[Congressional Record Volume 141, Number 59 (Thursday, March 30, 1995)]
[House]
[Pages H4029-H4030]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


          NEUTRAL COST RECOVERY: FROM ADAM SMITH TO NICK SMITH

  The SPEAKER pro tempore (Mr. Fox of Pennsylvania). Under the previous 
order of the House, the gentleman from Michigan [Mr. Smith] is 
recognized for 5 minutes.
  Mr. SMITH of Michigan. Mr. Speaker, next week we will be voting on 
the tax cuts promised to the American people under the Contract With 
America. While some would argue that now is not the time to cut taxes 
since we must balance the Federal budget, we should realize that an 
increase in the growth rate of the economy would in itself reduce the 
deficit, since it would increase revenues and reduce welfare spending.
  Not all tax cuts are equal in terms of increasing the growth of the 
economy. Approximately 75 percent of the economic growth from our tax 
package comes from neutral cost recovery. Neutral cost recovery is a 
tax change to allow businesses to account for the wearing out of their 
machinery and buildings as they produce goods and services.
  By reducing the cost of capital 16 percent, neutral cost recovery 
will increase the amount of machinery, equipment, and buildings that 
workers use. This will, in turn, raise everyone's wages and wealth. We 
have known for more than 200 years that the accumulation of capital is 
the key to economic growth. Here is what Adam Smith had to say about 
the subject in his ``The Wealth of Nations'' in 1776:

       Every increase or dimunition of capital, therefore, 
     naturally tends to increase or diminish the real quantity of 
     industry, the number of productive hands, and consequently. . 
     .the real wealth and revenue of all its inhabitants.

  Adam Smith was telling us that if a nation's capital increases, it 
will increase that nation's output of goods and services, the amount of 
employment, and the overall wealth and income of all of the country's 
inhabitants. He also explained how the real beneficiary of this process 
was the nation's poor. Adam Smith suggested we only need to look at the 
standard of living of any poor person living in a capitalist country 
and compare that standard of living to an upper income person in any 
non-capitalist economy. Would you rather be poor in the United States 
or rich in Uganda?
  In 1949 the great economist, Ludwig von Mises, wrote that the reason 
that Western countries are ahead of the other parts of the world is 
because they have a system that encourages savings and capital 
investment.
  [[Page H4030]] Since 1949 our tax burden has been increasing, in 
particular the tax on capital. Over the last 20 years the United States 
has trailed our industrialized competitors in capital investment per 
worker, in part because other countries have more favorable tax 
policies towards capital.
  We are getting exactly what von Mises predicted: if you don't 
encourage savings and capital investment then you lose your 
productivity and competitive position. Today, the United States is 
indeed trailing its international competitors in the growth of its 
production per worker.
  Economists have estimated that neutral cost recovery will lead to the 
creation of 2.7 million new jobs, add an extra $3.5 trillion to our 
Nation's output over the next 5 years and by doing so add nearly $600 
billion to Federal revenues. In passing neutral cost recovery we will 
secure an improved life for our children and grandchildren by leaving 
them with a greater stock of capital, more job opportunities, and a 
reduced Federal deficit. I urge my colleagues to lift the shackles that 
our tax code has placed on our economic growth and give our children 
and grandchildren the jobs that they deserve.


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