[Congressional Record Volume 140, Number 16 (Wednesday, February 23, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: February 23, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
THE BUDGET
Mr. WALLOP. Mr. President, in his budget message to Congress and in
his State of the Union Address, Clinton has painted a very rosy picture
of the U.S. economy. He has said that investment is up; real investment
in equipment grew 7 times as fast in 1993 as over the preceding 4
years; mortgage rates are at their lowest levels in decades; nearly 2
million more people are working than were working a year ago; and the
deficit is expected to decline.
Clinton was lucky. He was the chief beneficiary of low interest
rates, corporate restructuring, and a recovery that began long before
he took office.
In fact, GAO just this Friday found that the lower than estimated
budget deficit for fiscal year 1993 was due to lower than expected
outlays for deposit insurance programs.
If Clinton wants to claim credit for this rosy economic picture,
that's certainly his prerogative. Presidents take credit for the good
news and are held responsible for the bad.
But what needs to be made clear is that this economic story is far
from complete. Job numbers are nowhere as strong as they should be. And
consumer confidence is weak.
Just this Sunday, buried in the business section of the Washington
Post was a report of a poll conducted by Money magazine which found
that many households remain concerned about their finances and future
job prospects. The survey, conducted in October and November, found
that few Americans were optimistic about the economy, despite signs of
its improvement; 42 percent of the 2,154 people polled thought the
economy would worsen in 1994, while only 27 percent thought it would
improve. Is this the growing economic confidence the President is so
quick to tout?
The job numbers show that job creation is underperforming the growth
of the economy. This means that although output [GDP] is growing,
employers are not adding new employees to the extent suggested by the
increased growth rates. Instead employers have increased workweeks and
hired temporary help where necessary.
In 1993, part-time and temporary employment increased by 6 percent
while full-time employment only increased by 1 to 1.5 percent.
Average weekly hours for full-time workers are at very high levels--
over 41 hours per week with overtime. However, real average hourly
earnings have not changed. Average incomes remain stagnant.
For all of the administration's criticism of the Reagan years, job
growth during those years was significantly higher than job growth
currently.
Let us compare job creation during comparable business cycles--which
in this case is the second calendar year of economic expansion. In
1993, 2 million jobs were created. In 1984, 4 million jobs were
created.
In 1984, an average of 300,000 jobs per month were created. In
January, 1994 only 62,000 jobs were created.
But what about economic growth? The current robust economy is far
from surprising given the timing of Clinton's tax increases, the
passage of NAFTA, and the success of recent monetary policy, according
to investment consultant Art Laffer.
However, Laffer has found that historically, in periods where there
are expectations of rising tax rates, rising interest rates--the Fed
just indicated it would be raising short-term rates again--and rising
oil prices, taxpayers will advance their income--thus creating a false
prosperity. ``Once the tax rate increases and other anticipated events
finally take effect, however, the economy will stop dead in its tracks,
leaving growth well below the historical post-war average,'' said
Laffer.
Even CBO, in its economic and budget outlook 1995-99, recognized that
Clinton's tax increases would depress economic activity and slow
economic growth. That is why they only predict a rate of growth of
between 2.6 and 2.9 percent. And these rates do not even take into
consideration the adverse effects that health care reform could have on
economic growth.
Let us not forget that the impact of Clinton's tax increases have yet
to be felt. Businesses won't pay estimated tax payments until mid-
March, and individual taxes don't come due until mid-April. I urge my
colleagues to read an article in the Washington Post by James Glassman,
dated January 28, which is entitled ``If the Rich Do Not Get Richer,
Can the Economy Thrive?'' In that article Glassman nominates taxes for
the sleeper issue of 1994. He is quick to point out that we haven't
really heard from the tax side yet.
And what about the world economy? Even CBO is concerned if the
Japanese or Germany economies fail to recover--because our export
market will be further weakened and could restrict economic growth.
Why should the American people be willing to accept mediocre growth
rates--a growth rate that averages on or below the average of the post-
World War II economy? What about the 4-plus percent growth rates of the
1980's? The rate of growth of GDP in the second calendar year of
economic expansion in 1984 was 6.2 percent--or more than twice the
current expected growth rate for 1994.
Why must the American people settle for so much less? Should we not
be promoting pro-growth initiatives? Clinton himself said during the
State of the Union that:
Many Americans still haven't felt the impact of what we've
done. The recovery still has not touched every community or
created enough jobs. Incomes are still stagnant. * * * Let us
resolve to continue the journey of renewal, to create more
and better jobs.
Well, that is what we should be doing. We need to be finding ways to
promote economic growth, not stifle it. To create high paying and
stable jobs, not temporary and part-time work.
Instead of pouring money into new spending programs that are supposed
to retrain and better educate workers, we should be making sure that
there will be jobs available for these people to have.
Higher taxes, more regulations, and health care are all combining to
drain the resources of small businesses--the very engine of sustained
economic growth. Instead of placing more burdens on employers, we
should be looking for ways to lift these burdens to create more jobs.
As rosy as the economy may seem today, we should not forget that it
can and will get worse again some day. We should take action now, when
the economy seems strong, then when it is too late to react.
I ask unanimous consent that two articles be printed in the Record.
There being no objection, the articles were ordered to be printed in
the Record, as follows:
[From the Washington Post; Jan. 28, 1994]
If the Rich Don't Get Richer, Can the Economy Thrive?
(By James K. Glassman)
Practically everyone is now predicting that the U.S.
economy will hum along nicely in 1994, with 3 percent or 4
percent growth. That's got me worried. Just when the experts
are convinced that things are going well, a sleeper wakes up
and wrecks the party.
My candidate for Sleeper of 1994 is taxes. Specifically,
the big increase in income taxes on the rich that was
approved last year.
While the tax hike was retroactive to Jan. 1, 1993, it
started to take cash out of the pockets of rich folks only
this month--through higher withholding.
Then, on April 15, the big bill will come due, both for
estimated taxes for the first quarter of 1994 and for total
taxes for the full year of 1993.
The question is: Will the diversion of these tens of
billions of dollars--which used to go to private investment
and consumption and which will now go to the federal
government--slow down the recovery?
This week, I asked a lot of the usual Republican suspects
this question. To my surprise, they weren't particularly
interested. Certainly, they weren't squawking about the tax
hikes as they were during the debate last summer over
President Clinton's budget.
Apparently, conservatives have bigger things on their
minds, issues such as family values.
This is a bad sign. When it comes to the economy, it's what
you aren't worried about that bites you.
Even Jude Wanniski, who in 1978 wrote a book called ``The
Way the World Works,'' arguing that taxes make or break
economies, says he's much more concerned about the health
care plan and monetary policy.
``A stable dollar is so much more important that a small
increase in taxes,'' he said.
Small increase?
The Congressional Budget Office estimates that families
with taxable incomes of more than $200,000 will pay 17
percent more in taxes this April.
And, using the new tax tables I calculate that typical
withholding taxes for a corporate executive making $360,000 a
year will go up 14 percent for 1994.
The top tax rate on married couples filing jointly with
taxable income of more than $140,000 (and individuals making
more than $115,000) goes from 31 percent to 36 percent. The
rate on couples with taxable income over $250,000 goes from
31 percent to 39.6 percent.
. . . In other words, for every additional $1,000 they earn
those in the very top bracket will pay Uncle Sam $396 instead
of $310--an increase of 28 percent.
And that doesn't even count the increase in the Medicare
tax, which takes another $2,400 a year out of the pocket of a
lawyer making $300,000.
Or the phase out of deductions, which effectively boost the
36 percent bracket to 41 percent. Or the increase in the
alternative minimum tax.
Please understand. I'm not shedding tears over the plight
of these rich people. They'll manage. The issue is whether
higher taxes on the rich will affect the economy as a whole.
And the answer is that no one knows.
But you don't have to be a supply-side ideologue to
recognize that people can't spend money they don't have.
For example, an article earlier this month in the Wall
Street Journal cited copious cases of rich people who are
cutting back on consuming and investing because of the tax
hike.
Alan Graham, head of vascular surgery at New Jersey medical
school, was quoted as saying his taxes will rise by $23,000.
As a result, ``We will put off the $30,000 addition to the
house we had planned to begin this spring, and I will cut
back by $6,000 or $7,000 the money I put into my retirement
plan.''
But can taxes on the few affect the many? President Clinton
emphasized in his State of the Union speech Tuesday that
``Only the top 1--yes, listen--only the top 1.2 percent of
Americans, as I said all along, will face higher income tax
rates.''
Correct. But in an economy like ours, where wealth is
distributed in such a lopsided fashion, the top 1 percent of
Americans have an enormous effect on investment and
consumption.
This year, the CBO projects, a family of four in the top 1
percent will make a minimum of $333,000.
That's more than eight times what the average American
family of four will make.
Currently, the top 1 percent of American earners pay an
astounding 25 percent of all individual income taxes; the top
5 percent pay 44 percent.
After they pay for necessities and indulgences, rich
families have money left over for significant investment.
Average families don't.
And our low rate of capital formation (less then half that
of Japan) is probably this country's most difficult economic
problem. Higher taxes make saving less attractive--for two
reasons. First, the money's not there to save. Second, the
return on investment drops--in this case by 28 percent for
the very rich.
Ultimately, that chain of events can mean fewer jobs for
the not-so-rich.
``They're wounding the geese that lay the golden eggs,''
says Lawrence Kudlow, chief economist of Bear Stearns & Co.,
Inc., and a former OMB official in the Reagan administration.
Kudlow is one of the few economists of any political bent
who seems genuinely worried about the higher tax rates.
He predicts that investment will suffer, especially in the
second half of the year. One result may be inflation, since
firms will lack the capital to expand.
The Clinton administration sees the picture differently:
Taxes on the rich will bring in $100 billion or so over the
next five years, thereby trimming the deficit. The prospect
of deficit reduction cheers the market, thereby pushing down
interest rates.
The beneficial effect of lower interest rates on investment
is more than enough to counteract any ``fiscal drag'' caused
by higher taxes.
That's the way it was explained to me the day after the
election by Roger Altman, now deputy secretary of the
Treasury.
And that's the way it has worked out. So far, at least. But
we haven't really heard from the tax side yet.
____
[From the Washington Post, Feb. 20, 1994]
Poll Finds Worries About Finances, Jobs
New York.--Few Americans are optimistic about the economy
this year, despite its signs of improvement, and most believe
the country is in a state of decline, Money magazine said in
a survey released last week.
The magazine's ninth annual ``Americans & Their Money''
poll revealed many households are concerned about their
finances, along with future job prospects, even though the
economy appears on the mend.
Based on recent signs of recovery, government and private
forecasters predict the economy, as measured by the gross
domestic product, will grow by 3.1 percent this year and 2.8
percent in 1995.
Yet 42 percent of the 2,154 poll respondents, who were
surveyed by Money in October and November, thought the
economy would worsen in 1994. Only 27 percent believed it
would improve.
That's a marked turnaround from the 1992 survey in which 14
percent predicted the economy would worsen and 56 percent
said it would improve.
More respondents also felt the economy still was in a
recession rather than a recovery--45 percent vs. 40 percent--
while 15 percent said the economy was at the beginning of a
depression. The 1992 poll had similar results.
Perhaps because of their economic gloom, three out of four
respondents reported trimming their expenses in the past
year. They also said they intended to save or invest a larger
portion of pretax income in 1994--7.6 percent vs. 5.9 percent
in 1993.
Mr. WALLOP. Mr. President, I yield 7 minutes to the Senator from New
Hampshire.
____________________