Washington, D.C.— Today, Chairman Patty Murray (D-WA) and the Senate Budget Committee held a hearing with policy experts on ways to support broad-based economic growth and fiscal responsibility through tax reform. Majority witnesses included Michael Linden, Managing Director for Economic Policy at the Center For American Progress, and Adam Looney, Senior Fellow in Economic Studies at the Brookings Institution.
Members and witnesses discussed how tax reform can raise new revenue from the wealthiest to help reduce our deficits and make high-priority investments like those in education, research and infrastructure, which support long-term economic growth and a strong middle class.
Michael Linden testified that serious, comprehensive tax reform must include new revenue from those who can most afford it, “Any serious effort to strengthen the middle class and address our long-term fiscal challenges must start by asking the country’s most privileged people to pay their fair share. The alternative is to raise taxes on the middle class and abandon crucial investments in our future—clearly something we should seek to avoid.”
Linden’s full testimony can be found here.
Adam Looney discussed the trade-offs that must be considered in broad tax reform, noting that it is difficult to lower rates through tax reform while devoting revenue to deficit reduction and maintaining progressivity, “Today’s long-term budget outlook means that we’re likely to need higher tax revenues in the future. And rising inequality means that changes in policy will be increasingly scrutinized for how they affect the progressivity of the tax schedule. But a tax reform that devotes revenues to deficit reduction and retains our progressive system would have much more difficulty achieving other goals—such as lowering tax rates.” Looney’s full testimony can be found here.
Key excerpts from Murray’s opening statement
“I want to take this opportunity today to discuss a key principle, reflected in the Senate Budget we passed earlier this year, which should guide any tax reform effort. Tax reform must be fair to the middle class.”
“That means we will need more revenue from those who can most afford it, both to reduce the deficit and to make necessary investments in our future economic strength. Because expanding and supporting our middle class in the 21st century global economy is going to be a challenge.”
“…if you really think, like many of my colleagues do, that our fiscal problems are the greatest long-term threat to our nation’s future, why wouldn’t you want to take some of the savings from ending inefficient and unfair tax breaks, and use it to tackle our debt and deficits?”
“…even though it won’t be easy, tax reform offers substantial opportunities to make our tax code work better for families and for our economy. “
“If we do this the right way—meaning the fair way—tax reform has the potential to make our tax system simpler and more efficient, to ensure that those who invest here in the U.S. and play by the rules see the benefit, and to encourage the kind of long-term, broad based economic growth that we saw back in the 1990s.”
“So we should do everything we can to move this forward.”
Chairman Murray’s opening statement:
“This hearing will now come to order. I would like to thank Senator Sessions, and all of my colleagues, for joining me to explore the ways in which tax reform can support broad-based economic growth, while helping us tackle our long-term debt and deficit challenges.
“And I would like to thank our three witnesses: Michael Linden, managing director for economic policy at the Center for American Progress; Adam Looney, senior fellow in economic studies at the Brookings Institution, and Veronique de Rugy, senior research fellow at George Mason University’s Mercatus Center. We appreciate you coming and sharing your expertise on these issues.
“I’m pleased that the possibility of broad reform to our tax code has gained some momentum in recent months. With a tax code that we all realize is complicated, inefficient, and too often skewed to benefit the well-off and well-connected, there is much to improve.
“And reforming our tax code also offers opportunities to make progress on major challenges we face today, like the need to grow our middle class, ensure we can compete in the 21st century global economy, and restore our nation’s long-term fiscal health.
“So I want to take this opportunity today to discuss a key principle, reflected in the Senate Budget we passed earlier this year, which should guide any tax reform effort.
“Tax reform must be fair to the middle class.
“That means we will need more revenue from those who can most afford it, both to reduce the deficit and to make necessary investments in our future economic strength. Because expanding and supporting our middle class in the 21st century global economy is going to be a challenge.
“And to make sure we can do it, we’ve got to focus on what the original Simpson-Bowles report called “high-priority” investments: those in education, infrastructure, and research.
“Our schools need to prepare our workers—of all ages—to compete for 21st century jobs. Our roads, bridges, airports, and airways should be able to transport people and products quickly and reliably, so that companies want to invest here and hire American workers. And we need to maintain our edge in research and development, so that the innovations that drive future economic growth take root at home rather than overseas.
“At the same time, our nation has made promises to millions of Americans that we absolutely must uphold. Current and future seniors, who have worked hard all their lives, deserve to know that Medicare will be there when they need it. And in the United States, we have always worked to help those struck by hard times get back on their feet.
“These commitments, to our future and to those who need and deserve our support, must be met.
“If sequestration is not replaced, we will see deep cuts to these kinds of investments—so much so that even the House Republican appropriations chairman called this “an austere” budget year. This would hurt us in the short term, at a time when we should be focused on creating jobs and boosting the economy.
“And slashing these priorities even further would ultimately make us a very different country—one that has a weaker economy in the long run, and one I think most of us here would agree we don’t want to be.
“Also, while recent CBO analysis shows that we will run lower deficits in coming years than we expected, I think we all recognize that we have to get our long-term debt and deficits on a sustainable path. And we need to do this in a responsible way that allows us to confront the urgent need to create jobs and boost our country’s competitiveness.
“As Mr. Linden will discuss, this is why reducing the deficit with a combination of new revenue from tax reform, as well as smart spending cuts, is the fiscally responsible choice.
“Democrats are not alone in making this argument—bipartisan groups have consistently included revenue for deficit reduction in their tax reform plans. Simpson-Bowles and the Senate Gang of Six each proposed more than $2 trillion.
“That’s significantly more than the $600 billion in new revenue from the wealthiest that we’ve raised in deficit reduction efforts over the last two years. In fact, measured over the same time frame, Simpson-Bowles and the Senate Gang of Six each proposed more new revenue than what we got from the year-end deal, and what we proposed in the Senate Budget, combined.
“Let’s remember that reform will require eliminating wasteful and inefficient tax expenditures that are unfairly skewed towards those who need them the least— like special tax breaks for corporate jet owners and hedge fund managers, and loopholes that allow multinational corporations to shift jobs and profits offshore.
“These kinds of special tax breaks are just spending by another name. And they often do little to support our economy or our middle class.
“So if you really think, like many of my colleagues do, that our fiscal problems are the greatest long-term threat to our nation’s future, why wouldn’t you want to take some of the savings from ending inefficient and unfair tax breaks, and use it to tackle our debt and deficits?
“Especially if, in doing so, you could also continue to prioritize the kinds of investments that make our country great, and allow more Americans a shot at success.
“Unfortunately, some of the plans we’ve seen from the other side of the aisle take a very different approach. My Republican colleagues have put forward plans that prioritize dramatic reductions in tax rates, while bringing in no new revenue for deficit reduction.
“The tax reform plan outlined in the House Budget is a prime example. Experts have found that to remain revenue-neutral, the House Budget would cut taxes on those earning $1 million or more by an average of $245,000, while raising taxes on families with income under $200,000—by an average of $3,000.
“In other words, the only way the House Budget’s tax reform plan could avoid raising taxes on the middle class would be to dramatically increase the deficit.
“At a time when we need to be thinking about how to secure both our long-term fiscal health and our economic leadership, we really don’t need an expensive tax break paid for by shifting tax burdens onto the middle class. This approach would be deeply unfair. And it simply isn’t an option.
“As we’ll hear today from Mr. Looney, it’s very difficult to see how tax reform can dramatically lower rates, help to reduce our deficit, and protect the middle class and most vulnerable from paying more, all at the same time.
“I believe we need to focus on what is best for the middle class by ensuring that any tax reform effort helps more Americans share in and contribute to our economic strength, and helps to reduce our deficit.
“Only once we’ve met these goals does it make sense to look at lowering rates.
“Until then, I think it would be very difficult to explain a plan to middle class Americans that asks them to sacrifice but gives the wealthiest Americans and biggest corporations a pass, and does nothing to invest in our future or our fiscal health.
“So as we continue this debate, I encourage my Republican colleagues to be open to working with us on tax reform that puts the middle class—and our economic and fiscal strength—first.
“Some leading Republicans have acknowledged in the past that there are opportunities for this kind of balanced approach. Speaker Boehner proposed raising $800 billion for deficit reduction by closing what he called “special interest loopholes and deductions.”
So I’m hopeful that there is some room for agreement here.
Because even though it won’t be easy, tax reform offers substantial opportunities to make our tax code work better for families and for our economy.
If we do this the right way—meaning the fair way—tax reform has the potential to make our tax system simpler and more efficient, to ensure that those who invest here in the U.S. and play by the rules see the benefit, and to encourage the kind of long-term, broad based economic growth that we saw back in the 1990s.
“So we should do everything we can to move this forward.
“And, before I turn it over to Senator Sessions, I do want to note that any significant change to our tax code will have very real consequences for families and businesses across the country, and it will be very difficult to enact any changes without taxpayers’ full trust.
“This is one reason I was so appalled at the recent revelations about practices at the IRS, which indicate completely unacceptable and wrong-headed behavior.
“The federal government, and particularly the IRS, should maintain the highest ethical standards, and should be held fully accountable for any failure to do so. I know that my colleagues on both sides of the aisle are working with President Obama to ensure that those involved are held responsible, and that such a breach of public trust cannot occur again. I thank them for doing this crucial work.
“I’m looking forward to what I think will be a very productive conversation.
“I would like to thank our witnesses again for joining us today, and with that, we’ll hear from my colleague Senator Sessions.
Managing Director, Economic PolicyCenter for American ProgressSenate Budget Testimony Michael Linden.pdf (709.3 KBs)
Senior Fellow, Economic StudiesThe Brookings InstitutionTax Reform Testimony 052113.pdf (78.9 KBs)
Senior Research FellowMercatus Center at George Mason UniversitydeRugy_FiscalAdjustmentTestimony_v1.pdf (138.4 KBs)