[Congressional Record Volume 142, Number 134 (Wednesday, September 25, 1996)]
[Senate]
[Pages S11235-S11237]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       CUTTING TAXES AND BALANCING THE BUDGET--THE POSSIBLE DREAM

  Mr. ABRAHAM. Mr. President, as the Presidential campaign heats up, it 
is clear that a central issue will be economic growth. Despite recent 
positive economic news, the long-term outlook is not good. Growth is 
slow and family incomes are down. At the same time, the tax burden on 
Americans is at an all-time high, squeezing families while discouraging 
savings and investment.
  In response to this disturbing trend, Bob Dole has proposed an 
aggressive plan to both cut taxes and balance the budget by the year 
2002. The goal of the plan is to spur economic growth by reducing both 
the size and tax burden of the Federal Government. Its centerpiece is a 
15-percent, across-the-board income-tax cut designed to lower taxes on 
families and small businesses while spurring job creation and 
investment. The Dole plan would also provide families with a $500 per 
child tax credit, improved IRA's, and lower taxes on capital gains. For 
a typical family earning $30,000, his plan would allow them to keep an 
additional $1,261 per year, enough to pay tuition to a private school, 
move into a better neighborhood, or save for an early retirement.
  People like the idea of a tax cut, but they wonder how it can be done 
without increasing the Federal budget deficit or gutting essential 
Federal programs. In a recent radio address, President Clinton sounded 
that theme, attacking Bob Dole's plan by arguing that the tax cut is 
too big and asserting that Dole has failed to explain how

[[Page S11236]]

we can pass them without ballooning the deficit. Neither claim is 
accurate.
  First, Bob Dole's tax cuts are an appropriate and necessary response 
to the record tax burdens American families currently face. Following 
President Clinton's World's Largest Tax Increase of 1993, the Federal 
tax burden has risen to 20.5 percent of GDP--its second highest level 
ever. Meanwhile, the combination of Federal, State, and local taxes now 
consumes more than 38 cents out of every dollar the family earns.
  The Dole tax cut would help relieve this burden by reducing taxes 
across the board while targeting additional tax relief toward families 
with children. Fully implemented, the Dole tax cut would reduce the tax 
burden back to where it was before Bill Clinton began raising taxes in 
1993. That's hardly an excessive goal.
  The second objection to Bob Dole's tax cut proposal is that it will 
cause the deficit to balloon. That is the issue upon which I want to 
focus today. Far from being vague and irresponsible, the Dole tax cuts 
are in fact both detailed and well within the ability of Congress to 
carry out.
  Under the Dole plan, cutting taxes on families and small businesses 
would reduce Federal revenues by $548 billion over the next 6 years. 
How does the Dole plan offset these cuts while balancing the budget? 
First, it slows the growth of the Federal Government over the next 6 
years. Second, it encourages economic growth to help offset a portion 
of these tax cuts.
  Let me begin with slowing the growth of Government. The Dole plan 
builds upon the comprehensive balanced budget resolution Congress 
adopted in June. That resolution calls for reducing the growth of 
spending by $393 billion over the next 6 years, including the phase-out 
of farm support payments, welfare overhaul, and Federal prison reform.

  On top of the balanced budget resolution, the Dole plan proposes 
savings of an additional $217 billion over 6 years, targeting wasteful 
programs like the departments of Commerce and Energy and reducing 
Government overhead.
  Mr. President, there has been much criticism and misinformation 
regarding these proposed savings. I have seen reports from several 
outside groups, both conservative and liberal, who claim these savings 
would literally gut whole portions of the Federal Government. This is 
completely false.
  First of all, in the spending restraints assumed in the Dole plan 
beyond those contained in the balanced budget resolution, Bob Dole has 
made it clear that they will not come from reductions to Social 
Security, Medicare, or Defense. Those programs are off-limits. Under 
the Dole plan, Medicare spending would increase by 44 percent between 
1996 and 2002--a 6.2 percent growth rate, or more than two times the 
rate of inflation. Spending would increase from $5,200 per beneficiary 
in 1996 to $7,000 in 2002.
  Subtracting Social Security, Medicare, Defense, and interest expenses 
from total Federal spending over the next 6 years leaves $3.9 trillion 
eligible for savings under the Dole plan. Contrary to those groups that 
have portrayed this proposal as unreasonable, the Dole plan proposes to 
reduce this amount by just 5 percent--5 cents on the dollar.
  Let's look at it on a year-by-year basis. Projected Federal spending 
next year is $1642 billion--or $70 billion more than we expect to spend 
this year. Under the Dole plan, Government spending would continue to 
grow, but by $37 billion instead.
  Let's compare the Dole plan to President Clinton's own 
recommendation. Whereas President Clinton would allow Government 
spending to grow by 20 percent over the next 6 years, the Dole plan 
would hold spending growth to 14 percent--or about 2 percent per year. 
In other words, limiting spending growth to 2 percent per year will 
produce the savings necessary to cut taxes and balance the budget.
  Is holding the growth of Government spending to 2 percent per year 
reasonable? Absolutely.
  Under Republican leadership--and with no help from congressional 
Democrats or President Clinton--Congress has successfully reduced the 
growth of Federal spending over the last 2 years by $53 billion, or 
about $26 billion per year. Moreover, just this summer, we enacted a 
comprehensive welfare reform measure. In other words Mr. President, in 
response to those who claim the Dole economic plan's spending savings 
are too severe, I would point out that we have already succeeded in 
reducing the growth of Government by similar amounts. The Earth didn't 
stop rotating. The Sun hasn't stopped shining. And in the process, we 
have made the Government more efficient and more responsive to the 
wishes of the American voters.
  In addition to slowing the growth of government, the Dole plan also 
assumes that his pro-growth tax cuts will produce enough extra economic 
activity to offset 27 percent of their cost--$147 billion over 6 years. 
And just as we have seen with the budget savings, this assumption has 
been the focus of numerous criticisms from various groups. Mr. 
President, contrary to what some have said, assuming additional 
revenues from economic growth--or revenue feedback as it is called--has 
a long and credible history on both sides of the political aisle.
  In 1982, the Congressional Budget Office found that ``between roughly 
one-tenth and two-tenths of the static revenue loss'' from an across 
the board tax cut would be recouped through revenue feedback during the 
first year. In later years, the CBO estimated that between one-third 
and one-half would be recouped in later years.
  More recently, Clinton's Trade Representative Mickey Kantor told the 
House Ways and Means Committee that reductions in American tariffs 
would more than pay for themselves through increased exports and jobs.
  And just this summer, Lawrence Chimerine, chief economist for the 
liberal Economic Strategy Institute argued in the Washington Post that 
``credible evidence overwhelmingly indicates that revenue feedback from 
tax cuts'' could be as high as 35 percent.
  For those who are unimpressed with the estimates of economists and 
accountants, let me give two examples of how this feedback effect puts 
real dollars in the pockets of both American families and Uncle Sam. In 
1981, the tax burden was at a similar record high as it is today. In 
response, newly elected President Ronald Reagan cut tax rates across 
the board by 25 percent. Mr Reagan could have cut taxes in any number 
of ways, but he chose reducing marginal rates because he understood--as 
does Bob Dole--that cutting marginal rates encourages people to work 
harder, save more, and invest in economic growth and job creation.
  The Reagan tax cut worked. In 1984, real GDP growth reached 6.8 
percent--the highest single year growth since 1951. In President 
Reagan's second term, growth averaged 3.4 percent per year--well above 
the anemic 2.5 percent growth we have seen under President Clinton.
  How did these tax cuts affect families. In addition to lowering their 
overall tax burden, the tax cuts of 1981 helped save family incomes 
from declining, as they had under President Carter. Instead, median 
family incomes grew 1.7 percent per year under Reagan, putting an 
additional $4,000 in the typical families pockets every year.
  Mr. Reagan was not the only President to recognize the growth 
potential of reducing marginal tax rates. In 1962, John Kennedy was 
also adamant about cutting marginal tax rates. When he announced his 
tax cut plan in 1962, he explained his thinking with the following 
words: ``I am not talking about a `quickie' or a temporary tax cut, 
which would be more appropriate if a recession were imminent. . . . I 
am talking about the accumulated evidence of the last 5 years that our 
present tax system, developed as it was, during World War II to 
restrain growth, exerts too heavy a drag on growth in peacetime; that 
it reduces the financial incentives for personal effort, investment, 
and risk-taking.''
  The Kennedy tax rate cut proved to be one for the greatest economic 
successes of the postwar era. Real GDP growth jumped to 5.8 percent in 
1964 and to 6.4 percent in 1965 and 1966. Today, the media calls growth 
rates half that size a surge.
  Clearly there is a consensus that a tax cut like Bob Dole's will 
partially pay for itself through income revenue growth. As Nobel 
laureate Professor

[[Page S11237]]

Gary Becker put it, the revenue feedback effect is ``basically Econ. 
101. Investors and workers in the economy respond in an important way 
to incentives, including tax incentives.'' Becker then points out that, 
if the Dole plan increases GDP growth from its current 2.3 to 3.5 
percent over 6 years, the income growth effect will be ``far in excess 
of $147 billion. It would be more like $200 billion.''
  Mr. President, I have a list of over 100 prominent economists, 
including four Nobel Laureates, who share Dr. Becker's support of 
cutting taxes and balancing the budget. These economists are from all 
over the country, but they have one thing in common--faith in the 
American family and the ability of the American economy to grow faster 
than 2 percent per year. By cutting marginal tax rates and allowing 
families to keep more of what they earn--so they can spend it on their 
priorities rather than Congresses--the Dole plan will help the economy 
grow faster, resulting in more jobs, more opportunity, and a higher 
standard of living for everyone.
  How do we offset the tax cuts? We restrain the growth of Government. 
By limiting the future growth of Federal spending to 2 percent per 
year, we can reduce income tax rates by 15 percent for every taxpayer, 
provide a $500 per child tax credit for middle-class families, and cut 
the capital gains tax rate in half--all while balancing the budget in 
2002. The Dole plan is the possible dream that will result in a 
smaller, more efficient Government that allows families to keep more of 
what they earn, so they can spend it on their priorities rather than 
Washington's.
  Mr. President, I ask unanimous consent that the list of economists be 
printed in the Record.
  There being no objection, the list was ordered to be printed in the 
Record, as follows:

      Statement in Support of Bob Dole's Plan for Economic Growth

       ``This is an excellent economic program.''--Milton 
     Friedman, Nobel Laureate.
       ``The Dole Economic Growth Plan is much superior to the 
     Clinton do-nothing alternative.''--James M. Buchanan, Nobel 
     Laureate.
       ``Senator Dole's plan . . . can raise the growth rate of 
     the economy to well over 3 percent per year.''--Gary Becker, 
     Nobel Laureate.
       ``The Dole-Kemp program makes real economic sense at this 
     time.''--Merton H. Miller, Nobel Laureate.
       Slow economic growth is America's number one economic 
     problem. Bob Dole's plan for Economic Growth, ``Restoring the 
     American Dream,'' is a bold, doable plan that addresses this 
     problem. By lowering marginal income tax rates and reducing 
     disincentives to save and invest--first steps to a 
     fundamentally lower, flatter, simpler and more savings-
     encouraging tax system, balancing the budget through a 
     reduction in the growth of government spending, reforming our 
     education and job training system, and cutting back 
     government regulation and eliminating litigation excesses,

     the plan will significantly increase economic growth, raise 
     real wages, and provide greater opportunities for all 
     Americans.
       The numbers in Bob Dole's year-by-year strategy to both 
     reduce taxes and balance the budget are credible, including: 
     the baseline revenue projections; the income growth effect, a 
     simple implication of elementary economics through which the 
     economic growth plan changes incentives, raises taxable 
     income, and thereby offsets part of the revenue loss of the 
     tax cuts as described by the plan; the planned budgetary 
     savings achieved by reducing the growth of government 
     spending.
       Bob Dole's plan is far superior to the approach of the 
     Clinton Administration, during which productivity growth has 
     slowed to a historic low and real wages have stagnated.
           Signed,
       Annelise Anderson, Hoover Institution; Martin Anderson, 
     Hoover Institution; Wayne Angell, Bear Stearns, Fmr Governor 
     of Federal Reserve Board.
       Bruce Bartlett, National Center for Policy Analysis; Ben 
     Bernanke, Princeton University; Michael Boskin, Stanford 
     University, Fmr Chair, Council of Econ Advisers; David 
     Bradford, Princeton University; Stuart Butler, Heritage 
     Foundation; Richard C.K. Burdekin, Claremont McKenna College.
       Phillip D. Cagan, Columbia University; W. Glenn Campbell, 
     Hoover Institution; John Cogan, Hoover Institution.
       Carl Dahlman, Rand Corporation; Michael Darby, University 
     of California at Los Angeles; Christopher DeMuh, American 
     Enterprise Institute; Rimmer de Bries, J.P. Morgan; Thomas 
     DiLorenzo, Loyola College in Maryland.
       Martin Eichenbaum, Northwestern University; Stephen Entin, 
     Former Deputy Assistant, Secretary of Treasury; Paul Evans, 
     Ohio State University.
       David Fand, George Mason University; Martin Feldstein, 
     Harvard University, Former Chair, Council Econ Advisers; 
     Diana Furchtgott-Roth, American Enterprise Institute.
       Lowell Gallaway, Ohio University; Robert Genetski, Chicago 
     Capital, Inc. John Goodman, National Center for Policy 
     Analysts; Wendy Lee Gramm, Former Chair of the Commodity, 
     Futures Trading Commission.
       Robert Hahn, American Enterprise Institute; C. Lowell 
     Harriss, Columbia University; H. Robert Heller, Fair, 
     Isaac and Co., Fmr. Governor of Federal Reserve Board; 
     David Henderson, Naval Post-Graduate School; Jack 
     Hirshleifer, University of California at Los Angeles; Lee 
     Hoskins, Huntington Nat. Bank, Fmr. President of the 
     Federal Reserve, Cleveland; R. Glenn Hubbard, Columbia 
     University; Lawrence Hunter, Empower America.
       Manual H. Johnson, Johnson-Smick International, Fmr. Vice 
     Chair of the Federal Reserve.
       Raymond Keating, Small Business Survival Committee; Robert 
     Keleher, Johnson-Smick International; Michael Keran, Sea 
     Bridge Capital Management; Robert G. King, University of 
     Virginia; Michael M. Knetter, Dartmouth College; Melvyn B. 
     Krauss, New York University; Anne Krueger, Stanford 
     University.
       Lawrence Lau, Stanford University; Edward Leazar, Stanford 
     University; James R. Lothian, Fordham University; Mickey D. 
     Levy, NationsBanc Capital Markets.
       Paul MacAvoy, Yale University; John Makin, American 
     Enterprise Institute; Burton Malkiel, Princeton University; 
     David Malpass, Bear Stearns; N. Gregory Mankiw, Harvard 
     University; Dee T. Martin, Eastern New Mexico University; 
     Bennett McCallum, Carnegie-Mellon University; Paul McCracken, 
     University of Michigan, Fmr. Vice Chair, Council Econ 
     Advisers; David Meiselman, Virginia Polytechnic Institute; 
     Allan Meltzner, Carnegie-Mellon University; Michael Melvin, 
     Arizona State University; Daniel J. Mitchell, Heritage 
     Foundation; Thomas G. Moore, Hoover Institute; David Mullins, 
     Long-Term Capital Management, Fmr. Vice Chair, Federal 
     Reserve.
       Charles Nelson, University of Washington; Charles Plosser, 
     University of Rochester; Steve Pejovich, Texas A&M 
     University; William Poole, Brown University.
       Richard Rahn, Novecorr; John Raisan, Hoover Institute; 
     Ralph Reiland, Robert Morris College; Alan Reynolds, Hudson 
     Institute; Morgan O. Reynolds, Texas A&M University; Rita 
     Ricardo-Campbell, Hoover Institute; Richard Roll, University 
     of California at Los Angeles; Robert Rosanna, Wayne State 
     University; Harvey Rosen, Princeton University; Sherwin 
     Rosen, University of Chicago; Timothy Roth, University of 
     Texas at El Paso.
       Thomas Saving, University Texas at A&M University; Anna J. 
     Schwartz, National Bureau of Economic Research; John J. 
     Seater, North Carolina State University; Judy Shelton, 
     Empower America; Myron Scholes, Long-term Capital Management; 
     George Schultz, Fmr. Secretary of State, Treasury and Labor, 
     Former Director of OMB; John Silvia, Zurich Kemper 
     Investments; Clifford Smith, University Rochester; Vernon L. 
     Smith, University of Rochester; Ezra Solomon, Stanford 
     University; Beryl W. Sprinkel, Fmr. Chair, Council Economic 
     Advisors; Alan Stockman, University of Rochester; Richard 
     Stroup, Montana University; W.C. Stubblebine, Claremont 
     McKenna College; James Sweeney, Stanford University.
       John B. Taylor, Stanford University; Robert Tollison, 
     George Mason University; Gordon Tullock, University of 
     Arizona; Norman Ture, Inst. for Research on Economics and 
     Taxation.
       Ronald Utt, Heritage Foundation.
       Richard Vedder, Ohio University; Karen Vaughn, George Mason 
     University; J. Antonio Villanio, The Washington Economics 
     Group.
       W. Allen Wallis, University of Rochester; Murray 
     Weidenbaum, Fmr. Chair, Council of Econ. Advisers; Charles 
     Wolf, Rand Graduate School.

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