Washington, DC – Ways and Means Ranking Member Dave Camp (R-MI) today issued the following statement in reaction to reports about the President’s latest tax proposals:

"A permanent R&D credit is long overdue and full expensing is a serious proposal Congress should consider.  However, we have to ask: Would any benefit from these be outweighed by the tax increases the President is expected to propose along with them?  Raising taxes to cut taxes is at best a zero sum game that will not improve our economy or the job market and is particularly disappointing in light of the billions of dollars of wasteful stimulus spending that could be cut instead.

"Neither R&D nor expensing addresses the most urgent tax issue facing the country – a $3.8 trillion tax hike that kicks in on January 1 that will be especially punishing for seniors and small businesses. Democrats in Washington have ignored this tax hike for the past four years – putting family budgets and our economy at risk. If Democrats in Washington want to finally talk about taxes I suggest we first start with eliminating this massive, job-killing tax hike Americans are already facing."

Editor's Note: For more information about the Democrats’ $3.8 billion tax hike, see Part I of the series of tax reports prepared by the Ways and Means Republican Staff for an overview, Part II for examples of how it will affect typical taxpayers, Part III for the specific impact on middle-class families, Part IV for how it will affect senior citizens and Part V for how the tax increase will affect small businesses.

###

As our economy meanders down the road to recovery, yet to hit its stride, the American dream slides out of reach for too many. Nearly one in 10 Americans can't find work. If you consider those who have given up looking or settled for part-time work, that number jumps to nearly one in five.

Things are bad - and they are about to get worse. On Jan. 1, Americans will face the biggest tax increase in history. Marginal income tax rates will increase for every taxpayer. The capital gains rate will climb 33 percent. Dividend rates will jump by as much as 164 percent. The child tax credit will fall 50 percent, so your kids will cost more. Compound that with the return of the marriage penalty, and it is enough to make anyone wake up screaming.

Unless Congress acts to extend existing tax rates, American workers and business owners will fork over an additional $2.6 trillion in higher taxes over the next decade, as estimated by the Congressional Budget Office, despite the fact that President Obama's former economic adviser, Christina Romer, tells us that "tax increases are highly contractionary."

First, let's take a look at the impact of the scheduled jump in marginal tax rates. Small businesses, our job creators and the backbone of our economy, will be among the hardest hit by these tax increases because many of them pay taxes through the individual tax system. The top marginal income tax rate will grow to 39.6 percent from 35 percent in 2011. Compound that with the loss of certain itemized deductions and personal exemptions, and these small businesses face rates as high as 41.6 percent. Approximately half of the business income reported on tax returns in 2011 will be subject to the top two marginal rates.

Investors who earn capital gains and dividend income will also feel the pain. Capital gains rates are scheduled to jump from 15 percent to 20 percent, an increase of 33 percent, in 2011. Then, in 2013, thanks to the recently enacted health care legislation, they will again increase, rising to 23.8 percent. In other words, in 2013, capital gains rates will have increased 59 percent from current rates.

Taxes on dividend income will skyrocket, rising from 15 percent to as high as 39.6 percent, an increase of as much as 164 percent. And because health care reform legislation is the gift that keeps on giving, dividends, like capital gains, get slammed with another increase in 2013. Without congressional action, dividend rates could be as high as 43.4 percent in 2013, which would be an increase of 189 percent over 2010 levels.

Higher taxes on capital gains and dividend income rates have numerous consequences. First, an increase in the capital gains tax rate could adversely affect investment decisions by creating a "lock-in effect," in which investors avoid these higher taxes by not selling their assets. The lock-in effect can reduce economic growth by preventing the reallocation of capital to more efficient investments.

Second, for companies that employ Americans and keep our economy moving, raising dividend rates could discourage investment and incentivize companies to use excessive debt financing, causing greater economic instability. All taxpayers who receive dividends, regardless of income level, could be hurt by potentially lower dividend payouts.

Finally, the proposed increases could result in inefficient allocations of capital and allow the tax code to unduly influence a company's investment decisions. That's because, beginning in 2011, dividends and capital gains will no longer be taxed at the same rate. Synchronizing dividend and capital gains rates encourages the most efficient allocation of capital and increases fairness because the tax code does not influence a company's decision to retain earnings versus distribute them.

Congress should wake us from this nightmare and stop these tax increases. That would give small businesses, the nation's job creators, confidence, certainty and assurance that they will get a return on their investment and sweat equity. It would allow workers to keep more of the pay they earn. It would let our seniors worry about their grandchildren and not their tax bills. It would let Americans sleep peacefully, knowing that tax increases won't dampen their entrepreneurial spirits or deter investment in our country's future. If Congress were to act now, it would bring certainty to everyone paying taxes and create renewed hope for the American dream.

Caroline Harris is executive director and chief tax counsel for the U.S. Chamber of Commerce.

###

Congress' inability to make a decision about the fate of Bush-era tax cuts is contributing to the unemployment crisis facing the country, according to the Labor Day 2010 report by the National Association of Manufacturers (NAM).

"Small businesses are America's job creators, responsible for 60 percent of the net new jobs created in the last decade," the report states. "But uncertainty about looming tax hikes has stunted employment growth and until Main Street begins to hire, the unemployment rate will remain unacceptably high."

The manufacturing sector is one of the industries that is sitting on the sidelines of hiring. Nearly 70 percent of its companies are "pass-through entities" that pay taxes at individual rates, which will be affected by whatever Congress does about the Bush tax breaks. 

NAM President John Engler says growth in the manufacturing sector is key to the recovery as the U.S. looks to increase demand by boosting exports. He also warns that — if handled poorly — the Bush tax cuts, along with increased regulation, could have significant repercussions on American workers.

"Americans want jobs, but proposals that expand government, increase taxes and impose new regulations will make business in the United States less competitive," he said in prepared remarks. "These proposals will stifle the already weak recovery and destroy manufacturers' ability to create jobs."

Senate Majority Leader Harry Reid (D-Nev.) is expected to propose a way forward on the Bush tax cuts when Congress returns in September and complete work on it by the November elections.

President Obama and Democratic leaders in Congress have repeatedly called for the expiration of tax cuts benefiting individuals earning more than $200,000 per year and couples making at least $250,000. But economic uncertainty has prompted several rank-and-file Democrats to side with Republicans in calling for at least a one-year extension of all the tax breaks.

The disagreement could set up a showdown this fall when lawmakers return to Capitol Hill — trillions of dollars in expiring tax cuts will hang in the balance as Congress debates their fate. 

###

As if more than one-half trillion dollars in Medicare cuts that could jeopardize access to care wasn't enough bad news for seniors, analysis released yesterday by Avalere Health, a health care research firm, estimates that 1 in 5 seniors could lose their Medicare Part D plan because of actions taken by President Obama’s Administration.  As reported by the Associated Press, these actions risk "undercutting President Barack Obama's promise that people can keep their health plans if they like them. And it could be an unwelcome surprise for many seniors who hadn't intended to make a change during Medicare's open enrollment season this fall."

This unwelcome news comes on the heels of analysis by the Obama Administration that as many as 7 out of 10 Americans with health coverage through their employer could lose their health plan because of the Democrats new health law; that 9 out of 10 seniors who have retiree drug coverage will lose it; and millions of seniors will lose their Medicare Advantage plan that provide benefits not available in traditional Medicare.  So much for being able to keep the health plan you have and like.

  ###

Aug. 23 (Bloomberg) -- Initial claims for unemployment benefits surged to 500,000 in mid-August, a level more typical of a recession than a recovery. The bad news confirmed what conservative economists have been saying for some time: The biggest Keynesian stimulus in U.S. history was a bust.

Incredibly, some Keynesians who supported Barack Obama’s $862 billion stimulus now claim it fell short of their goals not because the idea was flawed, but because the spending package was too small. Christina Romer, the departing chairman of Obama’s Council of Economic Advisers, has become a minor cult hero to the Keynesians, thanks to news reports that said her analysis in 2009 suggested the stimulus should be in the range of $1.2 trillion, or 40 percent larger than it turned out to be.

The notion that a much-larger U.S. stimulus would have been more successful isn’t backed up by evidence. Maybe there would be an argument if some countries were now booming because their stimulus packages were larger. Or if some previous U.S. administration had tried a bigger stimulus and had better luck.

The fact is, the U.S. stimulus was the largest among members of the Organization for Economic Cooperation and Development, and the biggest ever tried in the U.S.

Nor does the academic literature support what we might call these Not-Enough Keynesians.

A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn’t, the study found.

Ask Joe

Why is the left so profoundly committed to stimulus-by- spending, even though there is scant evidence that it succeeds?

Joe the Plumber knows the answer: The left has become religiously Keynesian because that is the only corner of economics consistent with its redistributive ideology.

You remember Joe. During a campaign stop in the 2008 presidential election, Samuel Joseph Wurzelbacher asked Obama whether higher taxes would punish his business. Obama answered in part, “I think when you spread the wealth around, it’s good for everybody.”

Obama’s words captured Democrats’ ideology: outside of fairy tales, only government can play Robin Hood, taking money from the rich and giving it to the poor.

The problem, of course, is that high tax rates inevitably cause economic harm. Such a link is at the core of economics. If you reduce the reward for an activity, you get less of it. Democrats and the economists who serve them deny that harm so they can spread the wealth around.

The Tax Alternative

If the economy is in deep trouble, there are two economic policy steps that one could take in order to create a positive stimulus: reduce tax rates, or spend more money. (The so-called tax cuts in the 2009 stimulus had little effect because they were primarily credits and deductions, rather than reductions in marginal rates.)

But notice the problem for the Robin Hooders: If you cut tax rates in a recession in order to stimulate the economy, then you are conceding that lower tax rates can be a good thing. And if that’s true, then higher tax rates will be harmful -- something the left has always denied.

So the Obama economic team was left to rely totally on spending in its response to the recession.

Bad Medicine

Supporters of this type of stimulus are either unfamiliar with the literature or willing to ignore it. The result is policy that is harmful to our country and inconsistent with modern economic science. If the Obama economic team were medical doctors, they would be pushing the use of medicine not approved by the Food and Drug Administration.

As the economic data again head south, it will be much harder to devise successful economic policies because of the budgetary hole that the Keynesians have dug for us.

In all likelihood, the data will soon be so convincingly bad that we’ll again debate the need for an economic stimulus. Let’s hope that when that begins, all will finally concede that the ideas of John Maynard Keynes are as dead as the man himself, and that Keynesianism is the real voodoo economics.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain in the 2008 presidential election. The opinions expressed are his own.

###

Washington, DC - Ways and Means Ranking Member Dave Camp (R-MI) issued the following statement marking tomorrow's 75th anniversary of Social Security:

“Since being signed into law 75 years ago, Social Security has provided important income protection for workers and their families as a result of retirement, disability or death.  Workers paying payroll taxes on their hard-earned wages have made these essential benefits possible. 
 
“Social Security has had a profound impact on our families and our nation.  Yet, as we were reminded by the program’s trustees last week, Social Security faces financial challenges that must be addressed soon. 
 
“We should honor Social Security’s history of achievement by securing its future for our children and our grandchildren.  As we do so, we must protect benefits for seniors, near retirees, and those who rely on Social Security most.  We simply cannot allow inaction to deprive future generations of protections that Social Security provides so many today.”

###

Washington, DC – Ways and Means Ranking Member Dave Camp (R-MI) today issued the following statement in reaction to the news that former Ways and Means Chairman Dan Rostenkowski (D-IL) passed away.

“Dan Rostenkowski was larger than life, a strong chairman and a legislator who was able to work across party lines to produce significant results for the American people – most notably the strengthening of Social Security in 1983 and the landmark tax reforms of 1986.  The Congress and the American people were better served when committees were allowed to do their work.”

### 

Washington, D.C. – Congressman Wally Herger (R-CA), Ranking Member of the Ways & Means Subcommittee on Health, today filed a discharge petition on H.R. 5424, the Reform Americans Can Afford Act, which would repeal the Democrats’ health care law and replace it with commonsense solutions to bring down health care costs. House Republican Leader John Boehner (R-OH), Republican Whip Eric Cantor (R-VA), and Ranking Member of the Ways & Means Committee Dave Camp (R-MI) announced their support for the petition.  The petition would force a vote on the bill in the House of Representatives if it is signed by a majority of House members. 

Congressman Herger commented, “More than four months after the Democrats’ health care overhaul became law, the bad news keeps coming. Employers are reluctant to hire more workers because they face new taxes and higher health costs. Millions of Americans are in danger of losing the coverage they have and like, while half a trillion dollars in Medicare cuts threaten senior citizens’ access to health care. Just last week, the latest Medicare Trustees report informed us that 9 in 10 seniors will lose their employer-sponsored prescription drug coverage as a result of the Democrats’ health care law. The facts couldn’t be clearer: The Democrats’ health plan is bad for patients, bad for jobs, bad for seniors, and bad for America.

“My legislation, the Reform Americans Can Afford Act, would repeal the Democrats’ health overhaul and replace it with commonsense reforms that will actually bring down health costs, like cracking down on frivolous medical lawsuits, allowing insurance companies to compete across state lines, and fully funding state-run programs that offer affordable coverage for people with pre-existing medical conditions. According to the Congressional Budget Office, it would reduce health insurance premiums by up to 20% without spending a trillion dollars, raising taxes, or cutting Medicare. Unfortunately, Democratic leaders in Congress have not allowed this bill to come up for a vote. With Speaker Nancy Pelosi calling the House into special session to approve the latest add-on to the Democrats’ failed “stimulus” plan, I am offering a clear alternative to the tax-and-spend agenda.

“I call on all members of Congress to sign the discharge petition on the Reform Americans Can Afford Act. If Democrats persist in saying “No” to real health care solutions, the American people will see who is truly the ‘Party of No.’”

Republican Leader Boehner added, "The more the American people learn about ObamaCare - with its job-killing mandates, tax hikes, and Medicare cuts - the less they like it. We need to repeal it, and start over on common-sense, step-by-step reforms to lower costs. This discharge petition will begin that process. In addition to repealing ObamaCare, it includes reforms like allowing people to buy insurance across state lines, reducing junk lawsuits, and expanding access to state high-risk pools for folks with pre-existing conditions. This is the kind of change the American people are looking for."

Republican Whip Cantor said, “Last year, President Obama and the democrat majority promised the American people their health care proposal would lower costs and that if ensure that patients who liked the coverage they had could keep it.   Just months later, the American people have learned that the President and the Democrats in Congress broke those promises, as the new health care law will meet neither of those tests.  The American people deserve better, and that’s why we need to repeal ObamaCare and replace it with a bill that makes lowering costs and preserving the doctor-patient relationship the top priority.”

Ranking Member Camp said, “There is no hiding the fact that Democrats’ health care law has proven to be bad for seniors, bad for employers and bad for American workers. Even the Obama Administration recently admitted their health care law, and the one-half trillion dollars in cuts to Medicare it contains, will jeopardize seniors’ access to care. This bill will repeal the Democrats’ health care law and replace it with common sense solutions that the non-partisan Congressional Budget Office predict will reduce the cost of health insurance for Americans without increasing taxes, without cutting Medicare and without putting Washington bureaucrats in charge of your health care.”

###

Last Friday, we learned that the unemployment rate is still at 9.5%.  It would be much higher if the official calculations also looked at the fast-growing number of Americans who have become so discouraged that they have given up looking for work.

So while Congress should be here trying to find ways to get Americans back to work, we are here instead to complete action on another extension of stimulus that will also do nothing to reduce the unemployment rate in this country.  In fact, this bill – and the tax increases included in it – will hurt job creation.

According to the methodology of Dr. Christina Romer, the President’s chief economic advisor, the tax increases in this bill will destroy over 140,000 American jobs. 

In an open letter to Congress this week, the National Association of Manufacturers warned that “imposing $9.6 billion in tax increases on these companies will jeopardize the jobs of American manufacturing employees and stifle our fragile economy.”

Similarly, the U.S. Chamber of Commerce warned they would “impose draconian tax increases on American worldwide companies that would hinder job creation, decrease the competitiveness of American businesses, and deter economic growth.”

These tax increases are a mistake and as I noted during debate two weeks ago, most of these have never been the subject of any Committee hearing or mark-up.  It is possible, that upon review, some of these provisions might make sense if packaged with other changes to address the fact our corporate tax rate is soon to be the highest among all industrialized nations, our international tax system is deeply flawed, and our tax code is increasingly putting our companies and their employees at a tremendous competitive disadvantage.

But we never got the opportunity to hear from American employers or to offer any amendments.  That is a truly disappointing breakdown of the Committee system, which is supposed to ensure that policies are carefully vetted and reviewed before passage.

I also want to mention the phantom tax increases that aren’t in this bill but that we will soon see.  The Speaker has already indicated that she opposes two of the spending offsets included in this bill.  One relates to food stamps; the other is a cut in funding for a renewable energy spending program.

Together, those items total $13.4 billion, more than half the total offsets in the bill.  So next month, when the House considers some other legislation, don’t be surprised to see another $13 billion in higher taxes to prevent these spending cuts.

###

Every year, Medicare trustees deliver an impenetrable report that answers a single headline-worthy question: How soon will Medicare run out of money?

Last year, the trustees estimated that one part of Medicare would be insolvent alarmingly soon — 2017. But then came the new health care law, sold to Americans as a way to reduce costs and shore up Medicare.

The trustees released a new report last week that said — ta-da! — Medicare had 12 more years to live.

That is, the Medicare hospital trust fund would run out of money in 2029 instead of 2017. Treasury Secretary Tim Geithner declared that "the outlook for Medicare has improved substantially because of program changes" made by the new law.

But hold on. Democrats weren't straight with Americans about the costs of health care reform before the law passed. They used a lot of accounting tricks to make it look less expensive than it really will be. And they're still fuzzing over facts.

One gimmick: double count the savings. The Democrats crow that the new law wrings $575 billion from Medicare projected costs, via savings and tax increases, to extend the program's solvency. But that money isn't going directly to Medicare's coffers. Congress is plowing it into the expansion of benefits under the new health care law.

See that asterisk in the headline above? We put that there because the trustees' report comes with a surprise twist from Medicare's chief actuary, Richard Foster. In a capsule, he says: Never mind.

Never mind about the rosy projections on the previous 280-plus pages. It's fiscal fantasyland. The trustees are required by law to appraise Medicare based on certain assumptions. But they bear little resemblance to the real world in doctor's offices and hospitals.

Those assumptions, Foster writes, "do not represent a reasonable expectation for actual program operations in either the short range … or the long range."

For example: The report assumes that Congress will deeply slash doctors' Medicare pay. Congress has threatened to do so, but has always backed off. That's the infamous "doc fix." The doctors are due for a 23 percent pay cut in December. Congress will back down, as it always does.

Scratch about $250 billion to $300 billion in "savings" over a decade.

Another example of the absurdity of these projections: Under an inflation formula imposed by the new law, Medicare payments would tumble below the abysmally low Medicaid payments by the end of the decade. They'd fall from nearly 80 percent of private insurance prices now to about 50 percent by 2050. That would squeeze many doctors, hospitals, surgical centers and other providers into oblivion.

Long before that happens, hospitals and other facilities will stop treating Medicare patients and raise costs for private patients.

We're likely to hit another health care flashpoint before that. Missouri residents recently voted overwhelmingly against the mandate that all Americans carry health insurance or pay a penalty. Officials in 21 states are suing the federal government on grounds that the coverage mandate is unconstitutional. A federal judge recently refused to dismiss that challenge.

This page supported the mandate, though it balked at the enormous expense and false assumptions in the law.

There's a long way to go before health care reform fully kicks in by 2014. Congress still must funnel billions to create state exchanges and fund subsidies for many Americans to buy insurance. There will be billions more for Medicaid expansion in the states.

The law won't be repealed, but it's looking awfully likely that it will face some big changes, and soon.

Meantime, the government could just talk straight about the future of Medicare and the rest of the health care system in this nation. Wouldn't that be a change?

###