Issue Position: Taxes

Issue Position

After several years of unprecedented job creation and robust growth, our economic growth rate has slowed considerably in recent months. Many constituents have expressed to me their concerns regarding the serious challenges facing our economy. As we assessed various fiscal policy proposals, I have cautioned my colleagues that the government must first and foremost do no harm. In our rush to right our economy, we must not talk ourselves into a hasty intervention today that will leave us with greater budgetary shortfalls tomorrow. These short-term efforts should not lead to more entitlement spending, but rather reinforce the prospects for long-term sustainable growth. To that end, the Federal government should focus on providing incentives for workers, entrepreneurs and families to grow our economy.

Given the nation's current economic uncertainty and rising housing, food and gas prices, the last thing taxpayers need right now or in the near future is a tax increase. Unless Congress takes action, however, in 2010, taxpayers face the largest tax increase in history. More immediately, Congress also needs to take action to prevent millions of taxpayers from paying the alternative minimum tax (AMT) and repeal this tax. It is troubling to me that in addition to these enormous tax hikes in the next two years, the Majority has introduced legislation to increase taxes even more on small businesses, making our U.S. manufacturers less competitive in our global market and making it difficult to keep jobs in the United States. To address these issues facing our country, I have introduced legislation, "A Roadmap for America's Future." My bill removes the competitive disadvantage our tax code places on American-made products and creates a simpler, fairer income tax system for American taxpayers.

Since becoming Ranking Member on the House Budget Committee, I have put forward budgets each year that balance the budget without raising taxes. Unfortunately, my budgets did not pass the House. I will continue to work to balance the budget, stop tax increases, protect the Social Security Trust and stop wasteful spending.

H.R. 6110 - A Roadmap for America's Future.

The Federal tax code is needlessly complex and burdensome. Taxpayers and their families face, in the next few years, higher taxes, the reinstitution of the marriage penalty, and the Alternative Minimum Tax (AMT), which becomes a larger problem every year. I believe that Washington must put the taxpayers first - not the government. To address these problems, I have introduced legislation, "A Roadmap for America's Future" which in addition to addressing the challenges facing the future of health care, Medicare and Social Security, it provides a flatter, simpler system for taxpayers to pay their income taxes and levels the playing field for American-made products to compete against foreign competitors making it easier for American manufacturers to keep jobs in the U.S. My legislation would do the following: (1) repeal the individual AMT; (2) provide individuals an alternative tax system that is fair, simple and efficient; and (3) replaces the current corporate income tax code with a tax system that levels the playing field for American businesses. For individual taxpayers, taxpayers can choose the new, simplified system or stay with the current tax code or whichever option suits them. Specifically, under my bill, it provides:

* Two income tax rates: 10 percent on taxable income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts.

* That taxable income equals gross income minus a standard deduction and personal exemption. The standard deduction is $25,000 for joint tax filers, $12,500 for single filers. The personal exemption is $3,500. The combination is equivalent to a $39,000 exemption for a family of four. There are no additional credits or itemized deductions.

For businesses, my bill replaces the corporate income tax system which puts American-made products at a competitive disadvantage, and replaces it with a low 8.5 percent Business Consumption Tax (BCT) to level the playing field for American-made products to compete against foreign competitors. Consider the following example: Right now, Case New Holland tractors are at a competitive disadvantage against its foreign competitor, the Komatsu, because of the current U.S. tax code. When the Komatsu leaves Japan, Japan lifts its tax on the tractor, and it arrives in the U.S. tax free. But when the Case tractor rolls off the assembly line in Racine and is exported to Japan, the U.S. taxes before export. This hurts American jobs and puts American businesses at a competitive disadvantage. The Roadmap proposal border-adjusts our taxes which would end these backwards tax policies and put American workers in the position to thrive, instead of struggling to survive, in this period of economic uncertainty.

Economic Stimulus Legislation.

After bipartisan negotiations between Congress and the White House, Speaker Nancy Pelosi introduced H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act, also referred to as the "Economic Stimulus package." This legislation provides rebates checks to individuals, seniors, disabled veterans, and families. It further provides bonus depreciation for businesses for new equipment purchases, increased expensing limits for small businesses, and an increase in loan limits for Government Sponsored Enterprises (GSEs), such as Fannie Mae and Freddie Mac, as well as the Federal Housing Administration (FHA). While I believe this bill is a step in the right direction, I do not pretend that this bill will do much to "stimulate" the economy. In the end, I voted in favor of this legislation because the bottom line is that this bill will allow taxpayers to keep more of their own hard-earned money. According to the Internal Revenue Service (IRS), there will be an estimated 2.6 million taxpayers in Wisconsin that will directly benefit from this bill. I was also supportive of the bonus depreciation and small business expensing provisions included in this package, which will provide incentives for investment and job creation in our private sector. The final version of H.R. 5140, extends eligibility for rebate checks to senior citizens and veterans, while making certain that illegal immigrants are excluded. It passed the House with my support on February 7, 2008 by a bipartisan vote of 380 to 34. On February 13, 2008, President Bush signed this bill into law.

Tax Increases in the next Two Years.

Last year, the House passed a budget for FY2008 that proposed the largest tax increase in American history - $685 billion over 5 years. Under this budget, taxpayers in Wisconsin would have an average tax increase of $2,964. Washington does not have a revenue problem - it has a spending problem. These tax increases include increases in the marginal income tax rates, capital gains rates and the dividend tax rate. It also included a tax hike "trigger" to automatically raise taxes even higher if surpluses do not materialize, in other words, if Congress spends too much. The Majority claimed its budget plan will maintain certain popular tax relief provisions, but the trigger automatically turns off this tax relief - reimposing the marriage tax penalty, cutting the child tax credit in half, among others - if the Majority spends too much and future surpluses failed to materialize.

Additional Tax Increases.

Congressman Charles Rangel, Chairman of the House Ways and Means Committee introduced in the Fall of 2007, H.R. 3970, The Tax Reduction and Reform Act of 2007. The title of this bill does not reflect the $3.5 trillion tax increase over 10 years - the largest individual tax income tax increase in history, thereby smothering any future economic growth. According to the non-partisan Joint Committee on Taxation, 120 million taxpayers will receive a tax increases while only 9 million will receive a tax cut. While the legislation repeals the individual Alternative Minimum Tax (AMT), it replaces it with a large tax increase. Specifically, the legislation would impose 4-percent surtax on adjusted gross income (AGI) above $150,000 for single filers and $200,000 for joint filers. The surcharge increases to 4.6 percent for incomes over $500,000.

The surtax constitutes an assault on small business, most of which pay individual income tax rates on their business income. When coupled with the expiration of the 2001 and 2003 tax relief provisions, the surcharge would effectively push the highest income tax rates from its current level of 35 percent to 44.2 percent - an increase of 26 percent. According to the U.S. Department of Treasury, roughly 75 percent of the taxpayers affected by this top tax rate are job-producing small businesses - S-corporations, partnerships, and sole proprietorships. Recent economic research shows that an increase in the top income tax rates will dissuade these businesses from investing, hiring more workers, and paying higher wages. That is significant because small businesses employ roughly half of the private labor force and create approximately seven out of every 10 new jobs. By some measures, small businesses account for more than half of the nation's economy.