[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





                  NATIONAL PROBLEMS, LOCAL SOLUTIONS:
                           FEDERALISM AT WORK
                                PART II
                        TAX REFORM IN THE STATES

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                         APRIL 14 AND 15, 1999

                               __________

                           Serial No. 106-14

                               __________

       Printed for the use of the Committee on Government Reform


     Available via the World Wide Web: http://www.house.gov/reform

                                 ______


                    U.S. GOVERNMENT PRINTING OFFICE
57-470                     WASHINGTON : 1999


                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE E. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                      Carla J. Martin, Chief Clerk
                 Phil Schiliro, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 14, 1999...............................................     1
    April 15, 1999...............................................    97
Statement of:
    Gilmore, James, Governor, Commonwealth of Virginia, 
      accompanied by Ronald Tillett, secretary of finance, 
      Commonwealth of Virginia...................................    81
    Huckabee, Mike, Governor, Arkansas...........................    48
    Pataki, George A., Governor, State of New York...............   100
    Whitman, Christine T., Governor, New Jersey..................    13
Letters, statements, etc., submitted for the record by:
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, chart concerning tax freedom day...............     3
    Gilman, Hon. Benjamin, a Representative in Congress from the 
      State of New York, prepared statement of...................     8
    Gilmore, James, Governor, Commonwealth of Virginia, prepared 
      statement of...............................................    85
    Huckabee, Mike, Governor, Arkansas, prepared statement of....    53
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................    46
    Pataki, George A., Governor, State of New York, prepared 
      statement of...............................................   107
    Whitman, Christine T., Governor, New Jersey:
        Information concerning recommendations...................    28
        Prepared statement of....................................    16

 
                  NATIONAL PROBLEMS, LOCAL SOLUTIONS:
                           FEDERALISM AT WORK


                                PART II



                        TAX REFORM IN THE STATES

                              ----------                              


                       WEDNESDAY, APRIL, 14, 1999

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Dan Burton (chairman 
of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, Ros-
Lehtinen, McHugh, Horn, Davis of Virginia, Souder, Hutchinson, 
Terry, Biggert, Ose, Chenoweth, Waxman, Towns, Norton, 
Kucinich, and Ford.
    Staff present: Kevin Binger, staff director; Barbara 
Comstock, chief counsel; David Kass, deputy counsel and 
parliamentarian; John Griffin, senior counsel; James Schumann, 
counsel; Mark Corolla, director of communications; John 
Williams, deputy communications director; Carla Martin, chief 
clerk; Lisa Smith-Arafune, chief deputy clerk; Nicole 
Petrosino, legislative aide; Phil Schiliro, minority staff 
director; Phil Barnett, minority chief counsel; Elizabeth 
Mundinger and David Sadkin, minority counsels; Ellen Rayner, 
minority chief clerk; and Jean Gosa, minority staff assistant.
    Mr. Burton. Good morning. A quorum being present, the 
Committee on Government Reform will come to order. I ask 
unanimous consent that all Members' and witnesses' written 
opening statements be included in the record, and, without 
objection, so ordered.
    Today's hearing is the second in a series that examines the 
relationship between State and local governments and the 
Federal Government. Many of the most innovative and successful 
public policy reforms enacted in recent years originated at the 
State and local levels. Our first hearing covered the issue of 
crime and what States and localities are doing to fight it. 
Today and tomorrow, we are going to take a close look at the 
issue of tax reform, an appropriate issue for what is now 
notoriously known as tax week.
    We are currently debating a number of tax cut proposals in 
the Congress, and we have very large projected surpluses for 
the next 10 years. Someone said, let us not cut taxes now. 
Some, like myself, think the time is right for tax relief. One 
of the things we have to remember when we talk about is what is 
the appropriate level of taxes? It is that we are not the only 
ones who tax the American people. There are State taxes; there 
are local taxes. We need to look at the total tax burden on the 
American people. When you look at that, it is pretty high. The 
average family today pays more in taxes than it spends on food, 
clothing, shelter, and transportation combined. The average tax 
rate for 440,000 individuals who filed their returns in 1916 
was 2.75 percent. In contrast, today's total taxes from all 
levels of government--Federal, State, and local--stand at a 
record 32 percent of national income. In fact, Federal taxes 
alone consume about 21 percent of national income, the highest 
proportion since World War II. That means one-third of every 
person's check goes right to the Government. Is that too much? 
I think so. We have a chart that shows how tax freedom day has 
been extended between 1964 and 1968.
    [The chart referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T7470.001
    
    Mr. Burton. This chart shows what is known as tax freedom 
day has gotten and later and later over the years. According to 
the Tax Foundation, in 1964, the average American worked 103 
days until April 13 to pay their total tax bill, including 
Federal, State, and local taxes. Last year, tax freedom day was 
May 10th. The average American worked 129 days to pay their 
total tax bill. My point is when we are making important 
decisions on Federal tax policies, we need to take the total 
tax burden on the American people into consideration. Moreover, 
we must remember that not all States are fortunate enough to 
have innovative Governors like the ones we have here before us 
today. A number of States are still faced with Governors and 
legislatures who have yet to understand the importance of tax 
relief and reform and continue to burden their citizens with 
tax increases and more government bureaucracy.
    The committee's hearing will demonstrate how the Governors 
are doing their part to deal with this at the State levels, 
specifically, how they have reformed their respective State tax 
system to put more money in their citizen's pockets.
    From crime to education and from welfare reform to taxes, 
State and local governments have led the way in reforms. For 
example, much of the highly successful welfare reform law we 
passed in the 104th Congress was taken directly from reforms 
first enacted by Wisconsin's Governor, Tommy Thompson, who will 
testify before our committee next week. President Clinton 
vetoed welfare reform twice, but once the law was enacted it 
revolutionized the welfare system across America. Also in 
response to the Governors and mayors, the Republican Congress 
curbed the practice of imposing unfunded Federal mandates which 
place burdensome demands on States and local governments.
    Over the next several months, the committee will continue 
our series of hearings entitled, ``National Problems, Local 
Solutions: Federalism at Work,'' by examining the issues of 
welfare reform and education. Through these hearings, the 
committee will continue to highlight successful and innovative 
reforms at the State and local levels, so that many of the 
solutions to the problems facing America come from the State 
and local levels and not from Washington; determine which 
existing Federal programs best assist cities and States, and 
explore new ways that the Federal Government can help State and 
local governments in the most cost-effective way.
    Today's hearing is entitled, ``Tax Reform in the States.'' 
The Governors we will hear from today have all worked hard to 
ensure that the citizens of their respective States keep more 
of their hard-earned money instead of sending it to the State 
House. On that point, especially, the Federal Government can 
learn a lot. The Governors that are going to testify today and 
tomorrow have set an example for the Congress and the 
President, because these Governors recognize that the American 
people know best how to spend their own money. Furthermore, 
these Governors are included in the ranks of many Governors 
nationwide who have not only given more money back to the 
citizens but have stimulated economic growth while maintaining 
critical government services.
    Take Governor Mike Huckabee of Arkansas, for example, in 
1997, he worked for an across-the-board tax cut for the 
citizens of Arkansas. In addition, he has eliminated the State 
marriage tax penalties, something that we haven't done here in 
Congress. Governor Huckabee is now working to eliminate the 
State capital gains tax, something else that Congress should 
do. Governor Christine Todd Whitman, who is our first guest 
today, of New Jersey has cut every type of tax imaginable, 
including some taxes many people probably didn't even know they 
were paying, such as a tax on yellow pages advertising--I 
didn't know about that. Virginia Governor Jim Gilmore ran for 
election on and got the State legislature to pass an 
elimination of the car tax. He also proposed and passed tax 
exemptions for military personnel in order to give them a much 
needed financial break. And Governor Pataki of New York has 
also enacted tax cuts 36 times, saving the taxpayers of New 
York $19 billion. These Governors certainly deserve our 
attention.
    First, this morning, we are going to hear from Governor 
Whitman of New Jersey, a very intelligent, articulate, and 
attractive young lady. According to Governor Whitman, ``We are 
not giving anything back to the people; we are just taking less 
of what is already theirs.'' She was elected in 1993 on her 
commitment to make New Jersey government more responsible with 
taxpayers' dollars. She promised tax cuts and a more efficient 
government, and she has delivered. On her watch, New Jersey has 
added 300,000 new jobs; crime is at the lowest level it has 
been since 1974, and she has enacted at least 17 tax cuts.
    The centerpiece of her tax reform plan has been the 30 
percent cut of State income taxes. In three installments, she 
cut 30 percent for most New Jerseyans. In addition, she has 
taken care of the lowest income bracket by eliminating State 
income taxes altogether for 380,000 people in her State earning 
$7,500 or less. These are just a few of her many successes, 
but, most recently, Governor Whitman proposed a $1 billion 
school tax rebate to help further ease the tax burden of New 
Jersey citizens. This legislation is currently making its way 
through the New Jersey Legislature.
    I will talk about Governor Huckabee and the other 
Governors, subsequently, when they appear before our committee, 
but, right now, before I introduce our guest, Mr. Waxman, do 
you have any comments?
    Mr. Waxman. Yes, thank you very much, Mr. Chairman. I guess 
no one should be at all surprised that today's hearing is on 
taxes. It seems that every year, Republicans use the days 
around April 15th as a time to score political points. The 
chairman said that the Federal taxes are consuming the highest 
percentage of national income than at any time since World War 
II. This is not true. According to a recent analysis by the 
Treasury Department which looked at average income tax rates 
for a family of four, the average tax rate for a family earning 
the median income is at its lowest rates since 1965. For a 
family earning twice the median income, the rate is the lowest 
it has been in 25 years. The average income tax rate for a 
family earning one-half the median income is lower than any 
year covered by the report which goes back to 1955, and I have 
a chart over here which illustrates this point.
    Another myth is that States deserve all the credit for tax 
cuts we are going to hear about today, but the reality is that 
it is the strong economic growth under President Clinton, the 
longest peacetime expansion in history, that has made the so-
called Republican tax cuts possible. Let me review some 
economic statistics under the Clinton administration. The U.S. 
economy has created 18 million new jobs in the last 6 years, 
over 90 percent in the private sector, which has generated 
billions of dollars in additional tax revenues. Today's 
unemployment rate of 4.2 percent is down from 7.5 percent in 
1992 and has been below 5 percent for 21 consecutive months, 
the lowest sustained peacetime unemployment rate in 41 years.
    Since 1993, real wages have risen 6.1 percent compared to a 
decline of 4.3 percent during the previous two administrations. 
Real hour wages are up 2.5 percent in the past year alone after 
falling 5 percent from 1981 through 1992. The median family 
income, adjusted for inflation, is up $3,517 since 1993 after 
falling $1,835 between 1988 and 1992.
    And sometimes what we don't hear is as important as what we 
do hear. I don't think any of my Republican colleagues will 
complain today about what is called the Misery Index. The 
Misery Index, many of you may recall, was the quotient used by 
Ronald Reagan in 1980 that asked the question, ``Are you better 
off today than 4 years ago?'' The resounding answer today from 
coast to coast is yes. Since the Clinton-Gore administration 
came to office in 1993, we are better off. In New York, in 
California, in New Jersey, in Virginia, in Indiana, and nearly 
every other State, we are better off today than we were 6 years 
ago. It would appear that this strong economic growth, more 
than any other factor, has made these State tax cuts possible. 
More people working and making higher wages translates into 
higher tax revenues and lower expenditures on welfare and 
unemployment. Given these strong economic statistics, it is no 
wonder that the States now have money to pay for tax cuts.
    One illustration is what has taken place in New Jersey. In 
her written testimony submitted to the committee, Governor 
Whitman says that she was able to cut New Jersey's personal 
income tax by 30 percent while retaining the same level of tax 
revenue, but what makes this possible is more people working 
and paying taxes on higher incomes all of which has taken place 
under a Democratic administration.
    Yet another myth is that it is just Republican Governors 
who have cut taxes. This is also not true. Democratic 
Governors, none of whom, as far as I can tell, were invited 
today, as well as Republican Governors, have been able to take 
advantage of the strong economy of the last 6 years to cut 
taxes. For example, Indiana Governor O'Bannon cut taxes by $600 
million in his first year in office. He has proposed another $1 
billion in tax cuts in 1999. Governor Carper of Delaware has 
cut taxes for 5 consecutive years. Governor Locke of Washington 
and Governor Patton of Kentucky have signed tax cuts in recent 
years. In Missouri, Governor Carnahan has an increase in 
personal income tax exemptions as well as a reduction for 
health insurance costs for self-employed individuals. In fact, 
this year alone, 10 of the country's 19 Democratic Governors 
have proposed tax cuts for their States. But we are not going 
to hear from any of these Democratic Governors. We are also not 
going to hear testimony from anyone about the negative 
consequences of some of the Republican tax cuts. There is no 
mention that some States with Republican Governors would be 
forced to cut funds for education programs and health care to 
pay for tax cuts. There is also no mention of increases of 
State debt or increases in local taxes that are necessary to 
make up for cuts in State funding for services.
    So, I can't help but be a little skeptical about the 
motives behind this hearing. First, we have a hearing to 
showcase Republican Governors' tax cuts; then, tomorrow, the 
day taxes are due, Mr. McIntosh is holding a subcommittee 
hearing entitled--this is the title for the hearing--``Clinton-
Gore Versus the American Taxpayer.'' It would appear that these 
hearings are little more than a taxpayer-funded commercial for 
the Republican party. I find it ironic that the majority which 
says it is holding this hearing to find out how to save 
taxpayers' money would actually waste the taxpayers' money to 
hold what amounts to an RNC political event. With income taxes 
due tomorrow, I wonder what the taxpayers will think about 
that. Thank you, Mr. Chairman, for the opportunity to make this 
opening statement; I yield back the balance of my time.
    Mr. Burton. Thank you, Mr. Waxman, and, as you know, we 
always extend to the minority the right to invite someone, and 
this was no exception; the minority chose not to invite any 
Governors.
    Do any other Members have any opening statements?
    [The prepared statement of Hon. Benjamin Gilman follows:]

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    Mr. Burton. Ms. Whitman, thank you very much for being with 
us today. We really appreciate your being here, and, as you can 
see, there is some political jousting going on as is normal, 
but we would love to hear from you about what has been going on 
in your State and how you have dealt with your problems.

    STATEMENT OF CHRISTINE T. WHITMAN, GOVERNOR, NEW JERSEY

    Governor Whitman. Well, thank you very much, Mr. Chairman 
and good morning. I want to thank all the committee for the 
opportunity to talk about tax reform in the State of New 
Jersey.
    It has been said that the power to tax is the power to 
destroy; conversely, the power to cut taxes is the power to 
restore. A responsible government balances the pursuit of 
revenue to do the people's business with the pursuit of low 
taxes to keep the people in business.
    When I ran for Governor 6 years ago, the tax system of New 
Jersey was, frankly, way out of balance. A national recession 
had been compounded by the largest tax increase in our State's 
history, $2.8 billion in tax increases. Companies had fled New 
Jersey, and we were losing jobs by the hundreds of thousands. 
In an increasingly global economy, I believe that States must 
do all they can to attract jobs and, just as importantly, 
retain the jobs they already have, and it is clear to me that 
creating a competitive tax structure is integral in that 
effort.
    During my campaign, I proposed a steep cut in the State's 
personal income tax, including a 30 percent cut for the 
majority of New Jersey workers. I believed it was the right way 
to help families who were struggling to make ends meet as 
government took more and more money out of their paychecks. I 
believed it was a good way to force the State government to 
spend its money more intelligently, and I believed it was the 
only way to start reversing the exodus of companies and jobs 
from the State of New Jersey.
    The critics had a field day with my proposal, not 
surprisingly. Some said it was just a cynical ploy to get 
elected, and I had no intention of ever making it happen. Some 
feared I would cut taxes, because they said State government 
couldn't afford the loss of revenue. Others dismissed the idea 
as likely to have little effect on families or businesses.
    We phased in that income tax cut between 1994 and 1996, a 
year ahead of schedule and removed 350,000 low-income earners 
from income tax payments altogether. And let me tell you, in 
every one of those years, we increased the number of jobs and 
businesses in the State of New Jersey; we decreased the State's 
tax burden on our families, and we still brought in more tax 
revenues than we had the year before. We recovered every job 
lost during the previous administration and added well over 
130,000 more. More New Jerseyans are working today than ever 
before. In fact, New Jersey's unemployment rate is the lowest 
it has been in a decade.
    We received more good news in the most recent regional 
forecast analysis by WESA, and I would like to quote from it 
briefly: ``New Jersey now has the fastest employment growth in 
the mid-Atlantic region for the sixth straight year. It has 
outpaced both New York and Pennsylvania and all major sectors 
except for the two that are shrinking in the mid-Atlantic 
region, government and manufacturing,'' and I am very pleased 
that government leads that.
    Mr. Chairman, we have proved the critics wrong. Tax cuts 
work. They allow families to keep more of the money they earn. 
Whether they save, spend, or invest those dollars, that 
activity has a positive effect on the overall economy. 
Furthermore, cutting taxes challenges government to spend more 
efficiently, and tax cuts send a signal to business that 
government understands their needs for a competitive 
environment. In our case, we followed up on our personal income 
tax cuts with several business tax cuts, including one that 
gave New Jersey the lowest small business tax in the region.
    In total, we have cut taxes 17 times during my tenure with 
a cumulative savings of $6.5 billion by this July. While the 
income taxes save taxpayers the most, I would like to mention a 
few other key reforms in New Jersey's tax structure. We 
eliminated, as the chairman mentioned, a sales tax on yellow 
pages advertising which saves businesses, particularly small 
businesses who are very dependent on that advertising as the 
only way to meet their customers, $35 million a year. We 
enacted three tax cuts for research-intensive, high-tech 
businesses which ultimately will mean $34 million in savings to 
this key sector of the New Jersey economy. We have also 
restructured New Jersey's energy tax and have provided for a 45 
percent reduction in the energy tax rate. In replacing our 
utility tax, we will save homeowners and businesses $68 million 
by the end of next year. By cutting these taxes, we have sent a 
message that State government in New Jersey is on the side of 
the taxpayers. Yes, we are in the midst of a Nationwide boom, 
but I don't think it is coincidence that States like New 
Jersey, which have cut taxes, are doing exceptionally well.
    As I mentioned earlier, when I came into office, citizens 
were feeling overburdened by taxes at every level of 
government. Not only had their State taxes gone up but so had 
their local property taxes, at the same time as their property 
values were going down. During my administration, we have 
managed to help local government keep the rate of tax 
increases, of local property tax increases at historically low 
levels. But because property taxes are still too high in the 
State of New Jersey, we continue to fight for our taxpayers.
    Just yesterday, I signed four pieces of legislation that 
create a new $35 million State fund to reward towns and school 
districts that consolidate or share services. New Jersey 
suffers from an overabundance of local government. We have over 
600 school districts, 566 municipalities, enumerable water 
districts, fire districts, and other forms of local government. 
By combining efforts, these local governments can deliver 
better services at lower cost to the taxpayer.
    I am also pleased to say that we are going to provide an 
even more immediate and direct relief to property taxpayers. 
Tomorrow--and it is tax day, and there is some significance in 
that, which is why we are doing it then--I will sign into law a 
$1 billion Property Tax Relief Program. It is the largest 
property tax relief in our State's history. When it is fully 
phased in by the year 2002, every homeowner in New Jersey will 
receive a check averaging $600. It depends on their local 
school tax-property tax burden, and it is based on that, but 
the average check in the State will be $600, and it will be 
going to 1.9 million homeowners.
    Members of the committee, New Jersey's experience gives me 
confidence that tax cuts can make a tremendous contribution to 
the well-being and prosperity of the community, whether it is a 
town of 5,000 or a Nation of 50 States. The U.S. Congress 
deserves credit for moving our Nation to a balanced budget and 
a Federal surplus. Having dealt with that kind of situation at 
the State level, I know that you have been offered hundreds of 
ideas--and some of them very good ideas--as to how to spend 
that surplus even before it arrives.
    When considering what to do with the Federal surplus--and I 
hesitate to offer ideas to the Congress, because you know these 
issues far better than mere Governors of the States--but I 
believe that Congress should set aside funding for high 
priorities, like Social Security and education. I also believe, 
however, that Congress would do well to consider returning some 
of the surplus funds to hard-working, American taxpayers. As a 
Governor of a State that receives the lowest return on our 
Federal tax dollar--we are 50th of the 50 States--I also 
believe that kind of a tax cut would be the most equitable to 
the people of my State.
    Tax cuts work. They are important in sustaining economic 
growth, increasing savings and investment capital and, most of 
all, giving the working men and women of this country the 
opportunity to spend more of their hard-earned tax dollars on 
the needs of their families. Tax cuts keep government's 
relationship with the people in balance and help limit the size 
of government. What is more, they also keep our Nation headed 
toward prosperity as we head into a new century.
    Mr. Chairman, members of the committee, I thank you for 
your time, and I welcome any questions that you might have for 
me.
    [The prepared statement of Governor Whitman follows:]

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    Mr. Burton. Thank you Governor, and I think your record 
speaks for itself. When you were running, I believe, in 1993, 
during the campaign it was stated that if you were able to cut 
taxes as you had promised, the property tax rates would go 
through the ceiling. You mentioned that you are cutting 
property taxes, but can you tell us what happened immediately 
after you started implementing your tax cuts? What kind of 
effect did it have on the property taxes?
    Governor Whitman. Well, the property taxes in the State of 
New Jersey have gone up every year since we have kept records, 
save one. The 1 year where we didn't see a large increase was 
the first year after the $2.8 billion tax increase, but the 
very next year it started to go up again and went up at a rate 
faster than it has gone up over the 6 years of my 
administration.
    What we have done, we have increased municipal aid; we have 
also, more importantly, been giving the school districts and 
municipalities and counties more tools to help them be smarter 
on how they spend their money and try to keep those costs under 
control. In the State of New Jersey, we don't collect the 
property tax; we don't spend the property tax; that is local 
decisionmaking, but, obviously, State spending patterns have an 
impact. That is why we have taken over, for instance, in the 
course of my administration, the full responsibility for 
funding the county courts, taking a major burden off the 
counties, something they had to pay for before. We have 
increased dramatically our funding for schools and school 
districts, again, to help with the burden. We passed a State 
mandate-State pay piece of legislation, so we now very 
carefully consider anything we send down to the municipalities, 
much as you have done here, and provide State dollars if, in 
fact, it is a mandate.
    And because of all those, while property taxes have 
continued to go up, the rate has been better controlled, and 
with the legislation I signed yesterday, with the relief that 
we are going to be providing tomorrow and with future 
legislation that I hope to sign, we will continue to give local 
entities of government more opportunity to be smarter on how 
they spend their dollars and encouraging them to regionalize 
and to share services.
    Mr. Burton. During your remarks, you made a point that 
cutting taxes challenge government to spend more efficiently. 
We passed, here in Congress, what is called the Results Act 
where we are trying to get each agency of Government to come up 
with a business-like plan, and one of the problems we have had 
is that the bill we passed did not have a lot of teeth in it, 
so some of the agencies of Government, while they feign making 
some changes and coming up with a business plan, they are 
really not doing it, because we haven't put the teeth in it. 
Now, the chairman of the Appropriations Committee and I have 
sent a letter to all of the agencies saying that if they didn't 
comply with the Results Act that they might run the risk of 
having their appropriations cut. How did you implement spending 
cuts in various agencies of government to go along with the tax 
cuts in your administration? What kind of teeth did you put in 
that?
    Governor Whitman. Well, I have a distinct advantage over 
you in that; I am the teeth. I put the budget together, and I 
can tell the departments what it is that I think is appropriate 
after listening to them, obviously, and taking in all their 
concerns, and if the legislature determines to put more money 
in, I have the line item veto, and I have exercised it on 
numerous occasions.
    What we did and the first thing we looked at was 
controlling the rate of growth. We were spending faster than we 
were seeing revenue grow. We have now changed that. Our revenue 
stream is now growing faster than increases in expenditures. A 
lot of the expenditures we saw in State government were 
formula-driven over which we have no control. In fact, as we 
look at the pie of State government spending, the part over 
which the administration has control is ever shrinking, because 
so much of it comes with strings attached to either government 
strings that we have to match in order to be able to keep our 
dollars or it comes from negotiated contract settlements that 
have automatic escalator clauses in them, things over which we 
have very little control, but we look there first. And then I 
ask every department to go back and redefine their core 
mission, then to look at every program that they support and 
tell me and defend to me how that meets their core mission. 
And, as they come forward with new expenditure programs, they 
have to go back and do the same thing, and when I present the 
budget to the legislature, one of the agreements that we have 
come to is that, obviously, they can add things in spending, 
and that is fine, but where they start to impact on total 
spending, they have got to find commensurate cuts. If they want 
to change priorities and spend on a different program, I am 
willing to listen to that, obviously; they have a 
responsibility and right to do that, but they also have to 
understand the need to control spending overall, and we will 
set the ceiling and ask that they maintain that and that they 
find commensurate cuts if they want to increase expenditures in 
some other area.
    Mr. Burton. One last question, and then I will yield to my 
colleague from California. When you were running for Governor, 
you made one of the issues that Governor Florio's tax increases 
were hurting economic growth and revenues coming into the 
State, and you have cut taxes--he had increased taxes to bring 
in more revenue--and you say the revenue stream has increased, 
while after he increased taxes, the revenue stream went the 
other way. Can you explain that?
    Governor Whitman. Well, one of the problems that we faced 
after the increase of taxes added to an already bad situation; 
we were still in a recession. New Jersey, which traditionally 
had done better than the Northeast under any economic 
circumstances--if the Nation was doing well, New Jersey, 
generally, did a little bit better than the other States in the 
region, but when the Nation was doing badly, we still did a 
little better. We suddenly fell off a cliff after the tax 
increases. We started to lag behind our neighbors in the 
Northeast in the recovery. We were the slowest to come out of 
that recovery.
    By cutting the taxes, but sending the message that we were, 
in fact, interested in promoting business and giving taxpayers 
more of their dollars to spend or invest as they saw fit, we 
sent a very clear message that things were going to be 
changing, and people responded. They responded very well, and 
businesses responded, and we saw a change in that cycle of 
businesses closing and leaving, particularly small business, 
and, therefore, we were getting more revenue. I mean, the 
economy in the Nation was coming back, but we hadn't been 
benefiting from that end of the recession until we started to 
cut taxes and the regulatory burden we were placing on 
businesses, and that has made a real difference, and people 
have saved, and they have invested. We now, as I say, we have 
created over 330,000 more jobs. We have over 330,000 more jobs 
today than when I took office. It has been dramatic, the change 
has been dramatic, and we are once again, as WEFA has pointed 
out, leading the mid-Atlantic States in the recovery, and that 
is an even bigger jump than it might seem from our past 
history.
    Mr. Burton. Very good. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. Governor Whitman, I 
want to welcome you here today. The majority of people in New 
Jersey, when they were polled, believe that the cut in income 
taxes in your State was the cause for a dramatic increase in 
their property taxes, and, in fact, the average residential 
property tax increased, during the time that you were Governor, 
$698 which is more than a 20 percent increase, and the study by 
the Institute on Taxation and Economic Policy concluded New 
Jersey's per capita property tax bill is the highest in the 
country. The same non-partisan New Jersey Office of Legislative 
Services said ``While they got a reduction in income taxes, 
there was an increase in property taxes that weren't really 
offset;'' that the average household saved $410 in 1998 due to 
the income tax cut while its property tax increased $698.
    Now, you are proposing a $1 billion rebate to help deal 
with the problem that some people think was caused by the State 
income tax cut, and you are going to give some kind of rebate 
to property taxpayers for the future, but it doesn't really do 
anything about taxes paid between 1993 and 1997.
    What is going on here? It seems like government's taking 
with the one hand and giving with the other or giving with one 
hand and taking it away with the other. People see taxes going 
up on property, and that is more regressive than the income 
tax. Why is this--what do you think about that?
    Governor Whitman. Well, Congressman, as I indicated in my 
original answer, property taxes have been a problem in the 
State of New Jersey from the beginning, and, in fact, the 
overall rate increase was higher under my predecessor who 
raised every other tax, including a tax on toilet paper, $2.8 
billion in the State.
    We, unfortunately, at the State level don't control local 
government spending. We have an impact. This year, for 
instance, we have $8.4 billion in property tax relief. That 
includes a $5.4 billion in school aid; $1.6 billion in 
municipal aid going back to our municipalities, but if I were 
take the money that we are proposing and that I will actually 
sign tomorrow in the billion dollar Property Tax Relief Program 
and send that to the local districts, they would spend it. In 
fact, interestingly enough, we have school districts right now 
that are going to their public with their school bond issues 
and say ``Go ahead and vote for increasing spending for the 
school district, because the State is going to give you money 
back. So, you are going to be OK even if you increase this 
spending.'' We have----
    Mr. Waxman. Well, you would think that they would be led to 
believe that is because that is what is happening. You lower 
the tax rates at the State level; to make up for the money for 
services, the property taxes are increased. You say you don't 
have a connection to it, but now you are going to give a rebate 
to those taxpayers----
    Governor Whitman. We are going to give a rebate to the 
people, because we can't control the local spending. We took 
over the county court system, literally tens of millions of 
dollars. Unfortunately, the counties did not respond by 
lowering property taxes to their constituents; they increased 
spending, and that is the concern that we have. The only way to 
get directly to the taxpayer to provide the relief they need is 
to send the check directly to them.
    Would I rather see property taxes overall decrease? Yes, 
but I will tell you that I would far rather decrease every tax 
that I can than to see what happened during the Florio 
administration where we increased taxes $2.8 billion on 
everything else, and property taxes went up faster than they 
have gone up in the last 6 years, and property values were 
going down at that time, so you have got a double whammy there.
    Mr. Waxman. I am not a citizen of New Jersey; I don't 
follow it all that carefully. Some of your critics said that 
you have scaled back on State contributions to State pension 
plans and unemployment insurance funds, from reimbursing 
hospitals for medical care for the uninsured, and that funding 
for transportation and child welfare was cut, and the debt was 
increased. I don't know if this is happening or not----
    Governor Whitman. Sure, may I answer that?
    Mr. Waxman [continuing]. But I want you to answer this 
question, and you can elaborate on it. Your presentation to us 
sounded wonderful. You lowered taxes; there are more jobs; 
people have got money in their pockets; the economy benefited 
from it. Yet, in 1997, when you ran for reelection, you had one 
of the closest elections in the country; it was 47 percent to 
46 percent. What was going on in New Jersey to make people not 
appreciate all the wonderful things you have done for them? Or 
did they have some questions as to whether we're going as well 
as you presented it?
    Governor Whitman. Well, Congressman, you understand 
politics, and in the State of New Jersey where we have a 
registration that is overwhelmingly independent and then more 
Democrats than Republicans, we are a very competitive State. 
Auto insurance has always been a problem in the State of New 
Jersey, and we have now--I have signed legislation that has 
provided a 15 percent reduction in auto insurance to the people 
of the State; all good drivers get 15 percent off of the 
mandated policy, but that hadn't happened before the election, 
and people were really angry over auto insurance. Because 
everything else was going well enough, they were now focusing 
on other issues.
    But I would like to respond to some of what you had in your 
question about debt, because this is something I hear about a 
great deal. We have maintained our general obligation debt at 
approximately 3 percent of our appropriations. In fact, when 
you put all debt in, and I believe in acknowledging all debt, 
and the situation I walked into, I found a lot of debt that was 
off the books as well as debt on the books. We have kept all 
the debt--it is lower now as a percentage of the budget itself.
    Debt has increased--overall debt has increased $146 million 
in the 6 years that I have been Governor of the State of New 
Jersey. That has gone to build roads; it has gone to build jail 
cells; it has gone to help with construction for educational 
facilities; it has gone for the appropriate things.
    I faced a $400 million unanticipated spike in debt service 
left by the previous administration, about $8 million in debt 
that was not on the books. We have saved the taxpayers in 
pension costs about $46 billion in payment. It has been a very 
successful record. It has taken a lot of work and a lot of 
effort. We have reduced our reliance on one-shots. When I came 
into office, it was almost $2 million; it is now down to about 
2 percent of the overall budget, a little over $360 million. It 
is a lot of hard fiscal discipline that is required here, but 
the truth of the story is that we have reduced expenditures; we 
have kept debt steady and focused debt on where it needs to be 
but have recognized all the debt. We are not playing any games 
here. We have not sold a piece of highway to one of our 
authorities and somehow recognized the revenue as being good 
revenue.
    So, it is important to understand that we have truly made a 
difference in the fiscal structure of the State of New Jersey, 
and I am very proud of that record. It is not to say that we 
have solved all the problems, and it is not to say that 
property taxes aren't still too high or that auto insurance 
doesn't still need a lot of work. They both do, but we have 
been very aggressive and will continue to be aggressive in 
dealing with them.
    Mr. Burton. Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman, and, welcome, Mrs. 
Whitman. I come from Illinois which I think has some 
similarities to New Jersey in that we are 48 out of 50 States 
in return of our tax dollars. We also have an overabundance of 
local government. I think we have the leader in having the most 
unusual townships, county, and et cetera in local government.
    I am interested in your funding of schools. I know that in 
Illinois we have a primary duty of the State to fund local 
schools, and, certainly, our property taxes are amongst the 
highest, and funding comes mostly from the property taxes, 
although the State does try to--the paramount duty has been 
thought to be 51 percent, but as the property taxes keep 
rising, it is very difficult for the State to keep up, and we 
don't meet that requirement. Do you have the same thing? What 
is your obligation to fund the schools?
    Governor Whitman. We are facing the same problem. The 
proportion of the State budget that goes to school aid now is 
just about one-third. It is right around $6 billion in school 
aid. We have increased every year dramatically, and it is 
still, though, largely funded for most of the districts through 
the property tax. We have what is known as special needs 
districts where the State bears up to 70 percent--we pay up to 
70 percent or more of those districts, and in others in 
wealthier districts, we don't maintain the same proportion 
percentage-wise.
    What we have done in changing the structure of funding for 
education--and for the first time in 28 years the Supreme Court 
has approved the funding proposal and methodology that the 
States put forward, and we are no longer under court order 
here--but what we have done is we are now recognizing 
enrollment, and for the first time we are going to a full 
enrollment and basing our funding on enrollment, but we are 
also basing it on something new in the State of New Jersey 
which are standards and accountability. We had no standards in 
our schools to speak of. We now have standards in seven 
academic areas. We are testing children in the 4th, 8th, and 
11th grades, and we are watching school's performances, and we 
are rewarding those schools whose children are succeeding on 
those tests. We are going to be intervening earlier in schools 
where children are not achieving those tests, and that is also 
a part of the school funding. The basic formula, however, is 
based on enrollment. We have determined what it should take to 
deliver to the core curriculum standards, and, therefore, we 
are looking at schools that are above or below that average and 
seeing what their children are doing.
    We also have proposed and we have in place now a very 
comprehensive report card on school districts that shows what 
money is being spent and how it is being spent. We are No. 1 in 
the Nation, still, on what we spend on average per child in the 
classroom. When I took office, we were No. 1 on what we spend 
on child, on average, through education. But we're 37th on what 
was actually reaching the child in the classroom and what we 
were spending on the child in the classroom, and our kids were 
achieving at about 35th percentile. There is clearly something 
wrong with that. We were willing to pay a lot of money on 
education on a per child basis, but it was not reaching the 
children.
    So, that is why we have changed the way we are doing the 
funding. We have given the State a greater ability to work with 
in a collegial way, not a takeover way, but a collegial way 
with school districts that are having trouble delivering that 
education into the classroom, and we are looking forward to 
ensuring that we are seeing our kids meet those standards, 
training our teachers, and by the time I leave office, we will 
have every classroom in the State of New Jersey, not every 
school, but every classroom in the State of New Jersey wired 
for the Internet or distance learning.
    We are combining those things with the increased spending 
that we have put in and the way we are trying to help 
municipalities and school districts. We have school districts 
that have no schools in them, and still there is a school 
district and elected board, and they have some administrative 
personnel which costs everybody money and is wasted money as 
far as I am concerned and as far as I believe the children are 
concerned. So, we are trying to ensure the efficiency, focus on 
the need in the classroom, and ensure that the State's 
proportion is equitable but not wasted money.
    Mrs. Biggert. Well, certainly, one thing that we hear a lot 
about or at least when I was in the Illinois Legislature, too, 
was the mandates and mandates that we were putting on schools 
or local government, and I noticed that you also had signed 
legislation which provided that local government and taxpayers 
with relief from unfunded State mandates and then eliminated 
existing mandates. Could you expand on that a little bit?
    Governor Whitman. What we have been doing is reviewing 
every place where the State has placed a mandate that has 
considerable financial obligations with it to ensure that it is 
within the scope of what we deem to be the most appropriate 
thing. We are not going back and refunding dollars on that. 
What we have said is going forward--we grandfathered the 
existing programs--but we have said going forward--and it has 
changed legislation in many instances--any time we have a 
mandate that has a dollar amount with it that is going to cost 
local districts money to implement, the State must pick up 
those dollars, and we have been doing that. The good part of 
that is that it discourages a lot of legislation. People have 
thought very carefully now about whether, in fact, this is 
important legislation to implement when they are going to have 
to come up with the dollars to pay for it, and that is very 
important, we think, at the State level. It is nice to have a 
great idea, but when you start to get serious about who pays 
for it, there is a second look that is taken.
    And, so we are reviewing everything very carefully. We have 
been reducing mandates, particularly in education. We now do 
have charter schools in the State of New Jersey which are very 
successful, and a lot of those--the reason for the having 
them--I mean, one of the advantages that you get is you are 
outside of a lot of the requirements of the Department of 
Education, and that is a good thing. I would like to see more 
charter schools, and we are moving toward that each year.
    Mrs. Biggert. Are there some mandates you think that the 
Federal Government has placed on the States that we should be 
doing the same thing?
    Governor Whitman. I could give you a list, and I would be 
happy to give you a list. We don't expect in State government--
certainly, I don't expect--to get money from the Federal 
Government without parameters, without some kind of overall 
goal as to what should be achieved through those dollars, but 
what starts to lose us money, what wastes us all time is when 
we get so prescriptive that you have to spend so much of your 
time filling out forms in order to get the dollars or trying to 
configure and squeeze a State program into the Federal mandate 
even though that is not where we need to spend our money.
    We have done something very different in the State of New 
Jersey as far as combining all the dollars that we--we have 
done it with a focus on our cities, particularly our inner 
cities, and I have put together a cabinet of the whole and 
asked them, all departments that have anything to do, any 
programs that impact on our cities, to come together to reduce 
the requirements and the strings attached and asked our cities 
to come forward, particularly with--we have asked them to put 
together local groups that will tell us neighborhood by 
neighborhood what that neighborhood needs, recognizing that not 
only are cities different, one from another, but the 
neighborhoods within those cities are different, and we have 
asked the people to come forward with what their needs are, and 
we have put together, we have taken money from every program 
that we have available and allowed them flexibility to apply 
those dollars to their needs, so that it is not a one-size-
fits-all, and the challenge, of course, that you face here is 
you are dealing with 50 different States, and what works in New 
Jersey is not going to in Wyoming; it is not going to in 
Illinois, necessary. The flexibility is required at the local 
level to be able--and at the State level to be able to 
reconfigure those dollars to meet the needs.
    In education, there are a lot of Federal programs that have 
strings attached on education. We are now in the process of 
whole school reform within our special needs district. That 
means changing the way we set our schools up from the ground 
up. It means taking parents--getting parents involved in the 
system and administrators and teachers and changing the length 
of the day, the way they present the classes. We need to 
oversee--that is what the courts accepted when they accepted 
our proposal on State spending for schools. That is what they 
want to see happen. We need to make sure that our special needs 
districts are addressing those needs. I have a real concern 
that a great deal of Federal money that bypasses the States and 
goes straight to the municipalities, we will have no control 
over; we will have no ability to ensure that they are, in fact, 
meeting the needs in the classroom as has been accepted by our 
State supreme court, and that is a real concern that I have, 
and as you look at legislation, I would just urge you to 
understand that there is a great difference amongst the States 
about needs, and while we are trying not to be overly 
prescriptive on the individual districts, we have standards and 
accountability at the State level, and we need to ensure that 
our districts are meeting those.
    Mr. Burton. Before we yield to Mr. Towns, let me just say 
that any information that you have or any recommendations that 
you might have, Governor Whitman, regarding Federal mandates 
and how they restrict rather than help, if you could have your 
staff submit those to us, we will take a look at them; maybe we 
can help you with them.
    Governor Whitman. Certainly.
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    Mr. Burton. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. I am looking 
at this, and I am trying to make certain that it is as 
beautiful as you say it is, and I want to ask some questions to 
sort of help me come through this. What about the fees and 
tuitions for colleges and universities? Has New Jersey 
increased the tuition or fees paid by college students?
    Governor Whitman. What I did is, when I first came into 
office, is revamp the higher education system and the 
individual universities are now much more independent. College 
tuitions have generally gone up. They have gone up--although 
the county colleges, we put a huge investment in last year and 
this year, and those tuitions did not rise at all either year. 
Some of our independent and 4-year colleges have gone up, but, 
at the same time, we have greatly increased our equal 
opportunity funding and our scholarship programs for students 
to ensure that they are able to meet those costs.
    Mr. Towns. What about marriage licenses?
    Governor Whitman. The cost of a marriage license? I don't 
know--it is my 25th anniversary next year; I haven't gotten one 
recently, so I honestly have to tell you----
    Mr. Towns. A lot of people in New Jersey have gotten them, 
though.
    Governor Whitman. Yes, fortunately.
    Mr. Towns. And that is a way to raise money.
    Governor Whitman. That is a municipal. The State doesn't 
collect----
    Mr. Towns. Well, no, I am thinking about in terms of what 
municipalities have to do when the State cuts the budget.
    Governor Whitman. But we haven't cut municipal aid, 
Congressman. Municipal aid, overall, has gone up in the 6 years 
that I have been Governor, and, as I said, it is well over $1 
billion this year; it is $1.6 billion in municipal aid this 
year. What we need to see at the municipal level is the same 
kind of discipline in spending that we have been able to 
exercise at the State level.
    Mr. Towns. Let me be quite specific. You know, you 
indicated that you are urging in terms of the sharing of--to 
consolidate, and that word sort of bothers me, because certain 
things, as we know, once they are consolidated, you are talking 
about schools consolidating and becoming one or maybe two small 
schools coming together becoming a bigger school. To me, that 
is not anything I am impressed with, because one thing that we 
have learned about education is that in smaller schools people 
learn more. So, I would not be impressed with encouraging those 
kind of things. So, tell me what you are talking about here.
    Governor Whitman. Well, Congressman, I can understand what 
you are saying, and we all appreciate the need for manageable 
class sizes and the best education for our students, but when 
you have school districts that have no schools, I think that 
school district doesn't need to be in existence. When taxpayers 
have to pay for a district with no school attached to it, 
because they are regionalized, because they don't have a school 
there, then I think it is perfectly reasonable to encourage 
them to talk about sharing services or to do away with that 
school district, but what we have done is provided $10 million 
in aid to districts, to school districts and to counties, to 
study whether or not consolidation of services is appropriate, 
and it doesn't mean consolidating school districts, necessary. 
Perhaps, you can share the food service; perhaps, you can share 
the janitorial service.
    Let me give you an example, not in a school district, but 
five towns in Hudson County in the northern part of New Jersey 
came together to regionalize their fire departments, and those 
are heavily unionized; there are a lot of people involved in 
that. They were able to get that done at an annual savings that 
could be as high as $5 million a year to their local 
constituents, and everyone involved--nobody lost their job; 
nobody saw a reduction in their salaries because of some aid 
that we provided them to do this, and they are seeing better 
service from their fire departments. In fact, they even will 
point to a life that was saved, because they had better 
response time from the consolidated service. That kind of thing 
makes eminent sense to me.
    Mr. Towns. Still, when it comes to schools, I think you 
have to be careful with that, because the one thing----
    Governor Whitman. This is a local decision.
    Mr. Towns. Yes, well, and I think that it is a local 
decision, but it is something being encouraged by the State.
    Governor Whitman. Sure.
    Mr. Towns. Because when you say--you are part to it, 
because if you are saying this is what you do, people will 
respond to that, because, after all, you are the Governor.
    Governor Whitman. Oh, don't I wish people would respond if 
I said, ``This is what you should do.'' Unfortunately, they 
don't.
    Mr. Towns. Well, if you say consolidate and you save $35 
million, that is enough to create an incentive, you know.
    Governor Whitman. Well, we believe that is appropriate to 
look at what is appropriate to do. But you have to understand, 
Congressman, we also have very strict standards for our 
schools. We have standards and accountability; we have never 
had that before, and there is nothing under consolidation that 
would allow for a reduction in the standards, and I want to 
make sure--coming from a State that when I took office was No. 
1 in the Nation on what it spent on its student on average but 
37th in what reached the student in the classroom, we weren't 
doing things right, and we weren't helping our students. So, I 
believe that we should be willing to look at changes, because, 
provided, they are geared to helping both the students and the 
taxpayers, and they can do both of those things.
    Mr. Towns. Let me raise this one--you know, I am trying to 
be impressed, but I am having difficulty. It does not make 
sense to me to continue the tax cuts while at the same time you 
are increasing the State debt. I am referring to the $2.7 
billion in pension bonds issued by the State. You look good, 
but the next Governor is going to catch hell.
    Governor Whitman. Actually, it is quite the opposite. The 
next Governor is going to be in a very good position, and I am 
glad you brought up the pension bond, because I know a lot of 
the people who have been doing some of the research on the 
other side of the aisle have been kind of fixated on that. We 
had an unfunded pension liability, and I don't know about you, 
Congressman, but I think that is a real liability. It was never 
the intention, I don't believe, of anyone in State government 
not to fund our pension system, and for them to claim anything 
else is disingenuous at best. So, that was a liability of the 
State. We had this liability of $4.25 billion, and it was 
funded through the pension system at an exorbitant rate of 8.75 
percent over a 60-year period. As you know, the economy has 
gotten better; the market has gotten better, and what we did is 
we refinanced that. We paid off some of it, because we were 
able to pay it off. We refinanced it at 7.64 percent, and we 
reduced the time of the payments to 36 years--32 years, excuse 
me, and we are saving the taxpayers of the State of New Jersey 
$47 billion over the life of this. That is a significant 
saving, and that is an important saving, and unlike what I 
found when I walked into office--when I walked into the office, 
the second budget, I was hit with a $400 million unanticipated 
spike in debt service, left me by the previous administration. 
These payments, we have paid them, we have frontloaded, so we 
paid, and now it is going to be smoothed out and subsequent 
administrations are going to know exactly what they are going 
to pay. It is less because we were able to well manage this, 
and, in fact, we have seen an increase and are subject to 
appropriation debt by the stock market; our rating and our debt 
has gone up.
    Mr. Burton. Mr. Horn.
    Mr. Horn. Thank you, Mr. Chairman. Governor, I have been 
long impressed with your fine record. You have had a scandal-
free administration, and you do deal with the nitty-gritty, and 
that is what Governors need to do, and I think what you have 
told us this morning shows you have been very successful. I 
read with interest your comment when considering what to do 
with the Federal surplus, ``I believe Congress should set aside 
funding for high priorities like Social Security and 
education.'' I agree with you on that, but I would give you 
another choice, I would be curious and like your advice. 
Another choice besides tax cuts which affect the present 
generation, to retire a lot of the national debt which will 
affect our grandchildren, and since we created most of that 
debt, and the Congress is the one that created it, that we 
ought to start retiring that, and I just wonder what your 
thinking is as to how we balance tax cuts for the current 
individuals that are working citizens versus retiring the 
national debt which has a heavy interest load and we could put 
that to a lot better use.
    Governor Whitman. Well, Congressman, I appreciate what you 
are saying, and I well understand the burden of the debt that 
we all pay for over time, and all that I want to do is to urge 
you to look at the record of the States where we have cut taxes 
and see what their impact has been on economic growth. What we 
need to see is increased growth. I don't believe it is an 
either or in any of these circumstances, and that is the 
argument that you hear so much--you can either cut taxes or you 
can address the debt or you can address Social Security. I can 
believe that you can do some of almost all of that, and all I 
am saying is that I believe that tax cuts should be part of the 
mix that is being considered because of the stimulus they will 
have to economic growth. We have seen it occur; we have seen 
increased savings; we have seen increased investment; we have 
seen increased expenditures in our State which has given us 
more in revenue, so that we are able to do more in those areas 
where we need to do it, and we have reduced some of our debt 
payments. We have restructured our debt, as the Congressman 
brought out, and it is a charge that is leveled on a regular 
basis with some misunderstanding of fact. We have, in fact, 
been able to restructure that debt in a very positive way. I 
wouldn't presume to tell you how that balance should be. All I 
want to indicate is that as we have seen--and you will hear 
from the other Governors who will be testifying--that tax cuts 
can stimulate an economy and can provide more in revenues to 
allow for an even greater attack, perhaps, on the deficit over 
the years.
    Mr. Horn. Well, I thank you for that answer. Let me throw 
out one other program on the table that I was a strong 
supporter for, and this is revenue sharing. Revenue sharing 
occurred because the Ways and Means chairman, Wilbur Mills, 
decided that you needed to do something to please mayors and, 
perhaps, Governors, and he quit sitting on that bill, and it 
lasted from roughly 1973 to 1983 when, unfortunately, a 
Republican President let the majority in the Congress, which 
was Democratic, kill it. They have never been for it; the 
lobbyists all over Washington had never been for it, and yet 
what it did was return money to the communities, to the States, 
and they are the people that know what the needs are better 
than we do sitting in Washington. What do you feel about 
revenue sharing if we have continuing surpluses?
    Governor Whitman. Well, I certainly agree that those 
closest to the problem have a better understanding of how to 
solve the problem and how to spend the moneys. My argument, I 
guess, would be, while I certainly would never say no to 
revenue sharing as the State that gets the least back from the 
Federal Government--we send about $17 billion more down here a 
year than we see returned to New Jersey--that we would like to 
see fewer regulations; we would like to see some of the 
formulas on programs a little more equitable for our State and 
that we could do more with that with less regulation. However 
we get the money back, we will take it, don't get me wrong; I 
am never going to say no to that, but, again, I believe you can 
do that within the context of still considering tax cuts, and, 
to me, from the State of New Jersey's perspective, I don't know 
that we are going to get a better shot at seeing some more 
equity than through tax cuts, as, again, we may not send the 
most down here, but we get the least back than any other State. 
I want to see my citizens get the kind of relief that they 
deserve from the Federal Government.
    Mr. Horn. Well, thank you very much. Thank you, Mr. 
Chairman.
    Mr. Burton. Thank you, Mr. Horn. Mr. Ford.
    Mr. Ford. Thank you, Mr. Chairman and, Governor, good to 
see you; glad that you are here. Just to piggyback on what my 
colleague, Mr. Horn, has said, as you know we are dealing with 
this issue right now here in the Congress, and all of us, I 
think, support tax cuts. One of the concerns we have is things 
are going so well, we know we have these debts and obligations 
as you have in New Jersey, and some of us on both sides of the 
aisles just feel that we ought to take care of some of those 
debts and obligations before we go spending the money. I mean, 
if you have a family of three children that are going to go to 
college and you hit the lottery, it would be foolish to go to 
Atlantic City and spend all the money before you take----
    Governor Whitman. Oh, no, I think you definitely ought to 
come to Atlantic City to spend it.
    Mr. Ford. We would like you to come down to Tunisa, where I 
am from, if you really want to spend the money. But it would be 
foolish to go and waste all the money and then come back and 
complain when you have lost all the money when your kids are 
getting ready to go to college.
    As you know, we are running into a time period where 
Medicare will run out of money and Social Security is expected 
to run out of money. The strength of the economy has extended 
the solvency of both of the programs, we well know, but we are 
in the process of debating--as we speak, on the floor right 
now, we are debating the budget resolution rules, and one of 
the key issues is what Mr. Horn talked about, and I would just 
like if maybe you could explore it a little further. I know you 
gave him an answer but we have an $800 billion tax cut that has 
been put on the floor by my colleagues on the other side of the 
aisle. I am a new Democrat; I want as many tax cuts as we can 
possibly get, but, at the same time, I want my kids to be 
educated, and I want all the other services which you have to 
balance in New Jersey, and my Governor and the other Governors 
who will testify before the committee have to figure out how to 
balance.
    My concern is I just don't--I can't for the life of me 
figure out if we are still running a debt, we know we have 
obligations--Medicare and Social Security here at the Federal 
level--you can't answer those questions; I know you want to 
answer those questions one day, but you can't answer those 
questions now--but in your State, you were responding to my 
colleague, Mr. Towns, and I know before he left he asked the 
question regarding the tax cuts increasing the State debt by 30 
percent, and you talked about the restructuring of the debt, 
but it is our understanding that it will end up costing 
taxpayers about $10 billion in debt service over the 35-year 
life of the loan.
    Maybe you can address that question as well as maybe give 
us some guidance up here. I know you folks at the State and 
local level pretend that we, in the Congress, are kind of 
neanderthal and have no sense of what is going on at home--I go 
home every weekend; I take issue with my colleagues who think 
that we in Washington are ignorant and disconnected from the 
American people. I am connected to my district, and I think I 
have a sense of what they want and if they want more dollars, 
but they also want good schools and good roads and not to have 
to pay high taxes. So, if you wouldn't mind responding to that 
meandering question or set of questions that I asked, I would 
appreciate it.
    Governor Whitman. Well, the question on the debt is a very 
real one, and, as I indicated in my previous answers, it is not 
up to me to give you advice as to how to do it but simply to 
give you the benefit--to the extent that it is a benefit--of 
the experience that we have had in the State of New Jersey, 
and, as I indicated earlier in my answer on the debt is, what 
we have done in the debt of the State of New Jersey is taken 
all debt on the books and off the books and put it on the 
books. I think it is disingenuous to pretend that something 
like a pension bond, an ongoing obligation, is not a debt. It 
is a debt; you are going to pay that to the people who were 
relying on their pension bond security for their future. We 
have now fully paid that; that is fully funded, and it appears 
as debt where it didn't before; it was hidden off the books. 
There is a total of about $8 billion worth of that that we have 
been looking at.
    So, you need to be honest about what your debt is and pull 
it all together. As I have indicated, we have been able to 
restructure that and save on the pension side of it $47 billion 
and shorten the lifetime of that, but bonding is an important 
part of government. I also believe very firmly that when you 
build roads and bridges, when you build schools, when you build 
prisons, those are things that are going to be enjoyed by 
future generations and just as many--there are very few people 
who can afford to pay for their house all up front and take the 
mortgage over time and particularly for new construction. We 
are doing the same thing, and that is appropriate. What you 
want to do is maintain it as a reasonable percentage of your 
appropriations, and we have maintained debt at just below 3 
percent of our appropriations. That is where it stayed 
throughout my administration; that is where it was before, and 
that is manageable. It wouldn't be good fiscal policy if you 
were to say that you will never have a debt. There is going to 
be some debt, and as long as it is a bonded obligation for 
appropriate things that the people want and need that will be 
used over time and out the long-term, then I think there is 
nothing wrong with that as long as you keep it as a manageable 
percentage of your overall revenues and expenditures, and, as I 
say, we have it at just under 3 percent and find that to be a 
manageable amount, and we think it is the appropriate amount.
    Mr. Ford. Would you advocate that we do something similar 
to that here at the Federal level?
    Governor Whitman. Your ability to control spending is very 
different than mine, and, therefore, I can only say that that 
kind of thing works well in our State. You will be hearing from 
other Governors who might have a slightly different balance 
ration than we do, but that certainly is one that is manageable 
for the State of New Jersey.
    Mr. Ford. You Governors are very interesting people. You 
tell us the things that you think we are doing that are working 
but won't tell us the things that we ought to be doing and you 
know that we ought to be doing.
    Last question, just sort of in a different issue with 
regard to education. We have a raging debate happening here in 
the Congress now and will come up. I serve on the Education 
Committee as well, Governor, and we will talk about the 
reorganization of ESCA very soon. What are your thoughts about 
a Federal role in education? I know some of us believe that the 
Federal Government can build prisons and roads and highways, 
and, perhaps, we ought to at a minimum explore and, perhaps, 
begin helping local and State governments find or create 
avenues to pay for school construction, and, as you know, the 
President's regime is calling for more accountability, tying 
that to funds and rewarding schools and school districts that 
are doing the right thing, and you sound as if you have a great 
interest and passion in doing the right thing and have been 
doing some good things.
    Governor Whitman. Well, Congressman, I have to tell you 
that the concern I have is when I hear things like a little 
more control and management. We have spent a long time in New 
Jersey in developing our core standards in seven academic areas 
that I mentioned before, and they are very comprehensive. I 
would be very upset if the Federal Government told me I 
couldn't get Federal money if I didn't change those standards 
to meet something that the Federal Government had come up with, 
and almost every State that I know--it doesn't matter whether 
the Governor is Republican or Democrat; Jim Hunt has been at 
the forefront of educational processes. They have made real 
changes within their State educational systems and structures 
in order to enhance the education to our kids, and while the 
Federal Government, I believe, has the potential for a 
wonderful role of bringing in a lot of information, what are we 
competing against? What is happening in Japan and Germany? That 
is where our kids are going to have--they are going to have to 
be as smart as kids anywhere in the world, and each State can't 
reinvent that or do all the research that is necessary to find 
out how we continue to keep our standards at a world-class 
level, and that is where the Federal Government can help. 
Obviously, the Federal Government can help with dollars, it 
always can, but when they come with too much prescription that 
requires that you can only have certain kind of class days or 
class sizes or certain types of standards, that is when it 
starts to get away from what I think we have all thought 
education should be, is that the local determine with some 
overarching policy that ensures that children are getting the 
kind of education that will enable them to compete in the 21st 
century.
    So, as you look at this, my real concern is, well, I don't 
believe we should ever get dollars at the State level that come 
with nothing; just spend it on anything you want. I don't 
expect that to happen; I don't think it would be appropriate.
    Mr. Ford. You are the first Governor to say that; we ought 
to mark that down, Mr. Chairman.
    Governor Whitman. Well, it is something I have said over 
and over, and I wouldn't expect anything less from a 
responsible Congress, but I would also urge you to understand 
that the varieties not just between States but within school 
districts within States is such that it is very difficult to 
come up with Federal standards that aren't going to end up 
causing us to spend more time and more money just filling out 
papers and trying to reconfigure education to fit those molds 
than really making a difference in the classroom for the child.
    Mr. Ford. Thank you, Governor; thank you, Mr. Chairman.
    Mr. Burton. Thank you. Mr. Kucinich.
    Mr. Kucinich. Thank you, Mr. Chairman. I just wanted to 
welcome the Governor, and, Mr. Chairman, I have a statement I 
will ask to be put in the record. Thank you.
    Mr. Burton. Without objection.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

[GRAPHIC] [TIFF OMITTED] T7470.022

    Mr. Burton. Governor Whitman, you have been an excellent 
witness, and you sure know your facts, and we really appreciate 
that. You have been a big help. You have proved your critics 
incorrect when you got elected and cut taxes and stimulated 
economic growth in your State, and you are to be congratulated, 
and I will look forward to working with you in the future.
    We will stand in recess until this afternoon when we will 
hear from Governor Huckabee.
    Governor Whitman. Wonderful, thank you very much for the 
opportunity; I appreciate it.
    [Recess.]
    Mr. Burton [presiding]. Governor Huckabee, welcome. Sorry 
for the delay. We have, on the floor, one of our census bills, 
and, as a result, we have a number of our Members who are 
members of our subcommittee that are down there debating and 
discussing that issue, because it is very controversial. It 
involves allowing local mayors and local officials to have a 
voice in the census, and so you will see Members coming in and 
out, and that is the reason why we don't have a lot of Members. 
On the Democrat side, I don't think they are of a mind to give 
a lot of credence to what our Republican Governors are saying, 
so that is why you won't see a lot of those Members.
    Before I yield to my colleague for your introduction, 
Governor, we really appreciate you testifying, and your 
information will be regarded by all the Members as very 
important, for the record.
    Governor Huckabee was the Lieutenant Governor of Arkansas 
in July 1996 and became Governor when Jim ``Guy'' Tucker, 
resigned, and, as you said in your news conference with us 
awhile ago, you are the first Governor, I guess, in history to 
cut taxes, and I am sure that was popular, and we are very 
happy about that. I would like to tell you, Governor, that in 
addition to having some very fine representatives from Arkansas 
representing your State, this fellow right here is from 
Magnolia, AR, and he is one of our strong right arms on the 
committee, and he does a great job. He told me to tell you 
that. I don't know why. Maybe he has political ambitions. 
[Laughter.]
    And, with that, let me just say, I want to welcome you to 
the committee. We appreciate you being here. I know it is a big 
imposition for you to come all the way from Arkansas, and, with 
that, let me introduce Asa Hutchinson to welcome you.
    Mr. Hutchinson. Thank you, Mr. Chairman, and I appreciate 
this privilege and express my greetings to Jay Dickey, my 
colleague, who is at the table as well. I am delighted to have 
this opportunity to introduce my friend and the Governor of our 
State, Mike Huckabee. I want to congratulate you first for the 
outstanding session that you just completed that drew 
bipartisan praise from all areas for the leadership that you 
provided in passing a much needed highway program, providing 
tax relief initiatives I know that you will talk about, 
including deregulation of the electric industry, and more 
realistic laws dealing with teen violence. You are dealing with 
the same issues that we are trying to address here in Congress, 
but you have had a very successful session, and all of those 
were achieved under a balanced budget.
    I have known Governor Huckabee since he first entered 
public life. From the beginning, Governor Huckabee demonstrated 
leadership and personal strength in his service to the people 
of Arkansas. This was apparent during the turbulent days and 
the transition after the resignation of former Governor Jim 
``Guy'' Tucker when then Lieutenant Governor Mike Huckabee 
avoided a constitutional crisis by his firm and principled 
address to the people of Arkansas leading us out of that 
unfortunate circumstance, and since that time, the Governor has 
led a number of successful and innovative initiatives into law. 
I think that his success shows that by applying a little common 
sense to the everyday function of government, we can, in fact, 
provide better services with less bureaucracy and lower taxes.
    During his tenure, Governor Huckabee has overseen a 
comprehensive tax relief package that we are unaccustomed to 
seeing in Arkansas that included as one of his initiatives the 
elimination of the marriage penalty. This is a goal that we 
have been pursuing here in Congress, and I am greatly 
interested in hearing the Governor's insights on this matter.
    Again, Governor, I congratulate you on providing better 
government services at lower taxpayer cost. That should be the 
goal of everyone who works in government, and I and my 
colleagues look forward to hearing from you about which way we, 
in Congress, might incorporate some of the initiatives that you 
have been so successful in in Arkansas. Thank you, Mr. 
Chairman.
    Mr. Burton. Thank you, Representative Hutchinson. And, with 
that, Governor, welcome, and we would enjoy hearing your 
remarks.

         STATEMENT OF MIKE HUCKABEE, GOVERNOR, ARKANSAS

    Governor Huckabee. Thank you, Mr. Chairman. I want to say 
to you and the members of the committee a special thanks for 
giving me the opportunity. Quite frankly, hearing that 
wonderful introduction was worth the trip to Washington, and if 
my good friend and colleague will promise to give it again, I 
may show up again.
    I am really proud of my home State and particularly proud 
of two of our Congressmen that I call friends, very close 
friends while I have campaigned and worked and been able to see 
some things happen with Arkansas. Asa Hutchinson and Jay Dickey 
who sits here today I hope as my friend and colleague. Having 
watched many hearings on television, I expect him to whisper in 
my ear and tell me what I am supposed to say as we go through 
this hearing today.
    I do want to express that as we approach tomorrow and what 
is not so, perhaps, popularly known as tax day, many Americans 
will be reaching for their checkbooks and also for their 
antacids, recognizing that it is going to be time to once again 
face the music of that tax system in our country.
    In the States, we have been able to bring about some things 
that we hope will happen in epidemic proportion across the 
country, and that is a real sense of bringing fairness back to 
the American family. I would like to try to remind people in 
talking of tax cuts that it is really a matter of shifting the 
power from government to families and from government to 
individuals, because tax cuts are really not just an economic 
issue; they are an issue about giving people the power to spend 
the money that they, in fact, have gone out and worked very 
hard to earn in the first place.
    I sometimes get amazed that government can operate in what 
amounts to, at times, a vacuum, and, in our State, one of the 
things that we have done to try to combat that is to require 
every one in the executive branch of government who has a job 
at policy level or above to get out and go to work one-half day 
every month in some State agency in which their particular has 
a relationship. That includes, by the way, the Governor, and 
over the past 2\1/2\ years in my tenure as Governor, I have 
worked at the counter of a tourist information center and 
passed out literature to guests who were coming into our State, 
some of whom were rather surprised to find that the person 
behind the counter passing out brochures and maps was, in fact, 
the Governor. I think they thought that maybe it was a 
moonlighting job for me, but it was quite an experience.
    I have also spent time being an intake worker at a local 
Department of Human Services office, literally talking to 
welfare moms and taking down the information over the telephone 
or in person that would become part of their entry level form.
    I have spent time at a Department of Finance and 
Administration counter making driver's licenses and 
photographing people for their driver's license, and it was 
that particular experience that led us to make a major change 
in the process by which people get car tags in Arkansas, a 
process that we would like to say was invented by the 
Flintstones; it had never been approved until 2 years ago when 
we changed the system from the most cumbersome, time-consuming, 
bothersome process in the whole world, one that was cursed by 
every Arkansan at the time of renewal, to the countries most 
efficient and technologically advanced system that truly has 
created a whole new way of doing things through the Internet or 
a touch-tone telephone without ever leaving one's home, instead 
of the seven pieces of paper that were required to be obtained 
from six different locations prior to getting a car tag. And 
the interesting thing is that we were able to make the 
significant changes in efficiency and do it and cut the cost of 
it by at least a dollar for Arkansans.
    I have also spent time checking licenses on the Little Red 
River in Arkansas with wildlife enforcement officers in a 
variety of duties. Enrolling students in the University of 
Arkansas has been another one of my job assignments.
    But in every one of those, what I have learned is that 
government, in order to be more efficient, needs to understand 
that its basic purpose is not to see how much money it can make 
and take, but rather to see how much money it can give back to 
its citizens and leave in their hands to being with.
    When I became Governor in 1996, there had never been a 
significant tax cut in the history of our State. I will never 
forget the conversation that I had with our director of finance 
administration, and as we were preparing for the session, I 
said, ``Richard, tell me, how many times have we had a tax cut 
in Arkansas?'' He looked at me; he looked at his deputy; he 
looked back at me, and he said, ``Well, Governor, we have never 
had one.'' Well, in 1997, we finally had one, and for the first 
time, we were able to bring taxes to a new level of at least 
becoming more fair.
    Some of those tax provisions included the elimination of 
the marriage penalty. We also created tax relief for the poor 
by exempting people below the poverty line from any State 
income tax. We indexed the income tax rates in Arkansas, the 
first time that that had been done since 1971. We doubled the 
dependent child care credit in our State. We also, in order to 
correlate with Federal, law exempted capital gains on the sale 
of personal residence. We saw additional relief to Arkansas' 
elderly population by creating what we call the Circuit Breaker 
Act, providing cash rebates to low income Arkansas taxpayers 
who are 62 and older. These rebates were based on their real 
property tax which was paid on their personal residence. We 
also passed a bill that created the working taxpayer credit. 
The credit was based on a portion of the Social Security tax 
that was provided--or paid to provide the retirement benefits.
    All of those tax reforms were in the first session that we 
had in Arkansas and which I was Governor, and I want to say 
that it was a bipartisan effort that made that possible, and I 
know that your committee has to look at things in that fashion. 
It is very important to know this that I didn't do that by 
myself, and I preside over the most lopsided legislature in the 
entire country. There are more Democrats and fewer Republicans 
in our State legislature than any other legislature in the 
country, and yet we were able to bring about tax cuts, and so I 
think it is important for me to tell you that even though I am 
a Republican Governor, this is not about parties, this is about 
the principle of giving people back the money that they have 
earned, and I couldn't have seen that through had it not been 
for Democrats who agree with me that individuals and families 
should be empowered to spend their own money, and, for that, I 
am grateful for our legislature in recognizing that.
    In the most recent legislative session, we were able to 
make some other strides in tax reform. We fought for a long 
time for capital gains tax reduction. I believe it is as much 
an economic development incentive issue as it is a tax issue, 
but we were able to, for the first time, cut capital gains 
taxes across the board by 30 percent, and, quite frankly, our 
hope is to eventually eliminate capital gains taxes altogether, 
and I believe, and I believe many of the colleagues in the 
legislature join with me in believing that in doing so, the 
ultimate benefit will be greater investment and a much more 
stimulated economy which will not result in fewer dollars of 
revenue but greater dollars of revenue in the long run, not 
only for the Treasury to operate our schools and to provide for 
highways and basic human services that are needed, but also 
which will provide for a greater stimulation in the private 
sector and in the market-based economy.
    In all, the tax cuts that we have enacted went to the heart 
of an issue that is very much on the surface in Arkansas right 
now, and that is property taxes, and even though Arkansas 
property taxes are probably not the highest; in fact, they are 
not very high at all compared to many other States, the process 
of their actual execution--I use that word advisedly--are some 
of the most onerous in the country, because they are so varied 
from county to county, and one of the things we did in this 
most recent session was to create a uniformity in the system. 
We established the property taxpayers' bill of rights, and we 
brought about a proposal that will be an amendment to our 
constitution in the 2000 election which, if passed, would 
provide about $325 per homeowner of tax relief. All of those 
issues are issues that happened because we worked in non-
partisan spirit. It was not so much that we divided ourselves 
up and said let us work together. We simply looked at the 
issues and decided that tax fairness and tax reform would be 
good for Arkansas whether it was good for any of our political 
careers, but, quite frankly, I don't know of anyone who was 
ever defeated in politics for proposing that the government 
took too much money and that people needed some of it back.
    My purpose today in being here is to express, first of all, 
my appreciation to you, Mr. Chairman, and to the members of 
this committee for your diligence in trying to bring about true 
reform in government, to make it so that the States will have 
the empowerment to carry out programs like welfare reform, 
which thanks to the Congress working with us, is working. We 
have seen 44 percent of the welfare rolls cleaned up in 
Arkansas in a year and a half of implementation. Many of the 
critics of welfare reform said if we did that, if we cut taxes, 
if we reformed welfare and caused people--forced them to go to 
work, and if we did that at the same time, that what we would 
end up with is huge unemployment lines. Mr. Chairman, I am 
happy to report to you that today in Arkansas, we have the 
lowest unemployment rates in the history of our entire State, 
and we have the highest earning rates for people in our State; 
the lowest number of people in poverty, and last year, we had a 
record number of new job creations, many of which were jobs 
created in the technology sector; those jobs paying sometimes 
as much as 50 percent of the base level salary that Arkansans 
had previously enjoyed.
    So, I think what we are proving is that responsible 
government, which includes tax cuts, the form of the system, 
localized control as much as possible, is not a detriment to 
good government or their economy, but is, in fact, the only 
thing that really does make it work.
    I know that there may be some questions. I would like to 
conclude my remarks with something that I hope you find, 
perhaps, a bit enjoyable. A friend sent it to me, and I 
couldn't help but think how appropriate it was in light of our 
conversation on taxes today, and it is a story of what would be 
if Noah were to be instructed by the Lord to build the Ark in 
today's modern times, and I thought it might be a nice closing 
comment for me to make.
    And the Lord spoke to Noah and said, ``Noah, in 6 months, I 
am going to make it rain until the whole world is filled with 
water and all the evil things are destroyed, but I want to save 
a few good people and two of every living thing on the planet. 
I am ordering you, I want you to build an ark,'' and in a flash 
of lightening, he delivered the specifications for the ark. 
``OK,'' Noah said, trembling with fear and fumbling with the 
blueprints, ``I am your guy.'' ``Six months and it starts to 
rain,'' thundered the Lord, ``and you better have completed my 
ark or learned to swim for a long, long time.'' Six months 
passed, the sky began to cloud up, and the rain fell in 
torrents. The Lord looked down and he saw Noah sitting in his 
yard weeping, and there was no ark. ``Noah,'' shouted the Lord, 
``where is my ark?'' A lightening bolt crashed into the ground 
beside Noah. ``Lord, please forgive me,'' begged Noah, ``I did 
my best, but there were some big problems. First, I had to get 
a building permit for the ark's construction, but your plans 
didn't meet their code. So, then I had to hire an engineer to 
redo the plans only to get in a long argument with him about 
whether to include a fire sprinkler system. Then my neighbors 
objected, claiming that I was violating zoning ordinances by 
building the ark in my front year, so I had to apply for a 
variance from the city planning board. Then I had a big problem 
getting enough wood for the ark, because there was a ban on 
cutting trees to save the spotted owl. I tried to convince the 
environmentalists and the U.S. Fish and Wildlife Service that I 
needed that wood to save the owls, but they wouldn't let me 
catch them, so, I am sorry, Lord, but no owls. Next, I started 
gathering up the animals, but I got sued by an animal rights 
group that objected to me taking along just two of each kind, 
and just when that suit got dismissed, the EPA notified me that 
they couldn't complete the ark without filing an environmental 
impact statement on your proposed flood. They didn't take too 
kindly to the idea that they had no jurisdiction over the 
conduct of a supreme being. It was then that the core of 
engineers wanted the map of the proposed flood plain; I sent 
them a globe. Right now, Lord, I am trying to resolve a 
complaint with the Equal Opportunities Commission over how many 
minorities I am supposed to hire. The IRS has seized all my 
assets, claiming I am trying to leave the country, and I just 
got a notice from the State that I owe some kind of use tax. 
Lord, really, I don't think I can finish the ark in any less 
than 5 years'' And, with that, the sky cleared, the sun began 
to shine, and a large rainbow arched across the sky. Noah 
looked up and he smiled, ``You mean, God, you are not going to 
destroy the world?'' he asked, hopefully. ``No,'' said the 
Lord, ``the government already has.''
    And, with that, Mr. Chairman, I will conclude and receive 
questions.
    [The prepared statement of Governor Huckabee follows:]

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    Mr. Burton. I think you ought to give me a copy of that, 
Governor. I would like to use that in my next Lincoln Day 
speech.
    Governor, let me start off by asking you what the overall 
economic impact has been in Arkansas because of these tax cuts 
and reforms.
    Governor Huckabee. First of all, our State government has 
had a surplus. In fact, we had anticipated a $110 million 
surplus in this past year. The figures are going to be more 
like $191 million of surplus. We think it is directly the 
result of both a very healthy economic, but we also believe 
that it is in part due to the tax cuts that were implemented.
    It is very clear that the $90 million of tax cuts that went 
into effect even in the last year were very helpful in causing 
people to take that money that was due to them and to spend it 
in the marketplace. And the more they spend, the more things 
have to be put on the shelves, and the more things have to be 
manufactured and shipped and serviced, and everybody wins.
    Mr. Burton. Did you receive a lot of opposition from 
various groups about the tax cut? What kind of opposition did 
you experience?
    Governor Huckabee. Mr. Chairman, we did receive opposition 
from, I would say, the usual suspects. There are always those 
who think that government needs more money and more control. 
But the good news is that their numbers are dwindling in 
Arkansas, and I think began to see in our State that taxes 
were, in fact, onerous on many of our families and were willing 
to give this a try. The result has been, as I have already 
indicated, a very positive one.
    In this last session, I think the paradigm has truly been 
moved from coming to the legislature every 2 years in our 
State, talking about which taxes we would raise, and by how 
much. Now the discussion centers, when we get together, on 
which taxes we will cut, and by how much.
    Mr. Burton. You know, we all live by polls anymore in 
Washington; I am not sure we should, but everybody looks at the 
polls on everything on tax reform to Kosovo, and I think it 
does have a bearing on people's decisions, decisionmaking 
processes. Has there been any polling data in Arkansas to find 
the reaction of the people toward your administration's tax 
cuts and tax reforms?
    Governor Huckabee. Mr. Chairman, probably the most 
effective poll would be the election last November, and in a 
State that is considered to be predominantly, overwhelmingly 
Democrat, I was elected with 60 percent of the vote, and that 
was with a three-man race. It was a significant election and a 
decisive margin of victory.
    I think, also, the size hit was that nearly 50 percent of 
the minorities in our State voted for me. It indicates that 
this crosses party and geographical, gender, cultural, and 
racial lines. People of all kinds want government to be less 
intrusive in their lives. People have dignity and want to be 
able to know that, when they come home tired every day from a 
hard day's week, that the money that they have earned, they are 
going to be able to direct its spending as much as is possible.
    And people in our State--and we are a small State, and we 
are essentially a poor State compared to most; we would be the 
first to tell you that--but our people are proud and they are 
hard-working. They know that government ought to be there to do 
certain things. When they dial a 911 call, they want someone to 
answer it. They want our schools to be decent and our kids to 
get a good education. But what they don't want is government 
that goes way beyond the essentials and the basics.
    I think that as people are realizing that tax cuts do not 
hurt public education, it doesn't hurt healthcare for 
children--and, in fact, Mr. Chairman, it was 2 years ago that 
we launched a very innovative children's health initiative 
called the Our Kids First Program that really is in the long 
term a very fiscally responsible approach, because it 
recognizes that preventing illnesses and diseases is less 
costly than waiting until they are in catastrophic condition 
and then treating them. I think tax policy is the same kind of 
approach that we try to look at in Arkansas, not only looking 
at just cutting taxes for the next election, but trying to cut 
taxes so that we can stimulate the economy for the next 
generation.
    Mr. Burton. Let me just ask you one more question, and I 
might add, before I ask the question, that I went through radio 
training school in the U.S. Army at Ft. Chapee, AR, and the 
people at Ft. Smith were really great to me when I was down 
there. That was back in 1908. [Laughter.]
    Let me end up by asking you, you know, we have heard a lot 
from the pollsters and from the people on CNN and all these 
talk shows, these talking heads thing, the American people 
really don't want a tax cut. Can you tell me in Arkansas if 
that is true?
    Governor Huckabee. Well, we didn't have anyone turn it 
down. So the best way I could say it is that I think that they 
clearly did want the tax cut, and to my knowledge, not one 
single Arkansan, out of 2.5 million people, wrote us and said, 
``Please, you all keep that. You are doing such a great job 
with it; we would like for you to just hold onto it a little 
longer.''
    Mr. Burton. OK, thank you, Governor.
    I think we will go to Asa, since he was the next one here.
    Mr. Hutchinson. Thank you, Mr. Chairman, and I will just 
ask a couple of questions and give my colleagues an opportunity 
as well. I want to ask two questions, one referenced to 
property tax.
    I know that in the last session they were concerned about 
the attitude of the people, but the people of Arkansas really 
were initiating a referendum, a property tax reduction on the 
ballot, and the legislature addressed that. Could you explain 
how that pressure worked and how the legislature responded to 
it?
    Governor Huckabee. Congressman, as you are well aware, 
being from Arkansas, there was a real scare because on the 
ballot, just before the election, an initiative was there that 
would have completely eliminated property tax. And while that 
sounds very appealing, all of us understand that, while we want 
to lower taxes, we can't eliminate them altogether and still 
give people a decent government.
    This particular proposal would have had a devastating 
impact on our economy. It would have literally cut our budget 
by about 35 to 38 percent, which would have devastated our 
schools. We are already 50th in per-pupil expenditure in terms 
of student spending.
    So many of us fought back that measure, and we said that, 
if you will give us a chance in the next legislative session, 
we will do everything possible to bring three things: establish 
a taxpayer bill of rights, reform the system, and bring some 
relief to taxes.
    Just prior to the election, the Arkansas Supreme Court took 
that initiative off the ballot for a misleading ballot title. 
So we sort of dodged the bullet in terms of the vote. But I 
knew, and so did the legislators, to their credit, that we 
needed--in fact, we were obligated--to take responsible action 
in fixing the property tax system, or else it would come back 
to the ballot in the year 2000.
    To the credit of the legislators--and I want to give them 
99.9 percent of the credit--they were willing to work hard to 
make sure that we did accomplish those very three objectives. 
The property taxpayers' bill of rights will give every citizen 
detailed information, not only about what his or her rights are 
in regard to appealing a property tax verdict they don't like, 
but also detailed information about how the money is collected, 
what it is used for, and exactly how it is spent, with the 
process for them to appeal on their own terms and, frankly, in 
their own timeframe, as to when they can work with it.
    Second, the property tax reform, a number of reforms where 
we will have uniform assessment across the State; we will also 
have it in a timely way, so we will not have huge jumps. This 
is one of the things that triggered the revolt in our State, as 
you will recall, where people went for 10 years without a 
reassessment, and when it was reassessed, it was the jump in 
the property tax that was the sticker shock that caused many of 
them to feel very angry. And the final issue was the relief, 
and even though we enacted certain things that we could do 
statutorily, some of the issues have to be carried out through 
the constitutional reform. And on the year 2000 ballot there 
will be a measure that will give Arkansans a choice to make, if 
they want to enact a significant property tax reduction, and if 
they do, then it will come in the form of a tax credit on their 
homestead exemption of about $40,000 to $42,000 per homestead, 
which will amount to around $300 to $325 per homeowner.
    Mr. Hutchinson. I was impressed with the legislature and 
your leadership, responsibly dealing with that energy out there 
to reduce property taxes.
    Then, finally, I wanted to just mention, and particularly 
for my colleagues to hear how it works in Arkansas, the revenue 
stabilization act. Some of the pressures that we face in 
Washington are the approaching or escalating expenses for 
government each year. In Arkansas, if you could just explain 
how the expense side of government works, and how it is 
budgeted so that you do not exceed your budget and have deficit 
spending each year.
    Governor Huckabee. Well, if there is anything that perhaps 
Arkansas could export to Washington that would be of great 
benefit, it would perhaps be the revenue stabilization act that 
was enacted several decades ago. It basically requires that we 
have a balanced budget; that we do not go into deficit 
spending. It is constitutionally prohibited.
    And the revenue stabilization act provides that, as we 
develop our entire budget, we do so with budget categories--
categories A, B, C, and we could even categorize a D category, 
though we typically do not. As money flows into the State 
treasury, those items are funded according to the priorities in 
which they are established. Our forecast is carefully 
monitored, literally on a daily basis. And whenever we are 
below forecast, that immediately is applied to the spending 
that government agencies are allowed to utilize from that 
budget flow. So that at no time during the entire biennial 
budget--and we have a biennial budget--is there a point at 
which the agencies are spending beyond not only what they were 
budgeted, but what is actually flowing into the treasury. And 
it gives us a real clear management tool to ensure that there 
is not deficit spending and that there is proper management 
throughout the entire biennium.
    Mr. Hutchinson. Thank you, Mr. Chairman, and thank you, 
Governor.
    Mr. Burton. Mrs. Morella.
    Mrs. Morella. Mr. Chairman, I would be glad to ask a 
question, but there may have been others ahead of me who are 
here.
    Mr. Burton. If you prefer, we will go ahead to Mr. Horn.
    Mr. Horn. Thank you very much, Mr. Chairman.
    Governor, it is a great pleasure to see you. We are 
delighted with what you have accomplished in Arkansas in such a 
short time.
    The Governor Whitman testimony this morning, she noted that 
we need to invest some of that surplus that we have, or think 
we have, in Social Security and education. And I asked her a 
question that I want to also ask you and the other Governors.
    Obviously, tax cuts are one option, and we are doing some 
of that. And I guess I would ask the question, to what degree 
do you think we ought to be also reducing the national debt, 
which is $5.3, $5.5 trillion? A tax cut is good for your and my 
generation. Reducing the national debt would be good for our 
grandchildren. And I feel very strongly since Congress, not 
this Congress, not the last Congress, but the Congresses of the 
last 40 years, up to 1995, just had a spending spree. The 
Republican Presidents should have vetoed a lot of it, but they 
didn't, and they were wrong. They should have gone right to the 
mat.
    But there we are at $5.5 trillion. What advice would you 
give on how we split that supposed surplus?
    Governor Huckabee. Congressman, first of all, I would be 
very reluctant to try to give advice to Members of the 
Congress. I have enough trouble dealing with our issues back 
home in Arkansas.
    Mr. Horn. Everybody else does; I don't know why you 
shouldn't. [Laughter.]
    Governor Huckabee. But I would just express an opinion that 
I don't think the tax cuts and a responsible managing of the 
deficit have to be enemies. I think that they can be parallels 
of the same track upon which this train of a strong economy can 
run. Certainly it is important to reduce the long-term 
indebtedness that the United States has, but it is also 
important to give people who have earned money an opportunity 
to direct the expenditure of that money. By the same token that 
we could create a real undue burden on our grandchildren by not 
reducing the deficit, we are also really creating an undue 
burden on the worker today for the sins of the past for his or 
her grandfather. And while I am concerned about our 
grandchildren, I am also concerned that we need not to penalize 
today's American worker for the sins of our ancestors, who 
perhaps did spend us into this kind of deficit.
    So responsible tax cut in the context of overall economic 
planning, I don't think has to be inconsistent. I think it is a 
very consistent approach, and one I would hope that would take 
place.
    Mr. Horn. Well, I agree with you on the deficit. We can't 
be putting out any more deficit budgets. We have to put a stop 
to that--even though the President has not been very 
cooperative in the sense of giving us his list of what he wants 
to see cut. He has a lot of new programs. He has operations all 
over the world in the military, and yet, we never get a 
recommendation from him as to what he thinks we ought to cut. 
And that isn't leadership, in my humble opinion.
    But what I am thinking of is, one, having budgets that have 
no deficit. No. 2, start to take away some of those bonds that 
are out that cover up the national debt and see if we can't 
reduce that, and with that, hundreds of billions of dollars in 
interest annually. Lyndon Johnson ran the Vietnam War and the 
whole government on a $200 billion budget. Now that kind of 
money goes to pay the interest rates. And the sooner we can get 
it down, the less a burden will be. Still, if we live long 
enough, to Strom Thurmond's age, you and I will still be paying 
it, and our grandchildren and great grandchildren will also be 
paying it. So I am looking to see if we can't get rid of some 
of that national debt.
    [Governor Huckabee shakes head.]
    Mr. Horn. I don't know if you shake your head affirmatively 
or negatively.
    Governor Huckabee. Oh, I mean, I think your point is well 
taken. Let me add this one comment as regards to the debt.
    One of the most effective ways to be able to have the 
capacity to draw down the debt would be to give the economy the 
kind of stimulation where people would earn more. When they 
earn more, they will spend more. And when they spend more, even 
if the tax rates remain similar or lower, we have discovered in 
Arkansas that we can lower our taxes, but actually bring more 
money into the treasury, because there is a greater level of 
economic activity taking place.
    And I realize that there comes a point at which you can't 
lower the taxes so low, but, on the other hand, there is a 
point at which you can also only raise them so high, at which 
at that point it has, I guess, application of the law of 
diminishing returns.
    So what I would think is that, with the tax rate lowered by 
the Federal Government, I think that while it may appear on the 
surface that it would decrease the capacity to go against the 
debt, I think the opposite will be proven to be true. And it 
has certainly been proven in our own States. Governor Whitman 
would tell you that, and Governor Battaglia will tell you that 
tomorrow, and Governor Gilmore will tell you that this 
afternoon. I would tell you that in my testimony this 
afternoon.
    Mr. Horn. I think you are absolutely right on that. And if 
we want to really give tax relief, we would lower the burden of 
15 percent on employer and employee, but really it is all out 
of the employee's pocket, as well as the employer's pocket, on 
Social Security or Medicare. That is the one that is truly a 
regressive tax that really hurts lower-income people, and we 
ought to be doing something about that, too.
    [Governor Huckabee nods affirmatively.]
    Mr. Horn. I take it you are nodding that we----
    Governor Huckabee. I think it is a great idea, absolutely.
    Mr. Burton. Mr. Horn, we all agree with you.
    Mr. Horn. Good.
    Mr. Burton. Mrs. Morella.
    Mrs. Morella. Thank you.
    We are honored that you appear before our committee, 
Governor Huckabee. You know, I used to represent in their home 
away from home both Senator Bumpers and Senator Pryor, and I 
want you to know--they are no longer there--but I want you to 
know you are represented by some great Members of Congress. You 
have got one sitting right next to you, to your left, Jay 
Dickey. He is a real admirer. He talks about you often--and 
Congressman Hutchinson, who was here, who represents as well. 
So I want you to know that.
    I am also on the District of Columbia Subcommittee, and I 
just had a meeting earlier today talking about the possibility 
of tax cuts for the District of Columbia people, since we have 
been doing a lot of revitalization quite successfully. Their 
income tax is among the highest in the Nation. They have like 
five different levels of corporate tax. And they have a 
surplus. So it sounds like it has got the right environment for 
it.
    But I asked then a question I would ask you: Where does the 
opposition come from? The answer I got: Well, you are going to 
have those groups who say you need to put more money into 
health. You are going to have those groups who are going to say 
you need to put more money into education. Instead of giving 
tax cuts, let's spend this money on something where we can see 
some effect that would be beneficial for the public.
    Now I want to ask you before--my first question within a 
question is: Where does Arkansas rank in terms of the per-
capita expenditures on education?
    Governor Huckabee. We are 50th.
    Mrs. Morella. I thought I heard you say that.
    Governor Huckabee. Yes. That is correct.
    Mrs. Morella. That is why I picked up on it.
    Governor Huckabee. Right. We are 50th in the amount of 
money that we spend on a per-pupil basis. So our State has a 
long way to go in terms of spending. Now the good news is that 
we are 32nd in terms of our overall academic results--proof 
positive that it is not just money that equals good education. 
It is good, dedicated teachers. It is a disciplined environment 
in the classroom. It is a good curriculum. It is the parental 
involvement. And it is, I think, a lot of local control at the 
school board level and the campus level. All of those are 
important factors, as well as how much money flows to the 
student.
    I think we could all look at surveys that show that some 
school districts in which the expenditures are extraordinary 
don't produce academic results that are better or even equal to 
other districts who don't have that kind of money, but they do 
have the strong sense of parent involvement. They have a strong 
sense of discipline in the classrooms.
    Mrs. Morella. I agree.
    Governor Huckabee. So I think while I would certainly 
want--and one of my goals as a Governor, quite frankly, is to 
make--before I leave office, Arkansas is no longer 50th, and we 
have increased education funding, and I want to do it more. But 
I don't think there is a conflict between that and being able 
to also cut taxes.
    Mrs. Morella. Did you hear from like the teachers' groups 
and parent groups about that?
    Governor Huckabee. We heard from the teachers' union about 
that. Certainly they were apprehensive about tax cuts, and 
there were other providers. Quite frankly, Congresswoman--and I 
know you know this very well, as I do, because of your 
position--there are a lot of people who make a lot of money off 
the government--a lot of money off the government. And a lot of 
people who are the so-called advocates for the poor and to help 
end poverty really understand that their living comes off of 
making sure there is enough poverty out there to give them a 
job.
    Mrs. Morella. It is kind of a balance; that you are the one 
who is the leader in terms of making sure that you do have this 
balance.
    Our chairman has been pushing very hard something we call 
the Government Performance and Results Act, which does that 
very thing. It says, OK, can you tell us not only what your 
mission is, but what are you doing to prove that you are 
reaching those goals? That is the kind of thing that you are 
saying.
    I would ask you, did that 32 percent occur while you were 
Governor? Or has this been happening in terms of performance--
--
    Governor Huckabee. That is the most recent figures. Our 
academic performance is up. Our level of remediation is down. 
Those are two good indicators that we are doing some things 
right.
    What largely we have done is to refocus on the beginning of 
an educational environment with a program called Smart Start, 
which is a K-4 initiative to ensure that students get the right 
start.
    But you mentioned some other areas of efficiency. We have 
implemented cost-based budgeting or activity-based budgeting, 
which has made a very important in-road in actually determining 
the cost of what government is doing; performance-based 
budgets, which is something we have implemented this year. And 
we have got a citizens' commission called the Murphy 
Commission, headed up by a south Arkansas businessperson, and 
headed up by a blue ribbon panel of business and civic leaders, 
all outside of government, whose job it has been for the past 
2\1/2\ years to go through every single agency of State 
government and make recommendations of how we could downsize, 
make those agencies more efficient, utilize technology to be 
more capable of better managing the resources they have.
    As a result of that, we have an independent audit structure 
now in place in our government; the activity-based costing; 
performance-based budgeting, and a new program called Career 
Ladder Incentive Program for Employees, which gives people an 
incentive for staying in State government, but not just for 
physically being there, but for actually performing and being 
graded on objective levels of their performance.
    Mrs. Morella. I am sure you have probably had job training 
in terms of technology and education also included within your 
program?
    Governor Huckabee. That is correct.
    Mrs. Morella. I know my time has expired. I want to 
congratulate you on putting into effect all of those elements. 
Thank you.
    Governor Huckabee. Thank you.
    Mr. Burton. Thank you, Mrs. Morella. Congressman Terry.
    Mr. Terry. Yes, thank you, Mr. Chairman.
    Governor, it is nice to meet you. My sister is a resident 
of Rogers, AR. She has lived down there for about 15 years now, 
her and her family, and mentioned supporting you, and that they 
were thankful to have you in there now.
    Governor Huckabee. You have a wonderful family, Mr. 
Congressman. [Laughter.]
    Mr. Terry. I thought you would agree with me on that one.
    But I have got to tell you, one of the major issues--I am 
new to Congress, only been here 90 days, but one of the issues 
that concerns me most--and, in fact, was one of the reasons why 
I ran--is what I thought were some questionable Federal 
policies, particularly in taxation areas, marriage penalty, one 
of my pet peeves. In fact, in a survey I did with my 
constituents, I found out that it was also one of theirs, too.
    Congress--or at least the House--a year ago was able to 
adopt a measure that significantly reduced that burden on 
families where both parents work; couldn't get it through the 
Senate. But I am picking up on a theme here today with our 
Republican Governors, that they have been able to do the 
morally correct and just economically correct thing for working 
families, and that is eliminate the marriage penalty. I am 
sitting up here saying, we can't do it here, but the Governors 
in the States are seemingly being able to do it with ease.
    Was it easy? Did you have opposition? Teach us how we can 
get that accomplished.
    Governor Huckabee. Congressman Terry, while there was some 
opposition to any tax cuts, I think as it relates to the 
marriage penalty, in particular, that it was one of the less 
controversial items that we put in the package, in large 
measure because it is totally inconsistent--in fact, it is 
almost inconceivable--that, on the one hand, we would encourage 
people to get married and stay married; to build strong 
families and raise children in the environment of a loving 
atmosphere, where they have a mother and a father who truly 
nurture them, and on the other hand, give them a greater level 
of taxation, and actually penalize them for maintaining a 
traditional family relationship. It is completely inexplicable 
and indefensible.
    From a pure common-sense standpoint, even if the economics 
weren't so positive for it, I do believe this goes to the heart 
of what you said: It is a moral issue. We should not penalize 
people for maintaining a strong family structure.
    It certainly has not hurt us. In fact, I think it has 
helped us, and it makes our State even more marketable to other 
people, as we say: It is a great place to live, and we don't 
penalize you for being married.
    Mr. Terry. Well, congratulations on accomplishing that with 
ease and building your coalitions. That is, I guess, our job 
here. Thank you.
    Governor Huckabee. Thank you.
    Mr. Burton. Thank you, Congressman. Congressman Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Governor, good afternoon.
    I have a couple of questions, and it relates to the cost of 
doing business at the local level and the taxes that might 
follow from Federal intervention and traffic congestion 
situations and land use planning. We have someone in the 
administration who appears to be running for President, but, 
more accurately, has a platform designed to run for mayor.
    I am a little curious, from a tax consequence standpoint, 
what feedback you might give us in terms of the Vice 
President's mayoral campaign at the local level in terms of 
cost of government.
    Governor Huckabee. I appreciate the question, Congressman. 
I would say as strongly as I possibly could, the best thing 
that you in Congress could do for us at the State level is to 
give us the opportunity to solve problems at the local level, 
and don't assume that they can be solved at this level.
    With all due respect to all the Members of the Congress and 
to the institution itself, there is no way in the world that an 
urban planning program, an education program, a wildlife 
management program can be designed in a concrete building in 
this city that will be applicable and work equally well in 
Washington State, Miami, FL, or in Ft. Ise, AR. It simply can't 
and won't happen because every locality has a unique milieu of 
culture that needs to be addressed. And it is one of the 
principles that I think that many of us govern by, and that is 
that the best government is the most local government, because 
it is closest to the people being governed, and therefore, it 
is held accountable by those who are being governed.
    Whether it is education policy, we would urge: Send us the 
money, not the strings. If it is urban planning, this is when 
we say, ``Send us the money'' would be ``This is money our 
citizens have coughed up. Return it to them and to us''--and to 
let those decisions be made at the local level. We honestly 
believe they will be better decisions because we in those 
localities have to live with them and are closer to what is 
desired by the people under that forum than anything else.
    I appreciate your bringing that up.
    Mr. Ose. Mr. Chairman, if I may follow on, one thing I have 
learned in the few short weeks I have been here--as Mr. Terry, 
I am relatively new--you referenced a concrete building here in 
the city of Washington, DC. I want to make sure we don't end up 
parsing that particular comment. Are you also referring to 
stick frame buildings, metal buildings, or any other kind of 
buildings? I just want to make sure that I understand the 
universality of your comment.
    Governor Huckabee. Even if it was in a manufactured home, 
it would still be the same policy, yes, sir.
    Mr. Ose. All right, so I can be clear that it is not the 
structure from which it comes; it is the fact that it 
originates here at a far distant point, rather than perhaps 
accommodating, as you said, the peculiarities or the unique 
circumstances of the localities?
    Governor Huckabee. That is correct. I just haven't seen 
anything except the granite and the concrete around here.
    Mr. Ose. Well, I have learned that I have to be very 
careful about how I ask questions, because people are very 
clever in how they parse the words. So I don't mean to imply 
anything relative--I just want to be clear about what you were 
saying. So I appreciate your feedback.
    Governor Huckabee. Point well taken.
    Mr. Burton. Well, Governor, thank you very much for your 
testimony and for your patience, and for being with us at the 
news conference. I can see why you were elected with 60 percent 
of the vote in Arkansas. You are a darned good guy, and not a 
bad looking fellow, either.
    I want to say that you have a great Congressman in 
Congressman Hutchinson there. He has acquitted himself very 
well since he has been here. Congressman Dickey, on the other 
hand, needs some help with his basketball, and if you would 
talk to him about it, I would appreciate that. [Laughter.]
    With that, thank you very much for being here.
    And I hope the members will be with us in a little bit when 
Governor Gilmore is here.
    With that, we will stand in recess at the fall of the 
gavel.
    Thank you again.
    Governor Huckabee. Thank you, Mr. Chairman.
    [Recess.]
    Mr. Burton. The committee will be in order.
    Welcome, Governor. We appreciate your patience. Why don't 
you just go ahead and sit there at the table?
    We really appreciate your being with us today. 
Unfortunately, right now on the floor we have the census bill, 
which is one of our subcommittees, and so a number of our 
colleagues are down on the floor debating whether or not local 
officials ought to have the ability to participate in reviewing 
the census. So they will be coming in from time to time.
    Governor Gilmore of Virginia was elected in 1997, promising 
reform of Virginia's burdensome car tax, and May 20, 1998, 
Governor Gilmore signed into law the phaseout of the car tax. 
Between 1998 and 2000, Virginia taxpayers will receive a refund 
of $435 million as a result of this reform. He has also fought 
hard to eliminate the sales tax on food, and just this year a 
repeal of 2 percent of the State's 4.5 percent sales tax on 
food was enacted.
    He is also working hand in hand with business to create 
more jobs for Virginia, and he has set aside $7.2 million to 
reduce the tax burden on corporations with headquarters and 
major production facilities in Virginia.
    And I recall, Governor, when you were running, as I said to 
you back in the back there, that when you said you were going 
to cut the car tax, I could almost hear the voters applauding; 
I knew you were in.
    So welcome.
    And let me introduce my colleague Mr. Davis of Virginia, 
who is one of your outstanding Representatives and head of our 
NRCC, as you know as well, to introduce you.
    Mr. Davis of Virginia. Well, thank you very much. I was 
also co-chairman of the Gilmore for Governor Campaign--for 
attorney general and for Governor.
    Mr. Burton. He was also co-chairman of the Gilmore for 
Governor Campaign. [Laughter.]
    Mr. Davis of Virginia. Well, and I might add, Jim and I 
have known each other since law school, and I followed his 
early days, when he was prosecutor in Henrico County. But I 
think his most unique attribute is he took something that had 
never been an issue in Virginia politics on cutting the car 
tax, which no one liked, but everybody just kind of routinely 
paid; saw a huge surplus coming in the Virginia budget, and 
decided that, instead of the State just spending it, that he 
would give it back to the people who were responsible for 
putting it there. And a lot of the pundits criticized him and 
laughed, and there were editorials, and there was a point I 
wasn't quite sure what to do when he came up with it, but Jim 
stayed on message and he followed through. I got my first 
rebate this year on the car tax, and I have a voucher for next 
year's car tax.
    They are moving ahead not only in that way, but we have put 
more money into education. We have put State money into school 
construction for the first time in our history. We are 
extending healthcare to more people than have ever been covered 
before in Virginia. And it shows that cutting taxes is not a 
zero-sum game; that if you cut taxes and you continue to lure 
and attract industry, your tax base expands, and there are more 
revenues. And the answer is really not more taxes, but more 
taxpayers, and that is what we have done in the Commonwealth of 
Virginia.
    And his leadership has won plaudits nationally. His opinion 
polls are very high in Virginia. But I think the real testimony 
here is that it is working well in Virginia, and things that 
political leaders have been talking about for a generation are 
now being enacted. So we do, indeed, have it both ways, and the 
tax base continues to expand.
    So I am really pleased to introduce our Governor of the 
Commonwealth of Virginia, my friend, Jim Gilmore.
    Did I miss anything there, Jim?

STATEMENT OF JAMES GILMORE, GOVERNOR, COMMONWEALTH OF VIRGINIA, 
     ACCOMPANIED BY RONALD TILLETT, SECRETARY OF FINANCE, 
                    COMMONWEALTH OF VIRGINIA

    Governor Gilmore. I think that about does it, just like we 
wrote it. [Laughter.]
    Thank you.
    Mr. Burton. Governor, you are on.
    Governor Gilmore. Great. Thank you. Mr. Chairman, I 
appreciate the opportunity to be here and to see you again, as 
well as, of course, your counsel, who I have known for quite a 
period of time; Congresswoman Morella, who I have gotten to 
know, and she and I worked together on some mutual projects in 
Maryland, and I was very happy about that.
    Mr. Terry, nice to see you, sir.
    And, of course, Tom Davis; we were in law school together. 
He was much older than I was at the time. [Laughter.]
    But it is a pleasure to be here with all of you, and I want 
to thank you very much. I have a statement which I, of course, 
will naturally submit for the record. But, with your 
indulgence, I would like to present it to you.
    First of all, before I do that, though, I want to introduce 
to you all my secretary of finance, Ron Tillett, who is here 
with us today. The secretary came along at my request, so that 
if there were any specifics that we needed to address, that he 
would be here to do that.
    We live during the most prosperous time in our Nation's 
history right now. Working men and women are earning higher 
wages than we have ever seen before. Our economy is booming, 
and it is nearly inflation-free. And our stock markets are 
climbing, which seems to be a ladder of almost endless ascent.
    America's working men and women toiled long and hard to see 
this day. Through war, depression, social unrest, they bore the 
heaviest and harshest burdens during the toughest times of this 
century.
    In its proper role, government provides essential services, 
but also a framework in which people can pursue their 
individual goals to make their version of the American dream a 
reality. But government has become a great burden. While the 
era of big government might be over, big government itself 
remains with us.
    The Federal Government now takes more than 20 percent of 
the Nation's earnings. That is the highest proportion since the 
American people willingly sacrificed their paychecks, and many 
their lives, to win World War II. In addition, taxes from all 
levels of government take 32 percent of the Nation's income. 
Taxes now take away a third of every American's capacity to 
define their own lives. So, clearly, taxes in America are too 
high.
    But I believe there is hope for the overtaxed in America. 
Record-breaking economic growth and historically high taxes 
have boosted revenues and created State government surpluses, 
and will in the future create Federal Government surpluses. 
Elected leaders now have a unique opportunity--and I believe an 
obligation--to reduce taxes while strengthening essential 
government services.
    By the end of these hearings, you will have heard how four 
Republican Governors have cut taxes at the State level. Many 
more Republican Governors have made tax cuts a priority as 
well. Together, we are sparking a new type of tax cut movement, 
one for all Americans, not just for an elite few; one providing 
significant relief while protecting vital government services, 
and one sparing economic growth, both in traditional and 
information age industries.
    Now while campaigning for Governor in 1997, President 
Clinton came to Virginia to criticize my no car tax plan. The 
President said, ``This is really a question about whether 
Virginians will be selfish in the moment or selfless for their 
children in the future.'' This was his comment when he was 
addressing or opposing my no car tax plan.
    And I thought about it at the time that he did it, and I 
thought to myself, ``Selfish for working men and women to want 
to enjoy the fruits of their labors rather than forfeiting them 
to the tax collector? Selfish to think it unfair to annually 
tax a car, which is a necessity, so that you really never own 
it?''
    Virginians knew better. They knew taxes were too high, and 
they knew that the car tax was wrong.
    Last April I signed a personal property tax relief act of 
1998, and it will phaseout the car tax on the first $20,000 of 
every personal vehicle's value by the year 2002. The car tax 
will annually return more than $1 billion to Virginia's working 
men and women. That is the largest tax cut in Virginia's 
history.
    We are also eliminating the State's share of the sales tax 
on food. The food tax takes more from working families of 
modest means, when the government should take less. The bigger 
the family, the greater the struggle to make ends meet, and the 
more the food tax takes.
    The legislature recently passed, and I signed, my plan to 
eliminate the State's share of the food tax. When fully 
implemented, the food tax cut annually will return another $270 
million to Virginia's working men and women.
    Many of Virginia's working men and women serve in the Armed 
Forces. Their commitment to protect America and America's 
interest often requires them to spend lengthy amounts of time 
abroad, away from their homes and their families. We are proud 
in Virginia of our brave military men and women, especially 
those who are fighting on the front lines in Kosovo. We are 
eliminating the tax on the first $15,000 of military pay, so 
that they can keep Virginia as their home.
    Tax relief empowers working men and women with financial 
freedom. It creates incentives for businesses to grow and to 
invest, and to create more and better jobs for their families.
    In Virginia we are expanding the number of Enterprise Zones 
and cutting industry-specific taxes to make our business 
environment more competitive. And we especially want to 
strengthen our burgeoning technology industries. Northern 
Virginia is home to the greatest concentration of Internet 
companies and users in the United States. Global Internet 
giants, such as America Online, PSINet, MCI WorldCom's Division 
of UUNet, Network Solutions, and many others are headquartered 
in Virginia.
    I recently signed legislation to cut the sales tax on 
equipment used to provide Internet access. This Internet tax 
cut, coupled with our comprehensive Internet policy act, will 
strengthen Virginia's leadership role as the Internet capital 
of the world.
    Now I have mentioned just a few of the tax cuts that we 
have enacted during the first 500 days of my administration. 
When all 16 tax cuts are fully implemented, $1.5 billion will 
be annually returned to Virginia's working men and women.
    Now have we sacrificed our duty to be responsible stewards 
of the public good? Of course not. We are increasing our 
support for colleges and universities, while making them more 
affordable by cutting tuition 20 percent.
    We are implementing our nationally acclaimed standards of 
learning to list student achievement in kindergarten through 
the 12th grade. We are strengthening our transportation 
infrastructure throughout the State, and we have cut violent 
crime to the lowest level in this decade.
    What my administration is doing in Virginia, and other 
Republican Governors are doing in their States, the Federal 
Government can do in Washington. The Federal Government can 
both cut taxes and strengthen vital government services, like 
Social Security and national defense. The Republican budget 
does exactly that.
    But sustained tax relief and responsible public stewardship 
require discipline. Government must make tough spending 
choices, just as working men and women do every day. Government 
must weigh every dollar it taxes against the needs of those who 
are earning those dollars. Let me say that again: Government 
must weigh every dollar it taxes against the needs of those who 
earned the dollars: the need of a single working mother to pay 
for daycare, so she can earn a living; the need of a wage-
worker without a pension plan to save for retirement; the need 
for an Internet entrepreneur to save for seed money for a 
startup.
    We can meet the obligations of a secure and humane society 
while still empowering people to build better and more 
independent lives. And I urge the Congress to follow the lead 
of Republican Governors and pass a budget that balances the 
need for significant tax relief with the priorities of 
responsible public stewardship.
    Mr. Chairman, thank you very much, and now I would be happy 
to answer any questions.
    [The prepared statement of Governor Gilmore follows:]

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    Mr. Burton. Thank you, Governor.
    You know, we often hear about tax cuts being for the rich 
or selfish, as you noted in your testimony. Could you explain 
in your administration how cutting taxes helps the working poor 
and the middle class as well?
    Governor Gilmore. Sure. Let me start with a little story. 
About 2 weeks ago--I guess it was about 2 weeks ago--I was at a 
very nice dinner party in Georgetown. It was a lovely place, I 
must say, and lovely people, and I thoroughly enjoyed myself. 
But while I am at a place like that, I also from time to time 
like to step out just very quietly and speak to some of the 
people who are serving that night or catering or cooking, or 
whatever they are doing, because, you know, I just want to 
speak to them. So I did.
    I just very quietly went off to the side, and I spoke to 
one of the waiters. And I just said, ``Listen, you all are 
doing a wonderful job tonight. Everything is very beautiful. 
And I just want to congratulate you and thank you.''
    And then I got ready to move on back to the dinner party, 
and the guy says to me, ``Governor, I live in Alexandria, right 
across the river, and I sure do appreciate you cutting that car 
tax.''
    And the truth of the matter is that I hear that all the 
time. I come to Washington from time to time, and I have an 
opportunity to be in the Capital and I have a chance to speak 
to Congressmen and women, and from time to time I talk to them 
about the tax cuts, but really the focus of attention is by the 
staffers. As I am escorted into the Congressman's or the 
Senator's offices, it is the staffers who say, ``He'll see you 
now, and by the way, thanks for cutting the car tax.''
    The truth is that--there is laughing because they know I 
speak the truth--the truth is that, for the well-to-do, the 
elimination of a tax like that on people's automobiles is a 
symbolic, important principle that says that government will 
not take it all, but for people in modest circumstances it is 
materially important as to whether or not they are able to get 
a tax refund.
    I had one elderly couple--actually, the daughter of an 
elderly couple--come to me and say to me that, when their 
parents got back $120 on this car tax cut, it made a difference 
on the quality of medicine that her parents were able to buy 
that month. So it does make a significant difference.
    In fact, I think tax relief is primarily a help to the 
modest and middle class and those of modest means, because they 
are the ones that are trying to climb the ladder of success. 
The people up there already have it, but the people who are 
trying to get some place need to have as much of their own 
capital as they can--to buy a better education for their kids, 
for their students; to do startup, and to be able to have some 
resources. Our experience is that tax cuts matter most to the 
people in the middle class and those people who are in need.
    Mr. Burton. Let me ask you, your overall economy, has it 
benefited from the tax cuts, in your opinion, and if so, how 
has it benefited?
    Governor Gilmore. Well, first, let me speak to you about 
the Virginia economy. We are a rocketing economy, I must say. 
We think, I think, traditionally, would hope to see an economy 
in a State or in the United States, or in even some countries, 
where they are mature or growing economies, an increase of 
revenues in 3 or 4 percent, perhaps 5 or 6 in a strong economy. 
Virginia's revenues are growing at nearly 11 percent.
    Mr. Burton. Eleven percent?
    Governor Gilmore. Almost 11, about 10.5, in, again, our 
growth of revenues.
    Mr. Burton. And, finally, based upon your experience in 
Virginia, do you think that tax cuts at the Federal level would 
stimulate economic growth and more revenues coming to the 
Treasury?
    Governor Gilmore. Yes, we believe it would stimulate--we 
believe it will stimulate the economy of Virginia, as people 
expend the cash in order to increase the quality of their 
lives, and we are convinced that it would stimulate the economy 
at the Federal level as well.
    But, you know, Mr. Chairman, the heart of this is, less 
that, we believe that if we produce jobs and we have a pro-
growth economy in Virginia, and we produce jobs as we are, and 
they are good-paying jobs, that the revenues are going to be 
coming in. And then you have to make a separate question 
altogether, and this is, what is right and just and humane for 
the individual citizens? And that means that we are doing it to 
materially help people, and that a portion of these kinds of 
revenues ought to be returned or never taken in the first 
place.
    I cannot resist making an analogy. You know, we are doing 
everything we can do at the State level, and the other States 
are as well. And I think that we are succeeding, and we are 
doing very, very well. But the money is here. The Federal 
Government has the money. And this is where you can really help 
people, if you can reduce the Federal taxes.
    I was stunned the other day to see that the last time that 
we had this level of taxation in the United States was in the 
height of the Second World War, when people were willing to 
make sacrifices out of a sense of survival. In a battle with 
the Japanese and the Germans, the people of the United States 
were prepared to surrender over 20 percent of their income to 
the Federal Government.
    Not only are we not in a life-threatening war right now, 
although we are in two wars, but we are not in a life-
threatening war, the cold war is even over. And, yet, we are at 
this point once again over 20 percent.
    Now let me just mention something. We have two funds in 
Virginia, an earmarked fund called the non-general fund and 
then the general fund, which is a discretionary pot of money 
that we use for all the programs through the legislation. When 
we implement all of this, we will be cutting taxes in Virginia 
about 10 percent of the general fund.
    I asked a little while ago, if the Federal Government were 
to follow Virginia's lead and cut revenues 10 percent, how much 
would it be? I don't think I know. How much would it be if we 
were to cut the Federal Government 10 percent, as we are doing 
quite successfully in Virginia? How much would it be? I think 
the counsel thought, or someone thought, that it might be $1.6 
trillion. It is an enormous amount of money. If we can do it in 
Virginia, the Federal Government can certainly do it.
    Mr. Burton. I think that is a great challenge, and we will 
commit that recommendation to some of our colleagues.
    Let me end my questioning by just saying or asking, how 
many administrations in the past 30 or 40 years have cut taxes 
in Virginia, and are you one of the first?
    Governor Gilmore. We are the first. The previous Republican 
administration attempted a tax cut, but it was beaten back. 
Governor Wilder, before that, actually got through a tax cut, I 
think, on nonprescription drugs, but it was never funded. It 
was funded at the end of the last Republican administration, 
but it was modest. The first major initiative on tax cuts has 
been in this administration. It has been very difficult to do. 
There is no tradition of tax cuts in Virginia--none. So we are 
doing it now.
    Mr. Burton. Well, you are to be congratulated.
    And, with that, I will yield back my time, and I guess we 
will go to Chairman Gilman.
    Governor Gilmore. Thank you, Mr. Chairman.
    Mr. Gilman. Thank you, Mr. Chairman. I want to thank you 
for conducting this interesting series of discussions with our 
leading Governors.
    Governor Gilmore, I appreciated seeing all the good things 
you have done in your State. If you had the choice of reducing 
a Federal tax, one Federal tax, which would you consider to be 
the most important that you would recommend?
    Governor Gilmore. My thinking at this point is that I would 
avoid a targeted tax at the Federal level, and, instead, do an 
across-the-board tax cut. You can debate which or how much or 
in what manner, but I think that I would be hesitant to go and 
pick one tax at the Federal level, you see, because that 
doesn't sustain the Federal problem; that doesn't address the 
Federal problem.
    The Federal problem is that taxes across the board are too 
high at the Federal level. When you add, of course, all taxes 
that are coming out, the FICA, and then put the rest of the 
income tax with it, it is just enormous. The income tax alone 
is at 20 percent. And I don't think you can reasonably reduce 
the 20 percent by going to any particular targeted tax cut at 
the Federal level.
    We were able to do it in Virginia because we are a 
relatively low-tax State, and we wanted to address that which 
was hurting people the very most. I think what is hurting 
people the most in this country today is these high tax rates 
that are at the Federal level, Congressman Gilman.
    Mr. Gilman. You have a sales tax in Virginia, do you not?
    Governor Gilmore. Yes, sir, we do.
    Mr. Gilman. And what is its percentage?
    Governor Gilmore. The percentage of the sales tax in 
Virginia is 4.5 percent.
    Mr. Gilman. How do you feel about a national sales tax that 
has been suggested in place of some other taxes?
    Governor Gilmore. No, I don't think adding taxes or trading 
them off is the answer. I think that trying to mix and trying 
to substitute one tax for another is probably not a good 
approach, and I would not propose a national sales tax at all. 
To the contrary, the objective here, I think, is to cut taxes, 
and I think cutting the income tax rates is the right answer.
    Mr. Gilman. And how do you feel about a flat tax that has 
been proposed?
    Governor Huckabee. Well, I think that it is one offered 
reform that ought to be considered among the other proposals 
that are out there. I certainly have not embraced that concept 
yet, but I think that it has to be considered among all the 
other proposals.
    But the objective of the exercise here--that, of course, is 
a way of maybe changing the mix in terms of the type of tax 
burden that is before us, but the objective here should always 
be to reduce the burden of taxes to the greatest extent 
possible.
    And I want to point out that the reason for it cannot be 
lost. It is to give people the opportunity to empower 
themselves, to improve their lives. We all understand that 
capital is what makes the world go around. It is the ability to 
define not only a person's quality of life, but the opportunity 
to get themselves a leg up and be independent. We should be 
striving for all Americans to be independent of the government.
    Mr. Gilman. Well, I want to thank you again, Governor, for 
coming before our committee and for your great thoughts on what 
you did with your tax structure. I think we will benefit from 
it. Thank you, Governor.
    Governor Gilmore. Thank you, Congressman Gilman.
    Mr. Burton. Thank you, Chairman Gilman. Mrs. Morella.
    Mrs. Morella. It is a great pleasure to have you before us, 
Governor Gilmore. I have got great admiration for you, and I 
know we have worked together across the river on mutual 
concerns.
    I guess I would like to ask you that: Do you work with the 
Governor of Maryland, and how do you interface with the 
District of Columbia? And would you make any suggestions about 
how relationships could be improved or enhanced?
    Governor Gilmore. Your question was, do I work with the 
Governor of Maryland? Yes. It is strictly business, but we do 
have, I think, the ability to work together when we think that 
it is of mutual benefit to the people of Maryland and the 
people of Virginia. We have worked together, I must say, on our 
efforts to build the Woodrow Wilson Bridge, the Federal bridge, 
which is going to be in the river very soon now. We are working 
together to try to achieve that, and he and I have worked 
together on some areas in the environment as well.
    With respect to the new Mayor of Washington, DC, I met him 
for the first time the other night, coincidentally, by the way, 
at that very same dinner party that I made reference to 
earlier. And I am confident that we are going to be able to 
find ways to work together to help the people of this 
community.
    I must tell you, however, that my aspiration in life is to 
draw the Commonwealth of Virginia together as one unified 
State. It is a very difficult thing to do because we are so 
very big and so very diverse, but particularly so very big. 
When you get out to Lee County, where I happen to have been 
several days ago, you are west of Detroit, MI. So you have to 
think about how big this State is.
    So, in consequence, to come to the point, northern Virginia 
should be a wonderful partner with Maryland and with 
Washington, DC, and I aspire to that. But they are not part of 
a region. They are part of Virginia, and we are working very 
hard to make sure that we include them intimately and carefully 
in everything that we are doing in the State, but I believe 
that Virginia, Maryland, and the District can work together in 
a variety of ways. For example, an Olympic bid, I suspect we 
are going to be working together on that as well.
    Mrs. Morella. You made a lot of accomplishments with regard 
to education, particularly higher education. I must say I think 
you have got some quite good programs in terms of job training 
programs. Would you like to comment on any of those? And high 
technology? Some of those things, I think, can be regional. I 
mean, we can work together in terms of doing some of the 
training. I wondered if you might want to explain some of the 
achievements in terms of higher education particularly, or even 
secondary education, because I think that is so much a part of 
this work force that you talk about, and it is so much a part 
of the growth and development.
    Governor Gilmore. We are very proud of our higher education 
system in Virginia. It contains landmark universities such as, 
for example, the University of Virginia, Virginia Tech, and 
William and Mary--national quality universities.
    Mrs. Morella. One of my sons went to Washington and Lee.
    Governor Gilmore. Oh, Washington and Lee, one of our 
excellent private schools that we have in Virginia as well, of 
which we have a large number.
    So higher education in Virginia is a great value, and we 
have been very successful. I am emphasizing right now the 
importance of the recognition that Virginia has a higher 
education policy, and that is to make higher education a high 
value and very accessible to the young men and women of 
Virginia. As such, we need to remember that our colleges and 
universities are a part of the public policy of Virginia, which 
places a very high importance on higher education. Therefore, 
they must be accountable to the people of Virginia, through 
their government, in order to effectuate that. Our quality must 
be maintained, and, in fact, it must accelerate. I believe that 
it will.
    And then, of course, with respect to affordability, I have 
been very concerned, once again, by just regular folks out 
there that want to send their kids to college. That is what our 
public colleges and universities are for. They are for our 
young people in the State to make sure they get an education. 
Such accessibility is very important.
    Therefore, I have cut tuitions in the State, through the 
legislature this past session, 20 percent across the board. The 
colleges, however, are not suffering a 20 percent loss of 
revenue. We are taking our money at the State level and 
committing it to higher education, so they made up that 20 
percent. But, in the meanwhile, the parents and the young 
people or students are going to benefit from that 20 percent 
cut, and that will attract more and more people to the schools.
    Why is that? It is important to do because it is going to 
help our work force, and particularly people in sophisticated 
engineering and technology areas, which are so important to 
Virginia today.
    And in addition to that, in K through 12, we have wonderful 
standards of learning. I just was able, also, to get through 
our general assembly an aid to localities by taking our lottery 
money and returning it back to the localities in its entirety 
for education.
    So education is a top priority for us in Virginia. Our work 
force, through our community colleges and through all these 
programs, is going to, I believe, fuel the sophisticated 
technology economy we have. What result? Greater revenues, 
greater opportunities for quality of life. And then when the 
time comes to set priorities, I believe tax cuts are just as 
important a priority as anything else, maybe more important--
other than national security, maybe more important--because it 
gives the opportunity to genuinely extend the quality of life 
back to working men and women.
    Mrs. Morella. Tomorrow the District of Columbia 
Subcommittee is probably going to be marking up the bill that 
Mr. Davis has introduced, and I am a co-sponsor, dealing with 
tuition benefits in other schools, in State schools, that would 
be paid for by the District of Columbia. I am just curious 
about your reaction to that.
    Governor Gilmore. Is this a bill to extend some tuition 
benefits to young people within the District for District of 
Columbia----
    Mrs. Morella. Right. They would then pay the in-state 
tuition.
    Governor Gilmore. I think it would mirror the high priority 
that we place in Virginia on public education and making sure 
young people have accessibility to it. It would mirror the 20 
percent tuition cut that we have done in Virginia. It is just a 
different format. And I would encourage it.
    Mrs. Morella. Thank you. Thank you again for appearing 
before us. We look forward to continuing to work with you. 
Thank you.
    Governor Gilmore. Thank you, Congresswoman Morella.
    Mr. Burton. Mr. Davis.
    Mr. Davis of Virginia. Thank you.
    Governor, let me ask a question. I was also surprised when 
I heard the President talk about tax cuts being selfish. He 
almost repeated the same thing this year up in Buffalo, NY, 
where he said we have a surplus and we could give it to the 
people and let them--``let you spend, and hope you spend it the 
right way.'' And that is why he likes the targeted tax cuts, 
which means that if you spend the money the way the government 
wants you to, they will give you a tax cut, but if you use 
your--if your view of your priorities is different from the 
ones government has for you, you don't get it. That would kind 
of be the prevailing philosophy.
    But I wonder if you could talk to us about what this means 
to businesses, being competitive in the State of Virginia, as 
they get money back, and what it means to individual families 
in terms of being attracted to an area, and how that helps an 
economy grow.
    Governor Gilmore. First of all, I am prompted by your 
question to respond directly to you: Once again, the great 
value that we are trying to achieve here is the freedom of 
people. Virginians think about this very much. It is the 
freedom of people, the enabling of people. What business is it 
of ours how they spend their money? It isn't our business. It 
is their money. They should contribute it to the National 
Government to the extent that it is necessary in order to carry 
out the essential parts of government that are necessary for 
all of us, but, beyond that, this is precious revenue which is 
necessary for them to be free people. If you tax everything 
that everybody has, then they are not free anymore; they have 
to decide how they are going to live based upon how the 
government makes those definitions, just as you point out, 
Congressman Davis.
    So this is about liberating and freeing people. It is a 
great philosophical goal and objective that we have. And you 
may think, gee, we would never tax at all the way that they did 
in the Soviet Union or something like that, but we are taking 
32 percent--32 percent. We just manage to do it in a way that 
people don't always notice. And we are living in wonderful 
times, so that people can increase their revenues in a way 
where they just don't notice how much money they are spending. 
But the question really to ask is: What more could they do for 
their children? What better home could they buy? Could they 
have an improved quality of life? So it is really about the 
freedom of people.
    The second part of your question was a practical one with 
respect to the attraction of business. It is true that we have 
in our State a pro-tax cut and pro-business philosophy, not 
because we think that it is better to help the rich or anything 
like that. It is because we believe that it is the ability to 
provide more and better quality jobs for people, so that 
individuals can be working successfully and self-actualizing 
through their careers.
    We are doing that, particularly in your community, 
Congressman Davis, in northern Virginia fairly well. We are 
bringing in more jobs every day, more sophisticated work, and 
it is, in fact, the income tax which is driving the revenues of 
Virginia, and driving it very well. But we are in a position 
now to continue to in a measured way return money back to 
businesses and to the people of Virginia.
    A couple of technical matters: We did some additional 
reforms this year that I am very proud of. We are increasing 
Enterprise Zones, which gives tax breaks to people in specific 
areas, particularly places where we need to employ people.
    We just did an exemption on the sales tax on Internet 
equipment, communications equipment, which makes us one of the 
most attractive States in America for the development and 
establishment of Internet companies. And these are just a 
couple of examples.
    We believe we can do this, and the result is going to be 
better jobs. I think the proof is in the record. We are doing, 
I think, very aggressive development work in Virginia. As a 
result, the revenues are phenomenal really.
    Mr. Davis of Virginia. So you believe there is a tie 
between increased business activity, which produces more 
revenues, and allowing those businesses to keep more of what 
they earn?
    Governor Gilmore. Yes, indeed, because it is capital that 
they have that they don't have to then borrow. But the goal, 
again, is not to enrichen the companies. The goal is to create 
jobs and greater opportunities and economic opportunity, which 
is to the benefit of the people.
    Mr. Davis of Virginia. Exactly.
    If we were to hit a recession right now, a shorter period--
I know you were careful in putting the tax cut together 
originally to say this was going to be dependent on economic 
growth; that you weren't trying to slash the school budget to 
pieces or anything else to do this that you would have to 
retract.
    What is the outlook now for the Virginia economy over, 
let's say, the next couple of years?
    Governor Gilmore. Well, there is no evidence of any type of 
downturn in Virginia that would be unseparated from a national 
downturn. I think it is clear that, if there is a national 
downturn, we would have one in Virginia as well. There is no 
evidence of it that we can foresee on the horizon. But even if 
there was, we are confident that we are in a position to 
continue to provide the essential services that we ought to 
provide.
    But I want to make one more point that sometimes I think 
that some members, some individuals in the committee have not 
fully grasped, and that is that the return of tax money back to 
the people as an independent value of itself, to improve the 
quality of life of people and their liberties and freedoms, 
itself is a value on the table, and it should not be first off 
the table in the case of a downturn. Instead, we should be 
demanding in our management to make sure that we select our 
priorities well and we run our government in the proper way. 
But that doesn't mean that the taxpayer is the first one to be 
thrown overboard.
    Mr. Davis of Virginia. Well, I appreciate your taking the 
time to be with us here today. I think your message, when this 
was first announced, there was kind of--everybody was 
scratching their heads; the pundits weren't sure what to do 
with it; the papers ridiculed it. You stayed on message, and 
now you are following through. I think you have made believers 
out of a lot of people who a couple of years ago weren't sure 
where all this could--Virginia's economy I think is just a 
great example of how these work. So thank you very much.
    Governor Gilmore. Thank you, Congressman Davis.
    Mr. Burton. Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Governor, thank you for being here today. When I have the 
opportunity to visit with folks like yourself, who have a long 
history in elected office, who take the time to come visit, I 
always learn something, and I appreciate that.
    My background is real estate development, which is tied to 
local land use. I see across the river here a remarkable degree 
of enterprise and creativity, and I give you and your 
colleagues credit for that.
    One of the things I am concerned about remains the tendency 
of some here in Washington to, in effect, push or grab 
decisionmaking that ought to be left to local entities and 
aggregate it to Washington. I am somewhat amused by what 
appears to be the Vice President's campaign for mayor in terms 
of land use decisions and traffic questions, and something like 
that. And the consequences that it has at the local level from 
a tax-level perspective--in other words, if all that power is 
aggregated for land use decisions and infrastructure 
improvements for sewers, and what have you, to a mayor that 
sits at 1600 Pennsylvania, together with the taxing ability to 
impose the cost and the benefits, what is the consequence, for 
instance, across the river in the balance of your State?
    Governor Gilmore. Let me say two thoughts. First, we care 
very much about the quality of life in the localities in 
Virginia. We never forget for a moment what is going on in 
Arlington or in Alexandria, or especially in Fairfax. We just 
never forget that. And so our policy on the spending side, if 
you will, is to devote more and more money back to the 
localities for their essential needs.
    The lottery money in Virginia this year has passed through 
the legislature, on my initiative, to be returned to the 
localities for education, K-12 education, entirely. In 
addition, old commitments to return money back to support local 
law enforcement, we are keeping those promises now, and we are 
sending that back as well. So we care very much about how our 
policies impact upon the locality.
    I think you asked the question, what consequence is there 
in much of these decisions that we make on localities? Well, 
you know, it could be the loss of just individual liberty to 
choose how people are going to live. If we make a concept in 
Washington, or even in Richmond, that we know how people ought 
to live, you could begin to deny some choices for people to own 
their own homes or to have their own cars or to define their 
own lives, and I am never in favor of that.
    Mr. Ose. Looking at your resume, you were a county 
Commonwealth attorney. So you have vast experience at the local 
level, having served there for 6 or 7 years.
    Governor Gilmore. I do, although that is a prosecutor's 
office.
    Mr. Ose. You are still dealing with the consequence at the 
local level?
    Governor Gilmore. Every day.
    Mr. Ose. And I just cannot hammer home or re-emphasize your 
point about local people making local decisions for the local 
benefit--I mean the consequence of that. I want to encourage 
you to continue on. Frankly, I am trying to keep myself from 
delving into local land use matters because, I have got to tell 
you, I have plenty of opportunity; I just don't need to do it. 
I have enough problems, as a Congressman, considering Social 
Security or Kosovo or trade, or what have you. I don't need to 
be mayor also.
    I very much appreciate your respect for that, and I thank 
you for coming today.
    Governor Gilmore. Thank you, Congressman.
    Mr. Burton. Thank you, Mr. Ose.
    Well, Governor, we really appreciate you taking time out of 
your busy schedule to be with us. You are my quasi-Governor 
since I live near Old Town Alexandria, and I am very proud of 
what you have done. Like I said, I knew when you said you were 
going to cut that car tax you were going to win that election. 
I was one of those fellows that looked into the crystal ball 
way ahead of time, and I don't care what the pundits said; you 
were right on target.
    Thank you again for being here, and thank you for sending 
Mr. Davis, your old college buddy, to be a Congressman here. He 
has done a great job.
    Governor Gilmore. We think so, too. Thank you, Mr. 
Chairman.
    Mr. Burton. Thank you, Governor.
    We stand adjourned.
    [Whereupon, at 4 p.m., the committee was adjourned.]


                  NATIONAL PROBLEMS, LOCAL SOLUTIONS:



                           FEDERALISM AT WORK



                                PART II



                        TAX REFORM IN THE STATES





                        THURSDAY, APRIL 15, 1999

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:25 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the committee) presiding.
    Present: Representatives Burton, Shays, Ros-Lehtinen, 
McHugh, Horn, Mica, McIntosh, LaTourette, Hutchinson, Biggert, 
Walden, Ose, Ryan, Chenoweth, Towns, Maloney, Norton, Cummings, 
Kucinich, and Schakowsky.
    Also present: Representatives Lazio and Meeks.
    Staff present: Kevin Binger, staff director; Barbara 
Comstock, chief counsel; David A. Kass, deputy counsel and 
parliamentarian; John (Timothy) Griffin, senior counsel; John 
Mastranadi, investigator; James Wilson, chief investigative 
counsel; Mark Corallo, director of communications; John 
Williams, deputy communications director; Carla J. Martin, 
chief clerk; Lisa Smith-Arafune, deputy chief clerk; Nicole 
Petrosino, legislative aide; Corinne Zaccagnini, systems 
administrator; Jacqueline Moran, legislative aide; Phil 
Schiliro, minority staff director; Phil Barnett, minority chief 
counsel; David Sadkin, minority counsel; Ellen Rayner, minority 
chief clerk; and Jean Gosa, minority staff assistant.
    Mr. Burton. Good morning, a quorum being present, the 
Committee on Government Reform will come to order. And I ask 
unanimous consent that all Members and witnesses opening 
statements be included in the record. And without objection, so 
ordered.
    Good morning. How are you? We have the Honorable Rick Lazio 
here with the Governor. Today we are to going to hear from 
Governor Pataki of New York. Governor Pataki inherited a legacy 
of high taxes and out-of-control spending. Since his election 
in 1994, he has sought to bring fiscal responsibility to the 
government in Albany and was soundly affirmed by his reelection 
in 1998.
    Governor Pataki's record of tax reform is nothing short of 
remarkable. He has cut income taxes by 25 percent, for a 
savings to the taxpayer of $3 billion. And in 1996, he worked 
to repeal school taxes, farm taxes, the death tax, and the 10 
percent real estate transfer-gains tax, otherwise known as the 
Cuomo tax. It is interesting to note that with all of these tax 
cuts, the New York economy has generated more income tax 
revenue than it ever did under the previous Governor.
    I see that Mr. Waxman is not here. Do any of my colleagues 
have any kind of opening remarks they would like to make on the 
Democratic side? Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. Let me say 
that I am delighted to see my Governor here and, of course, 
though more than cutting taxes, I think the thing that has 
happened is the fact that he has increased tourism in the State 
of New York which has also lead to additional income and 
revenue. And I think that is the thing that should be 
highlighted. You know, if you have other things going and then 
you can produce revenue, then you can look at taxes, I think 
that the Governor has done that.
    And I would like to salute him for that, of course, in 
terms of bringing additional folks in to our State, spend more 
money. And I think that is the key. So, Governor, delighted to 
see you and happy that you are here. And to say that you know 
when you talk about cutting taxes, you didn't just look at it 
in one way, you looked at it from a comprehensive approach. And 
I think that is the thing that makes sense to me.
    Governor Pataki. Thank you.
    Mr. Towns. Glad to see you.
    Mr. Burton. Thank you, Mr. Towns. Do any other Members have 
opening statements they would like to make? Mr. Shays.
    Mr. Shays. Just very briefly. Governor, it is great to have 
you here. I love what you have done for the city of New York, 
which is a place where a lot of my constituents work. You have 
done a tremendous job, and Connecticut is a better place 
because of what you have done for New York.
    Governor Pataki. Thank you.
    Mr. Burton. Any other comments? If not, the Honorable Mr. 
McHugh of New York who is one of my subcommittee chairman and a 
very fine representative in the Congress of the United States 
from New York will introduce the gentleman who is going to 
introduce the Governor.
    Mr. McHugh. Thank you for the chance, Mr. Chairman. Thank 
you, sir. Let me, first of all, Mr. Chairman, thank you for the 
continuation of these very timely and very important hearings. 
It is no secret to the vast majority of Americans that this is 
the beloved tax day. Like millions and millions of citizens of 
this great Nation, I was trying to finish up my taxes last 
evening.
    And, in fact, in my case, it was my State. I can tell you 
from personal experience that, thanks to the efforts of our 
honored guest here today, I still had to pay, but I had to pay 
significantly less. Governor, I thank you for that savings and 
for the savings on my aspirin budget that your hard work has 
accrued to me personally.
    It is, as you noted, Mr. Chairman, my honor today to 
introduce a gentleman who is accompanying the Governor at the 
front table. New York is, if nothing else, a highly diversified 
and varied State. Sometimes we tend to divide ourselves 
geographically and to differ on things not depending, not so 
much on our partisan politics, but on our location. But I can 
tell you that more often than not, we have a delegation in this 
city and in this Congress that works together incredibly well 
and works across varying lines of interest, be they 
geographical or otherwise.
    I think that is particularly true with my friend Rick 
Lazio. Rick has done an extraordinary job, not just as a Member 
of this House and this Body, but in his duties now as deputy 
majority leader. He is the individual to whom all of us look, 
Democrat and Republican alike, to provide access to our 
leadership, to ensure that the needs of New York and our views 
and concerns are heard and felt.
    But even more to the point, in his service as chairman of 
the Housing and Urban Development Subcommittee, where he has 
done a tremendously effective job fighting for adequate 
affordable and safe housing for every New York State resident, 
be they from Massena or Montauk or somewhere in between. So it 
is a delight to see him somewhere other than in my district, 
where he has been spending a considerable amount of time in 
recent weeks and days. As he examines his future I feel very 
confident that, whatever path he chooses, it will be highly 
successful.
    So with that, Mr. Chairman, I appreciate the honor of 
introducing my friend, our colleague, Congressman Rick Lazio. 
Rick.
    Mr. Burton. Mr. Lazio.
    Mr. Lazio. Thank you, Mr. Chairman. Thank you very much, 
John, for those very generous remarks. And, Mr. Chairman, and 
my colleagues on both sides of the aisle, how pleased I am to 
see you here. Great vantage point to be down here looking at 
you to be recognized. T.S. Sullivan wrote, April is the 
cruelest month. As some people say it was because of his 
reflection on childhood indiscretions, about unpredictability 
of this month in terms of its weather, but I think it was just 
because he failed to pay his estimated quarterly taxes. And so 
today is a great day to be hearing from one of the Nation's 
premiere tax cutters.
    He is a perfect choice to talk about tax reduction at the 
State level. Governor Pataki has received numerous awards for 
his focus on economic strength and recovery through a fairer 
tax system from New York's people and for its businesses. 
Governor Pataki, as the chairman has noted, has cut personal 
income taxes for New Yorkers by 25 percent. You may want to 
look at the burden of high property taxes.
    Under the previous administration, New Yorkers, 
particularly senior citizens, were losing their homes because 
they couldn't afford to pay their property taxes. Governor 
George Pataki has slashed property taxes an average of 27 
percent and a staggering 45 percent for New York seniors.
    Now, tax reform may sound like a dry, dull subject; but 
when you meet an older person who has been able to stay in the 
home they love as a result of the Governor's reforms, you will 
agree that taxes are truly a quality of life issue.
    And as a clear sign of the Governor's intention to New 
York's economy of the future, New York became the first State 
to declare the Internet a tax-free zone. Governor Pataki has 
cut taxes 36 times in his first 4 years in office, more than 
any other Governor in the Nation, saving New York taxpayers and 
businesses $19 billion so far. In fact, in 1996, he cut taxes 
more than all other States combined.
    The Governor's tax cuts are reinvigorating what was once 
the most--strongest and diversified economy in the Nation and 
helping bring back to our State and our citizens and the jobs 
and the optimism that bring building strong communities and 
better lives. We in Washington should take this example to 
heart.
    I am honored to introduce the great Governor of the State 
of New York, he is my friend, and my colleague, Governor George 
Pataki.
    Mr. Burton. Governor, welcome, and a basketball fan.

   STATEMENT OF GEORGE A. PATAKI, GOVERNOR, STATE OF NEW YORK

    Governor Pataki. And a basketball fan.
    Mr. Burton. New York Knicks fan.
    Governor Pataki. Absolutely. Chairman Burton, thank you, 
and I appreciate the opportunity to testify before this 
committee this morning. Let me thank Congressman Lazio for that 
terrific introduction and for the great job he does for the 
people of this State. And I also want to acknowledge and thank 
Congressman Shays for his kind words. While Connecticut and New 
Jersey and New York occasionally compete, we all know that if 
we adopt the right policies, ultimately all of our States will 
be stronger.
    And, Congressman McHugh, I thank you for the tremendous job 
you have done first in the State legislature and now down here 
helping us in Washington. And, Congressman Towns, thank you for 
your kind words. I very much appreciate it.
    As Congressman McHugh noted, we are one State, and we have 
tried to take a comprehensive approach not just to the issue of 
taxes, but to the future of this State. And I know you are 
concerned, whether it is central Brooklyn or the central 
Adirondacks to make sure this State is stronger; and we are 
better because of that.
    Chairman, if I may, I have some testimony, and let me say I 
am pleased to be offering it on April 15. This is, as everybody 
referred to, tax day. It should be tax freedom day, but it is 
not because for the average American family, they have to work 
into May before they are finished paying simply their tax 
obligation. I think that is wrong. And we have tried very hard 
in New York State to correct that.
    For me and for many Republican Governors across this great 
country, we have been doing hard work in the area of taxes--
Governer Bush, Governor Engler, Governor Whitman, Governor 
Huckabee, Governor Gilmore, and many others--this is more than 
just an issue of economics. For us, cutting taxes is a matter 
of fulfilling government's fundamental obligation to the 
people.
    It all comes down to one simple question. Whose money is it 
anyway? In State capitols across our country, Governors are 
declaring without hesitation that the people's hard fought 
earnings belong to the people and not to the government. I am 
proud to be able to tell you that in no State has this basic 
fact of life been declared more clearly and more emphatically 
than in New York State.
    I know it may come as a shock to you given New York's 
history and particularly its reputation under my predecessor, 
but it is true. In the 4 years since I have taken office, New 
York has cut taxes more than any other State. We have cut taxes 
36 times, returning $19 billion to the taxpayers, that is $19 
billion to the taxpayers so far. And when all of the tax cuts 
on the books take full effect, that number will grow to over 
$52 billion.
    Our tax cutting has sparked a new direction in New York 
State. We were once a State in crisis. Now our largest business 
organization calls us ``the comeback State.'' I mean, New York 
State has gotten so much better than before, that even the 
First Lady of America is thinking of moving to New York State. 
What better testament to the success of our policies?
    But perhaps there is no greater evidence of the profound 
turnaround in New York than the fact that the Governor of the 
place that once led the Nation in raising taxes is here today 
talking to Congress about how to cut taxes. As they used to say 
in Brooklyn, ``Who would'a thunk it?'' Congressman Towns knows 
that is correct Brooklynese.
    Before I talk more specifically about what we have done 
with taxes in New York, I want to address the broader issue of 
freedom, because I don't think you can separate the two. If 
ever there were two things that had an inverse relationship, it 
is taxes and freedom. The more you have of one, it is 
necessarily so that you must have less of the other.
    The more money a person has seized from them by government, 
the less freedom that person has to do what he or she wants 
with that money. It could not be any simpler.
    Now many Americans have come to accept taxation as a 
necessary evil. They accept the fact that they have to 
surrender some of their earnings and, consequently, a degree of 
their financial freedom to sustain our government. The point I 
would like to make today is that excessive taxation does more 
than infringe on people's financial freedom. It drives up 
spending, and creates a bigger and more intrusive government 
that inevitably infringes on other freedoms as well.
    By nature, as we in government all know, government has an 
insatiable appetite, an inherent desire to grow. When 
politicians raise taxes beyond what is necessary to fulfill 
government's legitimate function, they feed that growth and 
produce not just a bigger government, but a costlier government 
that becomes a destructive force in people's lives. It created 
a destructive cycle of high taxes, perpetuating more 
bureaucracy and more spending, which in turn perpetuated more 
taxes and less economic freedom for the people who pay those 
taxes.
    But the cycle doesn't end there. Excess bureaucracy created 
by overtaxation produces, not just more spending and further 
encroachments on people's economic freedom, but new limits on 
other freedoms. Because bureaucrats without a legitimate 
function have to justify their existence by creating an 
ostensible function.
    In New York, bureaucrats justify their existence by 
generating scores of new rules and regulations, and government 
would use those regulations to assert itself over the people in 
every aspect of their daily lives.
    Most of the regulations, however, were aimed at businesses, 
putting the men and women who create jobs under the close 
supervision of a government that sought to dictate their every 
move. It doesn't work. What you had in New York was an endless 
cycle of high taxes leading to big bureaucracies and more 
regulations which led to higher taxes and bigger bureaucracies 
and even more regulations. This went on for more than a decade, 
and the results were devastating.
    Let me just paint a picture of New York in 1994 for you. 
And bear with me, because as dismal as it seems, the story has 
a happy ending. And I might point out that in the end of 1994, 
we were 3 years into a national economic expansion following 
the earlier recession.
    When I took office in January 1995, New York was in crisis. 
The State government was too big, too bossy, too expensive. It 
faced a budget deficit totaling a record $5 billion, a $5 
billion deficit, a deficit larger than the budgets of 31 other 
States. The promise of tax relief had turned into a cruel hoax.
    Our welfare roles were bursting, and jobs were on the run. 
The biggest taxes, income taxes, property taxes and school 
taxes, were all rising every year at an alarming rate. But 
there were other taxes as well, the sales tax, the estate tax, 
hidden taxes on goods and services, and scores of taxes that 
were imposed on businesses and paid by consumers.
    All of those taxes served one purpose and one purpose only, 
to drive up spending and feed a government that was out of 
touch, and out of control. And that destructive cycle of taxes, 
more bureaucracy, more spending, more taxes, and less freedom 
was in full throttle.
    As government got more, families got less. As bureaucracies 
thrived, business suffered. Taxes were literally destroying the 
greatest State in America.
    Together with our allies in the State legislature, we 
confronted that crisis. From our first day, we held to a 
fundamental covenant that says, at all times and without 
exception, respect the people and let them lead the way toward 
real progress. And in a State where the guiding principle is 
respect for the people, big government and big government 
taxation simply does not compute; that is why, in New York, we 
have embarked on the most ambitious campaign of tax cutting in 
the State's history. It is working.
    In fact, our philosophy is working so well, that it has 
created a new challenge for us. In that first year, 1995, we 
had to manage crisis. In 1999, our challenge in New York is to 
manage prosperity. Today, taxes aren't going up every year as 
they have been; they are going down by record amounts.
    Private-sector jobs aren't going down as they did in the 
1990's when the rest of the country was creating millions of 
new jobs, and New York lost 400,000 more. They are going up and 
jobs are now at the highest level ever in New York State 
history.
    But economic revitalization has been the key to solving one 
of New York's most serious problems. When I took office, 1 out 
of every 11 New Yorkers was on welfare. Think about it; 1 out 
of 11 residents of our State, my State, and 1 out of every 7 
residents in New York City was trapped on welfare. But today 
the welfare roles are shrinking every day, and people are 
finding the freedom that comes with work. Welfare roles are 
down by 653,000 people since January 1995.
    And they have fallen below the 1 million mark for the first 
time since December 1967. And, Mr. Chairman, let me thank you 
and your colleagues in Congress for passing the welfare reform 
legislation that gave the States the ability to tailor our 
programs to meet the needs of our particular States. It is one 
of the major reasons we have had this tremendous success.
    Families are buying new homes and refinancing their old 
ones, which says they are planning to stay in New York and 
build their future there. It is hard to think of a tax we 
haven't cut. We began by cutting income taxes. Today--the vast 
majority of New Yorkers pay 25 percent less on income taxes 
than they did in 1994.
    We are cutting income taxes, business taxes, and school 
property taxes. Taxes are being cut for small business people, 
family farmers, senior citizens, working families, and retired 
couples. We are cutting taxes on entrepreneurs trying to start 
businesses, businesses trying to grow jobs, and on people 
trying to find work.
    We are cutting taxes for families who are both buying 
clothes for their children and saving for their college 
education. Across the board and in every conceivable category, 
taxes are falling in ways some thought were impossible.
    When we first proposed cutting income taxes 25 percent, 
there were some who swore we could never actually do it. But we 
did, and it is saving New Yorkers $5 billion every year and 
helping revitalize our economy.
    There was once a time when New York was one of only a 
handful of States that imposed its own estate taxes on estates. 
But this year New York's added-tax on death finally dies along 
with the added-gift tax.
    Once upon a time, we not only had one of the highest 
corporate income tax rates in the Nation, but we had a 15 
percent surcharge on top of that. We got rid of the surcharge, 
and this year the corporate income tax rate starts coming down 
too. When all is said and done, New York's corporate tax rate 
will be at its lowest rate since 1970.
    There is more. We cut the corporate franchise tax, the 
gross receipts tax, the real property transfer tax, the tax on 
motor fuel, the container tax, and the tax on beer. We cut bank 
taxes, insurance taxes, and the petroleum business tax. And we 
cut the tax that had the dubious honor of being named after my 
predecessor the so-called ``Cuomo tax.'' That was a transfer 
tax of 10 percent on all real estate transactions over $1 
million, a true job killer that was wreaking havoc on New 
York's real estate investment industry.
    When Governor Cuomo signed it into law, he called it the 
perfect tax. As it turned out, he was half right. It was the 
perfect tax for New Jersey or Connecticut, for Georgia or North 
Carolina, but it was a disaster for New York State.
    In 1997, we did something else unprecedented. We signed a 
law called the STAR Program, that cut school property taxes for 
every homeowner in New York for the first time in New York 
State history. This truly is remarkable, because New York--and 
in New York, the State doesn't even levy school taxes, the 
localities do, and so essentially the State is cutting taxes we 
don't even impose, and reimbursing local governments for the 
lost revenue.
    And the reason we can afford to do that is because we have 
reduced the size and costs of government so dramatically. As 
Congressman Lazio pointed out, our STAR Program is cutting 
school taxes by 27 percent on average and seniors are seeing 
now a cut of more than 45 percent in their school taxes, and in 
10 of New York's 62 counties the average senior citizen now 
pays no school taxes at all.
    In 1996, we not only lead the Nation in cutting taxes, we 
cut taxes by more than the other 49 States combined. And in 
1997, we cut taxes by more than Texas, California and Illinois 
combined. New York's Public Policy Institute, a pro-growth 
think tank, calculated all of our tax cuts and then considered 
what they would mean here on the Federal level. They said that 
if equivalent tax cuts were done nationally, Americans would 
save over $300 billion.
    We have had great progress in New York, but there is much 
more to do. This year I proposed another billion dollars in tax 
cuts including a $600 million income tax cut that will raise 
the threshold at which the maximum State tax rate applies, and 
it doubles the deduction for dependent children. Another 5 
million taxpayers, including tens of thousands of small 
businesses, will see major savings.
    Bad tax policy goes beyond bad taxes. There is the 
bureaucratic mindset perpetuated by those taxes. This year I 
sent the legislature a bill that will remove one of the great 
absurdities from the State's tax code.
    For years, hundreds of thousands of New Yorkers have had to 
file State income tax returns every year, even though both they 
and the State know they will owe no tax. It takes 2 minutes to 
figure it out, but State law makes them file anyway. It is a 
waste of the taxpayer's time, and a waste of taxpayer's money. 
Because guess where the dollars come from to pay for the 
processing of those useless tax returns?
    If ever there was a tribute to twisted bureaucratic logic, 
this is it. By raising the taxable income needed to file a 
State return, to match the State's standard deduction, a simple 
commonsense proposal, we can wipe this dumb rule off the books 
for good. And in the process, we will help 500,000 New Yorkers, 
mostly seniors, by relieving them of the paperwork that they 
never should have had to deal with in the first place.
    The States have proven that cutting taxes works, but 
putting tax cuts on the books is only part of the winning 
formula. New York was once run by those who would approve tax 
cuts, then delay them, and then totally forget about them, and 
finally, turn around and raise taxes.
    The tax-cut movement cannot be allowed to become a blip on 
the screen of our State's or Nation's history. The act of 
raising taxes is a destructive act and should therefore be a 
difficult act.
    Last week, I joined with Congressman Joe Barton of Texas, 
in calling for constitutional amendments that would require 
super-majority approval for any tax increases. At the State and 
Federal levels, requiring a two-thirds vote for any tax 
increase would protect millions of hardworking taxpayers from 
unnecessary and counterproductive tax hikes.
    I am working in my State to get this protection passed, and 
I would respectfully urge the Members of this committee to do 
the same here in Washington.
    Our mission in New York 4 years ago wasn't just to lead the 
Nation in cutting taxes. Our mission was to restore freedom. To 
truly fulfill that mission, we knew that in addition to cutting 
taxes, we had to eliminate the layers of unnecessary 
bureaucracy that those taxes created in the first place. We 
knew we had to significantly reduce the size of the big 
overbearing government bureaucracy that was intruding into the 
daily lives of our people.
    After all, that big government didn't just disappear when I 
took office. It was still there, turning out rules and 
regulations like never before. To date, we have reduced the 
size of the government by almost 20,000 positions. And we have 
done virtually all of that through creative measures like early 
retirement and transfers without large layoffs.
    We streamlined or abolished unnecessary and ineffective 
programs. In fact, in 1995, we abolished an entire government 
agency, the Department of Energy, which was created during the 
1970's to deal with the gasoline crisis, but still existed in 
1995. And in doing so, we proudly broke the old rule of 
government, that once a program or an agency is created, it can 
never be abolished.
    In addition to that, we have sent a strong message to every 
bureaucrat and every agency of government that the days of 
harassing employers for the heck of it are over. We have 
eliminated or revised thousands of regulations imposed by the 
previous administration saving our people and businesses 
billions of dollars. We have reduced workers' compensation 
costs by 38 percent, privatized State-owned properties that 
government had no business owning in the first place, like 
bakeries, golf courses, and hotels. We are in the process of 
making Stewart Airport in the Hudson Valley the first 
commercial airport in the Nation to be privatized.
    And as for that $5 billion deficit I mentioned before, the 
one I inherited, by returning economic power to the people 
through tax cuts and fiscal restraint, we have created a 
stronger economy that has allowed us to eliminate the deficit 
and replace it with four straight budget surpluses. The latest 
surplus ending our fiscal year April 1 being $1.8 billion.
    I am urging our legislature to preserve that surplus and 
the ability to cut taxes even more in the future by keeping our 
budget growth this coming year to the inflation rate.
    There is one other important point to make about New York's 
tax cutting. We have done all of this without inhibiting the 
ability of one single State agency to provide their important 
public services. And, in fact, we are operating more 
efficiently and more effectively than ever before.
    It is also important to note that as we have limited New 
York State's government, we haven't shifted the burden of our 
services or taxation to localities. It is not just that we 
ended big government in New York, we have replaced it with 
smarter government. As you pursue your tax cut agenda at the 
Federal level, I would urge you to have the same consideration 
for the States as we at the State level have had for the 
localities in New York.
    Let me end with what I hope is a word of encouragement. 
There has been a wave of newspaper articles recently citing 
polls which suggest Americans don't want a tax cut. It has been 
said that the hunger for a tax cut doesn't really exist because 
our economy is healthy and people are doing well for themselves 
financially.
    But it has also been said that freedom is fragile and must 
be protected. To sacrifice it, even as a temporary measure, is 
to betray it. As Republicans, I believe we must never submit to 
the notion that the preservation of freedom is a part-time 
endeavor that can be pursued or abandoned based on the last 
Gallup poll.
    Ronald Reagan was right when he said that the Federal 
Government is taking too much tax money from the people, too 
much authority from the States, and too much liberty with the 
Constitution. And we are right to stand by our principles of 
smaller government, lower taxes, and more freedom.
    We are right to insist on policies that reward hard work 
and empower the individual spirit that fuels our national 
greatness and keeps our economy strong. We must stand by our 
convictions and do what is right for America, for Americans, 
and for the preservation of freedom. It is what we have done in 
New York.
    And to paraphrase Frank Sinatra, if you can cut taxes in 
New York and cut them by more than any other State, you can cut 
taxes anywhere, even in Washington.
    And that is precisely what Washington should commit itself 
to doing, following the lead of the States, cut taxes and 
strengthen the freedom that makes America thrive.
    Thank you, Mr. Chairman. And I would be happy to respond to 
any questions.
    [The prepared statement of Governor Pataki follows:]

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    Mr. Burton. Well, that is a very, very impressive record, 
Governor. And I would just like to start off by asking the 
question--when Ronald Reagan started cutting taxes in the early 
1980's, I remember some of the pundits were saying that is 
going to create a bigger deficit in the treasury, because the 
tax cuts are going to take money away from the treasury. And I 
remember that after the tax cuts, the next 3 or 4 years we went 
from $500 billion in tax revenues to $1.3 trillion.
    And you might comment, if you would, on your State's 
reaction to your tax cuts as far as moneys coming into the 
treasury. You touched on it briefly in your opening remarks, 
but I think it is real important to emphasize this, because we 
still have the mistaken feeling in many parts of the Congress 
that if you cut taxes, you reduce the money coming into the 
treasury. Can you explain how that works out?
    Governor Pataki. Yes. Chairman Burton, I think that is a 
very important point. And I am pleased you made it. And let me 
just tell you our experience in New York. We were in a downward 
spiral. We would raise taxes in the hopes that it would create 
more revenue to feed more government programs that were 
necessary, because the private economy was shrinking.
    In the early part of the 1990's, New York State lost over 
400,000 private-sector jobs. So we weren't seeing the revenue 
growth that you would anticipate, because higher taxes were 
killing the economic goose that laid the golden egg in reducing 
the revenues that flow into New York State.
    By cutting taxes, we not only have given money back to the 
people, to the consumer, to the homeowner, to the small 
business person, we have encouraged them to expand their 
economic activity. And over the course of the 4 years since 
January 1995, we have seen more than 450,000 more private-
sector jobs in New York State. Our tax revenues are up. And our 
tax revenues are up because the rates are down. And the 
businesses feel they can invest and create the jobs and 
opportunity of the future.
    Let me just give you one more statistic. In 1994, we had 73 
corporations decide to locate or expand economic activity in 
New York State. Last year, we had 1,024, 14 times as many. And 
each one of those decisions to locate or expand a facility in 
New York means investment in dollars, means hiring of people 
who will pay taxes and become contributing New Yorkers instead 
of depending on government for a handout.
    So it has been--we are now in a positive spiral. As we 
lower taxes, we get more jobs, more economic activity, and more 
revenue to provide and meet the services that the people of the 
State legitimately have a right to expect.
    And everybody here in Washington is talking about how the 
economy has grown and done so well, we shouldn't just be 
looking backward and saying we have done well. Let us look 
forward, let us see what we can do to keep the economic 
expansion going, to keep creating more jobs and opportunity for 
Americans all across this country. Cutting taxes will help us 
to keep that economic expansion going as we go forward.
    Mr. Burton. You mentioned that if the tax policies that you 
implemented in New York were adopted nationwide that the 
taxpayers across this country would realize or benefit to the 
tune of about $300 billion more in their pockets.
    Do you believe that if we had a substantial tax cut right 
now in Washington for all the people of this country and across 
America that the amount of tax revenues coming into the 
treasury would be increased, as it was in New York, and do you 
believe the economy would grow dramatically?
    Governor Pataki. There is no question in my mind that if we 
cut taxes in Washington, we will encourage economic expansion, 
continued economic expansion across the country, create more 
jobs, create higher incomes, and ultimately, because of that, 
generate more revenue.
    I remember the debate when the capital gains tax cut was 
initiated. Now how can government afford to lose the revenue of 
lowering the capital gains rate? Lowering the capital gains 
rate has increased government revenue. It has expanded economic 
activity and, in my view, helped create the budget surplus that 
you now have here in Washington. And intelligent tax cuts will 
do the same thing for the country. It will expand economic 
activity.
    Mr. Burton. You mentioned cutting the capital gains tax and 
how that has helped economic growth and expansion in America. 
What kind of tax cuts would you see that would be beneficial 
for the United States right now? Additional cuts in capital 
gains or income taxes across the board or what?
    Governor Pataki. I would do the gamut. What we did in New 
York is we initially focused on the income tax because that was 
one of the areas where we were so disproportionately out of 
line with our surrounding States and the rest of the country, 
but we focused on doing it across the board.
    And I would do the same thing here. I would lower the 
capital gains rate. I would provide greater exemptions from the 
estate taxes so that family farmers and small business owners 
could pass on their business to the next generation. I would 
certainly look across the board to lower the income tax burden.
    I think we should have lower marginal rates. We should have 
a flatter, fairer, simpler income tax system. So certainly 
lowering the income taxes across the board, lowering the 
capital gains tax, raising the exemption on the estate taxes, 
these are all things I think would not only be fair and 
appropriate given the fact that government has a surplus, give 
the money back to the people who have generated that surplus, 
but also expand economic activity and help to keep the economic 
expansion going forward.
    Mr. Burton. Are you sure you don't want to run for king? I 
like what you are saying.
    Mr. Towns, do you have any questions?
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin by saying, Governor, I think that the 
reduction in government you have done, I think that I support 
that totally. And I think that you have done a magnificent job 
in that regard. Of course, I also think that you have done some 
things that some of the others have not done that have come 
before this committee and talked about in terms of cutting.
    I think that the fact that you have done some targeting, I 
think that to me is a very, very important. You put money in 
the budget for advantage schools. I think these are the kinds 
of things that doesn't readily come out, you know. And I think 
some of the things that some have come before us and have 
indicated what they have done--I mean, I have a lot of 
problems.
    But in your case, you know, regardless of the family 
composition, one Governor came here and basically said, you 
know, regardless how many children you have, you are not going 
to get any more money. And I think that those kinds of things 
when you start talking about cutting the budget and you do 
those kinds of things, I really have a lot of problems. And I 
appreciate the fact that in New York you have not done that.
    However, there is one area that we are cutting that I do 
have problems with in New York, and that is the area to the 
health care. I am very concerned about that, because you have 
standards that must be met. And I am wondering you know, 
Governor, if we continue to cut, would we still be able to 
uphold those standards. I mean, that is a real concern. I would 
like to hear your comments on that.
    Governor Pataki. Yes, Congressman Towns, thank you again 
for your comments. I appreciate it. And there are areas where, 
in my view, government has an appropriate role and has to be 
involved. Education, certainly at the State level, is critical 
and also in health care. The problems we have in New York 
State, and it is a very real problem, is that our Medicare--
Medicaid expenditures are off the charts in relationship to the 
rest of the country.
    We are spending, as an example, almost three times as much 
per recipient on Medicaid in New York State as the State of 
California. And this is not just the burden on the State 
Government and the Federal Government, it is also a burden on 
the local government, because in New York State, the local 
government matches the State contribution for Medicaid.
    One of the reasons that the city of New York now has a 
budget surplus is we have taken steps of cost containment to 
try to keep the growth of Medicaid costs below what they had 
been in the past. We had proposed again certain cost 
containment measures in Medicaid, but I think these are 
appropriate. They would still result in New York State's per 
capita, per person, expenditure on Medicaid being much higher 
than any other States.
    And I believe they are being done in an intelligent way 
that recognizes the impact it has on the health care system, 
but it is not just Medicaid. If you look at what we did on the 
budget, 2 years ago, we passed the Health Care Reform Act in 
New York, that generates almost $2 billion a year in public 
good financing for things like hospitals to reimburse them for 
bad debt and charity care where they don't get paid.
    It helps fund graduate and medical education at the 
teaching hospitals in New York State. And it provides the 
ability for us to have, I think, the finest health insurance 
program for children in America. Our Child Health Plus 
program--and again Congress took a tremendous step in passing 
the legislation providing assistance allowing the States to 
create our own children's health insurance program--our program 
is enrolling more than 10,000 children a month. And we will 
provide health care at no cost to every single child in New 
York State and in a family of four with an income of up to 
$35,000. So, yes, we have to continue to look to see how we can 
prevent the increase in costs of Medicaid from impacting 
negatively on the city's budget, on the State's budget, and on 
our economic climate.
    But we will do it in a way that recognizes the importance 
of health care including health care to the uninsured as we are 
doing with the children.
    And, Congressman, I can remember when we were at the 
hospital in your district, that hospital for a decade had been 
largely ignored. We are now putting the capital in to 
restructure that hospital, build a new facility, put up a new 
community-based center for that hospital. We are going to 
continue to stand with you, stand with those hospitals and make 
sure we have the best health care in America.
    Mr. Towns. I want to applaud you. They have started the 
work, Governor.
    Governor Pataki. Good.
    Mr. Towns. The hole is in the ground and the foundation is 
there. And to say to you one other thing before I close, that I 
also want to salute you on the advantage schools. I think that 
is a very creative way to go in terms of dealing with some of 
our educational problems that those communities that need 
additional support, that you putting money into those areas 
where need it desperately. I want to salute you for that, that 
makes a lot of sense.
    Governor Pataki. Thank you, Congressman. The advantage 
schools are a proposal that we have to allow communities to 
have schools that stay open to 7 p.m., so that a working parent 
or a student who simply wants to remain in the classroom or get 
additional educational help can do it. And we have money in the 
budget to fund those this year. And I hope that the legislature 
allows us to continue that.
    Just one other point. While we have cut taxes the way we 
have in New York State by reducing the bureaucratic cost, by 
reducing the State government by 20,000 people, every year we 
have put more money into education than before. And in each of 
the last 2 years, we have had the largest increase in State aid 
to local schools in the history of New York State.
    So it is not as though we are reducing across the board, as 
the Congressman pointed out, we are cutting taxes across the 
board, but we are investing more on education, more on the 
environment, because we are operating the government in a 
smarter, more efficient way.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Congressman Towns.
    Mr. McHugh.
    Mr. McHugh. Governor, as usual you are one step ahead of 
me. I wanted to have you discuss a bit further your very 
comprehensive approach to education assistance. You have made 
comment in your testimony about the STAR Program, which is the 
real property tax relief initiative that you have modeled, and 
that, as I understand, great States like New Jersey, with great 
Governors like Governor Whitman, are beginning to following.
    And, indeed, she told us yesterday she will be introducing 
a billion dollars tax relief program that is modeled after the 
initiatives that you have put together. You laid that out very 
clearly as to the fact that that is not a State levy, the real 
property tax to support education comes from the local 
districts. Here you have an incredibly unique situation where 
the State is going in and relieving in significant portions the 
taxpayers of those burdens by providing that kind of effort. 
And I wanted to compliment you on that, No. 1.
    No. 2, I wanted to compliment you on the fact that it is 
not a program that pits, as so often happens in this town, rich 
against poor. This is an initiative that you have accelerated 
and have made available to taxpayers in all income brackets. It 
has, as it should, benefited particularly those senior citizens 
who have difficulty staying in their homes.
    But it is not at the cost of what the State has done in 
support of local education. You didn't use this--and I am 
saying this to your credit--you did not use it as a means by 
which you can make the State look good at the locality's 
expense, but you just answered that for the chairman. So 
obviously we don't need to revisit that again.
    I just wanted to say, again, to Chairman Burton how much I 
appreciate his efforts to showcase really innovative leadership 
as we have seen here this morning. And you, Governor, and our 
panelists yesterday. As I look over the things that you have 
done--and as someone who was there at the time that you were 
when you were a member of the State Assembly and I was a member 
of the State Senate and eventually you went on to the State 
Senate and I came here--it is remarkable the target-rich 
environment you had for tax cuts, the broad-based way in which 
you approached this.
    I would just suggest, Mr. Chairman, there is a great deal 
that those of us in this town can learn with respect to 
approaching taxes on a broader rather than a more narrow basis 
by understanding that true economic performance really 
generates where there is a wide range of reasonable initiatives 
that, taken together, have done some remarkable things.
    So as a New Yorker, not just as a Member of the House, 
Governor, I wanted to thank you for all that you have done and 
allowing us to actually feel good about ourselves again when we 
say we are from the Empire State. So with that, I would yield 
back to the Chairman.
    Mr. Burton. Thank you, Mr. McHugh.
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I wanted to begin just by saying that it is not just 
Republicans but also Democrats who celebrate the fact that we 
can alleviate some of the tax burden. And I wanted to reiterate 
some of the opening comments that ranking Democrat Henry Waxman 
made about this issue when he said that the average tax rate 
for a family earning the median income is at its lowest rate 
today since 1965, 34 years--over the last 34 years.
    And that certainly, in part, some of the strength of the 
economy in our States is in fact--some of the credit at least 
has to go to the strong economic growth under President 
Clinton. And we have the longest peacetime expansion in history 
as Representative Waxman pointed out.
    And as long as we are showcasing, it is a disappointment to 
me that we are not showcasing some of the Democratic Governors 
who also have been engaged in tax cutting. In fact, there are 
10 of those, none of which were asked to appear at this 
committee hearing.
    And at the risk of sounding a bit like a Grinch, I just 
want to ask a couple of questions. There is a couple of issues 
that you might be able to point to, I certainly don't want to 
take away from the obvious creative programs and policies that 
you have enacted. But I do want to ask you a bit about the--let 
me just list them, the State debt, which I understand has 
increased, these are the numbers that I have, and feel free, of 
course, to dispute them, from $27 billion to $41 billion since 
you have been Governor; also that Moody's Credit Rating is for 
your general obligation bonds is tied for the lowest in the 
Nation; and the S&P rating is the second to the last; that your 
proposed budget for 2000 includes a $598 million cut in State 
public school and support for State public schools.
    And I wondered if that would result, in fact, in some local 
tax increases. We already mentioned the $1.4 billion cut in 
health care cuts, $80 million from early childhood education. 
And I also wanted to ask you, if--I assure you are not here 
today saying that less money should go to New York from the 
Federal Government. And obviously if we are going to be cutting 
taxes, or maybe you are, that some of that might result in 
fewer dollars going to help States. And, finally, I just want 
to make a comment, both the chairman and you had mentioned 
President Reagan. And, in fact, as I recall, the results, I 
believe, of some of the major tax cuts that occurred were, in 
fact, the greatest budget deficits that we had had, and that--
finally that we are out of that hole and into surplus. And I 
think all of us are certainly happy about achieving that.
    So I just wanted to ask you some questions about that.
    Governor Pataki. Sure. I am pleased you did. And I actually 
took some notes, so I will refer to them specifically.
    First, with respect to President Reagan's tax cuts and the 
economic expansion. The economic expansion started in 1982, 
and, I think, in significant part because of the Reagan tax 
cuts. Since that time, we have only had 5 months where the 
economy hasn't grown. So I don't think it is simply the Clinton 
administration's expansion, it started with the Reagan tax cuts 
in 1982.
    But with respect to the deficits, there are two sides to 
every equation; there is spending and revenue. President Reagan 
did the right thing on tax cuts. The Democratic Congress did 
not do the right thing on spending. You cannot continue to have 
spending increases when you don't have the revenue, and I think 
the fact that we now have a balanced budget is a tribute to the 
fact that Congress for the last 4 years has had caps on 
spending growth that they have implemented. It is not just 
revenue; it is spending. And I think that is important to 
recognize.
    Second, with respect to the credit rating, we have one of 
lowest credit ratings in America. It has been upgraded since I 
have been Governor for the first time in over a decade. It was 
far lower under the prior administration with its higher taxes. 
And we are confident, that as we go forward, that the fiscal 
condition of the State continues to improve.
    As I indicated, we started with a $5 billion projected 
deficit my first year. We turned that into a $400 million 
surplus that became an $800 million surplus the following year, 
that became a $1.2 billion surplus the year after that.
    And we finished our fiscal year this April 1 with a $1.8 
billion surplus. So we have had our credit rating upgraded. And 
I am confident, if the legislature doesn't spend the surplus, 
that we can continue to see an improvement in our State's 
fiscal condition.
    With respect to debt, again, we inherited a State with the 
highest debt in America. The number $27 billion to $41 billion 
is not accurate. In fact, we have reduced significantly the 
growth in debt--and a lot of that growth in debt was programs, 
5-year capital programs entered into by the prior 
administration.
    And in my proposed budget for the first time, I think, in 
20 years we have a 5-year capital program that reduces State 
debt. It not only expands our investment in infrastructure to a 
$1.5 billion highway program a year, as an example, but at the 
end of that 5-year capital program, we will have less debt for 
the State than we do this year.
    With respect to school aid, not only have we not cut school 
aid every single year I have been in office we have increased 
school aid. And in 1997, we had the largest increase ever in 
school aid; and in 1998, we increased school aid to local 
districts by over $800 million, the largest increase ever.
    And as Congresswoman Maloney probably knows, New York City 
School Districts in the past year had a more than $250 million 
surplus. Last year they got $320 million more additional aid 
from the State of New York than they did the year before. In my 
proposed budget, we proposed increasing school aid by almost 
$300 million. I think the exact number is $297 million increase 
in school aid.
    Again, more than the rate of inflation. Again, a 
significant increase. And that doesn't include what I had 
proposed in this year's budget which is almost $1 billion in 
cash from the State to help local school districts upgrade or 
build new educational facilities.
    Again, we are investing more dollars in education and a 
higher percentage of the State revenue in education than ever 
before. So this State is in far better fiscal condition because 
of the tax cuts, and the fact that the tax cuts have been 
coupled with spending restraint. That is how you move forward 
fiscally as a State, and that is what we have done.
    Ms. Schakowsky. Thank you. Thank you.
    Mr. Burton. Thank you, Ms. Schakowsky.
    Let me just say, before I yield to Mr. Shays, that every 
time we have a panel or a group of panelists to appear, the 
minority is entitled to one or two people. We did not receive a 
request to have any Governors from the Democrat side; however, 
any of you that would like to make a request in the future when 
we have panels, we would love to have your input, so I just 
thought I would advise you of that.
    Mr. Towns. I agree with Governor Pataki being here.
    Mr. Burton. You agree with that.
    Mr. Towns. I agree with that.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Governor Pataki, I think you are very fortunate 
to have Mr. Towns in your State, he has been a wonderful 
Member. And I love the fact that he appreciates what you have 
been doing. I would like to give my time--I would just like to 
defer my time and take the next round. I think Mr. Mica and 
Mrs. Chenoweth have questions.
    Mr. Mica. I have a quick question. Thank you for yielding. 
I also agree with your comments on Mr. Towns. We have learned a 
lot from Mr. Towns. I came in here and served under his 
tutelage.
    You don't mean me, Governor. I am from Binghamton, NY, born 
and raised there till I was 13. My family were all immigrants 
from the Old World, came to Binghamton for economic opportunity 
and jobs basically the turn of the century. And we actually 
moved away from Binghamton when I was 13, primarily for 
economic reasons, some of the places where my family worked 
closed down, taxes got higher.
    Fortunately for me--they moved--and my brother, they moved 
to Florida, where we both were successful as Members of 
Congress, me semisuccessful; he was.
    I tell you that story, because I go back to Binghamton. In 
fact, I probably go up there to visit an aunt, and I get 
depressed sometimes when I go back to Binghamton. I think you 
have been sort of a ray of hope, because things have started to 
change in New York. Because of high taxes and poor economic 
opportunity in some areas, people have left or they left on 
welfare or some government program or government housing that 
Mr. Lazio knows so well.
    My question is this, sir, when I go back to Binghamton, I 
still see a depressed community. I know we have done some 
things to give people economic opportunities and jobs and take 
them off welfare. But my question is, what is New York doing to 
help places like Binghamton, and what can we from the Federal 
level do to help situations where you have less economic 
opportunity like that area and others I have seen?
    Governor Pataki. Well, Congressman, first I don't know when 
the last time was you were back in Binghamton, I hope it wasn't 
recently, because things are getting better. In fact, Broome 
County was cited by one of the national economic magazines as 
one of the hottest economic areas in the country right now.
    Mr. Mica. As I said, you have provided in the last number 
of years some glimmer of hope.
    Governor Pataki. Congressman, we were dying as a State. And 
in all seriousness, it was a tragedy, because people like your 
family, my family too, my grandparents all immigrated to 
America and came to New York because it was a place of 
opportunity. My grandparents worked in a factory. The factory 
moved to New Jersey, and we had massive unemployment in my 
little city of Peekskill. And it happened in Binghamton; it 
happened in Vestal. It happened all across the State.
    And we are changing that. And I will just give you a couple 
of more statistics going with the statistics that Congresswoman 
Schakowsky had spoken about earlier on debt. In 1992, New York 
State was 50th in America in job creation, 50 of the 50 States. 
We were last. And it wasn't because we didn't still have 
immigrants. Congressman Towns' district has people from the 
Carribean who are coming to this State and this country because 
they want to work. And they wanted to be a part of the American 
dream, but they didn't have the jobs; they didn't have the 
opportunities.
    And we were 50th in the country in creating jobs. Last 
year, at the end of 1998, we were 20th in America. We created 
over 453,000 new private sector jobs. And seven of the fast--
eight fastest growing counties in 1998 were upstate. We have 
focused in significant part on the upstate economy, because 
there were, as you indicated, manufacturing companies, 
factories. And we were dying as a manufacturing State. And 
those factories were leaving, not only for the Sun Belt, but 
also for Pennsylvania. Retailers were leaving for Pennsylvania.
    I will just give you one story in Broome County. There is a 
company in Binghamton. It was started by a family two 
generations ago out of the back of a pickup truck, it has now 
grown to over 1,000 jobs. They were going to Pennsylvania 
because their taxes were too high, the workers compensation 
rates were too high, and the regulatory burdens were unfair in 
New York. They just located a major new multimillion dollar 
facility outside of Binghamton in Broome County, adding 
hundreds of new jobs. And they are one of many, many companies 
that are doing it.
    We have to do more. There is no question that we simply 
can't look back and say look what a great job we have done in 
the southern tier, that Binghamton is on the Pennsylvania 
border. Starting December 1, we have repealed the State's sales 
tax on clothing and footwear up to $110. So you don't have to 
go across the line to Pennsylvania to go shopping for your kids 
to go back to school, you will be able to do it in downtown 
Binghamton.
    Mr. Mica. The second part of my question is what we can we 
do?
    Governor Pataki. What you have done, continue to do, 
devolve power from Washington to the States. You did it with 
welfare. We would like to see more control over Medicaid. Cut 
taxes, Congressman, cut taxes here in Washington. It will allow 
companies that are thinking not just about moving from New York 
to Pennsylvania, but maybe a company thinking of going to 
Mexico, will say that we are going to stay in New York or we 
are going to invest in New York, if you lower the Federal tax 
burden imposed on them.
    When we are competing, we are not just competing with other 
States, we are competing globally. And we want to be able to 
say that the combined tax burden, New York and Federal, will 
allow you to compete successfully in any market in the world 
from New York State. Cut taxes.
    Mr. Mica. Thank you. I yield back the balance of my time to 
Mrs. Chenoweth.
    Mr. Burton. We will have to catch Mrs. Chenoweth in just a 
moment here. Mr. Cummings, did he leave?
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman.
    I wanted to make a point of coming by and welcoming the 
Governor from the great State of New York and my colleague Rick 
Lazio. I wanted to mention, just very briefly, a supply side 
daycare measure that Sue Kelly, another great New Yorker, and 
Rick and, actually, Congressman Horn and myself are working on. 
It is called Kiddie Mac, patterned after Fannie Mae and Freddie 
Mac that help revolutionize affordable homeownership. The idea 
is to do the same thing for daycare, not in greater 
expenditures, but the important building block of the 
infrastructure, whether it is family daycare network for maybe 
a welfare recipient who is going back to work and taking in 
children in their home to upgrade the quality in the home or to 
help businesses or small businesses provide the infrastructure. 
And the interest on it would go back into a loan that would be 
there to go out for more daycare.
    And I know we have had one hearing, and there are some 
things we need to work out, some questions that Mr. Lazio has 
raised on it. But I think it is a great idea, and I wanted to 
give it to your staff. I think it is something that could help 
New York and help working men and women in our State.
    I want to ask really one question on an article that I 
found somewhat troubling on April 10 in the New York Times that 
alleged that you or your administration were not working to 
resolve the dispute between the city and the State on the 
tobacco settlement. And, as you know, under the settlement, no 
funds can be distributed to any State before States comprising 
80 percent of the money have won approval for plans to 
distribute the money within each State. And since New York 
State comprises almost 12.7 percent of the settlement money, 
New York's failure to reach the agreement could have the effect 
of stalling or even derailing the entire settlement nationwide.
    And it goes on and alleges all other items in it. But 
basically, based on this article, I just would like to know 
what are you doing to resolve the allocation dispute or the 
allocation issues between the city and the State so that New 
York State and other States and citizens can receive the 
settlement?
    Governor Pataki. Congresswoman, let me say first that I am 
shocked that you would suggest that the New York Times would 
allege something. The New York Times is a newspaper of record, 
and how could they be alleging something? Occasionally, they 
are wrong.
    Mrs. Maloney. I heard that.
    Governor Pataki. Occasionally they are wrong, 
Congresswoman. And in this case, they are. We have a 
settlement. And first, let me thank Congress for passing the 
legislation letting the States keep the tobacco money, that is 
extremely important. And we are very grateful that you are not 
going to allow the administration to try to take that money 
from the States. So thank you.
    But with respect to the settlement, we have one. It was 
worked out by the attorney general, it has been approved. The 
city has sued because they want more. They lost. Judge Crane in 
Federal court said the city is wrong, that the system is fair. 
The city is now deciding whether or not to appeal. I hope they 
don't because it will delay things.
    But we have a fair settlement that was negotiated. The 
Federal court has said it is a fair settlement, the city 
obviously has the right to continue to challenge it legally. I 
would hope they won't, we have discussed it.
    Mrs. Maloney. How much is in dispute? I mean how many 
millions of dollars, what percentage rate is in dispute?
    Governor Pataki. It is hundreds of millions of dollars, and 
it is not just for the city. If the city thinks it should get 
more, the counties think--they all think they should get more 
too. And the counties, from our standpoint--and I think it is 
an accurate one from the State--the counties and the city are 
getting more than is appropriate under the settlement. But in 
the interest of having it resolved, we said OK we will not 
challenge the allocation formula developed by the attorney 
general who brought the lawsuit.
    The city has challenged it, they lost. I would hope we 
could convince the city to either settle in a way, and we are 
willing and we have been talking in settlement negotiations or 
to withdraw the----
    Mrs. Maloney. The State won in Federal court, and the city 
is suing where?
    Governor Pataki. The city is now appealing.
    Mrs. Maloney. Appealing that?
    Governor Pataki. Right.
    Mrs. Maloney. Well, also the article went on--thank you for 
clarifying that to me--and stated or alleged or put forward 
your plan was only for debt reduction and not for--and debt 
reduction is important, the debt in New York State has been 
climbing, has it not? And one of the purposes of the settlement 
and what we were planning to do in Congress before we agreed 
that the States should take the leadership on this, was to 
dedicate dollars for health, for educating teens against 
smoking, for insurance. And the article again stated that all 
the money according to your plan was going to be going to debt 
reduction.
    Governor Pataki. That is not accurate.
    Mrs. Maloney. What is the plan?
    Governor Pataki. First of all, let me say you were talking 
about how Congress was thinking about trying to mandate that we 
use it for health or education or something. I think that is 
completely wrong, because all the States, to a greater or a 
lessor degree, are already not doing that. And for Congress to 
say use these moneys for this program, maybe a State already 
has that program, why are you telling the State to do it again?
    And what we are looking to do is to use three quarters of 
the State's share, which is only half the revenue, the other 
half is going into the counties and the cities for debt 
reduction. But also a quarter of it for health-related 
purposes, and that is $100 million, I think it is $125 million 
a year for new and expanded programs such as looking at means 
to deal with the uninsured in New York State.
    And we have a task force looking at that. I might point out 
that the city, the mayor and the head of the council have both 
suggested not using any of it on health-related things, but 
using it for school construction. And I think the city should 
be allowed to make its determination. If they think that is a 
higher priority for kids than anything else, the State 
shouldn't be telling them what to do, Federal Government 
shouldn't be telling them what to do. Let the local elected 
officials have the authority and the responsibility to make 
those determinations.
    Mr. Burton. Thank you, Governor. Thank you.
    Governor Pataki. Let me welcome Congressman Meeks. It is 
good to see you. I am surrounded by New Yorkers here.
    Mr. Burton. I think they love you. I was just about to 
acknowledge Congressman Meeks being here, we appreciate you're 
being here. And if you have questions at the end of our 
questioning, we will be glad to allow you to ask a question or 
two.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Governor, I am struck by the fact if you are a 
Governor of a big State, you have got to be willing to be a 
brawler. And it is a tough environment, and I am also struck by 
the fact that while the Federal Government can make your job 
easier, you can make our job easier as well. I mean you create 
more jobs, you have more taxpayers, they are in better income, 
we get more money into our Federal treasury, and we see more 
money flowing to Social Security and Medicare. So, you know, we 
thank you for what you do for the Federal Government by your 
energized economy.
    I am struck as well by the fact that even though the 
economy has improved, what I see down here with no disrespect 
to either party there is a tendency to want to spend surpluses. 
And I need to know how you resist. First, I think it is 
extraordinary that you reduce taxes 25 percent, obviously with 
the help of other people, but extraordinary, really 
extraordinary.
    And I want to know how did you resist the absolutely 
unbelievable pressure there must be to spend more money?
    Governor Pataki. Well, it is difficult, because you did 
have ongoing pressures to spend more money. And they are 
legitimate. There is absolutely no area where you couldn't 
justify spending more; whether it is the environment, 
education, transportation, any area like that.
    Could you do more? Of course you could. But what you have 
to do is recognize that there is an enormous cost from 
spending, and that cost is in lost opportunity, lost jobs and 
we were seeing it in New York State. What we have done is just 
made it plain in our negotiations with the legislature and in 
the budgets I have submitted that we are going to control 
spending, and generally the legislature has gone along.
    Last year we had a little bit of a problem. And I ended up 
vetoing $1.3 billion in spending from the State budget. 
Otherwise, we wouldn't have had the significant surplus; and we 
wouldn't have had the restraint in spending. So that if you 
have to, if necessary, first of all, draw a line and try to 
encourage restraint, but if necessary, to take the action to 
actually veto additional spending.
    What I propose this year is to keep the State's increase in 
spending to the rate of inflation. Over the first 4 years, the 
average rate of inflation was 2.3 percent, the average rate of 
State funds growth was 2.2 percent. We kept it below inflation, 
and that is one of the reasons that we have been able to do 
this.
    Mr. Shays. I will just make one other comment that doesn't 
relate quite to the budget, but tremendous concern about air 
traffic all around the New York metropolitan area. And I am 
hopeful that when you see two airports, Westchester White 
Plains and Stewart that you look more favorable on Stewart as 
the airport to grow and become that fourth regional airport.
    Governor Pataki. Well, Stewart is--I don't know that it 
will be a fourth regional airport. But we do see that it has 
tremendous potential for additional growth so that not only 
will it relieve some of the pressure from the other airports, 
but it also helps the economic activity and opportunities in 
the Hudson Valley.
    Mr. Chairman, I misspoke earlier when I thanked the House 
for passing the tobacco legislation. I just received a note 
that the Senate has and the House is looking at it. I would 
implore you to do that, give the States the authority to make a 
determination as to what we think is right, instead of having 
Washington impose a one-size-fits-all solution to the 
allocation of those tobacco funds.
    Mr. Shays. If I have any time----
    Mr. Burton. We will convey that to our colleagues.
    Mr. Shays. If I have any time, I would like to yield it to 
Mrs. Chenoweth.
    Mrs. Chenoweth. Thank you, Mr. Shays. Governor, this has 
truly been an extraordinary report that you have given to us, 
27 percent average reduction in taxes for your citizens.
    Mr. Shays. He is a moderate Republican.
    Mrs. Chenoweth. Is he, Chris? Well see, Governor, I come 
from all the way across the Nation in Idaho, and I am sitting 
here amazed.
    Governor Pataki. Well, in fairness to Idaho, we had a lot 
higher tax burden to cut, it wasn't like we were starting from 
a low point.
    Mrs. Chenoweth. Yes, you did. The fact that you created, 
you reported 453,000 new jobs, there are 479,000 people off the 
welfare roles in New York----
    Governor Pataki. 568,000.
    Mrs. Chenoweth. 568,000.
    Governor Pataki. I am sorry it is over 650,000 fewer, I get 
these numbers confused. But they are astronomical.
    Mrs. Chenoweth. I got a wrong report. Followup on what 
Congressman Shays was asking you, the resistance to cutting 
taxes is overwhelming, we feel that here. I mean we are lobbied 
constantly by those people who feel their jobs are threatened 
and, in large part, they are, because we are trying to cut 
government.
    What I see that you have done, not only takes political 
will, but a personal skill in working with the legislature--in 
tandem with the legislature to be able to make these tax cuts. 
And I know those lonely moments when you have to veto spending 
programs are lonely. But you obviously must have received a lot 
of cooperation and good will that has been established between 
your office, yourself, and the legislature, and my hat is off 
to you in doing that.
    And I just hope that we here will be able to resist the 
resistance, because I find that so many people are comfortable 
in the taxation bondage, because they don't want to see change. 
So, Governor, thank you for this marvelous report that you have 
given to us.
    Governor Pataki. Well, Congresswoman, thank you for those 
kind comments. And part of it was not just dealing with the 
legislature, a significant part was taking the case to the 
people. In 1995 and in 1996, the largest crowds I had were 
pickets and protesters, talking about how these policies were 
going to destroy health care, education, result in thousands of 
layoffs of public employees.
    And I had to take the case across the State, and I did, and 
I continue to do it, as to the positive things that would come 
from this. And you mentioned people being afraid of losing 
their jobs if you cut taxes, in New York, people were losing 
their jobs because we didn't cut taxes. And we had to point 
that out and go to the floors of the factories and say, we want 
your factory to grow here, and not in some other State. And if 
we can cut taxes, we can convince your employers to do that.
    So sometimes you have to think outside of just the 
legislature and outside of those groups that come to the 
legislature. And if you do that, I think, make the case to the 
people, there is an overwhelming recognition, I believe, that 
taxes are still too high, in Washington, in the States, in New 
York. And when you look at a family of four's budget, the 
largest single expenditure is in taxes. It is not in housing, 
it is not for food, it is not for transportation or to send 
your kid to school, it is in the taxes you pay.
    When we make the case, I think the American people say, 
yes, we have earned the money that has created that surplus, 
let us give it back to the people.
    Mrs. Chenoweth. Thank you.
    Mr. Burton. Thank you, Congresswoman Chenoweth.
    Congressman Ryan.
    Mr. Ryan. Thank you. I just have to share with you, 
Governor. I, too, am just simply astounded at how well you have 
done to cut taxes in New York, I did not know this. I am from 
Wisconsin, and we have some relatively high taxes there. We 
used to say they are not as bad as they have in New York. I 
don't know if we can say that any longer.
    I wanted to ask you, you know, you had 13 different tax 
cuts that were enacted under your leadership. Have you analyzed 
the different growth components of these tax cuts, which tax 
cuts created and incentivized more economic growth among the 
other ones?
    Governor Pataki. Well, it is 36 tax cuts.
    Mr. Ryan. I just have a page of 13, I guess they couldn't 
fit them all on here.
    Governor Pataki. And some of them were targeted at specific 
industries, and they worked. As Congressman Lazio pointed out 
in his introduction, we made the State an Internet tax-free 
zone. The prior administration, by regulations, imposed the 
telephone taxes on the Internet. We by administrative ruling, 
said, no, we are not going to do that. And we repealed those 
aimed at website designers, new media.
    And in lower Manhattan, they now refer to it as Silicon 
Alley as opposed to Silicon Valley, because so many new media 
companies have come, more than 100,000 jobs in new media, 
because of the targeted tax cuts. We also looked at things like 
the alternate minimum tax that had a negative impact on 
manufacturing. And I can't--we still, last year, had a very 
small loss in manufacturing jobs, but 5 years ago, we were 
hemorrhaging.
    We were losing tens of thousands every single year. And I 
can point to specific plants and companies that have said, 
because you lowered the alternate minimum tax, we will keep a 
plant here; or we will invest more. The income tax across the 
board income tax cuts----
    Mr. Ryan. Was that a rate cut?
    Governor Pataki. That was a rate cut. And for the lower 
income payers, it was significantly more than 25 percent. And 
at the top rate, it went from like 8.75 to 6.8, something like 
that, a very dramatic reduction. That has had a huge impact on 
our ability to keep high-wage earners in New York State and not 
locate their businesses and move themselves, again not just to 
the Sun Belt but to New Jersey or Connecticut. So we have over 
450,000 more private sector jobs than we did in January 1995.
    And in all areas, we are just seeing a greater, greater 
confidence in the future of the State and a willingness to 
invest and continue that economic expansion.
    Mr. Ryan. So all of the different 36 cuts you did, you 
thought the marginal cuts, the cuts that gave you a marginal 
incentive to produce, save, invest, keep more of your own money 
when you cut income tax rates, when you cut the alternative 
minimum tax rate, you thought those had the strongest growth?
    Governor Pataki. Cutting rates, the marginal rates was 
absolutely critical. Lowering that marginal income tax rate is 
something that Congress should do. With all due respect, I 
would recommend lowering those rates. Getting rid of the 
estate's added-on estate tax.
    We were losing people to Florida and not just because of 
the weather, but because they couldn't--I used to say you 
couldn't--not only you can't afford to live in New York, you 
can't afford to die in New York. And it was true, because of 
the estate tax.
    By repealing that we are getting entrepreneurs who maybe 
they are ready to give up a 9 to 5 job, but they still have 
ideas, they still want to go into the office, to stay in New 
York. So marginal rates, critical. Some targeted cuts, like our 
new media-targeted tax cuts have been very important, and the 
estate tax has been very, very important.
    Mr. Ryan. When you pushed the estate tax reform, the 
marginal rate tax cut reform, did you experience a lot of class 
warfare type of arguments?
    Governor Pataki. Sure.
    Mr. Ryan. Did you experience a lot a demagogues suggesting 
you were giving tax cuts to the rich and things like that all?
    Governor Pataki. Absolutely.
    Mr. Ryan. How did you defeat these arguments?
    Governor Pataki. Absolutely. The argument was exactly that, 
the counterargument was that well you are talking about a 
person earning more. The counterargument to that is jobs. What 
it comes down to is if you are a low-income person and if you 
were a low-income person in the mid-'90's in New York State, 
you were the one that was trapped there. You couldn't afford to 
simply pick up the newspaper and go buy a house in North 
Carolina or follow an IBM plant to North Carolina. It was the 
low-income New Yorkers, or the senior citizens, the ones who 
didn't have the economic ability to move, who were trapped 
where there were no jobs.
    College graduates, engineers, they could follow the jobs. 
They could go out to California and go down to Florida. But it 
was all about jobs, because if you taxed that entrepreneur out 
of the State, he is going to take his company, or she is going 
to take her company, and all the jobs with them. And the low-
income people are the ones who are left with no opportunity, no 
jobs, no ability to see their dreams for their children come 
true. So it was about jobs.
    Mr. Ryan. In the face of this evidence, now that this has 
been resolved, that the rate cuts took place, that jobs did 
grow, that actually revenues did increase, were those people 
who were the opponents of these tax cuts on the grounds of 
getting tax cuts to the rich, are they all new converts now?
    Governor Pataki. No. I wish, Congressman, that I could say 
that it is true; but it simply doesn't work that way. As you 
know, too often, if the political rhetoric seems to work, 
people are inclined to use it. But what we have to do is just 
point out the facts, and the facts are that tax cuts create 
jobs, they expand opportunities, they give people more chance 
for the future, and, particularly, the lowest income are the 
ones who can't buy a house in the Silicon Valley to follow a 
company there. We have to have jobs across this country, and 
lowering taxes allows us to do that.
    Mr. Ryan. Thank you for your intellectual fortitude.
    Governor Pataki. Thank you.
    Mr. Burton. Thank you, Congressman Ryan.
    Congressman Horn.
    Mr. Horn. Thank you very much Mr. Chairman. Governor, you 
are truly impressive in your record, and the fact that you 
would have Mr. Lazio sitting beside you is another example of 
your good decisionmaking. He is a very constructive Member of 
this body. Yesterday Governor Whitman, who has done very much 
like you have in this regard and takes on all adversaries with 
a smile as you have, made this comment that if we were to use 
the surplus, if it really ends up to be a surplus after what is 
going on in Yugoslavia, that she expended for Social Security 
and education.
    Now a lot of us believe in that and a lot of us also want 
to give tax cuts and the one that concerns me the most that we 
ought to be talking about, and some of us did in the last 4 
years. Mr. Neumann and myself and Mr. Nick Smith of Michigan 
talked about the unfunded liability of the Federal Government 
which are into the billions over the next 30 to 50 or 70 years.
    And we would like to know to what degree do you think we 
should cut a lot of the National debt over the next 20 years at 
least. And we could get rid of that debt, which is costing us 
hundreds of billions of dollars in interest that could be used 
for other purposes, further tax cuts, further support for some 
programs. I would just wonder how you would advise us to 
balance the Social Security, the education, the tax cuts and 
the retirement of the National debt which we are talking about 
$5.3 to $5.5 trillion.
    Governor Pataki. That shouldn't take more than 30 seconds 
to balance the budget, take care of the debt, Social Security, 
education and all the other needs of the Federal Government.
    Mr. Horn. What priorities should we give it?
    Governor Pataki. First of all, I think Congress deserves 
enormous credit for finally achieving a balanced budget. And we 
have to make sure that, as we go forward, whether it is new 
programs, debt reduction or whatever, that that balanced budget 
continues, it is the right thing for our children, and for the 
future generations.
    Former President Bush made what I thought was a very 
interesting suggestion with respect to the debt, and that was 
to allow people on April 15, when they file their tax returns, 
to have a debt-reduction checkoff, where they could allocate a 
portion of their taxes, to voluntarily help reduce the Federal 
debt, I think that is an interesting idea that should be looked 
at.
    Obviously, preserving Social Security is not just critical, 
it is something that is a matter of faith with the American 
people. When people have worked all their lives and paid the 
payroll taxes and paid into it, to tell them that their 
security in their old age might be in jeopardy is 
unconscionable. So the highest priority has to be to make sure 
that Social Security is protected and preserved for future 
Americans. I believe there is a growing consensus on an 
allocation. I believe the President proposed 62 percent of the 
Federal surplus for Social Security, and there is a growing 
consensus that that percent should be appropriate.
    What we have done in New York is both. We are continuing as 
we go forward to cut taxes, but I have also proposed over that 
period of time a capital program that will reduce State debt, 
and in our upcoming State budget I propose a quarter of a 
billion dollars in cash to begin debt reduction.
    So certainly, if you can reduce the unfunded mandates and 
the debt into the future, it not only allows you to build on 
the tax cuts to create the economic expansion, but it lowers 
the cost of government in the future so you can do it again.
    So Social Security has got to be the priority. The budget 
should remain balanced. I will absolutely look to continue 
cutting taxes so that we will continue to see economic 
expansion in this country, and cutting taxes would help to do 
that; and beyond that, whether it is additional funds for 
defense, which are obviously necessary, or additional support 
for education, which is desirable and we would love to see in 
the State, we would be very pleased.
    Mr. Horn. Thank you. Keep up the good work.
    Governor Pataki. Thank you.
    Mr. Burton. Thank you, Mr. Horn.
    Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Let me add my congratulations to what you have been able to 
accomplish in New York, Governor Pataki. I am sorry I missed 
Mr. Lazio's opening statement from all the praise that he has 
garnered here, I guess I missed something that was spectacular. 
I will have to read it.
    I am from the State of Illinois and have been in the 
Illinois State Legislature and was active in our school reform 
in trying to work out how we were going to fund our schools. We 
have a State constitution to provide the preponderance of aid 
to schools by the State, which is assumed to be about 51 
percent, which we cannot match. And so it makes our property 
taxes high because of the State not being able to fund all of 
it, and as the property taxes go up, then that really does 
increase our liability. But you have been able to cut the 
school taxes by 27 percent, and then by seniors of 45 percent. 
I am amazed. I would love to know how you did that without 
raising other taxes. And we considered income taxes, we went to 
some of the service taxes and used part of our surplus, but 
could not come up with just having the money available.
    Governor Pataki. Well, from the beginning, I realized that 
one of the most destructive taxes was the school property tax, 
particularly for senior citizens. Too many New Yorkers worked 
all their lives, lived in their homes, sent their children to 
school, and then had to give up their house because of the 
school taxes. We would have budget votes and, Congressman Lazio 
knows, on Long Island you would have battles between senior 
citizens and advocates for education over whether or not to 
approve the school budget. It wasn't that the seniors didn't 
want their grandchildren to get a good education, it was they 
didn't want to get taxed out of their homes. It was a 
completely unfair proposition.
    So that is why our STAR Program, our school tax reduction 
program was so important. What we did is discipline the 
government. We said, as the economy grows, as additional 
revenues come in, we are going to put them into a program that 
is going to be focused on education and on relieving the school 
tax burden. We passed the STAR Program, it is going to save 
homeowners in excess of $2.5 billion a year off their school 
property taxes. But at the same time, we expanded State aid to 
local education. And the way you do it is simply by looking at 
areas that should not be as high a priority. We have reduced 
the State bureaucracy by about 20,000 workers. That is saving 
us hundreds of millions of dollars a year. And not only is it 
saving us money, it is allowing the government to function more 
effectively, because you don't have people tripping over each 
other trying to force somebody to file another form that they 
are going to go then read and send a letter about.
    So if you can control spending in the areas such as the 
State bureaucracy, and again, let me thank the Congress, 
because one of the reasons we have been able to make this type 
of investment in tax relief and in education is because of the 
historic welfare reforms; 650,000-plus fewer people on welfare, 
that is saving us $153 million a month. It is an astounding 
number. Workfare works, requiring able-bodied people to 
participate in order to get a check works.
    So if you can control spending, reduce the costs in other 
areas like the State bureaucracy, and then allocate it to 
something like school tax reduction and education, you can end 
this battle of neighbor against neighbor when it comes time to 
approve a school budget.
    Mrs. Biggert. So was there a big increase in the amount 
that you then put into education?
    Governor Pataki. Yes. Not only--as Congressman Lazio 
pointed out, when we did the STAR Program, in the past, the 
State government would pass an exemption and then let the local 
government or the school district figure out how to pay for it, 
so that the State politicians would be the heroes and the local 
ones would be the ones who are left holding the bag.
    What we have done with our STAR Program is we created an 
exemption for the average senior citizen. That exemption is a 
$50,000 exemption on the value of their home, for which no 
school tax is paid. But to prevent the school district from 
losing the money, the State pays that amount directly to the 
school district, so that the school district gets all the funds 
it would have gotten, but that the homeowner no longer has to 
pay taxes on that value of their home, and in many of the 
upstate counties a $50,000 home is the value of the home, so 
they pay no school tax at all.
    Not only have we done that; but at the same time in both 
1997 and 1998, we had the largest increases in State aid to 
local schools ever in the history of the State. Last year our 
increase in aid to the schools was over $800 million.
    Mrs. Biggert. And you mentioned the welfare, and that was a 
concern in Illinois too, and has been very successful. My 
concern has been from a State perspective that there can be 
some back-pedaling on the Federal level, and since it is 
working, there has been some talk well, let's cut, because they 
are not going to need all of that, and that is my fear, so I 
hope that the States will keep the pressure on that to not 
allow us to do that.
    Governor Pataki. Congresswoman, that is a very valid point. 
I totally agree with you. Just as I was saying that as we cut 
State taxes, we didn't shift the burden to the local 
government. We don't want Washington to shift the burden to the 
States on things like welfare, and we hope that the programs 
that have been so successful will continue.
    Mrs. Biggert. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Congresswoman Biggert.
    Mr. Meeks, thank you for visiting with us. Do you have any 
comments you would like to make?
    Mr. Meeks. Thank you, Mr. Chairman.
    Welcome to Washington, Governor.
    Governor, I am sure you know that I am not one of the 
converted, and there are many issues that I disagree with and 
have a different viewpoint with reference to what is going on 
in the State of New York. However, I didn't come here for that. 
I came here to say thank you for your statement in reference to 
the recent issues that are going on in the city of New York. 
Your voice was heard, and we appreciate that statement.
    I came here also to say that though I don't view many of 
the issues the same way as you do, you have had a staff here 
that has been open and willing to talk and been very beneficial 
to my office, as well as the incidence of, particularly within 
my district, as you know, the Springfield Gardens has had a 
situation with reference to flooding that is unheard of, and 
time after time after time, and again with no resource, and you 
met with Senator Waldon and Councilwoman Juanita Watkins and 
State Assemblywoman Pauline Rhodd-Cummings, and, in fact, gave 
some grant money and some relief to those homeowners.
    I just wanted to say that though we differ and, in a 
different time, I reserve the right to be very critical of some 
of the policies that you have set forth. Still, you have been 
open, and I look forward to working with you with reference to 
the Eastside Access Program and the light rail and reramping 
JFK airport and, hopefully, working together to make sure that 
local businesses and minority businesses and women-owned 
businesses have an opportunity to participate in the economic 
development that is being spurred on in large part by your 
office in Southeast and Queens.
    Governor Pataki. Thank you, Congressman. We are one State, 
and when we had the horrible ice storms in Congressman McHugh's 
district, you were there willing to help us out, Congressman 
Towns was willing to help us out in dealing with that disaster, 
and when they had the flooding in Southeast Queens, we are 
going to be there. It is just a shame that in the past, that 
hasn't happened. We are going to continue to be there.
    With respect to what is going on in Queens, the 
revitalization in downtown Jamaica is just very exciting, and 
we intend to be very active in the State in moving forward with 
that and involving the community, because it is absolutely 
essential to do that. I appreciate your reserving your ability 
to criticize me in the future. I am absolutely confident that 
that will happen. But let me also just say that I appreciate 
the respect with which that criticism and my acceptance of that 
criticism will go forward.
    I think elected officials get in trouble when they are 100 
percent convinced that they are the only one who is right. 
Nobody is always right. Nothing cannot be improved, and you 
have to listen to those who are critical of your ideas, because 
sometimes they are right.
    Mr. Burton. Thank you, Congressman Meeks.
    Let me just say that I have been impressed not only with 
your tax cutting and your administration in New York, but I 
have been impressed with the kind of bipartisan and nonpartisan 
attitude that has been expressed by Congressman Meeks and 
Congressman Towns and others today, so they are to be 
congratulated as well as you, Governor.
    Let me just say in closing that we have had Governor 
Whitman of New Jersey, Governor Huckabee of Arkansas, Governor 
Gilmore of Virginia and now you, Governor Pataki of New York, 
and you have all said pretty much the same thing that cutting 
taxes stimulates economic growth, creates jobs and helps your 
States and has helped your States. That is a lesson that I hope 
is not lost on the Congress of the United States, and 
Congressman Lazio, we appreciate very much your being here and 
being such a supportive Congressman and help to the Governor as 
well.
    We are going to continue our hearings in the future. On 
April 22nd we are going to have Governor Tommy Thompson talk 
about welfare reform which you alluded to today, and he is 
going to be testifying on how that has helped his State. One of 
the things that we want to convey to the American people is 
that this Congress--transferring control and ability to govern 
back to the States works and allows you to do your job more 
efficiently, and cutting taxes works as well.
    So Governor, thank you very much. You have been a great 
witness. Thank you, Congressman Lazio.
    This hearing stands adjourned.
    [Whereupon, at 12:01 p.m., the committee was adjourned.]

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