those 400 families. These are proportions we have not seen since the Roaring Twenties, and they are getting steadily worse.
We are not going to overhaul the Nation's tax laws this evening, but in a few hours we will have a chance to advance legislation to restore some fairness into our tax system. This long overdue bill--the Paying a Fair Share Act of 2012--would implement the so-called Buffett rule, after Warren Buffett, who has famously lamented that he pays a lower tax rate than his secretary. To correct this glaring tax inequity, this bill would ensure that those at the very top pay at least the tax rates faced by middle-class families.
I thank Senators AKAKA, BEGICH, LEAHY, HARKIN, BLUMENTHAL, SANDERS, SCHUMER, REED of Rhode Island, ROCKEFELLER, BOXER, DURBIN, and LEVIN for cosponsoring this measure.
I ask unanimous consent to add Senator Lautenberg as a cosponsor.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. WHITEHOUSE. The structure of our bill is simple: If your total income--capital gains included--is over $2 million, you calculate your taxes under the regular system. If your effective rate turns out to be greater than 30 percent, you pay that rate--the same rate you would pay without the bill.
If, on the other hand, your effective tax rate is below 30 percent--like the 11 percent tax rate Warren Buffett paid in 2010--then you would pay the fair share tax of 30 percent instead.
Taxpayers earning less than $1 million--which is more than 99.8 percent of Americans--would not be affected by this bill at all. For taxpayers earning between $1 million and $2 million, the fair share tax gets phased in. Ultimately, when you earn over $2 million, you are subject to the full 30-percent minimum rate.
The one exception the bill makes to the 30 percent minimum is to maintain the incentive for charitable giving. Under the bill, taxpayers are permitted to subtract the same amount of contributions allowed under the regular income tax from their taxable income. The reason for this one exception should be self-evident: charity benefits others and taxpayers should be encouraged to give.
Some say, given our fragile economic recovery, now is the wrong time to raise taxes on anyone. While middle-class families continue to struggle through the recovery, it seems the boom times have already returned for those at the very top.
According to a recent analysis by University of California at Berkeley economist Emmanuel Saez, 93 percent of the income growth in 2010 went to the top 1 percent of income earners.
Even more astounding, 37 percent of the income growth in that year went to the few thousand taxpayers in the top 0.01 percent. With so much income growth at the very top and with looming budget deficits, it is hard to argue that people with 7-, 8-, 9-, or even 10-figure incomes can't afford to pay a reasonable tax rate.
To be clear, it has been said on this floor this is a tax on investment and this is a tax on job creation. That is wrong. This is a tax on one thing: income.
Republicans have criticized the amount of revenue that would be generated by the bill. The ranking Republican on the Senate Finance Committee called the $47 billion the Joint
Committee on Taxation has estimated a meager sum. Well, in Rhode Island, we don't consider $47 billion to be a meager sum. It is enough money, for instance, to permanently keep subsidized student loan interest rates from jumping from the current 3.4 percent to 6.8 percent in July, which they will do unless we act. If we could use this bill to offset the cost of keeping student loan interest rates low, then there are millions of students out there who would call that benefit something other than meager.
We could use the $47 billion on badly needed infrastructure projects and create 611,000 jobs nationwide. In Rhode Island, we have 11 percent unemployment and a long backlog of transportation infrastructure projects. At the top of that list is the viaduct bridge on Interstate 95 through Providence. This critical link along the northeast corridor running up through Rhode Island has wooden boards inserted between the I-beams underneath to prevent the concrete in the roadway from falling in on the traffic below. Also, where the Amtrak rails go underneath, there are wood planks to keep the roadway from falling in on the trains as they pass below. I don't think repair of this bridge and others would be meager at $47 billion worth, particularly if we put it into an infrastructure bank and leverage it for even more jobs.
It is worth noting this legislation would generate far more revenue than the $47 billion the Republicans complain of if the Republicans were to succeed in their quest to extend the very high-end Bush tax cuts. If the Bush tax cuts for people in this bracket continue, the revenue from the bill jumps from $47 billion to $162 billion over a 10-year budget horizon. Operating as a backstop, the Buffett rule can ensure those at the top pay a fair share no matter what loopholes, no matter what special treatments Congress adds to the Tax Code in the future.
Finally, the Senate Republican leader has described the bill as yet another proposal from the White House that won't create a single job or lower the price at the pump by a penny. Well, the minority leader is absolutely right. The aim of this bill is not to lower the unemployment rate or the price of gasoline. However, if you put the $47 billion into infrastructure, you could create 611,000 infrastructure jobs and a lot of good infrastructure as well. And if you put the $47 billion into LIHEAP, you could help millions of Americans pay their energy bills.
But let me add an additional point. The Republicans are claiming this bill, which is a tax fairness bill, not a job-creating bill, will not create a single job. Of course, if you spent the revenue, it would, but that is a separate discussion. At the same time they are making that point, the Republicans in Washington are sitting on our highway bill which creates 3 million jobs and they won't call it up on the House side because they do not want to rely on Democratic votes. Three million jobs are awaiting action in the House on the bipartisan Senate highway bill that had 75 Senators supporting it, and they won't call it up--the Republicans won't call it up--because they do not want to use Democratic votes.
What kind of Washington insider logic is that? People across this country who will go to work on those roads and bridges don't think that makes any sense. For Republicans now to be talking about jobs on this bill, while they have a jobs bill that creates 3 million jobs they are blockading in the House, the word “jobs” should turn to ashes in their mouths.
There are plenty of things this narrow tax fairness bill won't do. It will not bring world peace, it won't save endangered whales from extension, it won't cure the common cold. It will do none of that. It will restore the confidence of middle-class Americans in our tax system by assuring those at the very top of the income spectrum are not paying lower rates than regular families do.
In addition to restoring fairness to the Tax Code, the bill will generate considerable revenue to cut the deficit or invest in job creation and critical programs. I happen to think that tax fairness and tens of billions of dollars in revenue or deficit reduction are reasons enough to pass the bill. And if the Republican leader wishes to work with us on taxing other issues, I am wide open to that. But today's vote is about tax fairness. It is about undoing a gimmick in the Tax Code that allows people earning over $ 1/4 billion a year to pay lower tax rates than truckdrivers.
Unfortunately, this has become a partisan issue, which is surprising, because the principle of a progressive Tax Code has always been a basic American tax policy principle. The arguments we are making today about paying a fair share were made exactly by Ronald Reagan. But things have changed and so there is this squabble. Even business owners support this bill. A recent poll conducted by the American Sustainable Business Council, the Main Street Alliance, and the Small Business Majority found that 58 percent of business owners said those making over $1 million a year are not paying their fair share in taxes and 57 percent supported increasing taxes for those at the top. That is out of the small business community.
These business owners know it is simply fair for the most fortunate and successful Americans to pay a larger share of their income in taxes than less successful families do. That is what a progressive tax system is supposed to do. That is what it has always done. Sadly, over the past few decades, as income has soared at the very top, the effective tax rates have plummeted.
This chart, prepared by Budget Committee chairman Kent Conrad, shows the effective Federal income tax rate for the top 400 income earners since 1992. As you can see, there has been a dramatic drop from 1995 to 2008. These rates are for Federal income tax. If you add in the small amount of payroll taxes paid by those at the very top--which is a separate discussion, but they fall 100 percent on the income of middle-income families but only on a small portion of the income of super-high-end income families--the total Federal tax rate for 2008 goes up to 18.2 percent, counting in that withholding. That is, again, the effective Federal tax rate of that truckdriver in Providence. The trend in falling tax rates for those making seven figures in income or more has eroded the confidence of ordinary Americans who do pay their fair share.
I will conclude with one more quote. This is another quote from President Reagan's 1985 speech on tax fairness. This is President Reagan, the man whom so many conservative Republicans revere. He said:
What we're trying to move against is institutionalized unfairness. We want to see that everyone pays their fair share, and no one gets a free ride. Our reasons? It's good for society when we all know that no one is manipulating the system to their advantage because they're rich and powerful.
That was President Reagan in 1985. Today, his party is defending that manipulation.
In the 27 years since that speech, the American playing field has been skewed ever more toward the rich and powerful. From bankruptcy reform, which favors big corporations over people, to the Citizens United decision, which has allowed corporations and billionaires to spend unlimited cash to influence American elections, to this lower tax rate for ultra-high income earners, the American people have simply not been getting a straight deal from Washington.
Many are calling the vote we will have on the Buffett rule bill today a test vote, because it is on a procedural motion, and the pundits don't expect it to pass. I agree. This is a test vote. But it is a test of a different sort. This is a test of Washington, DC, to do something that is simple, to do something that is right, and to do something that is fair for the middle class. If we proceed to and pass this bill, it will show the American people that Congress is capable of standing by their side, that Congress is capable of being on their side, that Congress is capable of saying no to a powerful and well-funded special interest. If we fail, it will indicate exactly what President Reagan feared--that the rich and powerful are able to manipulate the system to their advantage and we in Congress will do nothing about it.
One of the things America stands for in this world is that we are fair with each other; we get a straight deal and we give each other a straight deal. That is one of the ways in which America stands as an example to the rest of the world. There are plenty of countries where the internal political and economic systems amount to a racket--a racket that is rigged for the benefit of the rich and powerful and against farmers and workers and small businesses and ordinary families. Some of those countries are so bad we call them kleptocracies. But that has never been America. That is not the America of the Founding Fathers. It is not the America of Ronald Reagan. It is not the America that shines its light into the four corners of the world as an example to the rest of the world. That is not the America we are here to serve.
We must be vigilant in protecting the ideals that make this country what it is. I urge my colleagues, Democrats and Republicans alike, to heed the words of President Reagan and to support this legislation, which will ensure that a favored segment of the highest earning Americans once again do something as simple as pay their fair share in taxes. Let us show the American people that our Nation does stand apart as an exemplar of fairness and of equal opportunity and of equal responsibility under the law.
I thank the Chair. I see colleagues in the Chamber, and I yield the floor.