Sen. Cruz: ‘Tax Reform Should Focus on Creating More Jobs, Higher Wages, and More Opportunity’
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"Thank you everyone for coming out. And let me say thank you to the
"You know the past several weeks have been trying weeks for the state of
"And it is my hope that that same spirit of unity that we've seen displayed from
"We've been given an historic opportunity. An opportunity to produce incredible results for the men and women who elected us. And the question is, will we step up and seize this opportunity? Or will it be one of the greatest missed opportunities in modern history?
"We saw in recent months the battles of Obamacare, how difficult it is to unite and deliver on a campaign promise. Even a central campaign promise, that for seven years
"But in addition to honoring the commitment on Obamacare, there is another fundamental promise that
"As
"The first objective, is growth. Economic growth should be number one. Growth, growth, growth. You look at every challenge we've got, whether it's the national debt, whether it's rebuilding our military, whether it's strengthening and reforming
"Our economy since World War II has grown on average 3.3 percent a year. And yet for the past eight years, we've been mired in stagnation. From 2008 to the present, the economy has grown just 1.2 percent a year on average. If we stay stuck in 1 and 2 percent growth, none of these problems are solved. If we get back to historic levels of growth, 3, 4, 5 percent - suddenly, the numbers change. Suddenly, and miraculously young people coming out of school instead of wondering, 'Do I have any chance to pay off my student loans?' Suddenly, young people are coming out of school with 2, 3, 4, 5 job offers.
"Growth makes a difference in people's lives. Booming economic growth. Employers fighting for new employees. Raising wages, because that's the only way they can attract the talent they need. That's how we turn this country around.
"Tax reform is fundamental to growth. From 2008 to 2012 the economy grew on average 0.9 percent a year. The proceeding four year period, where economic growth was less than 1 percent, was 1978 to 1982. It was coming out of the Jimmy Carter presidency. It was many of the same failed economic policies. Massive taxes. Massive regulation. Massive spending.
"And we know what happened in the 1980s.
"And let me say, the
"A second objective, simplicity. You know one of the old and simplest rules of policymaking is
"And the third objective is fairness. We want a tax system that's fair. That's not arbitrary. That's not
"We need fairness across the country. We need fairness between big companies and little companies. We need fairness between the wealthy and the middle class, and those who are struggling. We need tax reform to benefit everyone, to lift people's after tax incomes. Another thing that's useful about the
"So what should we do to incorporate those objectives? Seven specific ideas I would like to suggest, that I believe that should be reflected in tax reform which I hope is passed and signed into law by the end of this year, or early next year.
"Number one, a low flat rate for individuals and families. Simplicity. Listen, the best utilized tax dollar is the dollar that stays in your pocket. The dollar that stays with the family that is struggling. The dollar that you can use to pay for your kid's education. That's the best dollar. Right now we have seven different individual tax brackets for families, for individuals. What I would love to see is collapsing that into one simple flat tax.
"In the presidential campaign, I campaigned across the country on a simple flat tax, where we abolish the
"So instead of seven tax rates, numerous proposals in the Administration and the House collapsed that down to three. Three is better than seven, and by the way two is better than three and one is better than two. But the more we can can get to a simple flat rate the better.
"Principle number two: postcard. Postcard. Postcard. Postcard. Every year, more than 90 percent of taxpayers seek help when preparing their tax returns. For individuals and families that costs relatively
"You want a powerful legacy? Let me say to
"Third element. Immediate expensing. Right now under current law, businesses deduct the cost of acquiring capital assets. Buildings, heavy equipment, vehicles, renovations, over a period of years. Complicated depreciation scales. One the most important reforms that we ought to include in tax reform is full and immediate expensing. If you spend money on capital you should expense that immediately. Now why, what does that mean? Well there's several benefits to it.
"Number one, expensing is not agnostic between new dollars and old dollars. Expensing is not agnostic between dollars here in America and dollars abroad. Expensing creates an enormous incentive to invest dollars here in America, on American soil that create jobs.
"We started out in the beginning with the big objective: jobs, growth, wages. If you want to see jobs and growth and wages, you want full expensing. Now it's a massive simplification of the tax code. Much of the time in expenses is dealt figuring out and dealing with the complicated depreciation scales. But it also benefits
"You know I will say in the debates about tax reform, different industries, different sectors have a voice. Many of the voices that are heard in
"But I'll tell you who does: working men and women. The men and women with calluses on their hands. If you're a farmer or a rancher, expensing makes it easier for you to buy that new tractor, to buy that new combine. Which also makes it easier for you to hire that new farmhand to work on the farm. If you are a steelworker or an autoworker, expensing incentivizes opening a new factory, to produce steel, to produce cars. If you're a truck driver, expensing makes it easier to buy a new truck, whether an 18-wheeler or a pick-up truck hauling construction units. If you're a taxi driver or an
"In tax reform, government needs to be responsive to
"Now, there are other tax reform proposals and aspects that are important that are interesting. But what's interesting on this, is the
"And let me note, some in
"But a second advantage of eliminating, is that you don't leave a piggy bank for a bunch of politicians that want to raise taxes in the future and spend more money. You simply speed up the depreciation tables, I can promise you there will come a subsequent
"The next element of reform is a low corporate rate. We have right now in
"Now, a lot of politicians like to talk against inversions. I don't think the answer is to try and force companies to stay here. I think the answer is to make the American business environment so attractive that you'd have to be nuts to leave. We've got lots of advantages in America. We have abundant low cost energy, that's a tremendous advantage in business. We have a skilled educated workforce. We have a system that protects contract rights and property rights and individual rights. But if we have a tax system that makes it impossible to compete, we will continue to see jobs fleeing our country.
"We need a low, fair, simple, corporate tax rate. To be competitive on the global stage, you are looking at 15 percent, 20 percent which is much more in line with where the other countries are than our current punitive 35 percent.
"The next element in tax reform, we need to encourage repatriation. Right now,
"The sixth element tax reform should have is we need to end the death tax. The death tax is one of the most unfair aspects of our current tax system. When the family is experiencing the trauma of a death, not only do they deal with the loss of a loved one but they discover that death can be a taxable event. That not only do people work their whole lives and pay taxes their whole lives, but the very last thing that happens when they pass away is the tax man came again to tax them for dying.
"And one the reasons this matters so brutally is that it has an incredibly destructive impact on farmers, on ranchers, and on small businesses. More than 99 percent of
"The death tax results in forcing small businesses to be sold. Forcing farms to be sold to pay the tax bill. Forcing ranches to be sold to pay the tax bill. The small businesses sold, the factory owner has to sell his equipment. Well suddenly all those people who had jobs, they find themselves out of luck.
"And the last element I would suggest of tax reform, is ending the alternative minimum tax. The AMT was created in the 1960's to raise the effective tax rate of the really rich. Have you noticed something? The really rich are really good at getting out of paying taxes. Because they have the money to hire all lots of lawyers, lost of accountants to figure out all the loopholes, all the special aspects.
"You know I'm reminded, Scott of when I first ran for
"But what does the alternative minimum tax do now? The really wealthy can create vast legal apparatuses to avoid it, but right now more than four million households are ensnared by the AMT. Many of them not super wealthy. And for millions more they have to compute their taxes two ways: under the ordinary tax laws and then under the AMT. It's duplicative, it's unnecessary. We started with objectives of growth, fairness, and simplicity. The AMT is the opposite of simplicity. We should use this opportunity to end it, so you have one postcard and not two.
"Now let me talk for a minute at the end about a couple of essential tools that I think are important for implementing these seven specific reforms. First of all, tax reform should not be revenue neutral. This is important and this is a big debate in
"So as a practical matter it is highly unlikely we are going to see a significant number of
"Which means, for tax reform to happen, it's going to have to happen on budget reconciliation. Budget reconciliation is one of the few tools that gets around a filibuster. Budget reconciliation is a process, whereby you only need 51 votes. Fifty votes plus the Vice President to enact meaningful policy changes. So why does budget neutrality matter? Because under budget reconciliation, in order for a tax change to be permanent, or any other change to be permanent, it has to be budget neutral. It has to be deficit neutral. All of us remember the Bush tax cuts. The reason the Bush tax cuts expired in 10 years is because they were passed using budget reconciliation and they won. Budget neutral. So on the tenth year they expired. Those are the constraints of using reconciliation. What I would like to suggest is we should not be revenue neutral.
"Now, permanence when it comes to tax reform is a good thing. If you want a change incentives, if you want a change in behavior, if you want businesses to open new factories based on changes in the tax laws, you want those changes to be predictable and to last more than a few years.
"So how do we achieve both? How do we achieve real tax cuts and have them extend for a significant period of time? And this is a second essential tool. We need to look at significantly longer budget window. The rules of budget reconciliation are laid out in the Budget Act of 1974. Nowhere in the Budget Act of 1974 does it say the budget window has to be 10 years. The Bush tax cuts expired in 10 years, why? Because then they used a 10 year budget window. So they had to expire at the end of that budget window. We've used a variety of budget windows in the last 20 years, including twice using an 11 year window instead of 10. I believe in enacting tax reform we should look at a 20 year window or a 30 year window.
"What does that allow you to do? It allows you to get in and pass a major tax cut. And if it expires 30 years from now, that may not be permanent but it's pretty darn close. Thirty years is a long time. If you have tax laws in place for 30 years, that gives investors, that gives businesses, that gives families time to predict and count on it. If we use a longer budget window, a 30 year budget window, a 20 year budget window, we can dispense of the handcuffs of revenue neutrality and pass a real tax cut. A tax cut, not just reform to reduce taxes and create growth. And when it comes to dynamic scoring.
"Now I would note, on both dynamic scoring and on the budget window, Senator
"And a final point: when enacting tax reform, we should also use it as an opportunity to repeal Dodd-Frank. Dodd-Frank is one of the most damaging pieces of legislation in modern times. Dodd-Frank has wreaked havoc. Dodd-Frank was sold to the American people to stop "too big to fail." How has that worked out? The big banks are bigger and the smaller banks, the community financial institutions have been devastated. Since 1994, the number of community banks has fallen by 40 percent. Their share of assets has fallen by more than half- from 41 percent to 18 percent.
"What's happened to the big banks? Their share of assets has risen from 18 percent to 46 percent. Dodd-Frank is great if you're a giant financial institution. It is lousy if you're a local community bank, if you're a credit union. And the four years after Dodd-Frank, community banks lost market share at a rate double what they were losing before then. Twelve percent versus six percent.
"In
"To sum up, if you remember just five things that I said today - that'll be four more than a typical
"If we follow those guidelines, we can see tremendous economic growth, more jobs, higher wages, more opportunity. We can step up to this historic opportunity. And I hope and pray that leaders in
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