Q.  What are tax expenditures, and why are they in the news?

A.  Tax expenditures are defined in the Congressional Budget Act of 1974 as lost federal income due to provisions in the tax code that exempt or reduce taxes for certain groups, products or activities.  Tax expenditures were intentionally passed by Congress for certain policy goals, such as encouraging employer-provided health insurance or home ownership, so they are also called tax incentives.  Since they help achieve goals set by Congress, they are not loopholes. The debate in Washington over reducing the federal debt has invoked whether certain tax expenditures should be ended.  Stopping these tax expenditures would raise money for the federal Treasury but also would take away tax incentives that are used by tens of millions of middle-income taxpayers.  There's also controversy over whether the amount of revenue raised by ending some of the tax expenditures is overstated and whether the revenue gained would be worth ending policies that support widely desirable behavior, like pension plan contributions.  

Q.  What are the biggest tax expenditures?

A.  An analysis by Senator Orrin Hatch of Utah, who serves as Ranking Member of the Senate Committee on Finance, which is responsible for tax legislation, determined these top 10 largest tax expenditures.  The analysis was based on data from the nonpartisan Joint Committee on Taxation, Congress' official estimator for the cost of tax legislation.

Exclusion for Employer-Provided Health Insurance.
Representing 13 percent of tax expenditures, it's the single largest tax expenditure.  To do away with this would threaten access to health care for families and individuals that have health insurance through their employers.

Home Mortgage Interest Deduction.
Having helped millions of Americans achieve home ownership, this expenditure accounts for nine percent of all tax expenditures.

Preferential Rates for Dividends & Capital Gains.
Take away this tax expenditure which accounts for eight percent of tax expenditures, and the rate on dividends will almost triple in less than 18 months, and the rate on capital gains will go up 59 percent, also in less than 18 months.  This will discourage investment in stocks and bonds.

Exclusion of Medicare Benefits.
Accounting for seven percent of tax expenditures, its elimination would increase taxes seniors' Medicare benefits.

Pre-Tax Treatment of Defined Benefit Pension Plan Contributions.
This is a tax benefit that reduces the cost for those workers who save for retirement.  It represents six percent of tax expenditures.

Earned Income Tax Credit. 
Designed for low-income people, the Earned Income Tax Credit accounts for five percent of all tax expenditures.

Deduction for State and Local Taxes. 
This deduction would hit high-tax states hardest, driving up the marginal rate of taxpayers who take this deduction by as much as 35 percent.  It represents five percent of all tax expenditures.

Pre-Tax Treatment for Contributions to a 401(k).  
At four percent of tax expenditures, this is a significant incentive to families and individuals to save for retirement.

Exclusion of Capital Gains at Death.  
If this one goes, death would be taxed twice.  First, the decedent's estate might get hit with the death tax.  Then the decedent's heirs would be subject to tax again on the gain embedded in any inherited asset, should they decide to sell it.  This accounts for four percent of tax expenditures.

Deductions for Charitable Contributions. 
This is the tax benefit for donations to charities other than education and health care institutions, including donations to religious institutions.  This charitable deduction represents four percent of tax expenditures.

Source: Joint Committee on Taxation, "Estimates Of Federal Tax Expenditures For Fiscal Years 2010-2014," December 21, 2010. http://www.jct.gov/publications  

Q.  Are tax expenditures the same as tax loopholes?

A.  Despite some political arguments to the contrary, tax expenditures are neither spending nor tax loopholes for millionaires, yachts or corporate jets.  Less than one-tenth of one percent of all tax expenditures benefit corporate jet owners.  Tax expenditures are used by many families and individuals.  Consideration of them by Congress should be done in a comprehensive tax reform debate to make sure the tax code is made more efficient and no more burdensome than it is today.

Prepared Statement of Ranking Member Chuck Grassley  

Senate Committee on the Judiciary  

Subcommittee on Immigration, Refugees and Border Security  

"The Economic Imperative for Enacting Immigration Reform"  

Tuesday, July 26, 2011    

For years, our country has struggled to find a way forward on immigration reform.  Since the debate reached its peak in 2007, our economy has experienced turmoil comparable to the Great Depression.  Americans are out of work, families are being foreclosed on, and businesses are suffering.  I agree we must do all we can to improve our economic situation.  However, I have concerns with the notion that increasing immigration levels and enacting legalization programs is the answer to the current economic downturn.  

We know it's unlikely that this Administration will push immigration reform in the next year and half.  However, it's my firm belief that we can find agreement on reforms for high skilled workers - and this hearing is a good first step in starting the discussion. 

I've spent a lot of time and effort into rooting out fraud and abuse in our visa programs, specifically the H-1B and L visa programs.  I have always said these programs can and should serve as a benefit to our country, our economy and our U.S. employers.   However, it is clear they are not working as intended, and the programs are having a detrimental effect on American workers.  Thankfully, the H-1B visa program has an annual cap as a stop-gap measure. But frankly, we need to act immediately to enact true reforms.  For this reason, and for many years, Senator Durbin and I have worked on legislation to close the loopholes in the programs.  Our legislation would ensure that American workers are afforded the first chance to obtain the available high paying and high skilled jobs.  We have worked together to make sure visa holders know their rights.  We have worked to increase oversight by the executive branch and have advocated for the Departments of Labor and Homeland Security to implement tighter controls.  The bill we have written would strengthen the wage requirements, ridding the incentives for companies to hire cheap, foreign labor.  Our bill would require companies to attest that they have tried to hire an American before they hire a foreign worker.  

The attention that Senator Durbin, I and others have put on H-1B visas has had an impact.  Our efforts have increased scrutiny and have forced bad actors to find other ways to enter, live and work in the United States under false pretenses.   The increased oversight of the H-1B program, for example, has caused businesses to "think creatively" to get around the program, using both the L and B-1 visa to bypass the requirements and protections under the H-1B visa program.  

On February 23, 2010, an employee of Infosys filed a complaint alleging that his employer was "sending lower level and unskilled foreigners to the United States to work in full-time positions at Infoysys' customer sites in direct violation of immigration laws."  The complaint further states "Infosys was paying these employees in India for full-time work in the United States without withholding federal or state income taxes."  Infosys, one of the top ten H-1B petitioning companies, has worked to "creatively" get around the H-1B program by using the B-1 business visitor visa in order to bring in low-skilled and low-wage workers.  However, B-1 visa holders are not able to receive salary or income from a U.S. based company and thus, Infosys is being accused of visa fraud. That plaintiff, Jay Palmer, has written a statement to be placed into the record.  The courts will decide if the activities of Infosys were illegal.  But I can definitely say that their actions don't comport with the spirit of the law.  

In addition to using the B-1 visa to get around the H-1B, companies are looking at ways to increase their use of the L intercompany transfer visa.  The L visa program has no annual cap.  It does not hold employers to wage requirements.  It provides flexibility and allows businesses to bypass the red tape that comes with other work programs.  On March 29, 2011, I wrote to the Acting Inspector General at the Department of Homeland Security with my concerns on the L intracompany transferee visa program and requested the office investigate the fraud and abuse.  The last review of the program was completed over five and a half years ago with recommendations that have yet to be implemented.  Serious loopholes continue to exist and be exploited to the detriment of the system. 

That brings me to another program that is undermining American workers, and one that gets very little attention from bureaucrats and investigators.  The Optional Practical Training - known as OPT - is a program that was created entirely through regulation.  There's nothing in the Immigration and Nationality Act that allows the executive branch to run the OPT program.   

But, it's high time that we start taking a closer look at the impact this program has on American students and workers.  Originally, OPT was created to give foreign students the ability to further their knowledge before returning to their home country.  However, today it is being used as a bridge to an employment visa or other immigration status.  Students are allowed to work in any field for an extra 12 to 29 months.  There is no limit on how many can apply for OPT, and more importantly, it is the schools and universities that principally administers the program.  There are very few checks and balances when it comes to the schools and employers.  The Department of Homeland Security may not even know where the student is being employed, creating a substantial national security risk.  More scrutiny must be placed on this program.  This past January, Senator Durbin and I wrote to Secretary Napolitano in regards to this, and other immigration issues.  The Secretary in response provided figures which were quite surprising.  U.S. Citizenship and Immigration Services approved 95,259 OPT petitions in fiscal year 2010 alone.  She did not, however, give any reassurances that the Department would add any safeguards nor will they commit in this economy to reduce the amount of time these foreign students are working in the U.S.  I will continue to press the Department for this much needed reform to protect American students and workers.    

Finally, I'd like to address the idea being pushed by many immigration advocates and some members in the House of Representatives.  As part of the solution to America's immigration problem, some policy makers have proposed the idea of giving immigrants a green card upon graduation.  In their opinion, this would prevent the loss of all the resources put into these students if they are forced to return home.  While it is important to keep the best and the brightest, getting a degree from a U.S. institution should not equate to a fast track to citizenship for all.  Should this happen, the demand for enrollment in U.S. universities by international students would only increase and further erode the opportunities for American students.  

America should continue to be the land of opportunity for those who wish to seek it.  We have a rich history of multiculturalism which has helped us become the strong, proud country we are today.  Our excellent system of higher education boasts many of the best scholars and researchers in their fields.  This system is one of our best resources and should be made available to all American students.  For more and more students, this resource is often not available to them.  As the amount of international students continues to rise, access to this precious resource for American students is lost.  Attaching a green card to each international student's diploma would only accelerate this process and crowd more and more American students out of a chance to achieve their dreams.      

I will continue to push for more reforms in our immigration system to ensure Americans are the number one priority and are not displaced.  I thank the Chairman and Ranking Member for their courtesies in scheduling this hearing and I look forward to the testimony from our panels of witnesses.    

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Getting the U.S. economy back on track can be achieved by unleashing America's "vibrant entrepreneurialism," according to the President.  Taking him at his word, I agree the United States' free enterprise system has been "the greatest force for prosperity the world has ever known."

Yet, for the last two years, joblessness and deficits have climbed under the flawed theory that taking money away from the private sector grows jobs and creates wealth.  In 2009, the White House threw taxpayers under the bus with a failed effort to spend tax dollars and boost the U.S. economy.  The government stimulus package added hundreds of billions to the taxpayer's tab for what the President called shovel-ready projects that would save and create jobs and keep the unemployment rate below eight percent.  Yet, today, nine-percent unemployment persists.  And, an irresponsible pattern of reckless spending and excess has put the full faith and credit of the United States on the line.

Washington cannot borrow-and-spend our way to prosperity.  It creates a chilling effect on the free enterprise system.  Like a magician pulling a rabbit from a hat, it makes an illusion.  The trouble is, the other hand is reaching for your wallet because government doesn't create wealth.  It only consumes wealth.  In the real world, we can't out-innovate, out-educate and out-build the rest of the world if we are drowning in debt.  When the federal government borrows money, it siphons money out of the economy, crowding out affordable capital for start-ups and increasing the future burden on taxpayers.

That's why it's so important to cut back on government spending, keep Washington living within its means and let the American people create, earn and enjoy their prosperity.  Just after the new year began, and with a lot of fanfare, the President ordered a top-to-bottom regulatory review.  He ordered every federal agency to examine the red tape that chokes job growth and stifles risk-takers.  Just imagine if red tape were keeping the next American success story from launching a business, finding a cure or inventing the next-generation biofuel.  Revenue-hungry policymakers need to appreciate that burdensome regulations shrink the economic pie, stunt job creation and harm U.S. competitiveness.  Clearing the way for individuals and businesses to succeed and thrive will expand the economic pie and help Uncle Sam pay down the debt and pay the nation's bills.

The President's executive order sure sounded like a refreshing change.  But six months later, scant progress seems to have been made to remove outdated regulations that make our economy less competitive.  In fact, right after the President's order, officials at the Environmental Protection Agency were quoted in news stories stating that they were confident that none of the current or pending rules would need to be modified. 

The attitude of the EPA makes it difficult to believe in the administration's ability to strike the proper balance between protecting public health and safety and protecting small business owners, farmers and entrepreneurs from burdensome regulations and paperwork.  For years I've been fighting the EPA's proposed rule that would apply absurd federal regulations on the amount of field dust kicked up by a farmer's combine during the busy harvest season.  The cost and inconvenience to a farmer to comply with such a ridiculous regulatory burden - not to mention the potential for a neighbor's lawsuit, should "coarse particulate matter" blow across the property line - is inconceivable.  What's next?  Malpractice insurance for farmers to protect against the risk of dust floating through the countryside during harvest?

Iowans can be sure I will continue to try and knock some common sense into the EPA.  It is possible.  After an outcry, the EPA in April exempted dairy farmers from complying with a federal rule aimed at preventing oil from spilling into U.S. waterways.  Sounds puzzling because it was a real head-scratcher.  The EPA rule originally included milk containers under the "Oil Spill Prevention, Control and Countermeasure Rule."

Simplifying restrictive regulations would help refuel the U.S. economy without adding to the national debt.  Thousands of rules infiltrate every nook and cranny of American life and commerce.  Injecting common sense into the regulatory process can help wipe out job-killing rules that are preventing the U.S. economy from finding the on ramp.

During the economic downturn, the Obama administration has issued hundreds of new rules that add even more uncertainty to job creators in the private sector with thousands more still in the pipeline to implement overhauls of the U.S. health care and financial systems.

Let's hope the President makes good on his call for a regulatory system that strikes a better balance between protecting the public good and promoting America's prosperity.

Friday, July 22, 2011

Appointments Continue Implementation of Workers' Compensation Reform Law

CHICAGO - July 20, 2011. Governor Pat Quinn today announced 12 appointments to the Workers' Compensation Advisory Board. Today's action continues implementation of the historic workers' compensation reforms signed into law by the Governor last month. The Advisory Board will make recommendations on the appointment of arbitrators, among other duties. 

Effective immediately, Governor Quinn named Mitchell W. Abbett, Richard Aleksy, Aaron Anderson, Michael Carrigan, John Carpenter, Mark Denzler, Phillip Gruber, David Halffield, William Lowry, Mark Prince, Sean T. Stott and David Vite to serve as members of the Workers' Compensation Advisory Board.

"Each of these appointees brings the knowledge and experience to support us in reforming Illinois' workers' compensation system," said Governor Quinn. "Our efforts to overhaul and modernize workers' compensation are critical to improving our state's business climate. I want to thank these individuals for their commitment to our businesses and our workers, and I look forward to the board's recommendations."

In June, Governor Quinn signed House Bill 1698, a comprehensive overhaul of Illinois' workers' compensation system. The reforms are expected to save Illinois businesses between $500 and $750 million dollars, while continuing protections for injured workers. The reform package also includes a major overhaul of Illinois' troubled Workers' Compensation Commission. 

In addition to making arbitrator recommendations, the Workers' Compensation Advisory Board also assists the Illinois Workers' Compensation Commission (IWCC) in formulating policies, setting priorities and developing administrative goals. The chairman of the IWCC serves as the ex officio chairman of the Advisory Board.

The Advisory Board consists of 12 members appointed by the Governor with the advice and consent of the Senate. Members are unpaid, but may have expenses reimbursed. Six board members represent employees, and six represent employers; the structure is designed to balance the concerns of businesses, while ensuring critical protections for workers.

Profiles of the new Advisory Board members are attached.

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Mitchell Abbett has over 20 years of experience in workers' compensation, human resources, and in developing successful policies concerning health and safety in the workforce.  Mr. Abbett is currently the human resources and safety manager at Holten Meat Inc. Previously he worked as safety and training manager at The P.D. George Company, director of safety and insurance for the city of Granite City, a claims adjuster for Crawford Company and a personnel safety coordinator at Lanter Courier Corporation.

Richard Aleksy is a partner at Corti, Aleksy & Castaneda, P.C. Mr. Alesky has served as president and director of the Workers' Compensation Lawyers Association, and has been published extensively on workers' compensation law.

Aaron Anderson has been an employee-class representative for the Illinois Workers' Compensation Commission Advisory Board since 2009. He is currently the director and representative for the Painters District Council No. 30 in Aurora. Mr. Anderson has health and safety certifications from a number of organizations including the International Union of Painters and Allied Trades, U.S. Environmental Agency, the American Red Cross and OSHA.

Michael Carrigan is the president of the Illinois AFL-CIO. Mr. Carrigan brings 30 years of experience with labor organizations, and first-hand knowledge of injured workers' experiences within the workers' compensation system. He has served on the Illinois Workers' Compensation Commission Advisory Board since 2005.

John Carpenter is the senior vice president of public policy for the Chicagoland Chamber of Commerce. Mr. Carpenter's extensive business background includes work as vice president of corporate affairs for American Airlines, served on the boards of Fort Worth Chamber of Commerce, the Dallas Convention and Visitors Bureau, the Midwest Board of Directors of the National Conference of Community & Justice, and the Board of Directors of the World Affairs Councils of America.

Mark Denzler is currently the vice president and chief operating officer at the Illinois Manufacturers' Association.  Mr. Denzler has also served the association's Illinois government affairs specialist, director of government affairs, and a legislative analyst.

David Halffield is the vice president of Sears Holdings Management Corporation and specializes in overseeing risk management and workers compensation claims. Mr. Halffield has also had past experience as the assistant director of casualty claims services at the Midwest Region of Aon Risk Services, a claims insurance manager at Chicago Bridge and Iron, and as a claims adjuster and supervisor at Liberty Mutual Insurance Company.

Phillip Gruber is the general vice president for the International Association of Machinists and Aerospace Workers Union. Mr. Gruber has been a member of the International Association of Machinists and Aerospace Workers Union Local Lodge 688 since 1972, and has served on the Workers' Compensation Advisory Board since 2007. 

William Lowry is a managing shareholder at Nyhan, Bambrick, Kinzie and Lowry, PC. He is a member of the Workers' Compensation Lawyers Association, and has concentrations in trial and appellate workers' compensation and employer liability practice. He is the author of several articles on workers' compensation law, and he lectures throughout Illinois.

Mark Prince has been part of the Prince Law Firm in Marion, Illinois since 2004, representing clients that have been harmed on the job due to negligence or intentional misconduct. He has been awarded the William J. Harte award for his amicus curiae briefs, and he has lectured at multiple legal education seminars on the rights of injured people.

Sean Stott has 15 years of experience analyzing the Workers' Compensation Act as the director of governmental affairs for the Laborers' International Union of North America. He has also had prior experience with unions and workers compensation through his position as the legislative director for the Illinois AFL-CIO.

David Vite is currently the president and CEO of the Illinois Retail Merchants Association and has served for two years on the Board of Directors and Executive Committee of the National Retail Federation. He has served on the Employment Security Advisory Board since 1983, where he is the longest serving member.

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