On Senate Floor, Portman Discusses How Democrats’ Tax Hikes Will Hurt Economy, Working Families
WASHINGTON, DC – Today on the Senate floor, U.S. Senator Rob Portman (R-OH) joined his colleagues on the Senate Finance Committee in explaining how the Democrats’ plan for massive tax hikes to pay for their $3.5 trillion reconciliation package will hurt the economy, job creation and working families who are already dealing with higher prices from surging inflation.
Portman highlighted that these tax hikes extend to a wide range of areas, from the capital gains tax to the estate tax, to the marriage tax penalty, to taxes on small businesses. Portman pointed out how proposed changes like raising the corporate tax rate, shifting tax enforcement to a country-by-country basis, and getting rid of provisions that incentivized U.S. companies to invest in U.S. workers and innovation would make the United States uncompetitive in the global economy, and undo the critical reforms in the 2017 Republican-led Tax Cuts and Jobs Act that helped create a historically strong economy before the COVID-19 pandemic.
A transcript of his remarks can be found below and a video can be found here.
“I want to thank my colleague from Montana who just talked about the impact of this tax and spend bill on his constituents in Montana. I will say the same is true in 49 other States, including my state of Ohio. This is – we are told – the biggest tax increase on America in over 50 years. So this is a big deal.
“In terms of the spending, we’ve been hearing today, it’s the largest spending package ever. I think in inflation-adjusted terms, it is probably the largest social spending package since the New Deal. That’s what we’re talking about here. This would fundamentally change our country in so many ways. And so it’s good that Mike Crapo, who’s the top Republican on the Finance Committee, asked us to come on the floor today just to kind of talk about it, because our constituents need to know what’s going on, need to understand what the impact of this would be on them, their lives, their futures.
“There are new taxes being proposed in this on pretty much everything. Small businesses, that was just talked about. Most businesses in Ohio and around the country are not what they call C-corporations, they are pass-throughs, like subchapter S, or sole proprietors, or partnerships. That’s about 80 or 90 percent of the businesses. It’s the smaller businesses. But they get hit.
“There’s actually taxes on marriage because of the marriage penalty. There’s taxes on death because of the increase in the estate and gift tax. There’s taxes on capital gains, which – you know, that’s the part of our code where you try to give people a little lower rate on a longer-term investment, to try to encourage risk-taking and investment, so that you can grow the economy and create jobs.
“There’s also a bunch of other taxes on here, but the one that I want to talk about today is the tax on corporations – because it gets less attention. People think, ‘Oh, gosh, those big corporations, they can handle more tax increases. Some of them aren’t paying taxes.’ Well, they use the tax code sometimes that we set up here to avoid paying the full amount of taxes. But they pay plenty of taxes. And when you increase the taxes, everyone says the same thing, whether it’s the Congressional Budget Office, which is the nonpartisan group up here in the United States Senate, or whether it’s the Joint Committee on Taxation, which is the nonpartisan group up here in the United States Senate and the House, or whether it’s outside groups looking at it. You increase those taxes on these companies, who pays it? Workers, primarily. And second, consumers.
“We just talked about inflation. Think about it, all this new stimulus spending, because that’s what it is, will add to inflation. But so will these higher taxes, because part of what happens is if you have a higher tax on you and you’re trying to sell something, you’ve got the same cost, maybe even higher costs coming in, you’re going to charge more and therefore, when you go to the store to buy something there’s going to be more inflation. So all of this encourages more, not less inflation at a time when inflation is already unacceptably high. And I think everybody agrees with that. You know, when the Democrats did the $1.9 trillion package back in March – $1.9 trillion, that used to be a lot of money, now we just sort of say it, $1.9 trillion – but when they did that, everybody said, ‘Oh my gosh, that’s too much stimulus spending. It’s going to cause inflation.’ And the promoters of that said, ‘No it won’t, it won’t do that because it’s the economy is so weak, it’ll be good for the economy.’ Well, it overheated the economy.
“And Larry Summers at the time, who was a former Secretary of the Treasury in a Democratic administration, an economist on the other side of the aisle, he warned about it, as did others. He said, ‘Look, this is going to fuel inflation.’ And boy has it. So yes, people are getting some wage gains right now, higher pay, and I like that a lot. I think it’s great. Before 2020, before COVID hit, thanks to the tax reforms of 2017, primarily, in my view, wages were going up. February 2020 was the 19-straight month of wage gains with over 3 percent annually. I mean, my gosh, that was great. Mostly lower and middle income workers, by the way. Some of that’s happening now, but guess what? It’s all being eaten up. So if you got a 5 percent pay raise this year, you probably got nothing because you’re going to have about 5 percent inflation. So your dollar is not going as far. So these are all issues that we’ve got to make sure the American people understand.
“In terms of the corporations and what the problem is there, remember, before the tax reform in 2017, we had a lot of companies that were leaving our shores. Literally. They were saying, ‘You know what? Our tax code is so bad in America, we’re going to invert – which is the name the economists gave it – literally move their headquarters overseas to escape our uncompetitive tax code. I hated that. And I hope all Americans did. I hope all members of the Senate did. I think they did. They said, ‘Why would we want to encourage companies to go overseas to become foreign, because that way their investment and their jobs are tending to go overseas as well.’
“But it wasn’t just that. We had a lot of companies in the United States being bought by foreign companies. And you think about it, that made all the sense in the world. The foreign governments had a much better tax code for them, so they could buy a U.S. company and make more money on it than a U.S. company could under our tax code. Again, that’s not what we wanted. We had a situation where the companies were going overseas in every sector of our economy.
“I’m a beer drinker. So I was particularly concerned about the beer companies and every single one of them went foreign that were big. The largest U.S. beer company was Sam Adams, which had about a 1.4 percent market share. The rest of them all went overseas. So that’s what was happening. There’s some new data out showing that since the 2017 tax reforms were put in place there was a 50 percent increase in American companies buying foreign companies and a 25 percent decrease in foreign companies buying our companies. That was good. That was good. But now we’re talking about going right back to the bad old days.
“One significant factor in companies going overseas and U.S. companies getting bought out by foreigners was our high tax rate, 35 percent. Highest in the developed world. Everyone heard about that. But also there was a lack of enticements to keep valuable intellectual property here in the United States, whereas other countries provided that. Also, unlike other countries, we were in what was called a worldwide tax system, where we were requiring U.S. companies to pay taxes on their foreign earnings at the high U.S. rate, the 35 percent rate. Almost all of our competitors don’t do that. They use the so-called territorial system where you only tax in the foreign jurisdiction where you did the business. You’re not taxed twice. So that was one reason we were losing.
“So we changed that. The 2017 Tax Cuts and Jobs Act took bold steps to reassert our competitiveness as a country. We lowered the corporate tax rate to 21 percent. We went to a territorial-type system – not entirely territorial, we still had a minimum tax – but we created an incentive to stay here, create your jobs and investments here. We lowered the corporate rate but we also had other incentives to create more intellectual property here in America. As a result, by the way, the corporate inversions stopped. They stopped.
“Instead of losing companies overseas, again, we started to buy more companies overseas and bring that investment to America. The Foreign-Derived Intangible Income provision, which provided a reduced tax rate for U.S.-based businesses on high-return foreign market income served by U.S. operations resulted in companies like Cisco, Qualcomm, Synopsys, Google, Facebook and others bringing back intellectual property that was overseas. So it actually worked in the way we hoped it would. It brought IP back here. That means jobs. That means research.
“Others retained their intellectual property here in the United States, like Intel and Disney and General Mills and others, because of these tax laws. Because they were coming to us and saying, ‘Why are we here in America doing this? We should do it overseas based on what Congress has provided U.S. tax environment for us.’ The largest U.S. companies during that time period increased their domestic research and development spending by 25 percent to $707 billion, increased their capital expenditures by 20 percent to $1.4 trillion. That’s all good.
“Again, workers saw real benefits, 50-year low in unemployment, strong wage growth, particularly for lower and middle income workers. The lowest poverty rate in the history of the country since we started keeping track of it back in the 50s. This follows an earlier study by the nonpartisan Congressional Budget Office, or CBO, that found that 70 percent of the tax cuts ended up going into workers’ wages. Workers’ wages and benefits. So workers and businesses both benefited in this opportunity economy that was driving a lot of promise and growth in the United States.
“The Democrats’ tax plan would systematically dismantle so many of these pro-growth tax cuts and reforms that Congress put in place in 2017. Under this new proposal, the corporate rate would be raised from 21 percent to about 28 percent. When combined with the average state and local corporate taxes in America, U.S. businesses will be on the hook for an average tax rate of about 32 percent, once again, giving us the highest rate of taxation in the developed world. Democrats would also increase the Global Intangible Low-Taxed Income rate, called GILTI, and the base erosion and anti-abuse tax rate, called the BEAT, which would punish U.S. companies that work to serve foreign markets.
“We should like that. We want U.S. companies to create jobs here to support their international sales. The proposal would modify this GILTI calculation to a country-by-country basis, making it even more difficult to compute and track U.S. tax liabilities for companies operating overseas. Again, a disincentive that discourages investment in new and emerging markets. Why would we want to do that?
“Through these policies, Democrats would be creating a tax environment hostile to businesses and harmful to workers. According to the International Tax Competitiveness Index, Democrats’ plan would cause the United States to drop steeply down the rankings from 21st to 28th in the world among developed countries. The same ranking we had, by the way, before the 2017 tax reforms. Many businesses will make what is unfortunately a completely rational decision to move their headquarters again. We’ll see inversions again, taking with them thousands of good-paying jobs and billions of dollars in assets. Others that choose to stay here will nonetheless become prime targets for acquisition, as they were before by businesses in other countries like China that would have a lower tax rate than us.
“But who ultimately bears the brunt of these Democratic tax hikes on businesses? Again, it’s the workers. Just as the Congressional Budget Office found that 70 percent of the corporate tax cuts goes into workers’ wages and benefits, the Tax Foundation found that 70 percent tax increases are borne by workers. It’s no surprise then, that the nonpartisan Joint Committee on Taxation right here in this Congress found that two-thirds of the Democrats corporate tax hike would fall on lower and middle-income taxpayers.
“Let me repeat that. JCT, a nonpartisan committee here in Congress, found that two-thirds of the Democrats' corporate tax hike would fall on lower and middle income taxpayers. By the way, that’s about 100 million taxpayers who make less than $400,000 a year. So much for the pledge that no one under $400,000 in income would possibly be affected.
“So when you look at these facts, I just can’t understand why we want to move to this kind of a tax plan. Why would the American people support tax hikes that are going to be bad for workers and bad for our competitiveness as a country? Why are we punishing workers? They’re the ones that get the short end of the stick here.
“Let’s focus on what works, on encouraging investment and growth here in the United States of America. That helps workers. Let’s not go down a path that will once again send U.S. jobs and U.S. investment overseas.”