On Senate Floor, Portman Says Democrats’ Massive Tax Hikes Will Destroy Jobs, Undermine U.S. Economy
WASHINGTON, DC – Today, U.S. Senator Rob Portman (R-OH) delivered remarks on the Senate floor outlining his opposition to the $2 trillion worth of tax hikes Democrats are proposing in order to help pay for their reckless $3.5 trillion spending spree. Portman explained how these tax hikes will undermine economic growth, kill jobs, send businesses overseas, and ultimately hurt American families and workers.
Portman also touted the effectiveness of the 2017 Tax Cuts and Jobs Acts – highlighting the legislation’s role in fueling the pre-COVID opportunity economy, which saw strong wage growth, a 50-year low in unemployment, and the lowest poverty rate on record.
A transcript of his remarks can be found below and a video can be found here.
“I’m here on the floor of the Senate today to talk about our economy, talk about the new massive tax hikes that Democrats in the House of Representatives have now proposed to pay for the $3.5 trillion spending spree that is called reconciliation. I want to talk about why it’s bad for American workers, why it’s bad for our economy, bad for small businesses, bad for American families. They call it the Build Back Better Plan, but it’s really tearing down what helped us to be better. What helped to make us a more fair economy, an opportunity economy by getting rid of the positive aspects of the 2017 tax reform and tax cut legislation and instead putting in place massive new tax increases.
“By the way, these tax increases go even beyond eliminating the tax relief that was provided in 2017. In many cases, it provides additional tax increases even higher than we had before 2017. We had an historically strong economy leading up to COVID-19 in large measure because of this 2017 Tax Cuts and Jobs Act, which focused on expanding opportunities for businesses to grow, for families to take home more of their hard-earned cash, and for the United States as a country to be able to compete globally. It made us more competitive.
“As a result, before COVID-19, we saw record growth and jobs and wages. In February of 2020, as we were getting into the COVID-19 pandemic, we had 19 straight months of job growth and wage growth of over three percent annualized. For 19 straight months, we’d seen wages go up every single month. We had wages above inflation for the first time, really, in a decade and a half in my home state of Ohio. This benefit in wages went mostly to lower-income workers and middle-income workers. Exactly what you would want. This follows a study by the nonpartisan Congressional Budget Office, or CBO, that found that 70 percent of corporate tax cuts end up going into workers’ wages. Seventy percent goes into workers’ wages and benefits.
“So it all made sense. As we made America more competitive, as we made our businesses more competitive, small businesses and large businesses, what we saw was wages going up and wages going up for everybody. But again, the highest percentage increases were actually among those who are at the lower end of the income scale or middle-income workers.
“During that time period just before COVID-19 hit, we also tied the 50-year low in unemployment. We had 3.5 percent unemployment. We had historic lows in unemployment, by the way, the lowest ever, for certain groups in our economy including Black workers, Hispanic workers. We had in 2019, a median income for U.S. households that had the largest inflation-adjusted gain going back to at least 1967. So you had to go back to the 1960’s to find incomes rising that much. And before the pandemic, we had the lowest poverty rate ever recorded. So for 60 years, we’ve been recording the poverty rate in this country. It was the lowest it had ever been going into the pandemic. That’s good news. We should be celebrating that. And again, what Democrats are now talking about doing is going back and changing the very law, by increasing taxes in a massive way, that created so much of that opportunity.
“Those 2017 reforms also helped the U.S. compete globally by stopping what were called corporate inversions that were a recurring problem during the Obama administration and during the first year of the Trump administration. This is where U. S. companies actually said, ‘You know what? Our tax laws are so bad in this country we’re going to invert, meaning we’re going to become foreign companies.’ So we had companies in my state of Ohio and other states around the country actually say, ‘We’re not going to be American companies anymore because we can’t compete with the tax code we’ve got here. We’re going to become foreign companies.’
“A lot of us criticize that and strongly urged these companies not to do it. But the reality was our tax code was driving it. And that’s one reason we changed the tax code in 2017 to stop this movement of jobs and investment overseas and to say, ‘We’d rather have you invest here in America.’ And it worked. Prior to that time there was something called the lockout effect, where companies would keep their earnings overseas. If they made money overseas, they kept it overseas. They never brought it back to America.
“After this law, $1.6 trillion in overseas earnings came back home to America to invest here and create jobs here. As a result of these changes, by the way, the largest U.S. companies increased their domestic research and development spending, R&D spending, by 25 percent to $707 billion and they increased their capital expenditures by about 20 percent to $1.4 trillion.
“That’s good. We like that. We want more money to come back into America, invest in America, increase research and development to make us more efficient and more technological, and therefore more competitive, more productive. And we like the fact that there were capital expenditures going up because the tax code work to create that incentive.
“All of this should make it clear that the opportunity economy we had in those couple of years before COVID, thanks to the 2017 tax reform changes, largely, worked for everybody. Workers took home larger paychecks. The average Ohio family saved at least $2,000 on their tax bill.
“But this tax plan before us now would throw all that out. Again, it tears down what makes us better. The massive tax hike being pushed by President Biden and congressional Democrats would be the largest tax increase since 1968, and almost no aspect of the tax code is left untouched.
“This includes increases in estate taxes. Now this is a problem because if you’re a business and you want to pass along your business to the next generation, you’ve got to be sure the estate tax isn’t so high that the government, in effect, has a confiscatory rate where you have to sell the business in order to pay the taxes. Capital gains taxes go up. This is taxes going up on investment. We want to encourage capital gains because that’s assets you hold for a while. We want to encourage more investment in this country. That creates jobs, makes us more productive.
“It increases taxes on retirement accounts, it increases income taxes, it increases small business taxes. So if you’re a small business owner in America, watch out. It increases corporate taxes. We talked about how we lowered corporate taxes to make them more competitive and the result was they created not just more jobs, but higher-paying jobs and they brought money back from overseas. And the list keeps going from there. American workers and families will find themselves losing more of their hard-earned cash from all sides.
“Each of these proposed increases will be harmful. But as one of the people involved in the 2017 international tax reforms, I’m particularly concerned about the effects of undoing the reforms we put in place there to make us more competitive and specifically the issue of raising the corporate tax from 21 percent to 26.5 percent as proposed. Some, including here in the Senate, would like to raise that tax even higher.
“What’s the problem with that? Well, it’s pretty simple. Once again, America would have the highest corporate tax rate among all the developed countries in the world. That’s not a good thing, because it makes us less competitive. And it’s about our workers. Ultimately, they’re the ones who bear the burden, as we said. At 26.5 percent, we would have a national average on the corporate side of 31 percent when you take into account the fact that we have state and local corporate taxes here. Other countries, for the most part, don’t do that. They have a federal tax only. This means, again, we’re going to have the highest corporate tax rate in the developed world. By the way, our rate would also be higher than China. So it’s not just developed countries, it’s also countries like China that we’re competing with that would have lower rates than us.
“It creates an unequal playing field, making it really hard – in some cases, impossible, for U.S. workers to compete against rivals in places like China – but also the European Union and elsewhere. It also makes costly and complicated changes for US companies to operate outside the United States, punishing American workers who have jobs here that support those international sales. Remember, we’re only about 5 percent of the global economy and we’re about 20-25 percent of the GDP. The economic mass of our country is something that we want to grow because that creates more jobs here. And if you’re a company in America that sells overseas, that’s something we should encourage because it creates jobs here in America. I’ll give you an example in my own hometown of Cincinnati, Ohio, Proctor & Gamble is there. They are a global company. They sell all over the world. We like that because it creates a lot of jobs in Cincinnati, about 40 percent of the jobs in Cincinnati and they have 11,000 jobs now in our area. Forty percent of those jobs are there only because of international sales. They support the international side of the business.
“So this notion that we’re going to raise our taxes so high that you can’t compete internationally because other countries have such lower rates that their companies are going to beat you in the marketplace every time, that takes away jobs from America. We want to be a country that does business overseas, sells stuff overseas because that creates jobs here. Under the Democrats’ plan, investment in the United States will slow and companies will begin once again saying, ‘I’m going to just become a foreign company.’ I hate that. We want more American companies here. They tend to take their jobs and their investment with them when they do that, by the way, which makes sense.
“As I said, according to multiple studies, including the nonpartisan Congressional Budget Office here in Washington, it is the workers who are going to bear most of the burden of higher taxes in the form of lower wages and benefits and lost jobs. There was a 2017 study by another group called the Tax Foundation that found that 70 percent of corporate taxes are borne by workers. It’s no surprise then that the nonpartisan Joint Committee on Taxation here in the Congress found that two-thirds of the Democrats’ corporate tax hike would fall on lower and middle-income taxpayers, which includes the small businesses that file taxes as individuals.
“Meanwhile, because of the huge tax increases we’re talking about, companies are going to raise their prices. American families are going to feel the pain in the form of higher prices at the store on top of the surging inflation we are already seeing, thanks to the Biden administration’s spending policies they’ve already put in place. That $1.9 trillion, almost $2 trillion of spending, so-called stimulus, that was one of the reasons, according to economists right, left and center, including Larry Summers, who’s a prominent Democrat economist, that we see these huge inflation numbers. Because when you throw that stimulus money out there, it increases inflation, which makes it more expensive to buy everything from gasoline, to clothes, the food, and makes the wage gains that we’ve been able to see recently much smaller than they would otherwise be because inflation is eating up those gains. So this is not what we want to do for the economy.
“On the small business side, the vast majority of small businesses pay their taxes on their individual tax form. So about 80 percent or 90 percent of the businesses in Ohio or around the country don’t pay their taxes as corporations, they pay their taxes as individuals. So think about the small businesses in your community. They’re probably partnerships, or what is called subchapter S companies, pass-through companies of some kind. They might be sole proprietors. But their tax bill comes due on their individual tax form.
“Unfortunately, the Democrats are increasing the taxes on those people, too. A lot of those people will be lumped into the expanded top bracket of the income tax code, and therefore they will be paying 39.6 percent income tax plus a 3.8 percent surtax on small business income. So that takes them into a tax rate that’s well above what they’re paying now. They’ll be in the twenties now and they’ll be in the forties under this new proposal. You might say, ‘Well, that’s for people in the top bracket.’ Well, those people in the top bracket are often small businesses.
“If you’re a small business, all that revenue in the business is counted towards your revenue, you may take nothing out of the company. You may just take a dividend to just pay your taxes. That’s what a lot of small companies do. I grew up in a small company like that. We would issue a dividend to pay the taxes, but our income included all the income of the company, and that’s the way America works. That’s the way our tax code works. Some have argued it shouldn’t work that way, but that’s the way it works. So when you raise taxes on individuals, you’re also raising taxes on a lot of these small businesses.
“Adding to this, Democrats say they now want to eliminate the really important 20 percent deduction on qualified business income for small businesses. So for all the pass-through companies in America, pay attention. You know that 20 percent deduction that’s out there – Democrats are now saying they want to eliminate that altogether.
“That was designed to enable smaller businesses to be able to compete, to be able to have a level playing field between the corporations –C-corporations, which tends to be the larger companies – and the pass-through companies. Additionally, small businesses that earn over $5 million will be saddled with an additional 3 percent surcharge under the Democrat plan. This means that so many of these small businesses that drive our economy, that are successful, that are employing so many people, again are going to have a harder time hiring workers by paying them competitive wages. Again, they tend to be smaller businesses, but they’re the backbone of our economy.
“About half the workers in America work for businesses like this, so they may be 80 or 90 percent of the businesses, but because they’re smaller, they employ about half the people. But this is where we get so much of our innovation. This is where we have so many opportunities for lower-income workers to get a start. This is where the American Dream is found.
“Under current policy, the Congressional Budget Office expects that as the economy continues to recover from the pandemic, tax revenues will grow and I quote them here ‘to 18.1 percent of the economy, GDP, in 2022.’ So next year, 18.1 percent of the economy will be tax revenues and then fluctuate between 17.5 percent and 18.1 percent of our economy through 2031. So they’re saying taxes as a percentage of the economy will be somewhere between 17.5 and 18.1 percent between now and 2031, over the next ten years. Next year, 18.1 percent.
“This is interesting because Democrats are saying, ‘Well, taxes need to be higher.’ The historical average is 17.3 percent. So the estimate from the nonpartisan Congressional Budget Office says we’re going to be between 17.5 and 18.1 percent and next year already at 18.1 percent, whereas the historical average is 17.3 percent. Even this year, as we’re still recovering from the pandemic and tax receipts are less, it’s expected to be 17.2 percent based on the Congressional Budget Office. So you’ve got to think about this. Why is there this great urge to raise taxes right now? Why tear down what worked? Why put America in a position where we’re paying higher and higher taxes as a percent of our economy?
“Contributing to this revenue growth, the Congressional Budget Office projects corporate tax receipts are going to climb to $379 billion in 2023 or 1.5 percent of GDP. According to the Tax Foundation this will be, ‘a record high in nominal terms,’ so that $379 billion will be a record high in corporate tax receipts and, ‘nearly matching average corporate tax collections as a share of GDP prior to the 2017 tax reform.’ So again, I just ask people to think about this. They say we need to tax companies more. Remember, you’re taxing workers, according to the analysis of the Tax Foundation, the Congressional Budget Office, but also those receipts are going to be at record levels and very close to as a percentage economy where they were before the 2017 tax reform.
“What we should take away from these findings is that the economy is growing as we come out of this pandemic. We know this to be true. We’ve known it for months really. The Congressional Budget Office projected way back in January that without any additional government help, no new COVID-19 packages, including the $1.9 trillion spending package that Congress passed in March, that the economy would fully recover by mid-year. And they were right. Even as much as that spending has not gone out yet from the $1.9 trillion. Payroll tax revenue has risen by about 4 percent, suggesting that workers are taking home bigger paychecks than before.
“So the economy is beginning a nice recovery. We need it to continue. The last thing you want to do is to slap a bunch of taxes on the economy right now and have the economy go down and have workers in particular bear the brunt of that.
“My question is, why would you want to throw out a tax code that has helped fuel this unprecedented economic recovery we saw pre-pandemic and brought in more money in the process? In 2017, with this tax reform, we helped usher in an economy powered by workers, empowered by small businesses, empowered by more competitive, larger businesses. It wasn’t powered by big spending here in Washington, D.C.
“The results worked. It was truly historic. Moving ahead, let’s stay the course instead of hiking taxes and putting a damper on American prosperity and American opportunity for everybody to get ahead. A massive tax increase won’t make us build back better. A massive tax increase will tear down what makes us better.”