[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.

                          ____________________