[Congressional Record Volume 141, Number 7 (Thursday, January 12, 1995)]
[Senate]
[Pages S821-S824]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


              THE REPUBLICAN CONTRACT: IT DOES NOT ADD UP

  Mr. CONRAD. Mr. President, ever since the November 8 election, the 
Republican majority and the media have been talking about the Contract 
With America. The contract sets out the Republican agenda for the first 
session of the Congress, and it has many good elements in it. For 
example, I strongly support the Congressional Accountability Act, which 
will ensure that Congress lives by the same rules it imposes on 
everyone else. That is something that we almost passed in the last 
Congress and that is something we will pass in this Congress.
  I support the unfunded mandates bill, which will make it more 
difficult for Congress to mandate State and local governments to 
establish programs unless Congress appropriates funding to pay for 
them. That also makes common sense. And it is also something we were 
working on in the last Congress. But when it comes to the budget and 
tax elements of the contract, there are two big problems.
  First, the numbers just do not add up. There has been a lot of talk 
about what will not be cut, but the specific proposals on what 
Republicans believe should be cut fall far short of what is needed to 
balance the budget. And if the math does not work, the contract will 
balloon our deficits, explode the national debt, slow our economy, and 
leave future generations to clean up the mess.
  Second, the tax cuts proposed by the Republicans are unfair because 
they are clearly designed to benefit the wealthiest among us far more 
than average Americans. And the program cuts necessary to finance these 
tax cuts, or the higher interest rates that will result when the 
Republicans fail to balance the budget as promised, will hurt the 
middle class. Let me explain why the contract does not add up and why 
it is unfair to average Americans.
  We first have to look at the current budget outlook. The contract 
calls for a balanced budget amendment to the Constitution, which would 
require a balanced budget by the year 2002. I strongly support this 
goal. Deficit reduction has been at the top of my agenda since I came 
to the Senate in 1986, and I have spent an enormous amount of time 
working on the Federal budget, learning about it, and devising plans to 
put our fiscal house in order. Every year I have been in the Senate, I 
have offered comprehensive plans in the Budget Committee, or far-
reaching amendments in the Budget Committee or on the floor of the 
Senate, to achieve more ambitious deficit reduction goals.
   Unfortunately, the rest of the Republican contract that is before us 
makes it far more difficult to meet the balanced budget goal. According 
to the Congressional Budget Office, it will take more than $1 trillion 
in cuts over the next 7 years to reach a balance by the year 2002. That 
is what this chart shows. This is what is necessary to achieve balance 
by the year 2002--over $1 trillion in budget cuts.
  This is not millions of dollars; this is not billions of dollars--
this is a trillion dollars, one thousand billion dollars. And that is 
only if we do not do anything to make the problem worse before we start 
to solve it.
   But the contract makes things far more difficult because it promises 
hundreds of billions of dollars in tax cuts, most of which would 
benefit the wealthy far more than average Americans.
  The Republicans call it the Contract With America. I call it a 
Contract on the Middle Class. In order to pay for the tax cuts, the 
Republicans will have to cut an additional $364 billion in the next 7 
years, much of it from programs that benefit middle income families. So 
let me be clear. If we do not do anything to make the problem worse 
before we begin to solve it, we need $1 trillion in cuts over the next 
7 years to 
[[Page S822]] achieve a balanced budget. But the Republicans suggest 
the first thing we do is not to cut the spending, but to cut taxes by 
$364 billion over 7 years. So they have dug the hole deeper. Instead of 
a $1 trillion problem to solve, they present us with a $1.4 trillion 
hole to fill.
  This chart shows that. The blue indicates the $1 trillion necessary 
to bring the budget into balance. And if you add the $364 billion of 
tax cuts Republicans have called for, you then see we have a $1.4 
trillion problem to solve.
  In fact, the effects of these tax cuts will be worse than it appears 
from these charts. By design, the tax cuts are structured so that the 
adverse effects are not readily apparent until after the end of the 5-
year budget window that Congress uses to measure the effect of proposed 
changes in taxes and entitlements. In the first 5-year period the tax 
cuts would cost $197 billion. But between fiscal years 2001 and 2005, 
their cost more than doubles to $514 billion. Over the 10-year period, 
those tax cuts cost $712 billion.
   This is at a time when we already have a $1 trillion problem to 
solve over the next 7 years. Without going further on that point, let 
me just say this means we will have to make additional cuts after 2002 
to keep pace with the growing cost of these giveaways to the wealthy 
and corporate America.
  In addition, the contract calls for more spending on defense. 
Everyone wants a strong national defense, but the world has changed. We 
now spend more on defense than the next top 10 countries combined, even 
though there is far less danger to defend against than just a few years 
ago. In fact, we are the only remaining superpower in the world. 
Certainly we see this to be true when we look at the Russian Army that 
cannot even effectively deal with one element of its country that is in 
revolt.
   The extra $82 billion the Republican defense buildup will add to our 
budget will raise the total cost necessary to reach balance by 2002 to 
a staggering $1.48 trillion--$1.48 trillion. So we start with a $1 
trillion problem and the Republicans immediately proceed to add $364 
billion of tax cuts and $82 billion of additional defense spending, 
making the hole deeper, making the problem bigger, and making the 
prospects of success more remote.
  Just to put that in context, the entire Federal budget this year for 
everything but interest on the Federal debt is $1.36 trillion. That is, 
to reach balance by 2002, to pay for all of the proposals in the 
Republican contract, will require the equivalent of eliminating every 
Government program--except interest payments--for more than 1 year.
  That would be a tough enough problem to address and to solve even if 
the Republicans in their contract did not do other things to make it 
even more difficult. But after all the Republican goodies are added on 
top of our current fiscal problems, we need to cut nearly $l.5 trillion 
in order to reach a balanced budget by 2002. Clearly that will not be 
easy.
  You have heard our friends on the other side of the aisle suggest 
over and over that they are going to close this budget gap by cutting 
agriculture, maybe eliminating farm programs completely and by cutting 
welfare. Mr. President, that is less than 5 percent
  of the Federal budget. They have a long, long way to go. The only 
thing they have come up with so far is welfare, foreign aid, and 
agriculture, a small fraction of overall spending.

  This chart shows where the money is going in the 7 years leading up 
to 2002. We are going to be spending--if we do not make changes--and 
clearly we must--some $13.2 trillion over the next 7 years. Where is 
the money going? Interest is just over $2 trillion, and defense is just 
over $2 trillion. In fact, we are going to be spending more on interest 
than we are going to be spending on defense over that 7-year period. 
Medicaid will be about $1 trillion. Social Security will be almost $3 
trillion. Foreign aid will be $162 billion, a little sliver of the 
spending pie. Domestic discretionary spending will be $2 trillion. 
Medicare will be nearly $2 trillion. And agriculture, that I hear the 
other side talking about so loudly, is far less than 1 percent of the 
budget over this period, only $87 billion. This little tiny sliver here 
on the chart is agriculture. All other Federal spending over that 
period will be about $1 trillion.
  Mr. President, it's clear we cannot balance the budget just by 
cutting agriculture programs, cutting foreign aid, and cutting welfare. 
That is less than 5 percent of what we spend. That is not going to do 
the job. Once again, we have public statements that sound good but just 
do not stand up to budget reality. They just do not add up. What we 
have is a Republican credibility gap.
  Unfortunately, instead of giving us a detailed plan that tells us 
what they are going to cut in order to reach their goal, the 
Republicans have been telling us what they will not cut. First, they 
say we cannot cut interest payments on the Federal debt. Of course, 
that is true. If we did try to cut interest payments, the Federal 
Government would default and the economy would be thrown into turmoil. 
This takes over $2 trillion off the table of the $13 trillion we are 
going to be spending over the next 7 years.
  Second, the contract authors say they are not going to cut Social 
Security. That takes an additional $2.9 trillion off the table.
  Third, the contract authors have promised to increase rather than 
decrease defense spending. So cuts in defense spending are also off the 
table. That removes another $2.1 trillion from consideration. In fact, 
after the contract authors have finished making their promises, more 
than half of the budget is off the table. More than half of the budget 
cannot be considered in order to solve the budget problem that we face.
   On the other side of the ledger, the Republicans have detailed only 
$277 billion in spending cuts over the next 7 years. Mr. President, I 
earlier outlined the extent of the problem. If we are going to balance 
the budget over the next 7 years we have to make cuts of $1.48 
trillion, almost $l.5 trillion. The Republicans have so far identified 
$277 billion of cuts. That leaves the Republicans with a credibility 
gap of $1.2 trillion--not million, not billion, but trillion. The size 
of the problem is $1.5 trillion but they have identified less than $300 
billion of budget cuts. That means somewhere out there is $1.2 trillion 
of budget cuts our Republican friends have failed to identify.
  We have heard the good news from our Republican friends. But as Paul 
Harvey would ask, ``What is the rest of the story?'' They have only two 
choices. Either the Republicans detail Draconian cuts in programs to 
close this gap or they fail to balance the budget by 2002.
  This failure to talk about specific spending cuts sounds like deja vu 
all over again. We have heard it all before, Mr. President. History 
reminds us of the failed trickle down economics of the 1980's. They can 
say it is a new Contract With America. They can put new clothing on it, 
but it is the same old trickle down theories, the same old voodoo 
economics.
  History also tells us that faced with a choice between making tough 
specific spending cuts to pay for their proposals and letting the 
budget run out of control, the Republican Party will balloon the 
deficit and run up more and more red ink.
  In the 1980's President Reagan came to town promising huge tax cuts, 
increased defense spending, and a balanced budget. Does it sound 
familiar? Well, it is. It did not work then. It is not going to work 
now.
  Instead, during that period the average annual deficits under 
Presidents Reagan and Bush were five times that under President Carter. 
The national debt tripled under President Reagan, from $900 billion to 
$2.6 trillion, and grew by half again under President Bush to $4 
trillion.
  Mr. President, all we have to do is go back and look at what happened 
when we previously relied on this economic theory. Here is the budget 
deficit line. From 1940 to 1980, the national debt of the United States 
was relatively stable. But the Republicans came to town in 1980 with 
this theory that they could cut taxes, increase defense spending, and 
somehow the budget would be balanced--even though it was not balanced 
when they began. It proved to be a complete fraud and hoax. Mr. 
President, this is what happened. We very nearly destroyed the economy 
of this country by creating a fourfold increase in the national debt.
   [[Page S823]] Mr. President, these debts did not finance investment 
in our future. Instead, they reduced our national savings. The result 
was record high real interest rates.
  This chart shows exactly what happened to interest rates as a result 
of those failed economic policies. From 1968 to 1973, real long-term 
interest rates, the difference between the interest people paid and the 
rate of inflation, was less than 1 percent. From 1974 to 1979, real 
interest rates, the difference between inflation and the interest rates 
people paid was a negative point 6 percent. But look at what happened 
from 1980 to 1989 to real interest rates. The difference between the 
level of inflation and the interest rates people paid was 5.5 percent--
record high real interest rates. What did that do? It stopped economic 
growth in its tracks, it killed job creation in this economy, and it 
weakened us for the future.
  Record high real interest rates means that we invested less in the 
1980's than in previous decades resulting in less economic growth for 
the future, stagnating wages, and a bigger struggle for the average guy 
to get ahead. It is true. The rich got richer but the middle class got 
nothing in the 1980's.
  These policies squeezed the middle class while better off Americans, 
the top 20 percent of earners, saw their incomes increase. In fact, 
this chart shows the changes in family after-tax incomes by income 
group from 1977 to 1992.
  Here is what happened. The bottom 20 percent in our country, the 
lowest one-fifth in terms of income, saw their after-tax incomes 
decline 12 percent. The next 20 percent in our country saw their 
incomes decline 10 percent. The next 20 percent of the income ladder in 
this country saw their incomes decline 8 percent.
  This is the harsh reality of what occurred under a flawed economic 
policy and plan. Those 60 percent of Americans in the lowest income 
categories saw their incomes decline during this
  period. The next 20 percent of the people in this country saw their 
incomes rise a modest 1 percent. But look what happened to the top 1 
percent. The top 1 percent saw their incomes increase 136 percent.

  The facts are startling. Working men without college degrees--about 
three-fourths of all working men--saw a 12-percent decline in real 
wages since 1979. It is no wonder they are angry; it is no wonder they 
are upset; it is no wonder they are anxious about the future.
  Average weekly compensation has actually fallen to its lowest level 
since 1960. The only reason that real median family income stayed level 
overall is because families have added additional earners. My family is 
an example. I was raised by my grandparents and grew up in a middle 
class, extended family, with three uncles and aunts and their families 
in my hometown. In our family--like most middle-class families at that 
time--the mothers were able to stay home until the kids went to school. 
Now, in my generation, with 13 grandchildren--all with advanced 
degrees--every single family has both spouses working to maintain the 
same middle-class existence. This is not just the reality of the Conrad 
family. It is the reality of every family in America, and it is, in 
part, because of a flawed economic policy and plan that was put in 
place in the 1980's--a plan that proved to be an economic disaster for 
this country.
  Meanwhile when middle-class incomes were falling, the cost of health 
care, a college education, and homes were rising faster than inflation, 
squeezing the middle class. Middle-class incomes are buying less and 
middle-class families are saving less. At the same time, the pay of the 
average chief executive officer of a corporation, has risen from 29 
times as much as the average worker in 1979 to 93 times as much as the 
average worker today. It is no wonder, I suppose, that a major 
corporation gave $2.5 million to the Republican Party in the last 
campaign. They like this policy. This policy is good for them. I 
understand that. They are looking out for their economic self-interest.
  Mr. President, our obligation here in this Chamber is to look out for 
all Americans, not just the wealthiest 1 percent, not just those at the 
top of the income ladder, but everyone.
  If we look at the tax provisions of the contract, we see more of the 
same trickle down economic theory. I would like to focus for a few 
minutes on some of the tax provisions proposed in the contract, because 
they point so clearly to why the contract is not fair, why it is more 
of the same old trickle down economics that hurt the middle class in 
the 1980's.
  Middle-income Americans are being led to believe that the tax changes 
proposed by the Contract With America are directed primarily at them. 
Nothing could be further from the truth. In fact, only 46 percent of 
the contract's proposals benefit families with incomes under $100,000.
  Mr. President, this chart shows that reality. A majority of the 
benefits--54 percent--go to families with incomes greater than 
$100,000, only about 3.5 percent of all Americans. Put another way, 
only 46 percent of the proposed Republican tax cuts go to benefit the 
96.5 percent of Americans who earn less than $100,000, while 54 percent 
of the benefits go to 3.5 percent of the people who earn more than 
$100,000 per year. That is the old trickle down economics. That is the 
way it worked then and that is how it would work now. It is no wonder 
the middle class got left behind in the 1980's. And if such a policy is 
enacted now, they would be the first ones hurt in the 1990's.
  All in all, almost one-third of the benefits under the Republican 
plan go to households with incomes of more than $200,000. That is how 
the Republicans targeted this plan--with one-third of the benefits 
going to the top 1 percent.
  Mr. President, I think it is useful to look more closely at a few of 
the tax proposals--the major ones--that our friends in the Republican 
Party have proposed. Let's examine them and see who benefits.
  The most costly of the tax cuts in the contract are aimed at the very 
wealthy. For example, 95 percent of the benefits from the expanded IRA 
provision would accrue to the top 20 percent of income earners, at a 
net cost of $45 billion over 10 years. This chart shows how that works. 
Ninety-five percent of the benefits of the IRA tax incentive they have 
proposed go to the top 20 percent of income earners who are more likely 
to already benefit from other tax-favored pension and retirement plans, 
while only 5 percent of the benefits go to 80 percent of the 
population.
  Capital gains tax relief, which has also been proposed, strikes a 
chord with many Americans, including some of my constituents who are 
small business owners or farmers. The proposal in the contract is not a 
reasonable relief measure, however. Again, it benefits primarily the 
wealthy. In fact, almost half of the benefits from the capital gains 
provision would accrue to the wealthiest 1 percent of the population.
  It should be pointed out that, through indexing and direct exclusion, 
taxes would be eliminated on most capital gains profits. The 
overwhelming winners would be higher income individuals who hold stocks 
and bonds, while no change would be made in the treatment of interest 
income from the savings accounts that ordinary middle-class Americans 
hold. For interest earnings, no adjustment for inflation or exclusion 
from taxation would be provided. This is the reality of the Republican 
Contract With America.
  Mr. President, I do not know what can be more clear. This shows that 
the top 1 percent of income earners receive 50 percent of the benefits 
of the proposed capital gains tax cut. The other 50 percent goes to the 
other 99 percent. This is the Republican idea of equity. It is not my 
idea of equity, not my idea of fairness, not my idea of an economic 
plan that is right for America.
  Tax cuts that benefit primarily the wealthy are particularly ironic 
in view of the fact that I mentioned earlier--income for the top 20 
percent of the population has dramatically increased over the past 20 
years. I am glad to see that. But what happened to the rest of the 
folks in this country?
   As I noted earlier, the next 20 percent saw a 1 percent gain, and 
the income of the bottom 60 percent in this country actually declined. 
This is the reality. In fact, the wealthy are taking home the largest 
share of national income ever. Yet, the contract proposes tax cuts to 
ensure that the wealthiest become even wealthier.
   [[Page S824]] The problem is further compounded by the certainty 
that while upper income families are receiving the benefit of the 
lion's share of these tax cuts, they secure a much smaller percentage 
of their income from Government benefits than average families at 
lower- and middle-income levels. Upper income families would be 
affected the least by budget cuts necessary to balance the budget and 
pay for further tax cuts, primarily for their benefit.
  We are giving these benefits to the wealthy at a very high price to 
the country. At a time when we should be focusing on
  fiscal restraint, further deficit reduction and spending cuts, the 
Republicans instead are focusing on tax cuts.

  The proposals in the contract are simply a recycling of the hollow 
promises from 1981: large tax cuts, defense spending increases, and a 
balanced budget. That is what they said then; that is what they are 
saying now. They did not keep their promises then and they can't do it 
now.
  The Reagan administration predicted the economy would improve from a 
$55 billion budget deficit in 1981 to a surplus of $5.8 billion in 
1985. In reality, the Federal deficit actually rose during that period 
to $212 billion--another gap between rhetoric and reality. They 
inherited a deficit of $55 billion and they ran it up to $212 billion, 
all the while saying they would achieve a surplus.
  Mr. President, the contract is just as irresponsible. The contract's 
tax cuts will cost $364 billion, and the Republican defense increases 
will add another $82 billion. That means the Republicans need $1.4 
trillion of spending cuts to balance the budget by the year 2002. Let 
me repeat: The Republicans need $1.4 trillion in spending cuts over the 
next 7 years to balance the budget after their tax cuts and after their 
defense increases.
  But where are their spending cuts? Where are they? ``Where is the 
beef?'' The only specific cuts the contract identified add up to $277 
billion over the next 7 years, not even enough to pay for their tax cut 
proposal, let alone start to balance the budget.
  The bottom line is that there is a $1.2 trillion--not million, not 
billion, $1.2 trillion--Republican credibility gap, the gap between 
Republican rhetoric and Republican reality. It gives new meaning to the 
phrase ``Don't ask, don't tell.'' That is the economic policy the 
Republicans are asking the American people to buy--a pig in a poke. 
``We will balance the budget.'' The problem is $1.4 trillion. They have 
shown $277 billion of spending cuts. Where is the rest? Where is the 
other $1.2 trillion?
  You really have to wonder what the Republicans are hiding from the 
American people.
  We have seen these sorts of promises before, so we know what is going 
to happen. These tax breaks for the wealthy will end up busting the 
budget and the middle class will get stuck with the bill in one of two 
ways. Either they will be paying through huge cuts in middle class 
programs, from Medicare to student loans to keeping our highways in 
good repair, or they will pay with higher interest rates on home loans, 
car loans, and educational loans, and economic stagnation caused by 
falling investment in our future.
  The Republicans have been enormously successful at selling their 
contract as a benefit to the middle class.
  Mr. President, the reality is that, hidden in the fine print of the 
contract, are enormously expensive tax breaks for the wealthy that will 
bust our budget.
  Instead of talking about more defense spending and tax breaks for the 
wealthy, the Republicans need to tell us their specific proposals for 
balancing the budget. Where are they going to cut the other $1.2 
trillion necessary to balance this budget? That is $1,200 billion.
  We are waiting to hear from the Republicans. Where are they going to 
make the cuts specifically? Not these nostrums, ``Oh, we will maybe 
eliminate agriculture funding.''
  In closing, let me again say we have heard this all before. There was 
a credibility gap in the 1980's between what the Republicans promised 
and budget reality. Earlier, I said the Contract With America was a 
contract on the middle class.
  I would warn those middle class Americans who listened to the 
promises of the Republicans in the 1980's. What happened to you? What 
happened was the rich got richer, the poor got poorer, and the middle 
class paid the bill.
  Mr. President, political rhetoric in a campaign is one thing. 
Performing when one has the responsibility of governing is another 
thing. I call on the Republicans and I challenge the Republicans to 
come forward with their plan to balance the budget.
  What are they going to do to close the gap between the $1.48 trillion 
necessary to balance the budget over the next 7 years and the paltry 
$277 billion of budget cuts they have identified? Where is the other 
$1.2 trillion the Republicans need in spending cuts in order to balance 
this budget?
  We are waiting. The American people are waiting. We wait with great 
interest to see how our friends on the other side of the aisle will 
begin to close the gap between rhetoric and reality.
  I thank the Chair and I yield the floor.
  

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