[Congressional Record Volume 142, Number 7 (Monday, January 22, 1996)]
[Senate]
[Pages S177-S179]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        FUNDAMENTAL TAX POLICY AND BALANCING THE FEDERAL BUDGET

  Mr. KYL. Mr. President, let me discuss in the context of the budget 
impasse, with which we are currently faced, both the Kemp Commission 
report and a few items with respect to this budget impasse, because, 
frankly, they represent two sides of the same coin. I do not think we 
have adequately identified the relationship between fundamental tax 
policy on the one hand, as addressed by the Kemp Commission, and on the 
other hand our efforts to balance the Federal budget. There are some 
people who spend, I think, most of their time focusing on the need for 
a balanced budget, and that is important, but that is only half of the 
equation. The other half is the revenue side of the equation.
  As we, as families, look at how we can continue to sustain our 
standard of living, to pay our bills, to make sure we come out right at 
the end of the year and to make decisions with respect to savings and 
investment, we really look at two separate things.
  First of all, we look at how much income we are making in the year, 
and then we also look at how much we are going to spend. Much of the 
balanced budget debate, Mr. President, has focused on the spending side 
at the Federal level, watching our pennies, how can we reduce the 
growth in spending each year, how can we begin to save money at the 
Federal Government level so that we get our budget into balance. We are 
focused on the savings side there, primarily.
  We also need to focus on the revenue side of it. For those of us who 
do not support new tax revenues, tax increases, we look at what kind of 
fundamental changes might not only produce a simpler and fairer tax 
system but also one which, ironically, might bring in more Federal 
revenue without raising taxes.
  One thing that the Senator from Utah did not mention but I know he 
knows is that for the last 40 or 50 years, whether we have had 
Republicans or Democrats in power, war or peace, good times or bad 
times economically, the Federal Government has collected about 19 
percent of the gross national product in revenues to the Federal 
Treasury. In other words, what the American people are willing to 
contribute to the Government has remained virtually static as a 
relationship or percent of the gross national product or the gross 
domestic product. The reason is, as the Senator from Utah pointed out, 
because people make changes in their behavior to adjust to tax policy.
  When the Government decided to collect more revenue on raising the 
luxury tax on yachts, furs, and cars, it did not bring in more revenue, 
it brought in less, because people adjusted their behavior and they 
stopped buying the fancy fur coats and the yachts. The result was, not 
only did the Federal Government lose the revenue they made before, they 
did not make more revenue. People lost their jobs and paid less in the 
way of taxes.
  So changing tax rates up has not produced more revenue. By the same 
token, as John F. Kennedy learned in the early 1960's and as Ronald 
Reagan confirmed in the 1980's, a tax cut can actually produce just as 
much revenue as a higher level tax rate, because when tax rates are 
reduced, let us say capital gains tax, for example, the commercial 
intercourse which raises the money increases to the point that even 
with a lower rate, the Federal Government makes the same or more 
revenue. It is a lot like a sale at the holiday time. The retailer does 
not intend to lose money when he puts all of his items on sale. He 
knows he will make up in volume what he may lose in terms of the price 
for each particular item. That is much the way with tax rates. So we 
know reducing tax rates can actually produce more revenue.

  As we begin to look at how we are going to fundamentally revise the 
Tax Code, as the Kemp Commission did, I think we can anticipate that we 
can produce as much or more revenue with lower tax rates than is 
currently being produced with our current rates. 

[[Page S178]]

  That is why the Kemp Commission concludes that if we can provide for 
a simpler and fairer single rate kind of tax, and if we can eliminate, 
as it recommends, the tax on estates, the tax on capital gains and 
provide a deduction for the payroll tax, it is likely that the economy 
will grow substantially and that we can, in effect, at a relatively low 
income tax rate produce at least the same amount of revenues.
  That is why I think it is important, Mr. President, as we look at the 
opportunities for growth and economic expansion in the future, that we 
not just focus on balancing the Federal budget. That has been pretty 
much what we have been talking about in the last 3 or 4 months in the 
House and Senate, but it is really only half of the equation. The other 
half is how we can continue to produce at least as much revenue with 
lower tax rates, a simpler and fairer tax rate structure. I hope that 
debate will continue throughout the Presidential campaigns and actually 
take root in the congressional action that we will engage in in the 
early part of 1997.
  I said I want to talk about both subjects, because we not only have 
the issue of the Kemp Commission report and what it begins in terms of 
a debate--and I think that will dominate much of the Presidential 
campaign--but we also have the probable failure of the budget 
negotiations, and I want to present the second half of my remarks on 
that point.
  I think it is very unlikely now that there will be a budget 
agreement, because the congressional negotiators have conceded about 
all that they can concede, as a recent article in the Wall Street 
Journal noted, and the President has come very little distance toward 
the Republican position, with the result that it is not likely that 
there is going to be a successful conclusion to the budget talks.
  What does that mean for America for the next year? Why is it so 
important that we get to a balanced budget, that we do that in 7 years 
using honest numbers? What do we give up if we do not do that? And what 
are some of the myths that surround this debate?

  I think it is important for us to understand that, because then as we 
begin to point fingers of blame--and inevitably that will happen 
because we are not going to have a budget deal--at least our colleagues 
and the American people will appreciate the direction in which that 
finger ought to point.
  It will not come as any surprise that I think that finger needs to be 
pointed at the President. I am hoping if enough public pressure is 
applied to the White House that the President might relent and actually 
sit down and seriously negotiate with the Speaker and the majority 
leader. That really has not occurred up to this point.
  As the Wall Street Journal article noted on January 10, the 
Republicans have moved about $390 billion toward the President's 
position. He has moved about $8 billion further away from our position. 
The net result is about a $400 billion movement by the Republicans and 
very little movement by the President.
  So as I say, that represents very little opportunity, it seems to me, 
for a negotiated settlement at this point unless the President is 
willing to sit down and say, ``All right, you met me halfway, now I'll 
do the same.'' From the President's rhetoric, it does not appear he is 
willing to do that.
  So what is the consequence of not reaching a budget agreement this 
year? First of all, the four or five key areas of reform, of policy, 
which are embodied in the budget will not be translated into public 
policy, into legislation and, therefore, America will forgo the 
benefits of those policy changes over the course of the next year, and 
depending upon how the elections, perhaps for a long, long time.

  The President campaigned saying he would like to end welfare as we 
know it. The Senate passed a bill ending welfare as we know it with 87 
votes, with Democrats and Republicans alike supporting welfare reform. 
Yet, the President vetoed the bill. So failing to arrive at a budget 
agreement will mean that we will not have reformed welfare and we will 
extend for another year a system which most people in this country 
believe is broken and is desperately in need of fixing; we will not 
have made the fundamental changes necessary to preserve and strengthen 
and save Medicare. Again, almost all of us recognize the need to do 
that, including the President. His ideas are, in many respects, not 
substantially different from ours. Nonetheless, he says that that is 
veto bait, and he does not support our fundamental reform of Medicare 
in order to save that program and keep it from going bankrupt, which 
his own trustees say will happen within the next 7 years unless we take 
action today.
  We need fundamental reforms like more choice to be offered to 
seniors, such as the Medisave account, physician-hospital networks, and 
other things, creating products, creating competition, and keeping the 
costs down. That is another consequence of the failure to reach a 
budget agreement.
  A third area is Medicaid. My State of Arizona has handled the 
Medicaid Program through a program it calls Access from virtually the 
very beginning, through waivers from the Federal Government to provide 
for managed care for those needy in our population that qualify for 
Medicare. Yet, this fundamental change will also fail to be put into 
effect. We will not be block granting the Medicaid funds because that 
is part of the overall budget reform.
  A fourth area is in the area of tax relief for working families. 
Again, the President had assured the American people that he wanted tax 
relief for working families. We provided for that in our budget. The 
CBO said we can do both tax relief and balance the Federal budget in 7 
years. Yet, that, too, remains a substantial area of disagreement 
between the White House and congressional negotiators. So this, too, 
will fail to take place.
  Now, what does that mean? The President has been fond of saying that 
the Republican plan is a ``tax cut for the rich.'' Here is one thing 
that it means. The $500 per child tax credit means that in the State of 
Arizona over 47,000 low-income taxpayers will not have to pay any more 
income tax because that $500 child tax credit is just enough to take 
them from the position of taxpayer to the position of being able to 
deduct enough not to pay any taxes. It is about 3.5 million people in 
the United States. A tax cut for the rich, when 3.5 million low-income 
families in this country will literally have their income tax liability 
eliminated as a result of the Republican tax relief? That does not 
sound like tax cuts for the rich to me, Mr. President. That sounds like 
Republicans trying to do something for the low-income people in this 
country, who have children and who can really use that $500 child tax 
credit.

  In fact, about three-fourths of the tax relief benefits go to 
families making less than $75,000 a year. With two-income families in 
this country today, I do not think there are a lot of people in this 
country that think if you are making $75,000, you are necessarily rich. 
In any event, about three-fourths of the benefits go to families making 
less than that.
  I think, too, most people realize that since, as the Senator from 
Utah was just pointing out, the wealthy in our society pay most of the 
taxes, it is pretty hard to design a tax relief program that does not 
benefit those who pay most of the taxes, and that is the wealthier in 
society. Is that bad for people that are less well off? No, because it 
takes capital and it takes money to invest in our free enterprise 
economy in order to promote growth in businesses, to provide job 
opportunities. That is what John F. Kennedy referred to when he said 
that ``a rising tide lifts all boats.'' In other words, if you have the 
entrepreneurs, capitalists who can create a business and provide job 
opportunities, that helps everybody, including those looking for a job 
or greater job opportunities.
  So if we fail to reach a budget agreement, we will have failed to 
reform welfare, Medicare, Medicaid, our tax structure, and the 
Republican plan will clearly help the poor in our society. Also, we 
will fail to create about 2 million jobs, which is the estimate that 
can be created by capital gains tax relief.
  On the negative side, Mr. President, we will have consigned ourselves 
to yet another year of payment for more and more interest on the 
national debt--money that could be used to spend on other things. There 
will be $233 billion in interest payments on the Federal 

[[Page S179]]
debt this year. It is money that could be spent on job training, 
education, or medical relief for needy citizens, or even tax relief, or 
reducing the Federal debt. But, no, that is money that we have to pay 
as interest on the ever-increasing debt. It is a lost and missed 
opportunity. Yet, it is one more year we will have to make those kinds 
of payments.
  It also means something else. My grandson, Jonathan, was born last 
year and, in effect, we handed Jonathan a credit card and said, ``You 
owe $187,000 to the Federal Government.'' That is how much he is going 
to have to pay in his lifetime to just pay the interest on the Federal 
debt that exists today. It does not count what he will have to pay for 
defense, Medicaid, Medicare, Social Security, education, or anything 
else. The debt is even getting bigger. That is just what he owes today 
as his share of interest on the national debt. It is not fair to 
Jonathan or our other two grandchildren, or all of the children and 
grandchildren in this country who, in effect, are being handed the 
credit card bill for what we run up in obligations.
  We also know that we are missing out on a wonderful opportunity that 
we can begin to pocket, literally beginning tomorrow. There are an 
awful lot of people in this country who have home mortgages, a student 
loan, or a car loan, and who appreciate what interest costs them. By 
most experts' analyses, if we are able to pass a balanced budget in the 
next 7 years, interest costs will go down at least 2 percent. One of 
the estimates is about 2.7 percent. DRI-McGraw/Hill, one of the 
economic forecasters, provided data to the Heritage Foundation, which 
made estimates. According to the estimates, that kind of rate reduction 
would, in my own State of Arizona, save the average Arizona homeowner 
about $2,655 every year. The average home mortgage in Arizona is a 
little over $98,000. Therefore, that kind of an interest rate reduction 
would save over $2,600 for the average Arizona homeowner. That is a lot 
of money, Mr. President. For the average student loan, it is like $547 
in my State. This is money in your pocket, money that you would not 
have to pay if the Federal Government can balance the budget, because 
interest rates would go down if we do that. When interest rates go 
down, it reduces everybody's cost of living.
  Lawrence Lindsey, one of the Federal Reserve Board Governors, said, 
``We can bring interest rates down to where people today could have 5.5 
percent mortgage loans like we used to have.'' My first mortgage loan 
was 5\3/4\ percent. That may tell you how old I am, but it may also 
suggest what would happen because that is about 2.5 percent below where 
you could get a 30-year fixed-rate home mortgage for today. Think about 
what that would save in terms of money.
  So we are forgoing a tremendous opportunity for a higher standard of 
living, beginning today, beginning tomorrow, if we cannot commit to a 
balanced budget over the next 7 years. That is why, Mr. President, I 
think it is a very sad and disappointing thing that the President has 
not been willing to negotiate in good faith with the congressional 
Representatives. We are trying very hard to get him to commit to some 
of these fundamental reforms and agree to a 7-year balanced budget. We 
are forgoing so much that would improve our lives and our children's 
lives. It is not fair, it is not right, and it does not support the 
values that the President purports to support and which we have all 
committed ourselves to here. I think that, as a result, it will be a 
very sad day if we finally conclude that we are not able to reach a 
budget agreement with the President.

  In conclusion, Mr. President, as President Clinton gives his State of 
the Union speech tomorrow night--and I am sure challenges America to a 
greater tomorrow, since most of us believe that our best days are ahead 
of us as a country and as a people--and we respond, as I am sure we 
will, to a very positive message of the President, we also ought to be 
asking him what he can do to help today to provide a better tomorrow by 
sitting down and seriously negotiating with the congressional 
negotiators for a budget agreement that reaches a balanced budget in 7 
years, which commits us to true welfare reform, Medicaid, Medicare, and 
tax relief for working families in America.
  If we do that, we will truly be able to say that our best days are 
ahead of us.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. SPECTER. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________