On Senate Floor, Portman Discusses Concerns with Unvetted Book Tax Proposal in Democrats’ Massive Spending Bill
WASHINGTON, DC – Today, U.S. Senator Rob Portman (R-OH) delivered remarks on the Senate floor outlining the harmful consequences of the so-called book tax in the Democrats’ reckless tax and spending proposal. In the speech, Portman discussed his concerns with the new tax hike, including the fact that it will amount to a new corporate alternative minimum tax that taxes pensions and is not based on income, but rather book value. Portman talked about how the tax would add to inflation that is already surging and how workers will be hurt the most.
Portman also noted that Democrats passing another stimulus bill would represent a doubling down of the policies that created this current state of inflation by raising taxes and stimulating consumer demand. He also said that the actual cost of this legislation could be more than $4 trillion, rather than the $1.75 trillion figure Democrats cite.
A transcript of his remarks can be found below and a video can be found here.
“I’m here on the Senate floor today to once again talk about the so-called Build Back Better legislation that Democrats are trying to force through this system on a purely partisan basis under what’s called reconciliation. I strongly believe that this massive tax and spend bill is the wrong way to go. I think it's irresponsible, particularly at a time of high inflation, uncertain economic growth, driven a lot by the uncertainties around the new COVID concerns, and record levels of debt. This is the ninth consecutive week that the Senate has been in session that I've come to the Senate floor to talk about specific reasons I believe the Build Back Better legislation is a bad deal for America.
“As we've talked about before, this massive new spending bill represents the largest amount of spending of any legislation ever passed by the U.S. Congress. Now the official score is something like $1.7 trillion. You could argue that the one that passed in March, $1.9 trillion was the largest one. This is the second largest one. But in fact, when you look at what's in it, a lot of the spending is in effect camouflaged, as has been said by the folks at Penn Wharton who have analyzed this.
“When you take into account the programs that are relatively popular and unlikely ever to be ended, like the Child Tax Credit, are likely to continue, and yet they are sunsetted in this legislation. If they weren't sunsetted, the cost of the bill goes from about $1.75 trillion to about $4.5 trillion dollars. One analysis, the Committee for a Responsible Federal Budget, is a little higher than that, but let's say $4.5 trillion, that's by far the largest piece of legislation that would ever have passed the United States Congress.
“Much of that spending is what's called stimulus spending, adding to the demand side of the economy, adding to inflation. Remember, inflation is demand chasing supply. If there's not enough supply and there's more demand, you have inflation, that's what many of us predicted would happen with the $1.9 trillion legislation. Unfortunately, that is exactly what happened. So once again, at a time of devastating high inflation already, record debt and so much uncertainty on COVID and the possible need for more federal resources there, with regard to COVID, massive new spending, it seems to me right now is the wrong thing to do.
“On the revenue side, the massive tax increases are also irresponsible in my view and not well thought out. Today, I'd like to focus on one new tax increase proposal, in particular, and this is the Democrats’ plan to impose a new 15 percent minimum tax on the domestic side. They call it the minimum book tax. And it's not a tax on books, it's a tax on companies and on workers and on pensions, as we'll talk about, based on the financial statement. It's not based on income, as we traditionally think about it, as the tax code traditionally defines it, but it relies on so-called book value and has several negative consequences that I want to talk about today.
“The new book tax, if it were put into effect, would drive inflation even higher, it would discourage investment in key sectors of the economy, and it would jeopardize the fate of businesses that provide pension funds for their employees. The book tax proposal is essentially a new corporate alternative minimum tax, but again, it taxes the adjusted financial statement income of large corporations, not their IRS tax analysis. And that's the income that might be reported to, let's say, the SEC through a form 10-K.
“This makes it very different than the existing corporate income tax, which is determined based on income that these companies report to the IRS. Because these two taxes are calculated using very different base amounts, the 15 percent book tax can end up being a lot larger for companies than the 21 percent income tax. The line you'll likely hear from some of my colleagues on the other side of the aisle is that this tax is designed to make big companies pay their fair share of taxes because it only applies to companies with a three-year average adjusted book income of more than $1 billion.
“But studies from the nonpartisan Congressional Budget Office, the Tax Foundation, and more show that it's actually the workers who bear the brunt of these types of taxes in the form of lower wages, lower benefits, lost jobs, higher prices. I am also hearing about a number of specific, unintended perhaps, consequences, and I'm certain there will be others as well.
“Let's start with its effect on workers' retirements. Under this proposal, a qualifying company ends up paying a new tax on certain investment gains, potentially due to just a change in interest rates in their employee pension funds. So this is a new tax. Right now if the pension fund has an income gain, that would not be taxed. But under this proposal, it would be, under the book tax proposal. So it's basically a tax on the pensions.
“First, these gains shouldn't result in a tax to the company at all. Companies do not have access to these pension investments. They sit in a segregated account. Companies can't touch them, nor should they be able to touch them. And obviously they make money for the retirement accounts of the employees. That's the whole idea. And for good reason, pension funds should be invested, and they should grow over time because that benefits the workers to strengthen their retirement security.
“Second, companies could be forced to pay more in taxes on the pension gains than the company makes in actual profits. Let's take an established company, and I can tell you some of them have contacted us with specific examples of this, but they tend to be companies that are pretty well established because they have pretty big pension plans. But if you got an established company with a large pension plan, let's say that company makes a profit of $100 million in a year, they could see their long-running pension fund gain a lot more than that, say, $2 billion over that same period. So under this tax plan, that company would have to pay a 15 percent tax on that $2 billion in pension income, or about $300 million on top of any normal income taxes. That business then has to make a tough choice, because, remember, the business has only made $100 million in profit. You've got a tax bill of $300 million because of your pension income. Are you going to go bankrupt? Are you going to take out loans to pay these taxes? This is money that would otherwise be invested in people, in plant equipment, in our economy. But instead it's going toward paying a potentially large tax that is entirely counterproductive.
“Third, of course, it discourages companies from investing in their workers' retirements. Having more invested in pension plans is good for workers. I think we should encourage employers to do the right thing and that's to have a defined benefit plan. There are fewer of them these days. Those that are left, we don't want to drive employers out of those, in my view. And by the way, that's the view of almost all my colleagues I think on the other side of the aisle, and certainly a lot of union members who have these pensions. Let's not forget that this tax could threaten the retirement of tens of thousands of union and non-union workers alike.
“But this tax proposal doesn't just jeopardize pensions. It could have a significant negative impact on how industries, particularly manufacturers, invest in growing their operations. According to data from the nonpartisan Joint Committee on Taxation, the manufacturing sector leads all other sectors in the economy when it comes to the use of what's called bonus depreciation - that's where you get to have an immediate write off if you expand a plant or equipment. And that's something that was part of the 2017 tax legislation that's been very helpful to help grow the economy. Very important to retailers, very important to hospitality, very important, of course, to manufacturers who lead the way in terms of taking this deduction. So, it allows them to quickly and affordably invest in equipment and new machinery, leading to higher productivity, leading to more jobs - what economists think is the most important thing we can do right now in our economy, which is to grow the supply side of the economy.
“Under this new book tax the Democrats are proposing that deduction would not be able to be taken as it is now immediately as bonus depreciation, but rather it would have to be taken over a longer period of time, making these critical investments a lot less likely and leading to fewer new hires and lower productivity.
“By the way, less investment in capital assets, of course, puts more pressure on inflation because it increases on the demand side of the economy if you don't do it. If you do it, it would increase on the supply side. So you want to encourage investment in capital assets. That's good because it helps in terms of the supply side. So this bill has stimulus spending as we talked about on the spending side, and more demand and lower investment is exactly the opposite of what we ought to be doing in terms of countering inflation.
“Taking a broader view, both of these immediate negative impacts on the economy and workers, the taxes on pension funds and less financial incentive for investment, is going to lead to higher prices for consumers, which also increases inflation. And it's even worse. From what I'm hearing, some of the biggest sponsors of pension plans are logistics and delivery companies. And I hope my colleagues are talking to the same companies that are reaching out to talk to us. But to pay for these additional costs, particularly the pension costs, they have told us they're likely going to have to increase costs, reduce customer services, and suspend investment in new technology. These are logistics companies. At a time when many Americans are already experiencing inflation and supply chain bottlenecks, this is exactly the wrong prescription.
“The book tax proposal is just one of a lot of policies in this reconciliation bill that I think would be bad for the economy and bad for workers. Maybe these specific problems we talked about today were just overlooked in the rush to produce a bill without going through any of the normal committee processes, including the Finance Committee, which hasn't looked at this. Those issues would have emerged, I'm sure, had the Ways and Means Committee and the Finance Committee had the opportunity to review it and analyze it. Or maybe the plan is to just overwhelm the American people with so many dramatic changes to our tax code that they won't notice how irresponsible any single one might be. Whatever the case, it's clear that this book tax has not been properly vetted.
“It's time for Congress to slow down this process so that we can properly understand the consequences of these policies on the American people. These massive tax and spend proposals are bad for the economy, certainly bad for inflation, bad for business and most importantly, bad for workers and their jobs.”