[Congressional Record Volume 142, Number 85 (Tuesday, June 11, 1996)]
[Senate]
[Pages S6022-S6024]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 A 15-PERCENT ACROSS-THE-BOARD TAX CUT

  Mr. KYL. Mr. President, I want to speak for a few minutes this 
morning about a recommendation that has been made to the distinguished 
majority leader by a group of economists. I am talking about the 
proposal to cut income tax rates by 15 percent across-the-board. I know 
that some people will criticize this as political, but, frankly, in a 
representative democracy, the whole idea is to do things that the 
people want. I submit that if the people respond positively to this 
idea, clearly, it will have been the right thing to do. I believe 
people will respond positively because they have been asking for tax 
relief.
  The point of an across-the-board cut in tax rates is that it helps to 
stimulate the economy. Therefore, it is the most productive in terms of 
providing for economic growth, which helps all people.
  This is the kind of rate cut that produced more revenues to the 
Treasury under the administrations of John F.

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Kennedy and Ronald Reagan. This is the kind of tax rate cut that has 
been proposed and that I submit Majority Leader Dole would be wise to 
call for in his Presidential campaign. John F. Kennedy, of course, said 
back in 1962, ``A rising tide lifts all boats,'' to illustrate the 
point that across-the-board tax rate cuts help everybody. It helps the 
economy grow. Therefore, it does not matter what place you are on the 
ladder of economic progress, whether in the middle, or at the high end, 
or even at the lower end of the ladder; a growing economy helps 
everyone because it provides for more job opportunities, it provides 
for more payment to workers, more opportunities for savings and 
investment and expansion of the economy, which, as a result, helps 
everyone.
  But the point that I want to briefly make this morning is that it 
also helps us in dealing with the problem of reducing the Federal 
budget deficit and providing for the needs of Government. There is a 
paradox in economics that provides that, up to a certain point, 
actually reducing tax rates can provide more revenues to the Treasury. 
In the brief minute or two I have this morning, let me address that a 
little bit more.
  Obviously, there are two tax rates that produce no tax revenues to 
the Treasury. One is 0 and the other is 100. The point of mentioning 
100 is to make the point that you can tax people too much--to the point 
that they will stop doing the things that produce the revenue that 
would then come into the Treasury. When you have tax rates of 90 
percent or 80 percent or 70 percent, even, people find other things to 
do with their money. Either they do not work as hard and generate the 
income, or they find ways to shelter that income or defer it so that 
they do not have to pay taxes. The result is that tax increases do not 
produce the revenues they are projected to produce. That fact is true 
of the 1993 Clinton tax increase. People just changed their behavior as 
a result of the increased taxes.
  The same thing is true when tax rates are cut. When John F. Kennedy 
did it and when Ronald Reagan did it, revenues to the Treasury 
increased dramatically. It is like having a weekend sale. The merchant 
does not do this to lose money when he reduces the price on his goods. 
He reduces the price on the goods in order to attract more people to 
buy more goods so that even though he is making less per item, he makes 
far more in gross terms. That is exactly what happens when the 
Government reduces marginal tax rates, and what economists predict 
would happen if there were an across-the-board 15-percent tax reduction 
in our income tax rate.
  Under the Reagan administration, Mr. President, not only did interest 
rates fall as a result of the tax rate cut, but our economy grew for 
the longest sustained period in the peacetime history of the United 
States and, importantly, revenues to the Treasury increased between $60 
billion and $80 billion a year. In the John F. Kennedy administration, 
income tax rates were reduced from a range of 20 to 91 percent to a 
range of 14 to 70 percent. Revenues to the Treasury rose 66 percent by 
1969. In the States it was the same thing. During former Governor 
DuPont's administration in Delaware, in 1979, the top rate was cut from 
19.8 percent to 7.1 percent. By 1993, State revenues had doubled and 
employment increased by 36 percent. Welfare caseloads fell by 40 
percent.
  The point I am trying to make here is really very simple. In this 
time when we are all focused on deficit reduction, there are a lot of 
people who are deathly afraid of reducing tax rates on the assumption 
that it will reduce revenues to the Treasury. In fact, they even 
propose increasing tax rates. But the fact of the matter is that at 
least certain kinds of rate reductions--and this certainly includes 
across-the-board marginal income tax rate reductions--have resulted in 
increased revenues to the Treasury every time they have been 
accomplished.
  Those who say that we cannot afford a tax cut if we are serious about 
balancing the budget seem to view the economy as a zero-sum game. It 
is, in my view, a very cynical view that seeks to divide people, 
baiting them with envy and greed; no one can ever do better unless 
someone else does worse. It is like trying to divide a pie into ever 
more slices, satisfying no one in the process.
  Some of us think that we should try to make every American better 
off. We want to grow the economy--bake a bigger pie--so that all 
Americans can do better. That is what happened during the Reagan years. 
I noted some of the benefits of the Reagan tax cuts earlier in my 
remarks, but other good things happened as well. Real median family 
income grew every year but one between 1982 and 1989, rising $4,564 or 
12.6 percent. Inflation virtually disappeared by 1986, protecting all 
Americans, particularly senior citizens on fixed incomes.
  And for those who suggest that it was the wealthiest who benefited 
most from tax cuts, I would point out that from 1981 through 1988, the 
share of all income taxes paid by the top 1 percent of all taxpayers 
rose each and every year from a low of 17.89 percent to a high of 27.58 
percent.
  The high-tax policies of the 1990's have had just the opposite 
effect. Real median family income has declined $2,108 or 5.2 percent. 
Since the beginning of 1995, the economy has only grown at a yearly 
rate of 1.6 percent. More than a third of the new jobs created have 
gone, not to people just entering the work force or getting off of 
welfare, but to people who are taking an extra job just to make ends 
meet. Interest rates, which declined during most of 1995, are rising 
again after President Clinton vetoed the balanced budget and tax relief 
package that Congress sent him.
  Until Congress forced President Clinton to get serious about limiting 
Federal spending last year, deficits were forecast at $200 billion a 
year for the foreseeable future--despite record high taxes. What that 
proves is that sluggish economic growth and overspending, not a lack of 
revenue, are the real causes of the Nation's deficit problem.
  Mr. President, I would note that revenues as a percentage of gross 
domestic product [GDP] have actually fluctuated around a relatively 
narrow band--18 to 20 percent of GDP--for the last 40 years. Revenues 
amounted to about 19 percent of GDP when the top marginal income tax 
rate was in the 90 percent range in the 1950's. They amounted to just 
under 19 percent when the top marginal rate was in the 28 percent range 
in the 1980's. Why the consistency? Because tax rate changes have a 
greater effect on how well or how poorly the economy performs than on 
the amount of revenue that flows to the Treasury relative to GDP.
  In other words, how Congress taxes is more important than how much it 
can tax. The key is whether tax policy fosters economic growth and 
opportunity, measured in terms of GDP, or results in a smaller and 
weaker economy. Nineteen percent of a larger GDP represents more 
revenue to the Treasury and is, therefore, preferable to 19 percent of 
a smaller GDP.
  Mr. President, I want to conclude by contrasting the proposed across-
the-board income tax rate cut with some of the other tax cut proposals 
that have been offered. As Grover Norquist of Americans for Tax Reform 
said recently, paraphrasing Mae West, ``All tax cuts are good tax cuts, 
and even bad tax cuts are good tax cuts.'' In other words, just about 
anything we do to leave more money in people's pockets is a good thing.
  I very strongly supported the $500-per-child tax credit that was in 
the Balanced Budget Act last year. I cosponsored the proposal with 
Congressman Frank Wolf of Virginia when I served in the House of 
Representatives with him in 1994. I would also support President 
Clinton's proposed education credit. But the $500-per-child credit and 
the education credit, unlike the proposed 15-percent across-the-board 
rate cut, would help only families with children or those in pursuit of 
a college education.
  The benefit of the across-the-board approach is that it reaches out 
to all Americans. Everyone would benefit. It says to the American 
people that we trust them to spend their money in ways that are best 
for themselves and their families. It would allow people to keep more 
of every dollar earned from their extra effort in the work place--no 
matter what kind of work they do--and from their extra investment--no 
matter what kind of investment they make. The broad nature of the tax 
cut,

[[Page S6024]]

applying to all forms of work and investment, ensures that effort and 
capital are steered to the most productive activities in the economy 
instead of those activities that the Government deems most important 
through targeted tax credits or deductions.
  It is also the fairest way to provide tax relief. Everyone would be 
treated the same; tax rates would be cut 15 percent across the board, 
boosting take-home pay and relieving a major source of anxiety among 
people with middle and low incomes.
  Notably, a 15-percent rate cut would take revenues as a share of GDP 
back to where they were before Clinton took office--to 19.2 percent 
from the current 20.4 percent--effectively repealing the Clinton tax 
increase.
  Therefore, I think it would be a very wise thing for Majority Leader 
Bob Dole in his quest for the Presidency--and, frankly, for President 
Bill Clinton, as he seeks reelection--to embrace the concept that the 
American people could not only do well individually as a result of a 
reduction in income tax rates, but also that this would help to 
stimulate the economy and, ironically, or paradoxically, as I said, end 
up providing more revenues to the Treasury to help us with deficit 
reduction and the financing of all of the important things that we want 
to finance as a result of the Federal Government's efforts.
  Mr. President, I hope that as this debate continues, we will be able 
to discuss the concept of tax rate reductions. I hope to cosponsor 
legislation to that effect, and I hope we can begin the debate with the 
American people so that a consensus can be developed and, as a result 
of this election, we will have a mandate to reduce marginal income tax 
rates across the board.

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