By Congressman Paul Ryan
Given the nation’s current economic uncertainty and mounting job losses, the last thing taxpayers need right now or in the near future is a tax increase. In our rush to right our economy, we must not talk ourselves into a hasty intervention today that will leave us with greater budgetary shortfalls tomorrow. To that end, the Federal government should focus on providing incentives for workers, entrepreneurs and families to put our economy on the path to recovery. It is troubling to me that in addition to imposing enormous tax hikes within the next two years, the Majority has introduced legislation to increase taxes even more on small businesses, making our U.S. manufacturers less competitive in our global market and making it difficult to keep jobs in the United States. To address these issues facing our country, I have introduced legislation, “A Roadmap for America’s Future.” My bill removes the competitive disadvantage our tax code places on American-made products and creates a simpler, fairer income tax system for American taxpayers. As Ranking Member on the House Budget Committee, I have put forward budgets each year that balance the budget without raising taxes or spending the Social Security surplus. I will continue to work to balance the budget, stop tax increases, protect the Social Security Trust and stop wasteful spending.
Earlier this year, Congress passed and the President signed into law H.R. 1. The tax provisions in this legislation include:
Refundable First-time Home Buyer Tax Credit : Under current law, first time homebuyers who purchase a home between April 9, 2008 and July 1, 2009, are eligible for a refundable tax credit that is equivalent to an interest-free loan equal to 10 percent of the purchase price of their home (up to $7,500). These homebuyers are then required to pay back any amount received under this tax credit to the Federal Government over the next 15 years in equal installments or earlier if the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 single/$150,000 joint filers. The bill eliminates the requirement for home buyers to repay the Federal government if they purchased their home after January 1, 2009 and increases the cap of the tax credit to $8,000. It also extends the availability of the credit for homes purchased before December 1, 2009.
Making Work Pay Tax Credit : For 2009 and 2010, the bill would establish a refundable tax credit of up to $400 for working individuals and $800 for working families. This tax credit would be calculated at a rate of 6.2% of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 (single)/$150,000 (married). This benefit would be received through a reduction in the amount of income tax that is withheld from their paychecks (up to approximately $33 for monthly paychecks for single taxpayers and approximately $66 for monthly paychecks for married taxpayers filing jointly) or by claiming the credit on their tax returns.
Sales Tax Deduction for the Purchase of New Vehicles : The bill establishes a new tax deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, recreational vehicles, and motorcycles through 2009. The deduction phases out for taxpayers with adjusted gross income above $125,000 (single)/$250,000 (married).
Alternative Minimum Tax (AMT) : Prevents 26 million families from getting hit by the AMT in 2009.
Extension of Bonus Depreciation : Last year, Congress temporarily allowed business to recover the cost of their capital expenditures made in 2008 by allowing them to immediately write-off 50% of the cost of the depreciable property, such as equipment, tractors, etc., which were acquired in 2008. The bill extends this to 2009.
Small Business Expensing : Under current law, small businesses may write-off up to $125,000 (indexed for inflation) of capital expenditures and begin to phase-out once expenditures exceed $500,000 (indexed to inflation). This expires at the end of 2010. Congress temporarily increased the amount to $250,000 for 2008 and increased the phase-out threshold to $800,000. The bill extends these levels to 2009.
This legislation also includes tremendous Federal spending measures totaling $1.1 trillion at a time when the Federal deficit is estimated to have already reached $1.8 trillion. According to the Congressional Budget Office (CBO), however, only 11 percent of the funding under this new law will be spent in the first year while less than 1 percent is devoted to job creation and job retention tax incentives. H.R. 1 also includes “emergency spending” such as $300 million for golf carts, $50 million for the National Endowment for the Arts (NEA) and $8 billion for high speed rail to help build a Los Angeles-to-Las Vegas rail line, as well as hidden funding for Massachusetts shell fish and New York theater renovation. If the estimates of creating 3 million jobs with this law are correct, it will cost taxpayers $262,000 per job created. Ultimately, all of this spending, (including interest) will lead to future tax increases with a cost per family of $10,000. It is for these reasons that I voted against this legislation and voted in favor of an alternative that would have provided fast-acting tax relief for working families and business, as well as produced twice as many jobs at approximately half the cost.
The budget process is underway in Congress. The President proposed a budget that includes some good policy, including preventing taxpayers from getting hit by the Alternative Minimum Tax (AMT). It also includes some additional troubling policies such as increasing government spending to the highest level since World War II and doubles the national debt in 8 years. It also includes a total of $1.4 trillion in tax increases, much of which falls on American small businesses that produce 60 to 80 percent of the new jobs in this country. As Ranking Member of the House Budget Committee, I will be putting forward a Budget Alternative that will reduce the deficit without increasing taxes.
President Obama’s budget increases taxes, hitting 3 million small businesses, by:
Increasing the top two marginal income tax rates for individuals from 33% to 36% and from 35% and 39.6% respectively for taxpayers earning over $200,000 (single)/$250,000 (married).
Reducing the value of itemized deductions such as mortgage interest deduction, charitable deduction and deduction for state and local taxes by limiting to 28% the rate at which itemized deductions reduce the tax liability.
Reinstating the personal exemption phase-out and limitation on itemized deductions for taxpayers.
Increasing the tax rate on capital gains and dividends, which damages returns to 401(k)s, pensions, and college savings plans.
The tax increases also make U.S. companies vulnerable to takeovers by foreign competitors by increasing the tax burden on U.S. companies, and targeting companies who manufacture products in the United States. The budget proposal also establishes a new tax through the “Cap and Trade” program that will be paid by all Americans through higher energy prices, i.e., electricity and fuel, as well as higher prices for food and shipping costs. It also hurts the manufacturing industry which has particularly been hit hard with job lay-offs and downsizing under the current recession.
Congressman Charles Rangel, Chairman of the House Ways and Means Committee, introduced in the Fall of 2007, H.R. 3970. The title of this bill does not reflect the $3.5 trillion tax increase over 10 years – the largest individual tax income tax increase in history, thereby smothering any future economic growth. According to the non-partisan Joint Committee on Taxation, 120 million taxpayers will receive a tax increases while only 9 million will receive a tax cut. While the legislation repeals the individual Alternative Minimum Tax (AMT), it replaces it with a large tax increase. Specifically, the legislation would impose 4-percent surtax on adjusted gross income (AGI) above $150,000 for single filers and $200,000 for joint filers. The surcharge increases to 4.6 percent for incomes over $500,000. The surtax constitutes an assault on small business, most of which pay individual income tax rates on their business income. When coupled with the expiration of the 2001 and 2003 tax relief provisions, the surcharge would effectively push the highest income tax rates from its current level of 35 percent to 44.2 percent. According to the U.S. Department of Treasury, roughly 75 percent of the taxpayers affected by this top tax rate are job-producing small businesses – S-corporations, partnerships, and sole proprietorships. Economic research shows that an increase in the top income tax rates will dissuade these businesses from investing, hiring more workers, and paying higher wages. That is significant because small businesses employ roughly half of the private labor force and create approximately seven out of every 10 new jobs. By some measures, small businesses account for more than half of the nation’s economy.
The Federal tax code is needlessly complex and burdensome. Taxpayers and their families face, in the next few years, higher taxes, the reinstitution of the marriage penalty, and the Alternative Minimum Tax (AMT), which becomes a larger problem every year. I believe that Washington must put the taxpayers first – not the government. To address these problems, I have introduced legislation, “A Roadmap For America’s Future” which in addition to addressing the challenges facing the future of health care, Medicare and Social Security, it provides a flatter, simpler system for taxpayers to pay their income taxes and levels the playing field for American-made products to compete against foreign competitors making it easier for American manufacturers to keep jobs in the U.S. My legislation would do the following: (1) permanent repeal the individual AMT; (2) provide individuals an alternative tax system that is fair, simple and efficient; and (3) replace the current corporate income tax code with a tax system that levels the playing field for American businesses. For individual taxpayers, taxpayers can choose the new, simplified system or stay with the current tax code or whichever option suits them. Specifically, my bill provides:
Two income tax rates : 10 percent on taxable income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts.
That taxable income equals gross income minus a standard deduction and personal exemption . The standard deduction is $25,000 for joint tax filers, $12,500 for single filers. The personal exemption is $3,500. The combination is equivalent to a $39,000 exemption for a family of four. There are no additional credits or itemized deductions.
For businesses, my bill replaces the corporate income tax system that puts American-made products at a competitive disadvantage, and replaces it with a low 8.5 percent Business Consumption Tax (BCT) to level the playing field for American-made products to compete against foreign competitors. Consider the following example: Right now, Case New Holland tractors are at a competitive disadvantage against its foreign competitor, Komatsu, because of the current U.S. tax code. When Komatsu tractor leaves Japan, Japan lifts its tax on the tractor, and it arrives in the U.S. tax free. But when the Case tractor rolls off the assembly line in Racine and is exported to Japan, the U.S. taxes it first and then Japan taxes it again as it arrives as a U.S. import. This hurts American jobs and puts American businesses at a competitive disadvantage. The Roadmap proposal would end these backwards tax policies and put American workers in the position to thrive, instead of struggling to survive, in this period of economic uncertainty.
Congressman Paul Ryan serves Wisconsin’s 1st Congressional District. To contact him by phone in Washington, D.C., call (202) 225-3031. Or visit Paul Ryan at www.house.gov/ryan