[Congressional Record Volume 142, Number 124 (Wednesday, September 11, 1996)]
[Extensions of Remarks]
[Pages E1557-E1558]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                TAX CUTS

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                     Wednesday, September 11, 1996

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, August 28, 1996, into the Congressional Record.

                       The Right Kind of Tax Cuts

       Bob Dole has recently proposed $550 billion in tax cuts. 
     Tax cuts are certainly a popular thing to propose, but there 
     is a right way and a wrong way to cut taxes. Tax cuts need to 
     be targeted to those who need them most, they should expand 
     investment and opportunity, and they must be fully paid for 
     so they don't balloon the budget deficit.


                           overall tax burden

       Over the last 25 years, taxes paid by Americans at the 
     federal, state, and local levels have risen from around 29% 
     of the national income--gross domestic product--to 31% today. 
     Of that, the share going to federal income taxes--both 
     corporate and individual--has dropped from 12% to 11%. The 
     share going to federal social security taxes has increased 
     from 5% to 8%, and the share going to state and local taxes 
     has also risen, from 10% of GDP to 11%. For most individuals, 
     the biggest direct tax bite comes from state and local taxes, 
     then social security taxes, and then federal income taxes.


                             proposed plan

       Of these various components, the Dole plan proposes 
     reducing federal income taxes, but has no provisions that 
     would reduce the burden on working families of social 
     security taxes. Moreover, his plan to shift more federal 
     responsibilities back to the states and localities would make 
     it more difficult for them to reduce their taxes.
       The Dole tax plan includes a reduction in the top capital 
     gains tax rate, a $500 per child tax credit expanded 
     Individual Retirement Accounts, a lower tax on social 
     security benefits for upper-income retirees, and some 
     education and training tax breaks. But the centerpiece of the 
     plan--accounting for three-fourths of the cuts--is a 15% 
     reduction in income tax rates. Since the income tax rate for 
     most Americans is currently 15%, the plan would bring that 
     down to around 13%. Higher income people pay taxes at a 
     higher rate, so they would benefit more from the rate cut. 
     The main benefit for average income families is the $500 per 
     child tax credit.


                               Questions

       The tax cut plan is currently getting careful scrutiny, and 
     several questions have been raised about it.
       The first question is why propose such a major change in 
     tax policy when the economy seems to be doing fairly well. 
     Four years ago, we faced runaway budget deficits approaching 
     $300 billion per year, sluggish job growth, and weak business 
     investment growth. But today, the deficit has been cut in 
     more than half, unemployment is down to 5.4%, business 
     investment is up, inflation is in check, the economy is 
     expanding at a solid pace. Stronger growth in the economy 
     would be helpful, but this is not the kind of economic 
     picture overall that would seem to call for a major shift in 
     fiscal policy.
       A second question is how much of this is economic ``smoke 
     and mirrors'' and rosy scenarios. The proposed $550 billion 
     tax cut could balloon the deficit, since it relies on 
     ``supply side'' assumptions that the tax cuts will to a large 
     extent pay for themselves by encouraging greater work effort. 
     Similar supply-side arguments were heard in the early 1980s 
     to justify a tax cut that was supposed to lead to a balanced 
     budget; instead it helped quadruple the national debt. If it 
     weren't for the interest we are paying on the debt built up 
     during the 1980s, the federal budget would be in balance 
     today.
       A third question is who gets the tax cuts. It has been 
     estimated that more than 40% of the benefits would go to 
     families making over $100,000--the top 50% of taxpayers. 
     That's better than those proposed by House Speaker Newt 
     Gingrich which gave more than half of the tax cuts to the 
     richest 5%, but it is still tilted too much to the wealthy.
       A fourth question is what spending cuts will be required to 
     help pay for the tax cuts. Certainly a significant part of 
     such a tax cut should be paid for by spending reductions. But 
     what specific programs would have to be cut? The Dole plan is 
     short on specifics, and several of his spending cut proposals 
     are huge but vague or not politically feasible. Yet this tax 
     plan is much larger than the one House Speaker Newt Gingrich 
     proposed last year, and to finance that he wanted to sharply 
     cut back Medicare, cut drug abuse prevention, and cut 
     environmental protections. The Dole plan would require 
     spending reductions far greater than anything proposed in 
     recent years. We should not threaten Medicare and Social 
     Security as well as important investments in our young people 
     with tax cuts going to the wealthy.
       Assessment. The bottom line for me on any tax cut proposal 
     is whether it improves the lot of the ordinary Hoosier. It 
     doesn't help the ordinary Hoosier if a specific tax cut 
     balloons the deficit and results in much higher interest 
     rates and mortgage rates. It doesn't help the ordinary 
     Hoosier if a specific tax cut provides enormous tax breaks 
     for people making well over $100,000, paid for by cutting 
     back Medicare, student loans, and environmental protections. 
     And it doesn't help the ordinary Hoosier if a specific tax 
     cut reverses the progress we have made on the economy in 
     recent years. Every tax cut proposal needs to be carefully 
     and thoroughly analyzed.
       I favor tax cuts, but they must be set up in the right way. 
     First, they must be targeted largely to those who need tax 
     relief the most. Various proposed tax breaks should be phased 
     out for those at the highest income levels who need them much 
     less than ordinary taxpayers. Second, tax cuts should 
     encourage savings, investment, and opportunity. Thus I favor, 
     for example, tax breaks for education and skills training, 
     which promote investment in our nation's future and expands 
     opportunity for our young people. Third, tax cuts must be 
     paid for. The costs to the Treasury must be fully offset by 
     savings elsewhere--savings that are real, rather than phony 
     ``smoke and mirrors'' projections, specific, and made today, 
     rather than promised several years down the road. We have 
     made major progress in recent years in reducing the budget 
     deficit from $290 billion four

[[Page E1558]]

     years ago to less than $120 billion today. We should not give 
     up on deficit reduction. Until we balance the budget, every 
     dollar in new tax cuts not paid for is borrowed from our 
     children.
       Conclusion. The current national debate on tax cuts is a 
     healthy one. We need an informed policy debate, going beyond 
     the rhetoric and slogans, looking at the details of the 
     specific plans, looking at the hard numbers, and carefully 
     assessing the impact on the overall economy. I favor a 
     simpler and fairer tax system, one that improves--rather than 
     worsens--the lot of ordinary Hoosiers.

                          ____________________