Floor and Committee Statements

Wednesday, October 4, 2017

Floor Speech on Tax Reform

   "Mr. ISAKSON. Mr. President, I thank the Senator from Missouri. I make the point that I have enjoyed the last 19 years serving with him in the Congress of the United States. He was elected 2 years before me to the House of Representatives. I came a little bit later, but I preceded him in the Senate in 2004. He has been great to work with.

   "The Show Me State of Missouri is an awful lot like my State of Georgia. They are proud of their country. They are proud to be Americans. They are proud of the chance to have an opportunity to make an honest living and want to be a part of a country that continues to grow and have prosperity for the future.

   "We had a hearing in the Finance Committee yesterday where there was an interesting study I had not seen before. It had been done by a Harvard student, who I assume was correct. Ninety percent of the people born in the 1940s ended up making more than their parents did when they went to work. But only about 40 percent of the people born in the 1980s will end up making more than their parents did, meaning that as we have gone along the way since World War II, we have taken more and more away from the opportunity in the earning level and more money has gone to different places, like taxation.

   "Personally, I think the Finance Committee and the leadership of the Big 6, so to speak, have done us a great favor to open the debate on tax reform in America. Unlike some of the debates we have had recently, this debate is open-ended. We are starting with a framework, not an absolute dictate but a framework. We are talking about an opportunity we have to see if we can lower the burden of taxes on the American people, while incentivizing the American people to work more, to make more, and to earn more.

   "There are two ways to increase revenue to the government. First, you can increase the rate of taxation. But then you are not necessarily taking in any more money. You might incentivize somebody to go somewhere else. The other way is to improve the opportunity to make money and the atmosphere in which people make money so they invest their time and effort and they grow their revenue, which grows the revenue of the United States of America.

   "The proposal in the framework before us has any number of outlines and any number of targets. The four things I want to focus on are these. One is the middle class. I have gotten tired of hearing this reference to dividing us as Americans by class. We are all Americans. Regardless of our station in life, we are all important. The code ought to be important to every single person who is an American and, if they can come to this country, to improve their life, raise their children, and live a good life.

   "I am not into a class society. I am into an opportunity society. If you take a look at this proposal, for those people you put in the middle class today, it proposes lower rates, less brackets, and more opportunity to gain wealth in the future through work, through investment, and through earnings.

   "Second, this framework encourages job creation. I know that people are always demonizing the rich. Most people who are rich are people providing people who aren't rich with jobs. I don't think it is bad to provide people with jobs. I think it is good to provide them with jobs. We need a Tax Code that incentivizes the creation of jobs.

   "The focus on the passthrough rate, which is talked about by the Big 6, may lower the passthrough rate to 25 percent. It is a job-creating proposal that works.

   "I have run a sub-S corporation. I have been a partner in limited partnerships. I have known people who have had sole proprietorships. I have known people who have had independent operations. They all pay their taxes at the regular, ordinary tax rate on the individual. They don't pay at the corporate rate. They pay at what is called the passthrough rate, where the profits at the end of the year of the partnership or the LLC or the sub-S corporation flow in a K-1 to the individual and are taxed at the ordinary income tax rate; whereas, corporations in C-corps, or stock-held companies, pay a top rate of 35 percent.

   "That rate is being proposed to go to 20 percent conceptually. If that goes to 20 percent and the 25 percent rate is applied to passthroughs, we will have a good environment in which companies can form investments, form new companies, make investments of those companies, build opportunity, and, in turn, build jobs. So it motivates America to create more jobs. With jobs come income. With income comes money. With money comes investment. At the end of that comes profit, which ends up being taxed, which is revenue to our country, and it increases.

   "We also need to recognize that we are not as competitive as we used to be, in large measure because of the code we have, not because we are not competitive people. America is the most competitive environment in the world in which to do business. Americans by themselves were explorers to get here. Americans by themselves are investors and inventors. Americans by themselves are risk-takers. We want to improve in every competitive opportunity we have, but the current code we have suppresses competitiveness.

   "This proposal by the Big 6 takes us to a territorial tax system. We are one of the few countries in the world that taxes the old-fashioned way. The territorial system is the way in which most of the world competes, and we are the biggest competitor within the rest of the world. It is time we put an end to a company making a dollar in Delhi, India, on a product they made there and sold there, pays the Indian tax, and then brings it back into America and has to pay the differential on the American tax as well. It is time we did what the territorial tax does, which is to tax the money where it is earned; therefore, you will never have to do repatriation again, and you will never have to talk about offshore tax havens again because the Tax Code will not induce those things to happen. Instead, people will pay the tax where it is earned, bring the money back here to hire people, invest, build new products, and then take them overseas and sell them. There is nothing more important than going to the territorial tax system. I am excited about this.

   "Have you ever thought about this?

   "If you were the president of a major American corporation and it was coming to the end of the year and you were getting ready to have your stockholders' meeting for the year and you were looking at ways to show how the stock could grow and how, next year, you were going to improve the profits of the company and, in turn, the net of the company and, in turn, the dividends to the stockholders--right now, if you have a home office in America, that is your principal office, and you are taxed at 35 percent in America. If you have a competitive company that is in Ireland and it is taxed at 12 1/2 , it just might cross your mind: If I move my headquarters from America to Ireland, I could take my stockholders and put 18 percent or 20 percent--or whatever the differential is--on the bottom line for them. When your Tax Code causes people to think about things like that, you are predicting a future for a country that is not as bright, as rich, or as important as it should be.

   "Lastly, everybody thinks I am a city slicker because I am from Atlanta, but I did grow up working on a farm in Fitzgerald, GA, and Ocilla, GA. I love farmers and I love farms. I know one of the proposals of the Big 6 is to do away with the remainder of the estate tax that is still with us. A few years ago, we exempted all estates at $5 million or less from the estate tax. Now it is $5.49 million because the index has been used on inflation. The tax rate used to be 55 percent, and it is now 40. Yet, in my State of Georgia, with the effective application of the income tax, the tax is about 46 percent. So, for round figures and argumentative figures, for someone who dies in our State, after the first $5 million, he pays a tax closer to 50 percent.

   "A lot of people say that is rich people taking a benefit of the Tax Code. I don't call being dead in order to collect a tax benefit a good idea. I do not think that that is a benefit to me at all because the estate tax is on somebody's estate who passes away, who pays that tax for the people who would inherit the assets. Those are normally the children or the spouses or maybe the employees with whom they work in their companies.

   "Have you ever thought about this?

   "If somebody were taxing you at 50 percent or close thereto and you file your first estate tax return after your death, then if this were the value of your estate, you would be telling the government: OK, you get this half, while my children, my wife, my family get the other half. A year later, when you go back to the well--or a generation later--those kids who inherited the business will have to go back and pay taxes, and a quarter of it will be gone. So, in two generations, you took an asset that was worth a lot and reduced it to 25 percent of what it was worth. You are incentivizing people to liquidate something that was paying taxes on an ongoing basis and pay a onetime exit in terms of an estate tax. That is backward thinking.

   "What we should do is take those things people have worked for and striven for and tried their best to build and have an incentive for them to take that and leave it to their heirs and leave that company in a tax-paying mode or that farm in a tax-paying mode so America benefits and they benefit as well. Just because you are not taxing something does not mean you are not taking advantage of your company or the benefit of that item. By abolishing the estate tax, you will actually put more money, over time, in the Treasury of the United States of America in taxes than you ever will by taxing the one-time 50 percent.

   "So as we enter this debate--and I have been joined on the floor by a number of my colleagues who, I know, want to talk--let's talk about what benefits the American people, what incentivizes innovation and competition, what puts more money in the pockets of middle-class Americans today but also creates more people in the middle and upper classes in the future, not because we gave them anything except an opportunity, a fair place to compete, and that competitive drive that only people in the United States of America have, possess, and will always use to the benefit of our country.

   "I yield the floor."