[Congressional Record Volume 140, Number 36 (Friday, March 25, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 25, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                  EUROPE IS NO MODEL FOR CREATING JOBS

 Mr. MACK. Mr. President, last week in Detroit the leaders of 
the Group of Seven convened a jobs summit to ostensibly attack the 
problem of persistent global joblessness.
  The summiteers blamed global unemployment on everything from 
technological changes that replace labor with capital to shifting 
demands for less educated workers to those with higher skills.
  Little was said about what many believe to be the major cause of 
unemployment: high governmental taxes and regulations that increase the 
cost of labor. This problem is particularly acute in Europe where the 
expansive social welfare net and its component taxes have pushed 
unemployment to 12 percent in most European countries.
  Ironically, President Clinton's domestic policies--including a costly 
Government-controlled health care plan--threaten to bring this 
Eurosclerosis to America. Indeed, the Congressional Budget Office says 
the Clinton plan would require a 27-percent tax increase by 20004, the 
biggest tax increase in our history.
  I would like to bring to the attention of the Senate two cogent 
articles on why Europe is no model for creating jobs--one by my former 
House colleague Jack Kemp, co-director of Empower America and honorary 
co-chairman of the Alexis de Tocqueville Institution, entitled ``Forget 
Europe as a Model for Creating Jobs'' which appeared in the Los Angeles 
Times and the other by Cesar Conda, executive director of the de 
Tocqueville Institution, entitled ``An Agenda for the Jobs Summit'' 
which appeared in the Journal of Commerce.
  Both Secretary Kemp and Mr. Conda argue that the taxes on labor 
required to fund Europe's social welfare state have become a serious 
disincentive to job creation. The solution, as Secretary Kemp put it, 
``lies in unleashing the creative power of America's small business 
owners through lower taxes on both labor and capital.''
  We should keep the European experience in mind as we proceed with the 
debate over health care reform. I ask that these articles be printed in 
the Record immediately following my remarks.
  The articles follow:

              [From the Los Angeles Times, Mar. 20, 1994]

 Forget Europe as a Model for Creating Jobs--Clinton's Health Plan has 
      the Same Blind Spot--Broader Benefits Require Higher Taxes.

                             (By Jack Kemp)

       One of the most consistent facts about American economic 
     life over the past several years has been the almost weekly 
     announcement of massive job cutbacks or layoffs by Fortune 
     500 firms.
       What should America do? President Clinton thinks he has the 
     answer. ``We simply must figure out how to create more 
     jobs,'' he said back in January. ``We have a lot to learn 
     from the Europeans,'' he added, citing European job-training 
     programs and the ability to move people ``from school to work 
     into good-paying jobs.''
       There is only one problem with this job-growth tutorial. 
     Europe has nothing to teach. Every country on that continent, 
     except Switzerland, is experiencing unemployment well above 
     America's 6.5% rate. Several European countries have 
     unemployment rates well into double digits, including 
     Belgium, 14%; Denmark, 12.4%; France, 12%, and Spain, 23.1%. 
     Britain is the only European nation with an unemployment rate 
     lower today than a year ago.
       Europe's high unemployment rates have a single root causes, 
     the failure to create enough new jobs. Between 1982 and 1992, 
     the six largest European countries combined created just 6.9 
     million jobs, while the European labor force increased by 7.5 
     million. Over the same period, the United States created 18 
     million new jobs, while the labor force grew by 18.8 million.
       There are many reasons why we created so many more jobs in 
     the 1980s, but one of the most important is that European 
     employers pay significantly higher taxes on labor. In 
     Belgium, for example, government-mandated charges on labor as 
     a percentage of GDP have risen from 19.6% in 1970 to 29.5% in 
     1981; in Italy, from 12.7% to 23.6%. Only Great Britain's 
     rate has remained steady. By contrast, the U.S. rate was 
     15.9% in 1970, 19.4% in 1991.
       So, this much we can learn from Europe: A welfare state 
     with national health insurance and expensive fringe benefits 
     has an insatiable appetite. And the main burden of financing 
     this largess always falls on working men and women.
       With his national health-care plan, President Clinton would 
     set America on Europe's descending path. Although he tells us 
     that few workers will pay more than they do now, history is 
     clear: All national health-insurance schemes inevitably cost 
     far more than anyone projected when the programs were 
     adopted.
       Government has a dismal track record in predicting the 
     burden its programs will impose on future taxpayers. Look at 
     Medicare. When that program was enacted in 1965, the Johnson 
     Administration estimated that it would cost $8 billion per 
     year by 1990. The actual cost? $98 billion.
       Even if we take the Clinton projections at face value, his 
     health plan will still lead to a 27% increase in federal 
     taxes by the year 2004, according to a study from the Alexis 
     de Tocqueville Institution.
       Clinton defends this vast expansion of federal taxation on 
     the grounds that higher taxes will be offset by lower health-
     insurance costs. This is just a semantic game. Would people 
     really be better off if the government increased their taxes 
     by the amount of their annual food costs while providing free 
     food at the same time. Of course not, because the government 
     cannot provide anything as efficiently as the market and 
     because the costs would quickly rise far beyond expectations, 
     leading to tax increases or reduced benefits. Also, in the 
     process, people would lose the freedom to choose.
       Health care will not escape this fate. Quality will decline 
     because patients and doctors will be forced into more rigid 
     government constraints. As in Canada, a model for the Clinton 
     Administration, people will wait months or even years for 
     simple operations, and many will be denied access to 
     treatment because the plan managers judge them too old to 
     benefits never mind their physicians opinions.
       To these costs we must add a price paid in jobs. As the 
     European example shows higher benefits lead to higher taxes, 
     which, in the end, lead to higher unemployment. A recent DRI/
     McGraw Hill study predicts that by the year 2000, the Clinton 
     health plan will cause 1 million jobs to disappear--a 
     conservative estimate.
       Instead of invoking a European model of job creation that 
     creates no jobs, President Clinton should study the lesson of 
     America's job explosion in the 1980s. He would find that the 
     key to job creation lies in unleashing the creative power of 
     America's entrepreneurs and small business owners through 
     lower taxes on both labor and capital. Viewing entrepreneurs 
     as a endless funding source for an insatiable federal 
     government is a prescription for employment stagnation--or 
     worse.
                                  ____


             [From the Journal of Commerce, Mar. 15, 1994]

                     An Agenda for the Jobs Summit

                          (By Cesar V. Conda)

       This week the leaders of the major industrialized countries 
     are attending a jobs summit in Detroit to tackle the global 
     problem of persistent unemployment. Ironically, much of 
     President Bill Clinton's domestic policy agenda--including 
     his costly nationalized health-care plan--is based on the 
     European model of government that even the Europeans now 
     believe is responsible for their lingering joblessness.
       Between 1982 and 1992, the United States generated 18 
     million jobs, more than triple the number created by the 
     major European economies over the same period. According to 
     the Organization for Economic Cooperation and Development, 
     the unemployment rate for last year in most European 
     countries was about 11% to 12% compared to only 6.7% in the 
     United States. Perhaps the most disturbing comparison is the 
     difference in long-term unemployment rates: In 1989, more 
     than half of the unemployed people in the European Union 
     countries were out of work for a year or more, compared to 
     only 6.3% in this country, according to David Henderson of 
     the Hoover Institution.
       Labor Secretary Robert Reich has circulated a white paper 
     to the Group of 7 arguing that joblessness in Europe is 
     primarily caused by a shift in demand from less educated 
     workers to workers with problem-solving skills. With all due 
     respect to Mr. Reich, he completely misses the point: The 
     demand and supply for European workers--skilled and 
     unskilled--has declined because of the growing burden of the 
     social welfare state and its component taxes on the private 
     economy. This social spending, including unemployment 
     insurance, retirement benefits and nationalized health care, 
     has reduced the incentives for employers to hire and for 
     people to work.
       According to the OECD, social spending in the European 
     Union will account for 21.5% of GDP this year, up from 16.4% 
     in 1989--double the percentage rise in the last downturn in 
     the early 1980s. The OECD says the EU social spending exceeds 
     U.S. and Japanese levels by 50% and 78%, respectively. 
     Because of this expansion in the Social welfare state, the 
     total business tax burden has risen to 61% in Germany and 52% 
     in France compared to ``only'' 45% in the United States, 
     according to the German Industry Institute.
       This high tax burden on European employees--combined with 
     government-mandated employer spending for certain social 
     insurance benefits--has contributed to the high and rising 
     cost of labor. The Bureau of Labor Statistics reports that 
     hourly compensation costs in 1992 were 60% higher in Germany 
     in the United States; 50% higher in Sweden; 20% to 25% higher 
     in Italy; and 5% higher in France. To stay competitive, 
     European businesses have been forced to either shed jobs or 
     relocate to countries with lower labor costs.
       Europe's lavish social welfare state has had a more 
     insidious effect: It has reduced the incentive for people for 
     work. For example, in Italy, unemployment insurance 
     compensates up to 80% of lost wages; in France, an unemployed 
     worker could collect benefits for 2\1/2\ years.
       To their credit, Europe's political leaders have either 
     taken or are considering steps to reduce the social welfare 
     state. In 1993, France froze spending on state pensions. 
     Germany reduced unemployment insurance and the U.K. ordered a 
     complete review of welfare spending. Moreover, the Europeans 
     are considering payroll tax cuts and other reforms that would 
     increase labor flexibility and reduce costs. As reported by 
     the Financial Times, a draft OECD paper on joblessness 
     concludes that ``a significant revenue-neutral cut in payroll 
     taxes could yield import increases in employment over the 
     medium term.''
       While Europe is beginning to ``see the light'' with regard 
     to jobs, America is close to imitating the failed European 
     model. From 1988 to 1993, income and payroll taxes were 
     raised several times. Over this period, several new laws were 
     enacted including the Americans with Disabilities Act, the 
     Family and Medical Leave Act, the Civil Rights Act and 
     various environmental, health and safety regulations. These 
     have added to the total cost of employment and are a major 
     reason why employers have become more reluctant to hire full-
     time workers. Indeed, anecdotal evidence suggests many 
     businesses are keeping their full-time work forces below 50 
     to avoid the coverage threshold under the new Family and 
     Medical Leave Act.
       Today, Congress is debating the Clinton nationalized health 
     reform plan, which would require businesses to pay for 80% of 
     their employees health insurance coverage, resulting in a new 
     7.9% payroll tax. Overall, the Congressional Budget Office 
     says the Clinton plan would lead to a 27% increase in federal 
     taxes by the year 2004, the largest peacetime tax increase in 
     U.S. history. Private studies say the plan could destroy 
     anywhere from 900,000 to 3.1 million jobs.
       Yes, the rate of U.S. economic growth in recent months has 
     been impressive and, yes, the rate of unemployment has 
     dropped to 6.5%. But economic growth in this expansion is 
     averaging only 2.7% a year, significantly lower than the 5% 
     average annual growth of the previous postwar recoveries.
       And although job growth averaged 150,000 a month in 1993, 
     it has yet to compare to the Reagan expansion, which 
     generated an average of 183,000 jobs a month for seven years. 
     Major governmental policy shocks, including a nationalized 
     health plan, could limit the job creating potential of this 
     expansion.
       To restart the global jobs engine, the Group of 7 should 
     adopt a strategy of limiting governmental tax and regulatory 
     burdens. The European economies should radically reform their 
     social welfare systems with an eye toward reducing labor 
     costs, increasing labor market flexibility and eliminating 
     work disincentives. Ironically, the Clinton administration 
     has said that Japan needs a sizable income tax rate cut.
       Here in the United States we should reduce taxes and 
     regulations on workers and entrepreneurs. A number of U.S. 
     governors have done this at the state level, including John 
     Engler of Michigan, Carroll Campbell of South Carolina, Kirk 
     Fordice of Mississippi, Tommy Thompson of Wisconsin and 
     Christine Todd Whitman of New Jersey. At the very least, we 
     should reject the failed European model that would almost 
     certainly grind America's dynamic job creation machine to a 
     halt.

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