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Senate Proceeding on Sep 11th, 2008 :: 5:36:55 to 6:03:45
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5:36:41 to 5:36:55( Edit History Discussion )

a little complicated, but it's not as complicated as it looks. the chart shows the business. it could be a partnership, it would be an s corporation, it could be a pro piratorship. they get cash from

Chuck Grassley

5:36:55 to 5:37:16( Edit History Discussion )

Chuck Grassley: four source, the first is sales, the second is debt, the business may be able to access credit only if its owners are willing to guarantee the debt, and the third source is the owner's investment and the

Chuck Grassley

5:36:55 to 6:03:45( Edit History Discussion )
Speech By: Chuck Grassley

Chuck Grassley

5:37:16 to 5:37:32( Edit History Discussion )

Chuck Grassley: fourth is retained after-tax profit. that after-tax profit is a very important part of the economic viability of small business. so i would emphasize after tax. these are the sources of cash for

Chuck Grassley

5:37:32 to 5:37:49( Edit History Discussion )

Chuck Grassley: the business. the business uses its cash to pay workers. it uses its cash to pay other expenses like utilities, rent, and supplies. a business either makes a profit or a business suffers a loss. if

Chuck Grassley

5:37:49 to 5:38:04( Edit History Discussion )

Chuck Grassley: it makes a profit, the profit is taxed at the owner's level. if -- it flows through to the owner. at that point the federal government takes or gets its share, the after-tax profit then, of course, is

Chuck Grassley

5:38:04 to 5:38:27( Edit History Discussion )

Chuck Grassley: available to the owners. and that after-tax profit, let me say once again is a very important factor and that's where tax policy in this presidential debate is important. currently the top two federal

Chuck Grassley

5:38:27 to 5:38:46( Edit History Discussion )

Chuck Grassley: tax rates are since 2001, 33% and 35%. senator mccain wants to keep the rates right there. senator obama wants to raise statutory rates to 36% -- from 36% to 39.6% where they were set in 1993 under president

Chuck Grassley

5:38:46 to 5:39:05( Edit History Discussion )

Chuck Grassley: clinton until the year 200 on. in addition to that -- 2000 on. in addition to that president obama wants to include a kind of hidden rate increase which was referred to until roontly as the pep s&p

Chuck Grassley

5:39:05 to 5:39:22( Edit History Discussion )

Chuck Grassley: izas. for small families with an additional add-on of tax rates, their real marginal tax rates actually go up way above 39.6%. senator obama proposed to raise the social security tax on the same group

Chuck Grassley

5:39:22 to 5:39:35( Edit History Discussion )

Chuck Grassley: of small business owners from 2% to 4%. recently, however, senator obama modified his tax plan to defer the social security tax increase. if we set aside this future social security tax increase, the taxes

Chuck Grassley

5:39:35 to 5:39:57( Edit History Discussion )

Chuck Grassley: owed by small business owners would rise by as much as 21% and 17% respectively. i have a chart that shows the difference between the current top rates, which senator mccain would keep, and the increase

Chuck Grassley

5:39:57 to 5:40:15( Edit History Discussion )

Chuck Grassley: in the rates proposed by senator obama. so the blue rates, senator obama, the red rates -- the red lines are senator mccain. for the same group of taxpayers, senator obama proposes in addition to tax

Chuck Grassley

5:40:15 to 5:40:31( Edit History Discussion )

Chuck Grassley: dividends income at 20%, instead of 15% rate. that's a 33% increase. so for these regular, nonflow through small business owners, the amount of tax owed on their business income would rise at the range

Chuck Grassley

5:40:31 to 5:40:46( Edit History Discussion )

Chuck Grassley: of somewhere between 17% to 33%. as would the answers to the questions of definition and economic impact to small business, i don't think folks on the other side would dispute what i've just said about

Chuck Grassley

5:40:46 to 5:41:01( Edit History Discussion )

Chuck Grassley: how small businesses are taxed. now we come to the fourth question. that question is: what is the relationship, then, between the top marginal tax rates an small business activity? put another way,

Chuck Grassley

5:41:01 to 5:41:18( Edit History Discussion )

Chuck Grassley: how much small business activity will be affected by increased rates that senator obama proposes? unlike the first three questions, the answer to this question has been very controversial. over the years

Chuck Grassley

5:41:18 to 5:41:32( Edit History Discussion )

Chuck Grassley: folks who are hostile to marginal rate reductions have pointed to one statistic. they've referred to the percentage of small business tax filers who fall in the top -- two top rates. for instance, they

Chuck Grassley

5:41:32 to 5:41:47( Edit History Discussion )

Chuck Grassley: cite a statistic from the tax policy center that concludes that only one and nine tenth percent of the filers with business income payhe top two marginal rates. i ask unanimous consent to include

Chuck Grassley

5:41:47 to 5:42:01( Edit History Discussion )

Chuck Grassley: in the record a copy of the relevant tax policy center analysis dated july 14, 2008. the presiding officer: without objection, so ordered. mr. grassley: according to the tax policy center a analysis

Chuck Grassley

5:42:01 to 5:42:18( Edit History Discussion )

Chuck Grassley: that is roughly three times the percent of tax filers in the general population. they'll state the proportion of small business owners in the top two brackets is roughly similar to that of the general

Chuck Grassley

5:42:18 to 5:42:34( Edit History Discussion )

Chuck Grassley: tax paying population. now the opponents of a marginal rate relief will use this data to conclude that small business owners' tax profile is similar to the nonbusiness taxpayer profile. since the tax profile

Chuck Grassley

5:42:34 to 5:42:51( Edit History Discussion )

Chuck Grassley: is similar, the general redistribution argument applies. bottom line is that opponents will argue that raising marginal tax rates on small business owners makes the tax system more progressive.

Chuck Grassley

5:42:51 to 5:43:08( Edit History Discussion )

Chuck Grassley: for the opponents of marginal rate -- marginal rate relief, that's where the discussion ends. it comes down to their view of tax fairness from their perspective. although the statistics show small business

Chuck Grassley

5:43:08 to 5:43:24( Edit History Discussion )

Chuck Grassley: owners are three times more likely to be in the top two brackets, that matters not one wit to the opponents. the rates must go up and the revenue must be spent on expanding government. for an example

Chuck Grassley

5:43:24 to 5:43:44( Edit History Discussion )

Chuck Grassley: of this perspective, i represented my colleagues consult the article -- quote -- "big misconceptions about small businesses and taxes" unquote from the center of budget priorities an policy dated august

Chuck Grassley

5:43:44 to 5:44:00( Edit History Discussion )

Chuck Grassley: 29 of this year available on the internet at www.cbpp.org. tx the political point of the opponents boils down to this small group of filers is very well off so other than them, who cares if the

Chuck Grassley

5:44:00 to 5:44:16( Edit History Discussion )

Chuck Grassley: rates go up? now, that's good politics. when you're talking about 1% or 2% of the population versus the rest, your theory is redistribution. you are going to be making an easier political case. you know, that's

Chuck Grassley

5:44:16 to 5:44:32( Edit History Discussion )

Chuck Grassley: where they leave it. now, there's a huge assumption that makes this argument so very dangerous and has economic impacts in the end. the assumption is that since the number of filers is limited to

Chuck Grassley

5:44:32 to 5:44:50( Edit History Discussion )

Chuck Grassley: roughly 2% the business activity is, likewise, limited. the assumption is extremely dangerous economic policy. why? i'll give you two reasons. one, the 2% understated the number of small businesses affected;

Chuck Grassley

5:44:50 to 5:45:05( Edit History Discussion )

Chuck Grassley: and, second, the assumption assumes any negative effect of removing resources from small business. and you don't have a lot of room, as the chart shows, to play with small business. they don't go to

Chuck Grassley

5:45:05 to 5:45:23( Edit History Discussion )

Chuck Grassley: wall street and sell their stuff. they have to accumulate their own capital. let's go to that first dangerous assumption that i just proposed. that would be of understating the number of small

Chuck Grassley

5:45:23 to 5:45:42( Edit History Discussion )

Chuck Grassley: businesses affected by that 2% figure. distribution tables are like any other estimate. inside this beltway distribution tables, on the left side, are worshiped at the altar of distribution statistics.

Chuck Grassley

5:45:42 to 5:46:00( Edit History Discussion )

Chuck Grassley: they treat it as the only measure, the only measure, of whether a tax policy proposal is good policy or bad tax policy. economic consequences, what do they matter? but distribution tables are an

Chuck Grassley

5:46:00 to 5:46:16( Edit History Discussion )

Chuck Grassley: analytical tool meant to inform a tax policy debate. distribution tables are a snapshot like any other snapshot, the analysis is limited. let's take a look at the often sited tax policy center distribution

Chuck Grassley

5:46:16 to 5:46:31( Edit History Discussion )

Chuck Grassley: tails that references a -- tables that references a total of 30 million tax units, a proxy for tax returns and for households. about 30% of that table, roughly 8 million tax units represent folks that

Chuck Grassley

5:46:31 to 5:46:47( Edit History Discussion )

Chuck Grassley: pay no income tax for that year. the footnote to the table states that all business income is defined as a sum of gains or losses reported on schedule c, e, and f. those are where the flow-through

Chuck Grassley

5:46:47 to 5:47:01( Edit History Discussion )

Chuck Grassley: income is reported on the owners' tax return. when you look at small business gains and losses, it is quite revealing. small businesses are at the cutting edge of our capital system. with capitalism comes

Chuck Grassley

5:47:01 to 5:47:16( Edit History Discussion )

Chuck Grassley: the viability of the business cycle. small businesses are more susceptible to the good and bad years that comes with business cycles. one year, a small business may could very well; the next year might be a year

Chuck Grassley

5:47:16 to 5:47:32( Edit History Discussion )

Chuck Grassley: of loss. as evidence of this volatility, i'd like to refer to the s.b.a. data on small business survival rates. you'll find this on the frequently asks questions document i referred to and you have

Chuck Grassley

5:47:32 to 5:47:45( Edit History Discussion )

Chuck Grassley: a citation. according to the s.b.a. two-thirds of small businesses survive at leach two years; 44% survive at least four years. this mean, overtime, many small businesses rise and some fall. by the

Chuck Grassley

5:47:45 to 5:48:06( Edit History Discussion )

Chuck Grassley: way, mobility within income tax brackets is something that occurs to a great degree in the united states because of the dynamics of our society and our economy. so think about it: how many people

Chuck Grassley

5:48:06 to 5:48:20( Edit History Discussion )

Chuck Grassley: in their mid-20's stay in the same bracket through retirement. the mobility of income of small business is a subset of the over all income mobility in the u.s. population. treasury data clarifies

Chuck Grassley

5:48:20 to 5:48:37( Edit History Discussion )

Chuck Grassley: the snapshot of the tax center. i have another chart. this chart shows that when gain and loss is considered, the snapshot changes very dramatically. so pay attention to this chart as i go thrgh

Chuck Grassley

5:48:37 to 5:48:51( Edit History Discussion )

Chuck Grassley: it. for the all-flow-through taxpayers, 8% fall in the top two brackets; for taxpayers with active, positive flow-through income, percentage is roughly the same -- about 7%; for taxpayers with fly-flow income

Chuck Grassley

5:48:51 to 5:49:05( Edit History Discussion )

Chuck Grassley: greater than half their income the percentage is the highest at 9%. so keep in mind we're dealing with a moving target when we talk about the 2% figure. some businesses will produce losses for their

Chuck Grassley

5:49:05 to 5:49:20( Edit History Discussion )

Chuck Grassley: owners one year and income in another year. so the business owners caught in the snapshot may not be the same business owners in another snapshot. the second assumption about the 2% filer argument is that

Chuck Grassley

5:49:20 to 5:49:35( Edit History Discussion )

Chuck Grassley: -- is even more dangerous. that assumption is that since the small percentage of tax filers are affected, the impact on small business activity is somehow trivial. how will the higher marginal rates

Chuck Grassley

5:49:35 to 5:49:55( Edit History Discussion )

Chuck Grassley: remove resources from small business, you might ask? well, it is a simple answer. let's go back to the chart that shows how small business works. if the amount paid in taxes increases somewhere,

Chuck Grassley

5:49:55 to 5:50:11( Edit History Discussion )

Chuck Grassley: as i said between 17% and 33%, the tax take of the business rises, as well. it comes out here. let's go through an example. i'm going to use another chart. this taxpayer files jointly, owns a small

Chuck Grassley

5:50:11 to 5:50:23( Edit History Discussion )

Chuck Grassley: business, and earns $500,000 of business income. for purposes of this example, we'll assume all of this taxpayer's income comes from a small business. as an aside this assumption favors the opponents

Chuck Grassley

5:50:23 to 5:50:37( Edit History Discussion )

Chuck Grassley: of marginal rate relief. why? because most small business owners have income from other members of the household and income from other sources. and that more likely scenario the marginal rate heights

Chuck Grassley

5:50:37 to 5:50:52( Edit History Discussion )

Chuck Grassley: would bite even hard irbecause more business -- harder because more business income is pushed into a higher brac debt. the small business own -- higher brackets. the small business occupier pays under current

Chuck Grassley

5:50:52 to 5:51:09( Edit History Discussion )

Chuck Grassley: law and senator mccain's plan leaves this level of taxation in effect. under senator obama's proposal the small business owner taxes would go up by $20,000. that's a tax increase on this small business owner

Chuck Grassley

5:51:09 to 5:51:27( Edit History Discussion )

Chuck Grassley: of roughly 13%. the tax increase would present the small business owner with a $20,000 current problem. the small business owner's current problem is how does he or she alter his or her business

Chuck Grassley

5:51:27 to 5:51:44( Edit History Discussion )

Chuck Grassley: to make up the $20,000 he or she has lost to senator obama's higher tax rates. can he or she grow enough sales to pay the extra tax? maybe. but maybe not. can he or she replace a $20,000 machine? maybe.

Chuck Grassley

5:51:44 to 5:52:00( Edit History Discussion )

Chuck Grassley: maybe not. can he or she cut back on the payroll? maybe. but maybe not. how about the future? any good business person has to project how their business is working. any investment -- any investment's

Chuck Grassley

5:52:00 to 5:52:12( Edit History Discussion )

Chuck Grassley: value is predicated on how much income the investment is likely to produce. and that -- meaning in the future. if income is projected to go down then the value of the investment declines. higher taxes,

Chuck Grassley

5:52:12 to 5:52:26( Edit History Discussion )

Chuck Grassley: negatively affect the net income from an investment. small business owners have choice about where to put their capital. if taxes press down on the projected net income, then the valuof the small business

Chuck Grassley

5:52:26 to 5:52:42( Edit History Discussion )

Chuck Grassley: investment declines. everything else being equal, a small business owner is less likely to leave the after-tax profit in the business. likewise, a small business owner is less likely to make future investment

Chuck Grassley

5:52:42 to 5:52:57( Edit History Discussion )

Chuck Grassley: in the business. my point is, the tax increase senator obama is proposing has a very real cost to small business owners. and my entire remarks have been directed toward the tax policies on small

Chuck Grassley

5:52:57 to 5:53:16( Edit History Discussion )

Chuck Grassley: business because they're the engine of employment and economic growth. who are the business senator obama is proposing to hit with the tax increase? that is, which businesses are owned by taxpayers making

Chuck Grassley

5:53:16 to 5:53:30( Edit History Discussion )

Chuck Grassley: over $250,000? how many employees do they have? so i have another chart, based on data from the national federation of independent businesses. we refer that to the nf ib, a national small business

Chuck Grassley

5:53:30 to 5:53:51( Edit History Discussion )

Chuck Grassley: organization with 350,000 due-paying members. they take surveys of their members and other small business folks. i have the latest supply that deals -- certify that deals with the sentence questions

Chuck Grassley

5:53:51 to 5:54:06( Edit History Discussion )

Chuck Grassley: from 2007 dealing with question number 12 and those results. the question identified groups, small business owners by household income with the size of their firm by the number of employees. household

Chuck Grassley

5:54:06 to 5:54:22( Edit History Discussion )

Chuck Grassley: income includes income from other adult members of the household. if you take a look at the responses you can compare firm size with income level of the owners. here we have $250,000 and above. those

Chuck Grassley

5:54:22 to 5:54:41( Edit History Discussion )

Chuck Grassley: are the folks that are targeted for the tax increase in that and it would raise the amount owed to the government between 17% under one scenario and 33% under another. the survey indicates that 6.4%

Chuck Grassley

5:54:41 to 5:55:00( Edit History Discussion )

Chuck Grassley: of the business owners' firms with one to nine employees -- so, small business -- would be hit by senator oma's tax increase. now, move a step over here and you're going to find that about 21% of

Chuck Grassley

5:55:00 to 5:55:26( Edit History Discussion )

Chuck Grassley: the owners of firms of ten to 19 employees would be hit by the tax increase -- that's 20.6%. move one step to the right and we find 40% of the small owners of firms with 20 to 249 employees would

Chuck Grassley

5:55:26 to 5:55:42( Edit History Discussion )

Chuck Grassley: be hit by the tax increase; 20 to 2489 employees, 40% -- 20 to 249 employees, 40%. so 20% of small business owner firms would be hit with that 20% to 40%. so there are hard working tax analysts in

Chuck Grassley

5:55:42 to 5:55:56( Edit History Discussion )

Chuck Grassley: this town that work for think taxes of the liberal variety. if you look at the analyses of the tax data, the armies of the left clearly are for more numerous than the armies of the right and the

Chuck Grassley

5:55:56 to 5:56:14( Edit History Discussion )

Chuck Grassley: middle and i give them credit for their hard work and dedication. i'm sure they are poring over all this data. since the redistribution dogma is what floats their boats, they will probably take a hostile

Chuck Grassley

5:56:14 to 5:56:32( Edit History Discussion )

Chuck Grassley: attitude toward the data that i've just cited. anticipating the attacks of green eye shade armies of left, i think that we can trust the survey statistic. nfib has been conducting the surveys four

Chuck Grassley

5:56:32 to 5:56:46( Edit History Discussion )

Chuck Grassley: year. i can't think of any reason why respondents to the sury would inflate or deflate their income statistics so i think the 40% snapshot is a very solid figure. the data above relate to taxpayers of $250,000

Chuck Grassley

5:56:46 to 5:57:03( Edit History Discussion )

Chuck Grassley: or above. since senator obama's advisorses have said the current proposal would raise taxes on single taxpayers above $200,000 on a rough basis it is fair to at those small business owners, as well.

Chuck Grassley

5:57:03 to 5:57:19( Edit History Discussion )

Chuck Grassley: if you do that calculation, then, on a combined basis, senator obama's proposed tax increase would hit more small business owners. so let's go back to question number twelve for small businesses that employee

Chuck Grassley

5:57:19 to 5:57:32( Edit History Discussion )

Chuck Grassley: one to nine workers, 12% would be hit by senator obama's higher taxes. for small businesses with ten to 19 workers, about 27% would be hit by the higher taxes. for small business owners 20 to 249

Chuck Grassley

5:57:32 to 5:57:44( Edit History Discussion )

Chuck Grassley: workers, 50% -- half of the small business would be hit by senator obama's tax plan. now, i want to get to the scariest part. as the chart shows, the percentage of small business owners hit by senator

Chuck Grassley

5:57:44 to 5:58:01( Edit History Discussion )

Chuck Grassley: obama's higher taxes goes up as the number of employees goes up. so it is fair to say that these figures probably understate the impact of the higher marginal tax rates on remaining small businesses.

Chuck Grassley

5:58:01 to 5:58:14( Edit History Discussion )

Chuck Grassley: meaning those between 250 and 500 employees. moreover like the distribution tables, the survey obviously is a snapshot. with small businesses alternately running gains and losses, over time the higher rates

Chuck Grassley

5:58:14 to 5:58:29( Edit History Discussion )

Chuck Grassley: hit a larger number of small business owners. with a conservative nature of this data in mind, let's take another look at the economic profile of the small business owner senator obama has targeted for

Chuck Grassley

5:58:29 to 5:58:44( Edit History Discussion )

Chuck Grassley: a tax increase. every year the s.b.a. prepares a report to the president on small business economy. the last report that we have was submitted to president bush december of last year. it covers data for the

Chuck Grassley

5:58:44 to 5:59:02( Edit History Discussion )

Chuck Grassley: previous year, 2006. for 2006 the entire private sector workforce growth occurred in small businesses with 500 or fewer employees. for 2006, over half of america's private sector employees worked

Chuck Grassley

5:59:02 to 5:59:18( Edit History Discussion )

Chuck Grassley: in these firms. over half. now, for 2006 these small businesses accounted for over half of the nation's private-sector gross domestic product. drill down deeper into the data, and you will be worried

Chuck Grassley

5:59:18 to 5:59:33( Edit History Discussion )

Chuck Grassley: even more. two-thirds of that small business payroll come from firms that employ between 20 and 500 workers. if we go back to the nfib question, we'll find that the owners of these small businesses are

Chuck Grassley

5:59:33 to 5:59:48( Edit History Discussion )

Chuck Grassley: the ones most targeted by senator obama's tax increase proposal. finally, mr. president, i don't want you to take my word for it. listen to what small business folks have said about the importance

Chuck Grassley

5:59:48 to 5:59:59( Edit History Discussion )

Chuck Grassley: of lower marginal tax rates. take a look at the chart that i'm now putting up. the chart is a copy of a letter dated march 14, 2003. it's from three principal small busine grass roots organizations:

Chuck Grassley

5:59:59 to 6:00:12( Edit History Discussion )

Chuck Grassley: the national federation of nonpartisan businesses, thes -- of independent businesses, the small business legislative council and the small business survival committee. i'd like to read the second paragraph

Chuck Grassley

6:00:12 to 6:00:30( Edit History Discussion )

Chuck Grassley: of that letter. it may be too small for you to see on the screen. it sums up the reality of the effects of the marginal tax rates on small business. quote -- "approximately 85% of small businesses

Chuck Grassley

6:00:30 to 6:00:49( Edit History Discussion )

Chuck Grassley: file their tax returns as individuals, an increase in tax refunds means small firms will have more resources and more capital put back into growing their business. a series of studies by four top

Chuck Grassley

6:00:49 to 6:01:11( Edit History Discussion )

Chuck Grassley: economists examine the effect of the tax rate cuts on sole proprietors. their results indicate that a 5% -- 5% point cut in rates would increase capital investment by 10%." and they found that by dropping

Chuck Grassley

6:01:11 to 6:01:27( Edit History Discussion )

Chuck Grassley: the top tax rate from 39.6 to 33.2 would increase hiring by 12.1%. end of quote. that kind of tells you what a business force small business can be and how tax increases are negative or tax decreases

Chuck Grassley

6:01:27 to 6:01:41( Edit History Discussion )

Chuck Grassley: are positive for small business to hire and to grow. what these small business groups said was their tax policy priorities included a reduction in top marginal rates. you see it there in the letter

Chuck Grassley

6:01:41 to 6:01:55( Edit History Discussion )

Chuck Grassley: from small business advocates. now let's think about this. as a -- as the small business folks say in their letter there is a link between tax relief, economic growth and jobs. we've seen the evidence

Chuck Grassley

6:01:55 to 6:02:14( Edit History Discussion )

Chuck Grassley: of that linkage in the year past. tax relief kicked in. the economy started growing. jobs started coming back. why would we want to go in reverse gear? senator mccain and senator obama agree on the

Chuck Grassley

6:02:14 to 6:02:31( Edit History Discussion )

Chuck Grassley: policy objectives of growing jobs. why would you and a 17% or 33% marginal tax rate increase at the businesses that grew all the jobs in the most recently studied year. senator mccain's plan recognizes

Chuck Grassley

6:02:31 to 6:02:47( Edit History Discussion )

Chuck Grassley: this job loss risk. senator obama's plan goes in the opposite direction. let me conclude with a challenge to the proponents of raising marginal rates on small business. when i say critics, i'm referring to political

Chuck Grassley

6:02:47 to 6:03:05( Edit History Discussion )

Chuck Grassley: leaders, pundits, and even some in the media. i think the data i presented speaks for itself. if you disagree with the analysis but hold the position that higher marginal tax rates won't affect small

Chuck Grassley

6:03:05 to 6:03:45( Edit History Discussion )

Chuck Grassley: businesses, would you agree to exclude small businesses from the 17% to 33% marginal rates increases that are being offered? i await your answer. i yield the floor. and i would suggest the absence

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