[Congressional Record Volume 142, Number 7 (Monday, January 22, 1996)]
[Senate]
[Pages S175-S177]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       KEMP TAX COMMISSION REPORT

  Mr. BENNETT. Mr. President, last year, I delivered a rather lengthy 
speech on the issue of taxes. I talked 

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about flat taxes. I talked about capital gains taxes. I talked about 
the relationship of tax revenue to tax rates and mentioned at that time 
the work of the Kemp Commission that was studying all of these issues. 
In the time that we have been in recess the Kemp Commission has 
reported, and I wish to make a brief comment now, perhaps reserving the 
right to make a longer comment at some point in the future.
  I salute the Kemp Commission for the work that they have done. I note 
with some degree of pride and satisfaction that in my statement on the 
floor I talked about four basic principles that should guide our tax 
system: neutrality, simplicity, stability, and fairness. In its report, 
the Kemp Commission incorporated all four of those but added a fifth 
that I wish I had thought of, and that is visibility. That is, they 
pointed out that people should know how much taxes they are paying. 
Taxes should be visible so that the average American will be aware of 
what is happening.
  The Kemp Commission did another thing that I find salutary. They 
talked about the impact of payroll taxes on the lives of Americans. In 
all of our discussion, both here and out on the campaign trail, among 
those who are seeking the Presidency of the United States, the entire 
focus is on the income tax. I wish to talk a little bit about that this 
afternoon and point out the wisdom of the Kemp Commission's focus not 
only on the income tax but also on the payroll tax.
  If you were to draw a line between all Americans at roughly 50 
percent, you could with fairness say everyone above that line in terms 
of his or her earning power pays income taxes, and everyone below that 
line does not. Now, it is not exactly that clear, but roughly 97 
percent of the taxes paid as income taxes are paid by people in the top 
50 percent of our wage earners, which means that the bottom 50 percent 
of our wage earners pay virtually no income tax at all. That means then 
that if you focus all of your attention on the income tax and the 
various flat tax proposals that are out there, you are leaving out any 
kind of tax relief for roughly 50 percent of America's wage earners and 
that 50 percent that are doing the most poorly in terms of the amount 
of money they are bringing home.
  Now, let us talk about the tax burden of the payroll tax on that 
bottom 50 percent. Some will say, well, the payroll tax is only 7.5 
percent or some such number, depending on where you fall. It may be a 
little more when you add the Medicare taxes to it. The other is paid by 
the employer. The fact, of course, is, Mr. President, all of that money 
is paid by the employee. I have run a business. I know that when the 
time comes to decide whether or not you are going to hire a new 
employee, you look at the total cost of that employee. If this is an 
employee that is going to be earning $20,000 a year in pay that shows 
up on that employee's W-2 form, you as the employer know that he is 
actually going to cost you $30,000 a year because you have to pay these 
payroll taxes, unemployment compensation taxes to the State, Medicare 
taxes, et cetera, on behalf of that employee. So you never think in 
terms of a $20,000 employee. You think in terms of a $30,000 employee.
  That means that in order for you to hire him, he has to produce at 
least $30,000 worth of economic benefit to your firm. If he cannot 
generate at least $30,000 benefit to you, you cannot afford him, even 
though his paycheck stub shows that he is earning $20,000. So if he is 
earning $30,000 for your company, clearly the employer's share is 
really money that he has earned and it is deposited in his name in the 
various trust funds that are set up around here to handle the 
entitlements.
  So that means in the economic value that employee is generating not 
7.5 percent, 8 percent, whatever is taken out of that value for taxes, 
but twice that amount--the amount he puts in and the amount the 
employer puts in in his name. This means that for our lowest paid 
workers in this country, they are sending to Uncle Sam and to State 
legislatures and State tax collectors approximately 25 percent of the 
gross economic value that their earnings represent--25 percent. Yet 
none of that is dealt with when we are talking about income tax reform 
because none of those payments are income tax payments.

  What are they for? It is interesting, the debate we are having on the 
floor about slashing Medicare--I should put ``slashing'' in quotation 
marks because, of course, everyone knows that every proposal dealing 
with Medicare proposes increasing the spending on Medicare--but in all 
of this discussion about Medicare, where does the money come from? The 
money going into Medicare does not come from the income taxpayer; it 
comes from the payroll taxpayer.
  It is payroll taxes that support the Social Security trust fund, so 
when Ross Perot starts to draw Social Security, on top of the benefits 
and blessings that he has by virtue of being a billionaire, that will 
be paid for by someone in the lowest half of the earnings scale making 
his or her payroll tax contributions to the Government every pay 
period.
  That is why I say it is salutary that the Kemp Commission not only 
focused on income tax, but spent some time talking about the payroll 
tax, saying that the payroll tax should be made deductible for the 
individual as it now is for the corporation or the employer.
  Yet there is a problem with that, Mr. President, because, as I say, 
it is only the top 50 percent that pay any income taxes at all. So, if 
your payroll taxes are deductible from your income tax but you are not 
paying any income tax, the deductibility of payroll taxes, while a nice 
concept, does not do you any good.
  So, Mr. President, on this occasion I rise to commend the Kemp 
Commission for the work they have done. I think they have done a first-
class job of opening the debate and laying out basic principles. I rise 
to commend them on their adoption of the five basic principles: that 
taxes should be neutral, simple, stable, fair, and visible. I rise to 
commend them on their opening wedge, if you will, on the issue of 
fairness of payroll taxes.
  But I make the point that we have in fact just opened the door to 
deal with payroll taxes, and, if we are going to truly start with a 
clean sheet of paper and build a tax system in this country that makes 
sense, we are not only going to have to toy with the idea of abolishing 
the IRS and the present income Tax Code, we are also going to have to 
address the question of what we do about payroll taxes that have become 
so burdensome and, in many ways, so unfair in the way they operate in 
the lives of the people who live below that center line that divides 
the income taxpayers from the other half of the country.
  This, I think, is perhaps the source of greatest anger on the part of 
people who recognize that the tax burden is crushing and unfair, and 
they feel a sense of helplessness as they deal with it.
  If you are a person living below that 50 percent line, you have 
absolutely no options. If you are above the 50 percent line and someone 
comes along and changes the tax law, you are earning enough money that 
you can change your behavior to take advantage of the changes in the 
tax law.
  I pointed out here on the floor before a study by Dr. Feldstein--and 
it has been placed in the Record--that the tax increase supported by 
President Clinton and pushed through the Congress in 1993 has in fact 
produced only one-third of the amount of revenue that was promised at 
the time it was formed.
  Why? Clearly because the people in the top 50 percent changed their 
behavior in reaction to that bill, did other things with their money, 
and avoided paying taxes, an activity which the Supreme Court of the 
United States says is perfectly appropriate and legal. Tax avoidance, 
they have said, is not illegal. Tax evasion is. That is a different 
thing. But changing the way you handle your money to avoid taxes has 
become a time-honored American activity.
  The bill was passed on this floor. President Clinton signed it with 
great fanfare. ``Now we're going to get this additional revenue to deal 
with the budget deficit.''
  The study by Dr. Feldstein says they only got one-third as much 
revenue as they projected. That makes the people who live in that top 
50 percent feel kind of smart that they were able to do different 
things with their investments and avoid the taxes. But the people at 
the bottom 50 percent have no such options. Their taxes are entirely 
payroll 

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taxes. If they get a raise, their taxes go up automatically because it 
is a percentage of everything they earn up to the level in which they 
can cross the line into the top 50 percent. That is where much of the 
anger is coming from. That is where much of the frustration is. And, 
frankly, it is appropriate anger and frustration.
  So I hope as we deal with this issue in our debates here on the 
floor, we will include, as I have not done but the Kemp Commission has 
opened the door for us to do, the people in the lower 50 percent as 
well as the people in the upper 50 percent.
  Mr. President, it is very clear we will not have a structural reform 
of the tax system in either area, income taxes or payroll taxes, in 
this Congress. We do not have time for it. The Finance Committee 
calendar is jammed. We have long since learned that this kind of 
legislation is very complex and requires a great deal of study and 
work. All we can do is open the dialog, begin the debate in this 
Congress, and look for the time in the next Congress when we will have 
an opportunity for genuine tax restructuring.
  I was asked by a newsman today, will we have serious restructuring of 
the tax system in 1997? Well, my crystal ball is as cloudy as everybody 
else's. I cannot make a prediction of that kind with any sort of 
accuracy. But I did make this comment, and I repeat it here, debate 
over the tax structure, I believe, will be a central issue in the 1996 
Presidential and congressional campaigns. It will become one of the 
defining issues in that debate.
  If I may, should the Republican nominee prevail in the 1996 election, 
then a serious attempt to restructure the tax system will indeed begin 
in January 1997. Should President Clinton prevail in the elections this 
fall, then I believe that conversation about restructuring the tax 
system will remain conversation and nothing will happen beyond that 
which we have seen for the last 40 years, which is tax reform by name, 
tinkering around the edges, in fact, with the basic tax system that we 
currently have remaining intact, except for those marginal changes for 
the remainder of President Clinton's second term, should he receive 
one.

  This is a fundamental issue. We have a tax system now that is clearly 
unfair, that has spun out of control to the point where it is 
unpredictable in terms of Government policy and which creates 
tremendous antagonism and anger on the part of the citizens who are 
subjected to it.
  The time has come to begin the serious debate of restructuring it, 
top to bottom, not just income taxes, but also payroll taxes. And while 
we are at it, we might as well look at the user fees we charge and the 
tariff structure.
  Let us take a completely clean sheet of paper for every way in which 
the Government raises revenue and see if we are not smart enough, as we 
look forward to the next century, to put together a system that works 
better than the one that was crafted roughly 70 years ago.
  So, Mr. President, again, I commend the Kemp Commission for the 
contribution that it has made in prying open these issues and the 
principles it has laid down and look forward to the time when we can 
have this debate through this Congress, and, as a partisan, if I may 
say so, I look forward to the time when a new President will help us 
tackle this in a very serious legislative way in January 1997.
  I yield the floor.
  Mr. KYL addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Arizona.
  Mr. KYL. Mr. President, I would like to begin by complimenting the 
Senator from Utah for presenting, I think, a very erudite discussion of 
the need for revisions in our tax policy and for his comments on the 
so-called Kemp Commission for the report which it released last week.
  I think he indicated the reasons why it is time to begin this debate. 
I will not repeat those. But he also showed his extensive knowledge in 
the area, and I appreciate the experience and the expertise which he 
brings to the Senate on this important topic and look forward to his 
continued counsel as we debate these issues during the next year and, 
hopefully, begin actual legislative work in fundamentally changing the 
Tax Code beginning in 1997.
  I thank the Senator from Utah.
  Mr. BENNETT. Mr. President, if I may, I thank the Senator from 
Arizona for his kind words.

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