[Congressional Record Volume 142, Number 10 (Thursday, January 25, 1996)]
[Extensions of Remarks]
[Pages E97-E99]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   J. KENNETH BLACKWELL AND STEVE ENTIN, TWO TREASURES IN MY DISTRICT

                                 ______


                           HON. STEVE CHABOT

                                of ohio

                    in the house of representatives

                       Thursday, January 25, 1996

  Mr. CHABOT. Mr. Speaker, the Cincinnati district that I am privileged 
to represent has an abundance of treasures. One of them is a good 
friend and former colleague of mine from our days together on the 
Cincinnati City Council, J. Kenneth Blackwell. After leaving the 
council, Ken went on to serve as Assistant Secretary for the Department 
of Housing and Urban Development and then as ambassador to the United 
Nations Human Rights Conference in Geneva during the Bush 
administration. He recently became the first African-American ever 
elected statewide in Ohio and now serves as State treasurer. He also 
serves as a member of the National Commission on Economic Growth and 
Tax Reform, which last week issued its much heralded recommendations 
for a new Federal tax system. Goodness knows, the present Internal 
Revenue System is an atrocious mess in need of complete overhaul.
  I was privileged this last Martin Luther King Day to attend the 
Cincinnati ceremony in which Ken and his distinguished wife Rosa were 
presented the prestigious Dreamkeepers Award. Today, I would like to 
enter into the Congressional Record a November 15 speech delivered by 
my friend, Ken Blackwell, at Ashland University's Ashbrook Center for 
Public Affairs (established in honor of the late, legendary Ohio 
Congressman John M. Ashbrook). Additionally, I'd like to include an 
article written by Mr. Blackwell and Steve Entin, resident scholar at 
the Institute for Research on the Economics of Taxation, published in 
the January 18 edition of the Cincinnati Post.
  The speech and article follow:

              Devolution--Revolution in the Third Century

         (By J. Kenneth Blackwell, Treasurer of State of Ohio)

       For baseball fans in our home state, 1995 was a remarkable 
     year. It was when Ohio became the third state to have two 
     teams involved in major league post-season play in the same 
     year. It is regrettable that Georgia's only team killed the 
     Ohio I-71 World Series by knocking out the southern end, and 
     that it then compounded its inconsiderate behavior by 
     depriving the northern end of the championship. Still, for 
     Ohioans, it was the greatest baseball year ever. Until next 
     year.
       The Season was still in full swing when I began thinking 
     about what I would say here today. Perhaps that is why a 
     baseball story from the sixties came to mind. Even for non-
     fans, the name Frank Robinson should ring bells. My first 
     paying job was selling peanuts at old Crosley Field, and one 
     of that job's most important fringe benefits was watching 
     Frank Robinson play ball. Frank was a more than adequate 
     defensive player in the outfield and at first base, but he is 
     remembered because he was an offensive dynamo. He hit for 
     average and he hit with power. He made all-star teams in both 
     the National and American Leagues, he played in World Series 
     for teams in both leagues, and he was voted MVP in both 
     leagues. Frank became the first African American hired to 
     manage a major league team. He also had the dubious 
     distinction of becoming the first one fired. He was one of 
     two players in what some people consider the worst baseball 
     trade ever made. Reds management called him old-at-thirty and 
     traded him to Baltimore for Milt Pappas, which had the 
     unfortunate side effect of laying a bad Trivial Pursuit rap 
     on a very good pitcher.
       The story, which I confess may be apocryphal, takes place 
     after Frank became a Baltimore Oriole. It is the bottom of 
     the ninth. The Orioles are down by one run, but the bases are 
     loaded, and Robinson is coming to bat. The crowd is going 
     wild. You can cut the tension with a knife.
       Earl Weaver, the legendary Manager of the Orioles, looks 
     over at Frank in the on-deck circle. He must see visions of 
     grand slam dancing in Frank's eyes. Weaver crooks his finger 
     to beckon Frank over. He puts his face in Frank's face. In a 
     low, deadly tone-of-voice, Weaver says, ``Listen up, Mr. All-
     Star! Not too hard, and not too soft! Just la-de-da!''.
       Frank smiles at his manager. He nods. He goes to the plate, 
     and he lays that beautiful grooved swing of his on the first 
     pitch. He hits a frozen-rope single to center and drives in 
     the tying and winning runs.
       ``Not too hard, and not too soft! Just la-de-da . . .!
       That is what we must learn to do with our government as we 
     enter our third century of nationhood. We are a nation of 
     home run hitters. We have a two hundred year history of 
     swinging from our heels. More often than any nation in 
     history, we have hit home runs, but all too often these days, 
     we strike out.
       Especially at the federal level, we have forgotten that our 
     national game is baseball, not sumo wrestling. We have 
     considered it acceptable to weigh five hundred pounds as long 
     as we stayed strong. It is time now for us to get back in 
     shape. It is time for us to learn to be disciplined at the 
     plate. We have to make our government not too hard and not 
     too soft, not too fat and not too lean, not too big and not 
     too small . . . just la-de-da . . .
       This will not be easy for us because imbedded in our 
     national character, indeed, imbedded in our language, is the 
     idea that bigger is better and smaller is worse.
       Expansion is good. Shrinkage is bad.
       Generous people are big people. Selfish people are small.
       Successful companies are green and growing. Unsuccessful 
     companies are contracting and dying.
       Not until we are talking about diets or tumors do we arrive 
     at the idea that becoming larger can be unhealthy and 
     becoming smaller can be beneficial, yet that is exactly the 
     thinking we must apply to our government if we are to return 
     national growth to the places were we want growth.
       I submit that we want growth in personal opportunity. We 
     want growth in personal freedom. And for Americans to have 
     more personal opportunity and more personal freedom, we have 
     to reduce the intrusion of government into our lives at all 
     levels, but especially at the federal level.
       Today our most conspicuous area of national growth is in 
     the national debt. Some people think that our nation has been 
     in hock from the time we fought the Revolutionary War on 
     borrowed money, but this is not so. It is true that we 
     entered the nineteenth century with a debt of almost one 
     hundred million dollars, about fifteen dollars per capita in 
     the money of that time. This would be roughly one hundred 
     fifty dollars in today's money. The debt went up to finance 
     Thomas Jefferson's Louisiana Purchase, but it was then 
     steadily worked down under James Madison, James Monroe and 
     John Quincy Adams. In 1832, Andrew Jackson was elected 
     President, and, believe it or not, toward the end of the 
     first term of the first modern Democrat, thanks to rapid 
     economic growth and pruduent fiscal management, the debt was 
     eliminated. Our political landscape today would have a very 
     different look if Jackson's Democratic successors had been 
     equally tightfisted.
       Through our first century and a half, the national debt 
     reached its highest levels as a consequence of wars, and it 
     was always paid down between wars. Expressed in terms of 
     Gross National Product, the debt was close to half of GNP 
     coming out of the Revolutionary War. From zero in 1835 and 
     1836, it went over twenty-five percent of GNP in the 
     aftermath of the Civil War, and again after World War One. It 
     reached its all-time high, about one and a quarter times GNP, 
     following World War Two. It came down in the sixties and 
     seventies, but its low then was still higher than the highs 
     following the previous century's wars. And from about a third 
     of GNP in 1980, the debt has soared to more than half of GNP 
     today.
       What has caused this growth where we do not want growth? 
     Well, it is not low taxes. Total tax revenues have more than 
     doubled since 1980. Taxes now consume more than forty percent 
     of the income of the average American family. Taxes cost that 
     family more than food and clothing and shelter combined. 
     Taxation at the state and local levels in most parts of the 
     country is relatively restrained. The lion's share of the 
     American family's confiscatory tax burden goes to the federal 
     level.
       Our federal government is a five hundred pound baseball 
     player. There is no meal of tax dollars large enough that it 
     will not wolf it down and growl for more. We have to get the 
     monster on a diet before it kills itself and us with it.
       The first steps in curbing the federal appetite for our 
     money have just been taken by both houses of Congress in 
     passing budget bills which will eliminate the deficit in 
     seven years. Differences between the bills will soon be 
     worked out in conference committee, but there is no assurance 
     that they will go into effect in the form they are passed 
     because of a threatened veto.
       There is a straight forward solution to this kind of 
     obstacle to balanced budgets and ultimate elimination of the 
     national debt. It is the balanced budget amendment to the 
     Constitution. Forty-nine of our fifty states had balanced 
     budgets last year. Forty-eight of those have balanced budget 
     requirements in their constitutions. There is no doubt that 
     some members of all of those legislatures 

[[Page E98]]
     could, and would, have found ways to spend more tax money than their 
     states took in, but they did not because they could not. We 
     need the same discipline at the federal level.
       If the subject were not so serious and the need for the 
     amendment so clear, the arguments of its opponents last year 
     would have been funny. They remind me of a wonderful song in 
     an album made some years ago by Harry Belafonte and Odetta. 
     Odetta tells Harry, her husband in the song, to fetch some 
     water. He can't fetch the water because the bucket has a hole 
     in it. She makes a series of suggestions for solving the 
     problem. He has a new objection to every suggestion. Toward 
     the end of the song, she tells him to use a straw to mend the 
     hole. He cannot use a straw because it is dry. She tells him 
     to wet the straw. He cannot do that because he has no water. 
     She tells him to fetch some water, and that brings him full 
     circle. He cannot fetch water because the bucket has a hole 
     in it.
       The opponents of the balanced budget amendment came up with 
     an array of arm-waving objections to it, some on lofty, if 
     somewhat vague, constitutional principles, but the bottom 
     line is one reason is as good as another when you do not want 
     to do something. If only one Senate opponent changes his or 
     her mind during the session, the amendment may yet pass 
     during this session, but if that does not happen, the 
     American people will surely change the composition of the 
     next Congress to pass it. And if that prediction is 
     correct, I have to believe that the legislatures of three-
     fourths of the states will hear the message clearly enough 
     to make it happen in short order.
       Requiring the Congress and the President to go on the line 
     for the taxes necessary to support their spending will help 
     immensely in reducing the federal appetite for our money, but 
     in my judgment we need action which goes beyond that.
       Ten states now require a super-majority in their 
     legislatures to increase taxes. I am a strong advocate of 
     this form of taxpayer protection, and I believe that Ohio 
     will soon join the ten states which have it in place.
       The super-majority idea should be applied at the federal 
     level. Opponents say it is somehow anti-democratic to require 
     more than a simple majority to raise taxes. They apparently 
     think it is all right to require a two-thirds majority when 
     the subject is amending the constitution, or going to war, or 
     impeaching a president, but such a requirement is not all 
     right when the subject is taking the property of one citizen 
     to give to another. It would be interesting to see what the 
     result would be if this question were put to a national 
     referendum. I have a hunch it would pass by a super-majority.
       The third area of taxation which belongs in the federal 
     government's diet is the tax code. All of us know it is a 
     mess, but just how much a mess strains belief.
       In 1950, the tax code had one hundred and three sections. 
     It now has one thousand five hundred and sixty-four sections.
       In the past forty years, Congress has on average changed 
     the tax code every one point three years.
       Since the last major overhaul in 1986, there have been four 
     thousand changes in the tax code.
       There are seventeen thousand pages of Internal Revenue 
     Service rules.
       Each year, the IRS prints eight billion pages of tax forms.
       Americans spend five point four billion hours filling them 
     out.
       Individuals and corporations spend, or should I say waste, 
     in excess of two hundred and fifty billion dollars worth of 
     time per year to pay their taxes.
       I believe that the time is right to simplify the federal 
     tax system to the point that we can reduce Form 1099 to a 
     postcard and virtually eliminate the Internal Revenue 
     Service.
       I am serving on a National Commission to reshape the tax 
     code for Senator Dole and Speaker Gingrich. Our mission is a 
     major overhaul, not an academic review. I cannot discuss the 
     deliberations of the Commission at this point in our work, 
     but I can discuss some ideas I believe have merit as we move 
     toward a better system.
       I have a strong personal bias toward systems which 
     encourage savings and investment. I would prefer a system 
     which would tax consumption instead of income, but for solid, 
     practical reasons, mostly rooted in the inseparability of our 
     national economy from the global economy, I think we need to 
     continue to rely on the basic structure of an income tax.
       We can and must vastly simplify our income tax. The 
     starting point is a single-rate tax at about twenty percent 
     of income. I favor a substantial exclusion from paying this 
     tax, perhaps thirty thousand dollars for a family of four. 
     This structure passes the tests of fairness and 
     progressivity. As incomes go up, the percent taxes represent 
     of total income go up, though in no case will they reach the 
     single-rate because the initial exclusion will not be subject 
     to recapture. We can eliminate the marriage penalty by 
     setting the exclusion for a single taxpayer at one-half the 
     level of a married couple filing jointly. By setting the 
     exclusion well above the poverty level, we will also 
     eliminate the disincentive of today's tax structure to poor 
     families working their way off welfare.
       I favor retaining three deductions from gross income.
       One is mortgage interest. This helps young wage-earners 
     achieve home ownership without having to wait through a 
     lifetime of wealth-building. I realize that this amounts to 
     accomplishing a social objective through the tax code, but I 
     believe the benefits to families and neighborhoods make it 
     worth this exception to theoretical purity.
       The second is money placed by individuals in savings toward 
     retirement. We can tax that money as it comes out of savings, 
     but while it is saved, we should let it grow. And the effect 
     of exempting savings is to turn an income tax into a 
     consumption tax without the complexity or wrenching 
     transition that would be involved in moving to a national 
     Value Added Tax or sales tax.
       The third deduction is charity. As we move to replace 
     governmental largesse with private initiatives, we need to 
     stay away from tax disincentives.
       We should apply the same single-rate to individuals and to 
     corporations. Doing so eliminates the historical incentives 
     to move in or out of incorporation. We should apply the same 
     single-rate to capital gains as to income. This will 
     eliminate a ton of IRS rules designed only to distinguish 
     between the ways people make money.
       At the corporate level, we should treat dividend payments 
     the same way we treat interest expense. This will eliminate 
     the bias of the current system for debt over equity.
       These, then, are the key elements at the intake end of our 
     federal diet: one, a balanced budget amendment to compel our 
     government to live within its means: two, a super-majority 
     tax increase requirement to compel government to look first 
     to its spending habits to balance its budget; and three, a 
     clean, simple, fair system of taxation to restore incentives 
     to work, save and invest.
       The next question is what we do at the outgo end.
       The answer is devolution. The answer is governmental change 
     which is faithful to the principle of subsidiarity. The 
     answer is change which reverses the upward flow of money and 
     power and sends it back to levels of government which are 
     closer to the people governed.
       The modem centralized welfare state--and like it or not, we 
     are living in one--is built on a foundation of three wrong 
     ideas.
       The first is that government can do a better job with our 
     economy than the market. Wrong.
       The second is that bureaucrats can make better decisions 
     about what is good for families than the families themselves. 
     Wrong, wrong.
       The third is that the work ethic is outdated, and that we 
     can have a healthy society which has disconnected effort from 
     return. Wrong, wrong, wrong.
       We must reawaken our recognition of the fact that in most 
     domestic matters, the states can perform more effectively and 
     efficiently than the federal government. Our founders knew 
     this. Senator Dole and Congressman Bob Dornan have repeatedly 
     reminded their audiences of the tenth amendment to the 
     constitution, the amendment which has been honored in the 
     breach for most of the twentieth century. It reads, in one 
     powerful sentence, ``The powers not delegated to the United 
     States by the Constitution, nor prohibited by it to the 
     States, are reserved to the States respectively, or to the 
     people.''
       It does not stop there. In most domestic matters, cities 
     and counties can perform more effectively and efficiently 
     than the states.
       In many domestic matters, neighborhoods can perform more 
     effectively and efficiently than cities and counties.
       And in matters having to do with what to do with their 
     money, families can perform more effectively and efficiently 
     than any level of government. Colin Powell says it very well 
     in his autobiography: ``Every tax dollar taken away from a 
     consumer or a business is a dollar that will be spent less 
     efficiently than if left in private hands.''
       We are only just beginning to apply this thinking at the 
     federal level, but successful state and local models are out 
     there to show what can be done. One standout example is 
     Indianapolis where Mayor Stephen Goldsmith reduced the size 
     of city government, law enforcement functions not included, 
     by an astonishing thirty-eight percent in three years. What 
     he did was to systematically review city functions one by one 
     using a team of entrepreneurs which he called the Service, 
     Efficiency and Lower Taxes for Indianapolis Commission, 
     SELTIC for short. The recommendations from SELTIC alone 
     helped him trim $100 million from the city budget.
       Indianapolis opened the operation and management of the 
     city's waste-water treatment plants to competitive bidding. 
     The winning bid improved water treatment and cut costs by 
     forty-four percent.
       Trash collection was opened to competitive bidding. The 
     cost of trash collection has dropped from eighty-five dollars 
     per household to sixty-eight dollars.
       Competitive bidding cut street repair costs by twenty-five 
     percent.
       Microfilming public records was privatized for an annual 
     cost reduction of sixty-three percent.
       What do the people of Indianapolis think of all this? They 
     answered that question last week by reelecting Mayor 
     Goldsmith in a landslide. And if the Republican elected 
     President in 1996 continues the work begun in this session of 
     Congress and applies the Indianapolis approach, we can look 
     for a landslide reelection in 2000.
       The principle of subsidiarity can help us deal with two of 
     our most intractable national problems, what to do about 
     Social Security and Medicare.
     
[[Page E99]]

       The cynicism of our young people toward Social Security is 
     a matter of real concern. A recent poll of 1600 Americans 
     between the ages of eighteen and thirty-five showed that 
     more of them expected to see a UFO in their lifetime than 
     a social security check.
       I was in Santiago, Chile last week to review what has been 
     done there over the past fifteen years with their Social 
     Security system. In 1980, their approach looked a lot like 
     ours, a system of transfer payments featuring high 
     withholding taxes and an endless, futile struggle to keep 
     benefits up with inflation. In 1981 the government offered 
     workers their choice of staying in the old system or moving 
     to a new system in which a mandatory ten percent of wages are 
     automatically invested in an individual investment account, 
     with an option to add as much as ten percent voluntarily. The 
     worker chooses one of several private Pension Fund 
     Administration companies to invest the account. These AFP's 
     are like mutual funds, putting money in stocks, bonds and 
     government debt. Workers are free to move from one AFP to 
     another, so there is competition among companies to provide 
     higher returns and better service. About one-fourth of the 
     Chilean work-force signed up for the new system in the first 
     month, and more than ninety percent are now in it. The 
     results have been phenomenal. More than half of Chile's 
     retirees have done so well that they have taken early 
     retirement.
       I believe a lot of Americans would choose a system like 
     this over Social Security or UFO's. The thirty-eight million 
     beneficiaries of the current system and the number of workers 
     in their forties, fifties and sixties who cannot have a full 
     working career under a savings plan present transition 
     problems as we change systems. We cannot break faith with 
     these people, but we do not need to. The problems are 
     formidable, but they are surmountable so long as we fund the 
     transition through reduced governmental spending in other 
     areas, not future borrowing.
       A conceptually similar idea is emerging to deal with 
     Medicare. The idea is medical savings accounts. In these, 
     individuals would be able to put an amount like three 
     thousand dollars into a tax-free account. The money could 
     come either from the employer or the employee. Some form of 
     catastrophe insurance would cover expenses beyond this first 
     three thousand, but the effect would be to put individuals in 
     charge of expenditures for routine care, medication, 
     eyeglasses and the like. This would bring most health care 
     expenditures under the control of the marketplace, with all 
     the attendant benefits of competition and price comparison.
       This, then, is the shape of the revolution which can see us 
     safely through our third and fourth centuries of nationhood.
       Devolution to give us a lean, responsive government with 
     the power and the money where it belongs, closest to the 
     people. Not too big and not too small. Just la-de-da.

                 A New Tax System for the 21st Century

               (By J. Kenneth Blackwell and Steve Entin)

       The National Commission on Economic Growth and Tax Reform 
     has just issued its recommendations for a new tax system for 
     the 21st century. The Commission wants to scrap the current 
     tax system, with its biases against saving and growth and its 
     complicated rules that give favors to some taxpayers and 
     impose penalties and uncertainties on most of the population. 
     In its place, the Commission favors a similar, fairer system 
     that will reward thrift and hard work, raise employment, and 
     lift family incomes.
       The Commission would like the new tax system to have a 
     generous exempt amount, high enough to enable lower income 
     families and individuals to take care of their basics needs 
     and get an economic head start before the federal government 
     takes a part of their income. The exempt amount should not be 
     so high, however, that too great a share of the population 
     becomes insensitive to the cost of government.
       Above the exempt amount, the Commission favors a single low 
     tax rate that would treat all citizens equally before the 
     law. Income is a measure of what one contributes to the 
     economy through work, saving, and investment. Anyone 
     contributing to the economy by producing additional goods and 
     services should be equally rewarded. A single rate system 
     allows that.
       The current system of graduated tax rates slaps increasing 
     tax penalties on people the more that they add to the 
     economy. It punishes people who take the time to get an 
     education and earn higher income over a shorter working life. 
     It punishes people who take the risk to start their own 
     businesses in hopes of a greater income. It punishes people 
     the more that they save and invest. These penalties hurt not 
     only the individuals who pay the higher rates, but all the 
     people they might employ or who might work at higher wages 
     with the plant and equipment that more saving would make 
     possible.
       The Commission favors extending the deduction of payroll 
     taxes, now allowed only for employers, to employees as well. 
     The object is to increase employment and to reduce the burden 
     of the payroll tax on the incomes of middle income workers.
       Savers and investors are treated very badly under the 
     current tax system, unless they have access to a very good 
     pension plan. People pay tax when they earn their income. If 
     they use the after-tax income for consumption, there is 
     generally no further federal tax. If they buy a bond, there 
     is tax on the interest. If they buy stock, there is corporate 
     tax on the earnings, individual tax on the dividends, and 
     capital gains tax if the earnings are reinvested and the 
     share price rises. If they buy a machine for their business, 
     complex depreciation schedules result in understated costs 
     and over-stated taxable income. There is an estate tax if the 
     saver doesn't live to spend the money. Current law is clearly 
     biased against saving and investment.
       The Commission would end these biases. It would let savers 
     defer tax on their saving until they withdraw it for 
     consumption, as in a pension; if saving is not deductible, 
     the returns should not be taxed, as with tax exempt bonds. 
     Either approach would put saving on the same basis as income 
     used for consumption, and would let people save more easily 
     for a home, an education, or retirement. An individual saving 
     $1,000 per year from age 20 onward could build a retirement 
     nest egg of more than $400,000, compared to about $250,000 
     under current law, providing a 60% increase in retirement 
     income and security.
       The Commission would end the estate tax and the double 
     taxation of businesses and their shareholders. It favors 
     deducting investment in full when the outlay is made, instead 
     of stringing the write-off out over years or decades, as 
     under current law, losing value and depressing investment and 
     employment.
       What would such a tax system do for the average family? 
     Professor Dale Jorgenson of Harvard University told the 
     Commission that a tax system that ended the biases against 
     saving and investment would lift the level of output and 
     income in the economy by between 15 and 20 percent within a 
     few years. Investment, productivity, wages, and employment 
     would all rise. Gains of that size would rise the yearly 
     income of a typical working family by between $4,000 to 
     $6,000, and by more if they are savers.
       Some people worry that setting the system right will cost 
     the Treasury revenue. But the current tax code is costing the 
     economy and everyone in it a fortune in lost income. That 
     lost income, and the added taxes that would be paid on it, 
     must be factored into the calculation. That, and a modicum of 
     federal spending restraint, could make a growth-friendly tax 
     system a reality. There is no reason not to scrap the current 
     tax system and set things right. Everyone would be a winner.

                          ____________________