[Congressional Record Volume 141, Number 165 (Tuesday, October 24, 1995)]
[Senate]
[Pages S15515-S15517]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     THE BUDGET RECONCILIATION BILL

  Mr. SPECTER. Mr. President, 1 year ago we Republicans won control of 
the Congress based on commitments to balance the budget, reduce the 
size of Government, and lower taxes. These commitments remain our basic 
goals. I have sought recognition this morning to speak on the 
reconciliation bill which will be coming up tomorrow.
  I know that tomorrow time will be very precious, so I want to express 
some of my thoughts at this time. These reservations which I am about 
to discuss have been expressed to the leadership. There was difficulty 
in even coming to preliminary conclusions because much of the material 
had not been made available until very recently, some of the tables on 
the tax reductions only coming as late as yesterday.
  As we address the reconciliation process in the next few days, I ask 
my colleagues to reconsider certain aspects of the proposed 
legislation. As much as I favor tax relief for Americans, I question 
tax cuts that may jeopardize our No. 1 priority, which is balancing the 
Federal budget.
  As much as I want to reduce the size of Government, I question 
spending cuts directed so disproportionately against the elderly, the 
young and the infirm. And on a political basis, I suggest to my 
Republican colleagues that we all rethink support for a combination of 
tax cuts and spending cuts that may lead to the perception of the 
Republican Party as the party of wealth, power and privilege, and not 
the party of ordinary American working families.
  Last fall we Republicans swept to historic victories in both Houses 
based on our responsiveness to the people's demand for less, not more 
Government, for a Government that lives within its means, and for a 
reduction of the tax burden on ordinary Americans.
  I am fearful, Mr. President, that we will forfeit that political high 
ground in an instant if we adopt a budget that not only fails to end 
the deficit, but that, either in appearance or in fact, makes the least 
affluent Americans bear the heaviest burdens while giving most of the 
tax benefit to the most affluent among us.
  I am concerned, Mr. President, that these tax cuts threaten a 
balanced budget, which is by far the most critical aspect of the 
electoral mandate of 1994. Many of us have been working for a balanced 
budget for many years. And I have been making that effort for all of my 
15 years in the Senate. But until this year, I have never seen 
legislation passed that actually had a likelihood of achieving that 
goal.
  Finally, after years of shadowboxing, after years of spending 
restraint initiatives that were mere smoke and mirrors, not really 
substance, this Congress has been willing to make the painful changes 
necessary to achieve a balanced budget. We are moving toward real 
reform of entitlements, thereby for the first time giving us a real 
ability to restrain future spending in those programs. Painful though 
these actions are, we are willing to make these sacrifices in the name 
of future generations. And we do that in order to achieve a real 
balanced budget within the 7-year glidepath.
  The Senate Appropriations Subcommittee on Labor, Health, and Human 
Services, which I chair, and where the distinguished Senator from Iowa, 
Senator Harkin, serves as ranking member, has made very, very painful 
cuts on a budget which had exceeded $70 billion in discretionary 
spending. These reductions totalled almost $8 billion, down to somewhat 
more than $62 billion in spending.
  I would suggest to you, Mr. President, that we made these cuts with a 
scalpel and not a meat ax. But we had to pare back critical programs, 
difficult as it was, such as compensatory education for the 
disadvantaged, substance abuse treatment and prevention, drug-free 
schools, dislocated worker training--and we did so, I believe, in a way 
that left intact the basic safety net that protects America's neediest 
and most disadvantaged--and with a special concern for children and the 
elderly.
  We were able to make these difficult spending cuts because of our 
commitment to a balanced Federal budget. But the current reconciliation 
bill may undercut that commitment while leaving those painful spending 
cuts in place. The largest spending cuts occur in the so-called 
outyears while many of the tax cuts occur at the outset. These savings 
may materialize, but there is no guarantee that they will.
  Estimates of rates of economic growth, inflation, tax revenue 
generation are only estimates, and estimates invariably become less 
accurate the further out in time they occur. The proposed 
reconciliation bill offers the certain tax cuts right now paid for by 
spending cuts later and anticipated savings. That sounds too much like 
the approach which has put us in a predicament with almost a $5 
trillion national debt.
  Mr. President, I am very concerned that these tax cuts are unfair or 
at least give the perception of unfairness. I express this concern 
because much of the pain of the spending cuts goes to the elderly, the 
young, and the infirm while allowing tax cuts for corporate America and 
those in higher brackets.
  I question, Mr. President, cuts in student aid, job training, low-
income energy assistance, workplace safety, Head Start, childhood 
immunization, and mother and child health programs while we give 
corporate tax breaks such as accelerated depreciation for convenience 
stores and expanded equipment depreciation.
  I am concerned, Mr. President, as I take a look at the cuts in 
Medicare and Medicaid. This is a subject that was highly controversial, 
leading many Republicans from my neighboring State of New Jersey to 
vote against the Medicare Program in the House of Representatives. I 
point specifically to Medicare part A disproportionate share payments 
relating to extra payments to hospitals that serve a high proportion of 
poor patients. This program is reduced by some $4.5 billion over 7 
years. This change impacts very, very heavily on many of the hospitals 
in my State of Pennsylvania and on many training institutions across 
the country.
  And I point further to the Medicare part A indirect medical education 
payments, which are financial adjustments to teaching hospitals to 
cover excess costs due to training. This program is reduced by some $9 
billion. I also point to the change in the index for future payments to 
hospital providers, which will be reduced by some $36 billion over the 
course of 7 years.
  While it is admitted that Medicare changes are necessary in order to 
remain solvent and that we have to have a handle on Medicare, there are 
many questions being raised by senior citizens and the elderly all over 
America today as to the fairness of these reductions. I specify that 
they are not cuts, but we are trying to get a handle on Medicare so 
that as costs increase, we can reduce the rate of increase. But there 
are many questions legitimately being raised about these budget 
considerations on Medicare.
  On Medicaid, there is a change from entitlements to block grants. We 
have bitten the tough bullet on changing the block grants on welfare 
payments, and we are in the process of making real reforms in the 
entitlement programs.
  There is a particular concern as to what will happen in many of the 
States. There was a lead article in the New York Times in the last few 
days about what is happening and what may happen further. The State 
illustrated was Mississippi. A particular concern of my State, 
Pennsylvania, is the formula for the allocation of Medicaid funds under 
a block grant, with some 

[[Page S 15516]]
of the pending legislation hitting Pennsylvania very, very hard.
  Mr. President, it is a herculean effort to rein in entitlements and 
balance the budget under the best of circumstances in a way that will 
be accepted as fair. I believe the American people are prepared to 
tighten their belts to balance the budget, so long as the sacrifices 
are fair and equitable.
  We consistently hear constituents urge spending cuts except for their 
own pet projects. But leadership calls for the Congress to take the 
political risks on those hard votes to cut popular programs for the 
future economic stability of the country. It simply may be too much to 
cut about $1.4 trillion, and that is an approximation--$200 billion a 
year over 7 years--plus another $245 billion for tax cuts, which at 
least gives the appearance of unfairness.
  I further suggest that the reconciliation bill may well be bad 
politics as well as bad public policy. To balance the budget and reform 
entitlements are tough under any circumstance, but they are even more 
difficult along with the tax cuts and corporate benefits.
  In the wake of Congress' proposed tax cuts, the lead story in the 
Sunday Philadelphia Inquirer of October 15, 1995, headlined, in the 
upper right hand corner: ``Bearing the Brunt of GOP Cutbacks, Low-
Income Families Would Lose Billions in Benefits. Tax Cuts Would Benefit 
the Affluent.''
  That story then details the cuts in popular programs. It is 
especially difficult, Mr. President, I suggest, to justify curtailments 
in the earned income tax credit at the same time the tax cuts are going 
to Americans in higher brackets.
  The earned income tax credit was expanded in 1986 under President 
Reagan and again in 1990 under President Bush. President Reagan called 
the program the best antipoverty, the best pro-family, the best job 
creation measure to come out of the Congress.
  What is the measure of fairness in eliminating facets of the earned 
income tax credit at the same time that we are adding tax breaks for 
those in higher brackets?
  The specifics on this, frankly, have been difficult to obtain, but 
the Senate reconciliation bill would reduce funds for the earned income 
tax credit by some $43.2 billion, which is substantially more than the 
House reduction of some $23.2 billion over 7 years.
  The Senate bill would eliminate the earned income tax credit for 
taxpayers without children, who now receive a limited credit up to 
$324. The changes made in the Senate bill on the earned income tax 
credit tighten up eligibility and expand the income included for 
phaseout purposes.
  Further, the credit would be entirely phased out for individuals with 
one child with income over $23,730. The Senate proposal would also 
freeze the credit at 36 percent rather than allowing it to rise up to 
40 percent under current law.
  Mr. President, the reconciliation bill contains many credits which I 
like very much. I especially like the $500 tax credit per child, but is 
there not a question as to extending that tax break to individuals in 
the $75,000 bracket or $110,000 for married couples, at a time when we 
are curtailing the earned income tax credit for people who earn 
$23,730?
  There is no doubt about the justification for giving a tax credit for 
families in middle-income America, but should we be doing it at the 
same time when the taxes are being increased or the earned income tax 
credit is being reduced for people in much lower brackets?
  This legislation, the reconciliation bill, contains an increase on 
IRA's, independent retirement accounts, and that is a measure that I 
have long supported and fought for. I recall in 1986 we had a vote, 51 
to 48, eliminating the IRA's. I very strongly opposed the elimination 
of the IRA's. But is it sound public policy to be increasing IRA 
availability for singles who earn up to $85,000 and for families 
earning up to $100,000, from the current limits of $25,000 and $40,000, 
at a time when we put limitations on the earned income tax credit?
  I do not have absolute answers to these questions, but I think they 
deserve very, very careful thought.
  Mr. President, these political problems have been candidly noted by 
many of our colleagues in the U.S. Senate. Our distinguished majority 
leader on a Sunday talk show a few weeks ago raised a question about 
having these tax cuts and quoted a number of Republican members on the 
Senate Finance Committee, and then, in the wake of objections, 
retreated from the questioning of these tax cuts.
  I believe that if there were a secret ballot among the 53 
Republicans, many would vote against the tax cuts in the context of 
balancing the budget and in the context of difficulties for others in 
lower brackets. One of my colleagues estimated that as many as 20 of 
our Republican Senators might oppose the tax cuts if we were to have a 
secret ballot.
  I raise these issues in the context of having debate at the start of 
this bill, again saying that I do not have absolute answers but think 
that these issues have to be thought through very, very carefully.
  Mr. President, I suggest that it is time to face the facts that the 
Emperor, as well as the poor, may well be wearing no clothes if the 
reconciliation bill passes in its present form.
  I remind my colleagues about the political consequences back in 1986. 
Many who are now in the Senate, especially on the Republican side, were 
not here in 1986 when we faced a question about cutting Social Security 
benefits. Those benefits were cut. Later in 1986, Republicans lost 
control of the Senate. Those who voted in favor of the Social Security 
tax cuts were defeated at the polls.
  I think that is something that has to be remembered, especially 
since, even though the Social Security tax cuts passed the Senate, they 
did not come into law. They ultimately were abandoned.
  Many of the items we are going to be voting on here, as we seek to 
pass this reconciliation bill, are conceded not to be in final form--
that this is a test run and that this reconciliation bill is highly 
likely to be vetoed by the President. He already announced his 
intention. Then it is going to come back for further consideration, 
again raising the question about making these votes which are so 
politically perilous and which really may not have any effect at all.
  Mr. President, I further suggest that we can have all of the 
advantages in the reconciliation bill in terms of tax breaks for 
middle-income Americans and more. We can have not just a reduction in 
the capital gains rate but an elimination of the capital gains tax, and 
an elimination of tax on dividends if we move to the flat tax, which I 
introduced earlier this year, Senate bill 488.
  I take second place to no one in this body when it comes to 
supporting tax relief for all Americans. But real tax relief cannot 
come from tinkering at the margins, by adding a new break here or a new 
loophole there. Breaks and loopholes are part of the problem, not the 
solution. The solution to tax oppressiveness is a completely new method 
of income taxation, a method based on the fundamental principles of 
fairness, simplicity, and growth. That solution, Mr. President, is the 
flat tax.
  Our current Internal Revenue System is a mammoth bureaucracy 
requiring Americans to spend billions of hours each year to complete 
their tax forms and hundreds of billions of dollars in compliance, 
estimated as high as $595 billion by Fortune magazine. It is reliably 
estimated that some 5.4 billion hours annually are spent by Americans 
on tax compliance.
  Worse, our tax system is fundamentally antigrowth, diverting 
otherwise productive resources to compliance costs, promoting economic 
decisions based on tax avoidance rather than productivity, and 
discouraging savings and investment by the double taxation of dividends 
and capital gains.
  My flat-tax proposal, Senate bill 488, was introduced in March of 
this year. It would scrap our current Tax Code and replace it with a 
simple 20 percent rate, keeping only two deductions--interest on home 
mortgages up to $100,000 in borrowing, and charitable deductions up to 
$2,500.
  Individuals would be taxed at the 20 percent rate on all income from 
wages, pensions, and salaries. They would not pay tax on interest or 
savings and dividends because those would be taxed at the source. They 
would also not pay any tax on capital gains because the answer to 
encouraging investment and 

[[Page S 15517]]
growth is not simply to reduce capital gains tax but to eliminate it 
entirely.
  Under my bill, a family of four earning up to $25,500 would pay no 
tax. Low- and middle-income Americans would benefit from my tax cut 
because millionaires, who often pay little or no tax because of the 
myriad loopholes and shelters in the Tax Code, would have to pay tax at 
the 20 percent rate because these loopholes and shelters would be 
eliminated. It has been shown that under our current tax system, more 
than half of all personal income in the United States, or some $2.6 out 
of $5 trillion, escapes taxation entirely. A fair tax system, like my 
flat-tax proposal, taxes all income equally--and just once.
  Businesses would also be taxed at a flat rate of 20 percent. My plan 
would eliminate the intricate scheme of depreciation schedules, 
deductions, credits, and other complexities that complicate business 
filing, and that in some cases permit tax evasion. Businesses would 
only deduct wages, direct expenses, and purchases. Businesses would be 
allowed to expense 100 percent of the cost of capital formation, 
including purchases of capital equipment, structures, and land, and to 
do so in the year in which the investments are made. Although the 
elimination of most deductions means that business taxes will increase 
in the aggregate--thus assuring that investment income is fully taxed 
before it is paid out--that extra cost to business will be offset by 
the elimination of their enormous tax compliance costs.

  For both businesses and individuals, the hours and hours of tax-
related recordkeeping, the litany of schedules, the libraries full of 
regulations and decisions, would be replaced by a postcard sized form 
that almost all Americans and business owners could complete in about 
15 minutes.
  But the most important reason for adopting a flat-tax system is in 
its potential to foster economic growth and job creation. With the 
elimination of taxation on interest, dividends, and capital gains, the 
pool of capital available for investment will grow dramatically. 
Conservative economic projections are that interest rates will come 
down two full points, and that renewed economic activity will add $2 
trillion to the gross national product over 7 years--an additional 
$7,000 for every man, woman, and child in America.
  My tax proposal has been carefully calculated to be revenue neutral, 
so that it will not add one penny to the national debt. My flat tax is 
based on the analyses done over a period of years by highly respected 
economic professors, Robert Hall and Alvin Rabushka, of Stanford's 
Hoover Institute. Hall and Rabushka's calculations show a national flat 
tax with no deductions and a 19 percent rate matching current tax 
revenues. My bill deviates from the Hall-Rabushka model by its 
retention of limited deductions for home mortgage interest on up to 
$100,000 of borrowing and charitable contributions up to $2,500. While 
these modifications limit the purity of the flat-tax principle, I 
believe that these deductions are so ingrained in the financial 
planning of American families that they should be retained as a matter 
of fairness. Based on computations provided by the Joint Tax Committee, 
the additional 1 percent in my flat-tax proposal above the Hall-
Rabushka proposal--a 20 percent rate instead of 19 percent--will fully 
cover the cost of these deductions.
  In fact, there is every reason to believe that as the growth aspects 
of flat taxation take hold, and the economy expands, tax revenues will 
rise significantly--which will permit either a further lowering of tax 
rates or actual reduction in the national debt. However, since those 
savings are speculative, I have not included them in my calculations to 
set revenue neutral, deficit neutral rate.
  I am obviously reluctant to vote against legislation that offers 
needed tax relief to some Americans. But we ought not be tinkering at 
the margins where some Americans benefit and others don't. Under a flat 
tax such as I have proposed, everyone benefits and everyone pays their 
fair share.
  The current tax breaks are, at best, a Band-Aid. A flat tax is a cure 
for the cancer which retards the productivity of the American economic 
engine. The relevant committees have had hearings on the flat tax and 
are in a position to act on these proposals.
  Mr. President, I make these comments because of my concern that the 
pending reconciliation bill may be going too far at a time when our 
primary objective is to balance the budget, and that Americans are 
prepared for those cuts if they are fair and if they are just.
  At a time when we are tightening our belts, I question the wisdom of 
the additional tax cuts to people who are in much higher brackets and 
to corporate tax breaks at this particular time.
  Again, I say I am not in concrete on this matter, but I urge my 
colleagues to carefully consider this matter before we move to the 
voting state and consideration of final passage of the reconciliation 
bill.
  The Republican leadership has heretofore been advised of my concerns 
and reservations. While it is late in the process, there is still time 
to revise the reconciliation bill in the interest of fairness and sound 
tax policy. It is my hope that modifications can be made so that I and 
a broad coalition of Members can support this landmark legislation.
  The PRESIDING OFFICER. Under a previous order, the Senator from 
Arkansas, Senator Pryor, is recognized for up to 15 minutes.

                          ____________________