Mr. President, although we are in morning business, I begin by thanking the chairman of the Finance Committee, Senator Grassley, for the way he has approached putting this bill together. He has been a very fair, very honest, and very…
Mr. President, although we are in morning business, I begin by thanking the chairman of the Finance Committee, Senator Grassley, for the way he has approached putting this bill together. He has been a very fair, very honest, and very decent man, a man who keeps his word. Regrettably, he is not in the Chamber at this moment, but he will be spending a lot of time in the Chamber this week. I want the Senate to know how much this Senator regards the chairman of the Finance Committee. He has done a masterful job. He has a very difficult job. Believe me, I know; I have been in that position. He has always conducted the committee's business and the Senate's duties very appropriately, fairly, with courtesy and civility. I deeply appreciate that, and I know I speak for the rest of the members of our committee and the Senate Finance Committee as well as Members of this body.
The Finance Committee of the Senate works best when we work together. We then get a better product with broader support from both sides. The Finance Committee has a long and deserved reputation for working together cooperatively.
It is with great sadness I note today the passing of the former chairman of the committee, Russell Long, just a couple days ago. He was well known for not only his willingness but his desire to work hard with both sides of the aisle.
I served with Senator Long a good number of years ago, and I think he set the model. On occasion, the committee has deviated slightly, and every time it has, I think it has been a mistake. The tradition of bipartisanship has served the committee very well.
I know that is Chairman Grassley's inclination as well. I also know that
circumstances have not allowed him to carry out this role on this bill as much as he would like. It appears some in the committee have made nonnegotiable demands for what they say ``must'' be in this bill. Rather than pass a bill that would include all the terms with which we can agree, or at least most of us, some insist that the bill must, for example, include tax cuts for dividends. That is an insistence that some members of the committee are making and do not want to negotiate. Some insist this bill must include an acceleration of the tax rates for the 1 percent of American elite with income greater than $311,000. That is something they insist on or there is no bill; that is, rather than pass a bill with overwhelming support and seek a bipartisan vote.
The Senate often works because of willingness to compromise. Senators give up what they consider perfect in order to get in the end what will be good. I know Chairman Grassley works to get things done in that way, and so does this Senator. Without compromise, we will get less done. Without compromise, the result will command less popular support. It will be more tenuous, more fragile, and without compromise the Senate will be a much more partisan place, a place that is not much fun in which to work.
But this is only Monday. It is early in the debate and there is still time, even at this late date. I believe it is not too late for us in the Senate to work in the Senate's best traditions; that is, work together.
Let me take a few moments now to discuss why we are here today. I will also discuss the President's proposal and the congressional reactions to it.
Why are we here today? In the first instance, we are here because the budget resolution directs us. The budget resolution expressing the will of the Congress tells us that this month we shall consider a reconciliation bill, so we are carrying out our duty under the budget process. We are also here because the times demand it. The times demand action.
On a Montana ranch, when the grass has burned dry and there is just dust in the air, the rancher has to take steps to feed and protect his herd. And when drought hits and times are tough, no Montana rancher would fail to dig down deep, even deeper, rather than fail to find a way to make things work to get his place back on solid ground.
On a larger scale, we are here today because the American economy demands it. There is a drought in the American economy, just as there has been in many parts of America, a very severe drought facing agriculture.
The week before last, the Government reported that the unemployment rate surged to 6 percent. Since January 2001, just 2 years ago, the private sector has lost, not gained--I might put that in the context of the 2001 tax cut--the private sector has lost more than 2.1 million jobs. The economy has lost more than half a million jobs in the last 3 months alone. We now have the fewest number of jobs in 41 months. Since January 2 years ago, the economy has grown by an anemic average of 1.5 percent, far below the post-World War II average.
Business owners tell me they are not investing, despite what the Senator from Arizona just said on the floor, because of so much uncertainty and too much overcapacity. Consumer confidence has dropped. Simply put, there is a lot of uncertainty out there.
The reason the investment curve has declined is very simply because the bubble burst. That bill that was run up in the 1990s, whether in the high-tech sector or the telecommunications sector--generally that bubble burst. The price-to-earnings ratio was way too high. Everyone knew it but said maybe they would get on the gravy train, knowing it would not last forever, but trying to stay on as long as it would last. Sure enough, the bubble did burst--no more gravy train. The economy didn't collapse, but we fell into recession.
As a consequence, there is amazing business overcapacity. Businesses are not investing now because they have overcapacity. They cannot fully use the capacity they now have because people are not buying as much as they once did. That is why investment is down.
The chart the Senator from Arizona pointed out to us a few minutes ago may be interesting. It has two lines on it, but his explanation for the lines is totally inaccurate. It is totally fallacious. There are other reasons to explain why the investment curve is down, and I just explained the main reason it is down.
There is a lot of uncertainty in the economy. There is a lot of uncertainty because there are fewer jobs and the unemployment is so high and there is also an increased need for unemployment benefits.
We have to increase investor confidence. They tell me, as I am sure they are telling you--businessmen are telling me, as I am sure they are telling you, over and over again, they are unwilling to invest now. They don't want to take that step to invest. They are afraid. They are a little nervous. Why? Because there is no pricing power. They cannot get people out to buy more of their products. The economy is stalled out. There is no great demand.
Consumer confidence has fallen off, too, actually. But the main reason for businesses not investing is people won't buy their products. They are waiting for citizens to buy more of their products. That is what is happening today. At least that is what all businessmen are telling me. I talk to Republicans and Democrats, Independents and liberals; I don't care who they are. I ask them, What is going on? What do we need to do?
I always get the same answer when I talk to people where the rubber meets the road; that is, business people, not theoretical economists. I don't mean to disparage the economists, but we all know economic prognoses and economic predictions are all over the lot because people are people. What really counts is those financial statements and those buy orders. Business people face the payrolls and the cost structures that business people face. That is what really counts.
Business people are telling me they are not investing partly because they have overcapacity already and can't use what they have; second, because there is just no great demand.
I also say that after looking at the economy today it is important for us to look at specific goals we think any tax bill, any economic growth bill should contain. One major point about any growth package is that it should take effect as soon as possible. That is what we are talking about here. We are talking about an economy that is stalled out, so any tax bill that is presented before us should take effect as soon as possible. It is an obvious point but one I make because the legislation before us fails totally on that point. It does not take effect soon at all.
We should also look at our long-term fiscal situation; that is, our debt. We should not add needless debts, additional burdens on our children and our grandchildren. We must avoid action today which may have the effect of raising interest rates, particularly mortgage interest rates, not far down the road.
I remind my colleagues that this is only May 2003. Things can change. Things can happen very quickly. Where are we going to be a year from now? Where are we going to be 2 years from now? What actions are we taking today that will have an effect on long-term interest rates? We are lucky that inflation is low, but I can remember when inflation was high and interest rates were very high and that day, unfortunately, will happen again. We don't know when, but we should not take actions to exacerbate that or make it more likely that interest rates will rise more quickly.
We should also address a third goal; that is, we should spread the benefit of the tax reduction among all taxpayers. We are all Americans. We all should benefit, not just the special elite.
Let me turn now to the President's proposal. The President proposes a budget, but under the Constitution Congress legislates. We do not merely rubberstamp the President's budget. We have a job to do. After all, we are supposedly elected to exercise our own independent judgment as Senators.
Many of the President's proposals command broad support. I support a good number of them. They may not be the most efficient stimulative proposals possible, but they should increase some consumer demand, and I, for one, think that is good. Specifically I support--and I believe Senators broadly do--helping families meet
their costs by increasing the child credit to $1,000 right now. I also support speeding up relief for the marriage penalty.
Let's eliminate that marriage penalty. I also support expanding the 10-percent bracket immediately, to give immediate relief to most taxpayers. They will spend those dollars. They will spend them right away to help rebuild our economy.
Also, I support ensuring we do not worsen the difficulties created by the alternative minimum tax. I am pleased the committee-reported bill includes something on each of these items.
But Congress has a role to temper and improve the President's proposals. From my perspective, several areas are key.
First, the amount of the tax cut package is critical. The absence of fiscal responsibility over the long term affects interest rates now and in the future. We have a duty to be responsible. We must not worsen interest rates and dampen economic growth by passing an irresponsibly large package.
In January, 2 years ago, the Congressional Budget Office projected surpluses of $5.6 trillion for the next decade. That is an important figure to remember. Surpluses were projected 2 years ago of $5.6 trillion for the decade. Today, CBO projects the President's budget will result in deficits--not surpluses but deficits--of $2.1 trillion for the same period. That is a swing of almost $8 trillion in just 2 years, and recent projections make those projections look overly optimistic.
I might note other bills we are going to have to pay, whether it is Medicare, prescription drug benefits, more AMT--which we all know we will have to pay for relief for the alternative minimum tax--Iraq. Things are not going well in Iraq. That is going to cost money. Who knows what other events are going to occur around the world?
Think a little bit about the burgeoning health care costs which people are facing around this country and how much that is translating into Medicare costs and Medicaid costs, and with the baby boomers starting to retire in just a few years from now.
I believe we would be irresponsible by adding significantly to our deficit.
Our national balance of payments bill, which is how much more we owe other countries compared to what they owe us, is getting larger and larger on an absolute relative scale each year. Someday we are going to have to pay that bill. We all know we are going to have to pay that bill. The question is, When? What day? I would rather not hasten the day of paying that bill, and that bill will not be hastened the more fiscally responsible we are.
The dollar is declining against the euro. The dollar is not tanking. But why is it steadily declining against the euro? Could it be that the investors around the world are beginning to question America's long- term economic policies? I think that is a small part of it. I can't describe all of it. I don't know. But I raise those concerns.
Clearly, our fiscal circumstances are much less favorable than when we considered the 2001 tax bill. We are in a different situation today, much different from that of 2001.
Today, we must keep the size of the tax bill within narrower limits. Today, we must be more concerned about contributing to higher interest rates. In that regard, I am pleased that the committee-reported bill keeps within the $350-billion limit over the coming decade that was agreed to during consideration of the budget resolution.
Second, the President's proposal on dividends is troubling for many of us. It must either be eliminated or even more dramatically scaled down. Yes, the tax treatment of dividends might be a worthy subject--as part of a budget-neutral corporate tax reform debate. But the President's dividend proposal--at roughly $400 billion--is simply too fiscally irresponsible, too complicated, and affects too few taxpayers to be appropriately included in this stimulus package. It borders on irresponsibility.
Only 3 out of 10 tax filers report dividend income on their tax returns. They are the only ones who would benefit from the dividend proposal. In other words, seven out of 10 Montanans would see no tax benefit at all from a dividend tax cut as a consequence. The provisions in this bill should benefit taxpayers more broadly across the income spectrum. That way, they can most effectively get money to taxpayers who would spend it and spur the economy.
The committee changed the President's dividend proposal. Unfortunately, the committee-reported bill also contains an ill- conceived dividend proposal. The bill would exclude from income all dividend income up to $500. It then includes a 10-percent exclusion for dividend income above $500 from 2004 to 2007. And the exclusion increases to 20 percent for 2008 through 2012.
On one hand, the dividend exclusion provides simplification. A capped exclusion of $500 would make it no longer necessary for half of taxpayers with dividend income to report their dividends on their tax returns.
But this benefit is overshadowed by the worst part of the proposal-- the 10-percent and 20-percent exclusion for dividends above $500. This provides a very large tax cut to the elite.
Take the example of a taxpayer who has $1 million in dividend income. Under the committee-reported bill, that fortunate taxpayer gets to exclude a little more than $100,000 of dividend income--$100,450, to be exact. Applying tax rates to this excluded income, this taxpayer would get a tax cut of about $35,000 a year from the dividend tax cut alone.
A third problem with the President's proposal is the acceleration of the rate cuts for that 1 percent of American elite with income greater than $311,000. This proposal alone costs some $35 billion.
In better times, I would support a package that included benefits for those making over $311,000. But these are not better times. In better times, I would support a package that included benefits for those who make over $311,000. But with the budget in the shape it is in, now is not the time to accelerate this rate reduction. This provision is just too costly and too narrow to effectively spur demand and rebuild the economy.
Fourth, more needs to be done to infuse funds to cash-strapped States and localities. The economic downturn has cut State and local revenues dramatically. But State constitutions--as opposed to the U.S. Constitution--require States to balance their budgets.
So State and local governments are forced to make widespread, often painful spending cuts in education, in health, and in other vital programs.
More than half the states are still struggling to balance their budgets this fiscal year. And almost all of them are struggling to balance their budgets for the fiscal year that begins in July.
These State spending cuts, layoffs, and tax increases, I believe, will offset the gains from tax breaks in this bill. And the economic gains to tax breaks for the elite are overstated or theoretical.
Last year, the State of Montana cut benefits for severely mentally ill youth, just in order to make ends meet. The State also made across- the-board cuts in Medicaid provider payments and increased cost sharing--both of which now threaten access to care for low-income Montanans.
If those cuts were not drastic enough, this year, the State legislature just cut more than a quarter of a million dollars from Meals on Wheels for seniors. That will mean about 67,000 meals lost over the next 2 years. And budget constraints have also forced my State to put 700 working families on a waiting list for child care.
Translating Montana's small population to a national level, those cuts are the equivalent of more than 2 million lost meals nationwide. It's the equivalent of a 22,000-family waiting list for child care.
We can pass all the Federal tax cuts we want. But what good will they do if we force States and localities to raise taxes, cut jobs, and reduce benefits.?
We can avoid these economically-damaging State and local actions by assisting these governments with their budgets through temporarily raising the Federal Medicaid match and through other, more broad-based methods.
I am pleased that the committee-reported bill includes something in State aid. Unfortunately, the committee-reported bill includes $20 billion--only a little more than 5 percent of its total--for this purpose. I would have preferred a package that included $40 billion in State aid; the need is that great.
Fifth, making tax cuts refundable will help spur economic growth. Very simply, it works. They will quickly get funds to people who are likely to spend them rapidly, spur demand, and rebuild the economy.
The President's proposal accelerated the $1,000 child credit. I supported the increase in the child credit when it was passed in 2001, and I support the acceleration.
But the President's proposal did not accelerate the refundability of the credit. Fortunately, during consideration of the bill, the Finance Committee adopted Senator Lincoln's amendment to accelerate the refundability of the child credit. The Lincoln amendment will allow many low-income families to take full advantage of the increase in the credit.
Under current law, the credit is partially refundable. Families can take the credit if they pay payroll taxes, but do not have income tax liability. The amount that low-income families can get refunded is set to increase in 2005. Thanks to the Lincoln amendment, this improvement will be accelerated to 2003 along with the increase in the credit. More hard-working low-income families will be able to get up to $1,000 per child in this credit in 2003, thanks to the Lincoln amendment.
Sixth, we should increase the bonus depreciation deduction for the year that a business purchases new equipment. In 2001, we saw a sharp drop in direct investment by businesses. The next year, we changed the law to give a larger first-year deduction. The drop; in direct investment leveled, and even increased slightly. We need to provide more in the depreciation deduction for 2003 to encourage even more business investment.
And seventh, we need to extend unemployment benefits and help those who have exhausted their benefits. The government has reported that nearly 2 million people have been without work for 27 weeks or longer. The average time people have been unemployed is almost 20 weeks--the longest since 1984.
The weak economy has hit everyone. Unfortunately, some more than others. As we rebuild the economy, we should not leave these unemployed workers and their families behind.
Any bill to help rebuild the economy must help those most affected by the bad economy. As well, putting funds in these hands will be an effective stimulus. The recipients of unemployment benefits and their families are likely to spend every dollar they get quickly. This spurs demand which, in turn, helps rebuild the economy.
We cannot glibly assume that all actions we could take here would be equally stimulative. Not all tax cuts are created equal. Not all spending is equally stimulative, either.
A lot depends on when the provision takes effect. A provision that takes effect in 2006 will likely provide less stimulus than one that gets money into the system this year or next.
Much also depends on who receives the benefit. A provision that gets money into the hands of working and lower-income families--people who spend more of what they have, and spend it quickly--will be more stimulative than a provision that transfers money to elites who would save more of it.
Comparing various options for stimulus, a study by Economy.com concluded that extension of the Temporary Emergency Unemployment Compensation program would provide the most effective stimulus of the options they studied. They concluded that ever dollar in these unemployment benefits generated an estimated $1.73 in demand in the year ahead.
In contrast, they estimated that cutting dividend rates and accelerating 2006 rate cuts both would generate less than a dollar's worth of demand in the year ahead for each dollar spent. So, in terms of stimulus, some policy options are better than others, and unemployment insurance would be among the best.
Finally, the Finance Committee improved the President's proposal by adopting a series of small but important provisions that will make people's lives better.
For example, the committee adopted an amendment that Senators Hatch and Lincoln and I offered to significantly simplify tax return filing for millions of taxpayers. This provision reconciles the five varying child definitions into a single definition for a ``qualifying child.'' It is time for us to stop talking about simplification. It is time for us to do something about simplification. This amendment will at least make it so that we have just one definition of who is a child for purposes of claiming a tax benefit.
Another useful improvement that the committee made to the President's proposal was in repealing the special occupational tax relating to alcoholic beverages. This provision will give much-needed relief and fairness to hundreds of thousands of small businesses.
Because this tax is levied on a per-location basis, a sole proprietorship must pay the same amount as one of the Nation's largest retailers. Locally owned chains pay as much as, if not more than, the Nation's largest single-site brewery. That is not fair, and this change will help.
I make all of these points with the recognition that our differences are not as large as what we have in common. We agree broadly that we need to help create jobs and get the economy moving. We in the Senate should take the steps needed to address these goals.
The economic times that face us call us to govern. We should avoid political point scoring. We must pass legislation to improve the lives of the people we represent.
Each of us was sent here by the people of our States. They sent us here not to make speeches, not to win debates; they sent us here to make life better. In these difficult times, they sent us here to help create jobs, to rebuild the economy. We have a duty to respond to the times, not the politics. We have a duty to do the people's work.
I thank the Chair.