[Congressional Record Volume 143, Number 38 (Friday, March 21, 1997)]
[Senate]
[Pages S2753-S2755]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  GOP TAX BREAKS HURT THE MIDDLE CLASS

 Mr. LAUTENBERG. Mr. President, yesterday, the Budget Committee 
walked through an analysis of the President's budget prepared by the 
Republican committee staff. And in anticipation of that meeting, I 
asked the Democratic staff of the committee to prepare an analysis of 
the Republicans' budget, or at least what we know of the Republican 
budget.
  So far, we know that the Senate Republican leadership has proposed as 
their first two bills--S. 1 and S. 2--legislation that would provide 
$200 billion worth of tax breaks over the next five years.
  Some Republicans have raised the possibility that those tax breaks 
might be deferred until after an initial budget agreement.
  But Senator Lott, Speaker Gingrich, Senator Roth, Congressman Armey, 
and others all seem very committed to large tax breaks.
  And that means that sooner or later--perhaps as part of an initial 
agreement, or perhaps later--they would have to pay for those tax 
breaks.
  The analysis prepared by the Democratic staff of the Budget Committee 
simply explains in a very straightforward, objective way what that 
would mean.
  And, not surprisingly, it's devastating.
  In the year 2002, 300,000 children would be denied participation in 
Head Start; because of cutbacks at the Justice Department, 11,000 
additional criminals would be left free on the streets; a college 
education would be less attainable for as many as half a million 
students; 3.5 million children could be denied reading and math 
assistance; 2.75 million households would find themselves without 
heating assistance; 50 of the most hazardous toxic waste sites wouldn't 
get cleaned up; 250 VA medical and counseling centers could close; and 
2,400 border patrol agents could be laid off.
  The list goes on and on. And it really makes the case against large 
tax breaks for the rich.
  Now, let me be clear that I remain very hopeful that we can move 
toward a bipartisan agreement to balance the budget.
  But I hope that when the information included in this report becomes 
known, many of my Republican colleagues will rethink their tax breaks 
for the rich.
  I ask that the text of the special report by the Senate Democratic 
Budget Committee staff be printed in the Record at this point.
  The report follows:

     Marauding the Middle Class--Republican Tax Breaks for the Rich


An analysis of the gop tax scheme and its impact on national priorities

(A Special Report of the U.S. Senate Budget Committee Democratic Staff, 
                             Mar. 19, 1997)


                              introduction

       In January, the Senate Republican leadership introduced two 
     bills that provide massive new tax breaks, primarily for 
     higher-income Americans. The leadership made enactment of S. 
     1 and S. 2 top priorities for the 105th Congress.
       In the first five years, the tax breaks in these measures 
     cost $200 billion. Over the next five years, costs rise by 60 
     percent for a ten-year total of $525 billion. In the 
     subsequent ten-year period, the revenue loss increases 
     dramatically, to more than $760 billion.
       Not a single dime of these Republican tax breaks is paid 
     for in the bills themselves, or in an overall budget plan for 
     1998. As a result, the Republican tax scheme would 
     dramatically increase the budget deficit. If the Republican 
     tax bills were enacted, deficits would rise from $121 billion 
     in 1997 to $251 billion in 2002.
       Since Republicans assert that they support balancing the 
     budget by fiscal year 2002, providing tax breaks of this 
     magnitude would require extreme cuts in programs that are 
     critical to middle class Americans. These cuts would be far 
     deeper than those proposed by the President in his balanced 
     budget plan. Until now, however, there has been no discussion 
     of these potential cuts. The Republican leadership has failed 
     to offer a budget or to explain the reductions they intend to 
     use to pay for their tax breaks. The American people have 
     been kept in the dark about what the GOP tax scheme would 
     mean for them.
       In stark contrast, President Clinton has proposed a budget 
     that balances in 2002, based on estimates by the 
     Congressional Budget Office. The President's budget includes 
     several tax cuts targeted to the middle class. However, by 
     rejecting the Republicans' massive tax breaks for the 
     wealthy, the President is able to protect important national 
     priorities in education, environment, Medicare and Medicaid.
       This analysis explains the depth of the cuts that would be 
     required to pay for the Republican tax breaks and examines 
     their impact on ordinary Americans. The report explores the 
     kind of spending cuts Republicans are likely to make to pay 
     for these massive tax breaks and still balance the budget in 
     2002. Under this scenario, the Republican tax breaks would 
     result in cuts of up to one-third in areas such as education, 
     environmental protection, crime prevention, transportation, 
     and health care research. These cuts would dramatically 
     reduce economic and other opportunities for ordinary 
     Americans, and reduce the quality of life for the middle 
     class.
       In the coming months, the American people will have the 
     opportunity to choose between the President's budget and the 
     Republican proposal. We hope that this report will help 
     Congress and the public make informed judgments about these 
     competing approaches.


                              Methodology

       This report calculates the impact of the Republican tax 
     breaks using the approach proposed by Senator Robert Dole 
     during his presidential campaign in 1996. Senator Dole 
     advocated the enactment of extensive tax breaks paid for 
     nearly exclusively through cuts in nondefense discretionary 
     programs. Under Senator Dole's plan, nondefense discretionary 
     programs would have been cut by nearly 40 percent.

[[Page S2754]]

       This report evaluates the additional cuts that would be 
     required in nondefense discretionary programs to offset the 
     costs of the tax breaks included in the GOP tax scheme. Our 
     focus is on the final year of a five-year budget agreement, 
     in which the budget will be balanced.
       To arrive at the appropriate figures, we have started with 
     the baseline produced by the Congressional Budget Office 
     (CBO), which anticipates the amount of spending that would be 
     expected if current policies are continued. Using that 
     baseline, outlays for nondefense discretionary programs are 
     expected to total $321 billion in fiscal year 2002.
       To achieve balance in 2002, President Clinton has proposed 
     cuts in nondefense discretionary spending totaling $26 
     billion. This would represent an 8 percent reduction from the 
     amounts required to maintain current policies. However, the 
     President's budget provides a set of additional policies to 
     ensure that the budget actually balances in that year, should 
     economic or other conditions vary from the President's 
     projections. The President does not believe that these ``fail 
     safe'' policies will be needed, and recent economic data 
     support that conclusion. However, if CBO's estimates prove 
     correct, nondefense discretionary spending would be reduced 
     by an additional $10 billion in 2002, for a total cut of $36 
     billion. This would amount to a reduction of 11 percent.
       A comparison of the Republican tax breaks and the 
     President's own revenue proposals shows that the additional 
     tax breaks would lead to a deficit $67 billion larger than 
     under the President's plan. The $67 billion figure is based 
     on estimates by the Joint Committee on Taxation. Assuming 
     that these additional costs would be offset through cuts in 
     nondefense discretionary programs, as Senator Dole proposed, 
     the total cuts in these programs would amount to $103 billion 
     in 2002. This represents a cut from current policy of 32 
     percent. These cuts are far deeper than a freeze or even last 
     year's Republican budget. These cuts are 24 percent deeper 
     than those made by the President in his alternative budget. 
     These nondefense discretionary paths are shown in the table 
     below.
       This report explains what a 32 percent cut would mean for a 
     range of domestic programs of importance to ordinary 
     Americans. The 32 percent figure represents an average of the 
     cuts that would be needed. Of course, Congress could propose 
     higher levels for particular programs; however, any such 
     increases would have to be offset by even deeper cuts in 
     other programs.

          NONDEFENSE DISCRETIONARY SPENDING IN FISCAL YEAR 2002
                          [Dollars in billions]
------------------------------------------------------------------------
                                                                Real
                                                  Spending    reduction
                                                   level         \1\
--------------------------------------------------------------(percent)-
CBO uncapped baseline..........................       $321            0
President's budget.............................        294           -8
President's alternative........................        285          -11
Freeze at 1997 level...........................        272          -15
Last year's Republican budget..................        245          -24
Republican plan................................        217          -32
------------------------------------------------------------------------
\1\ Reductions from CBO's uncapped baseline of March 1997, which
  represents the 1997 enacted level adjusted for inflation in each
  subsequent year.

           Impact of a 32 percent Cut on Domestic Priorities

       Nondefense discretionary spending includes programs that 
     rely on funding through annual appropriations. These include 
     programs for education and training, environmental 
     protection, law enforcement, transportation, and health 
     research, among others.
       In 1996, nondefense spending totaled $267 billion, or about 
     17 percent of total Federal spending. Measured as a share of 
     the economy, nondefense spending has fallen from 5.2 percent 
     in 1980 to its current low level of 3.5 percent. A reduction 
     of 32 percent would reduce this component of the budget to 
     2.2 percent of GDP, the lowest level since at least 1940.
       A reduction of this magnitude would require a dramatic 
     reduction in public investments that promote economic growth. 
     These investments are primarily in the nondefense 
     discretionary part of the budget, and include expenditures 
     for major capital investment, research and development, and 
     education and training programs. Deep cuts in these programs 
     could harm our Nation's economy in the future.
       State and local governments are also likely to be hit hard 
     by these reductions. Some discretionary programs viewed as 
     ``essential Federal functions'' will be spared deep cuts. 
     These include funds for operating Social Security and 
     veterans programs. To the extent that these programs are cut 
     less than 32 percent, other programs will have to be cut more 
     deeply. State and local grants are likely to bear a larger 
     share of the cuts since they are not tied to the central role 
     of the Federal government. These cuts--on top of those in 
     last year's welfare reform bill and perhaps further cuts in 
     Medicaid--would be difficult for States and localities to 
     handle without reductions in crucial public services, or tax 
     increases.
       Federal grants help State and local governments finance 
     programs covering most areas of domestic public spending. 
     Federal grant outlays were $228 billion in 1996, or 15 
     percent of total Federal outlays, and are estimated to 
     increase to $291 billion by 2002. Reducing the Federal 
     commitment by a third would make it more difficult for States 
     and localities to provide critical domestic services, such as 
     public education, law enforcement, roads, water supply, and 
     sewage treatment.


                   Denying Educational Opportunities

       Head Start. A 32 percent cut ($1.4 billion) in Head Start 
     in 2002 would deny about 300,000 children aged 3-5 the 
     opportunity to benefit from this effective pre-school 
     program, which provides comprehensive child development, 
     education and nutrition services.
       Education of the Disadvantaged. A 32 percent cut for the 
     Title I program would eliminate reading and math assistance 
     to about 3.5 million poor children. This is  likely to lead 
     to reduced academic performance and fewer economic 
     opportunities for many of these children.
       Children with Disabilities. A 32 percent cut in the Special 
     Education program would reduce critical educational services 
     that are now provided to 6 million children with 
     disabilities. It also would make it impossible for the 
     Federal government to meet its statutory goal of sharing 40 
     percent of the costs of special education. Today, the Federal 
     government is providing only 8 percent of these costs, a 
     level Senate Republicans have sharply criticized as 
     irresponsible. But under a 32 percent discretionary cut, the 
     Federal share would be reduced even further--to 6 percent or 
     less by 2002.
       Pell Grants. A 32 percent cut in the Pell Grant program 
     could make a college education less attainable for as many as 
     a half a million students by substantially reducing the value 
     of the grants.
       Job Corps. A 32 percent reduction in the successful Job 
     Corps program could lead to the closure of about 40 job 
     centers, thus denying job training opportunities to an 
     estimated 20,000 disadvantaged youths. Nearly 64,000 people 
     are currently enrolled at 115 centers. This type of cut could 
     mean that there would be fewer Job Corps centers in 2002 than 
     there were in the late 1970s.


                       the republican tax breaks

       The Republican tax plan, as embodied in S.1 and S.2, would 
     increase the deficit by $200 billion over the next five 
     years. In contrast to the President's budget, the Republican 
     plan includes no proposals to offset any of these costs.
       The Republican tax breaks greatly increase the deficit in 
     the first five years and then the costs explode in future 
     years. In fact, these tax breaks will swell to $325 billion 
     from 2003 to 2007, a 60 percent increase. The Republican tax 
     package will cost more than the tax breaks contained in the 
     final version of the Contract with America budget that 
     President Clinton vetoed in the last Congress.
       A large component of the Republican tax plan is geared 
     toward the very wealthy. The capital gains tax break would 
     provide a windfall to persons with large holdings. In 
     addition, the estate tax break would benefit those who 
     inherit estates from the top 1 percent of wealthy 
     individuals. This tax break would provide a windfall for 
     people inheriting estates up to $21 million. The IRA tax 
     break included in the Republican proposals is similar to the 
     President's proposal, but is more geared to those with higher 
     incomes.


                  weakening environmental protections

       Toxic waste clean up. A 32 percent cut in the Superfund 
     program would postpone new cleanup activities at more than 50 
     of the most hazardous toxic waste sites and delay the 
     completion of cleanups at more than 20 additional sites in 
     2002. These delays would subject communities to additional 
     health risks, and impede economic development that could 
     create many jobs.
       Clean water. A 32 percent cut in Clean Water programs could 
     eliminate more than 250 loans to municipalities across the 
     country to ensure that our lakes, streams and rivers are 
     clean and safe. The likely would be dirtier water, and 
     perhaps additional health hazards.
       Inspection activities. A 32 percent cut in environmental 
     enforcement could result in a reduction of more than 13,000 
     enforcement actions. This could prevent EPA from halting 
     unlawful pollution, lead to worsening environmental 
     conditions, and let many wrongdoers off the hook. Activities 
     that could be affected include: asbestos inspections in 
     public/commercial buildings, compliance with Clean Air Act 
     standards, and the monitoring of the Nation's drinking water.
       National Parks and Refuges. A 32 percent cut in the NPS 
     could eliminate maintenance at 90 national parks, while the 
     U.S. Fish and Wildlife Service could eliminate funding for 
     more than 100 wildlife refuges. This cut could also lead to 
     increased entrance and activity fees.


                        cutting law enforcement

       Prosecuting Criminals. A 32 percent reduction in funding 
     for the U.S. Attorneys' office would mean that at least 
     19,000 fewer persons accused of violent crime, drug 
     smuggling, and organized crime activity would be prosecuted 
     and 11,000 criminals who otherwise would be serving prison 
     sentences would instead be free citizens.
       Prisons. A 32 percent cut in prison funding could reduce by 
     42,000 the number of prison cells available to hold serious 
     offenders. This would mean that thousands of criminals would 
     be left on the streets. By contrast, the President's 
     budget provides full funding for the Federal prison system 
     by the year 2002.
       Controlling Illegal Immigration and Drug Trafficking. A 32 
     percent cut in the Immigration and Naturalization Service 
     would require the dismissing of 2,400 Border Patrol Agents. 
     Since the preponderance of these Agents are deployed along 
     the Southwest

[[Page S2755]]

     Border, it is likely that illegal immigration along the 
     California, Arizona, New Mexico and Texas perimeter would 
     rise.
       Byrne Grants. A 32 percent reduction could mean that 1,500 
     fewer formula grants would be made by states from the Edward 
     Byrne Memorial State and Local Law Enforcement Assistance 
     program. These grants give states broad assistance with the 
     functioning of their criminal justice systems--with emphasis 
     on violent crime and serious offenders--and with the 
     enforcement of Federal drug laws.


                 reducing investment in transportation

       Federal-aid Highways. A 32 percent cut in this program 
     would eliminate $6.7 billion in federal assistance to the 
     states for highway projects and improvements in 2002. In 
     addition, to achieve a 32 percent cut in outlays in 2002, 
     tight caps on obligations would have to be set by the 
     Congress in the preceding years. Already, all levels of 
     government are spending approximately $15 billion less than 
     the level necessary to maintain our highway system at its 
     current level of performance. In addition, since the U.S. 
     Department of Transportation estimates that each $1 billion 
     spent on transportation creates 40,000-50,000 jobs, a cut of 
     this magnitude could result in the loss of approximately 
     300,000 jobs in 2002 alone.
       Federal Transit Administration. A 32 percent cut in FTA 
     funding would reduce the amount available for key mass 
     transit programs by about $1.5 billion. This could adversely 
     affect many of our nation's public transportation systems, 
     particularly the smaller and medium-sized systems that depend 
     more heavily on federal assistance and have fewer resources 
     at their disposal. Transit agencies would have to either 
     raise fares or reduce service, or both, to try to deal with 
     reduced federal assistance. In addition, funding for the 
     purchase of buses and rail vehicles would decline 
     significantly, and transit new starts would be delayed or 
     abandoned. Congestion and air pollution in major urban areas 
     would increase because, as transit service is reduced, 
     commuters would revert to automobiles.
       FAA operations. A 32 percent cut would severely harm FAA's 
     ability to maintain safe skies. Airline traffic is expected 
     to increase over the next few years, so FAA's increased 
     workload will require more federal funding, not less. A cut 
     of more than $1 billion could result in a staff reduction of 
     10,000 employees, including many safety personnel 
     (controllers, technicians, and inspectors). Efforts to 
     modernize the air traffic control system could be harmed. 
     The result could be much less frequent and less 
     comprehensive inspections of aircraft and an insufficient 
     number of controllers to handle current and projected 
     volumes of air traffic.


                  cutting science and energy research

       National Science Foundation. A 32 percent cut in NSF would 
     be $1.2 billion in 2002, and would result in the elimination 
     of more than 6,000 research and education grants in science 
     and engineering to universities and other research 
     institutions.
       Department of Energy. A 32 percent cut in the DOE would 
     mean that civilian research-related activities performed at 
     more than 20 Department of Energy's labs located throughout 
     the country would be but by more than $900 million.


                   harming other domestic priorities

       National Institutes of Health. A 32 percent cut in NIH in 
     2002 would mean a $4.5 billion reduction in funds for medical 
     research from a projected level of $14.6 billion. This would 
     be $2.8 billion below the Fiscal Year 1997 appropriated 
     level. The $4.5 billion cut is equivalent to the entire 
     budget of the National Cancer Institute.
       Veterans Medical Care. A 32 percent cut in the Veterans 
     Administration could result in closing more than 250 VA 
     medical facilities and counseling centers, could deprive more 
     than 800,000 veterans access to VA medical care and could add 
     more than 3 weeks to the waiting time for a service-connected 
     compensation benefit claim.
       Housing. The Section 8 program provides basic housing 
     assistance for America's poor, disabled, and elderly. A 32 
     percent cut in this program translates into more than 800,000 
     fewer housing units. That means approximately 2.2 million 
     people would lose housing assistance, including approximately 
     760,000 elderly and disabled Americans.
       CDBG. Community Development Block Grants are used by cities 
     to help finance housing rehabilitation, economic development, 
     and large-scale physical development projects. On average, 
     every dollar spent for CDBG leverages $2.31 in private and 
     other investment. A 32 percent CDBG cut would bring funding 
     down to $3.5 billion in 2002, 27 percent less than 1997. For 
     many communities, that would be a substantial cut.
       Drug Elimination Grants. A 32 percent cut would mean that 
     these grants, which are used to fight drugs and crime in 
     public housing, would be reduced by $107 million to $224 
     million in 2002.
       Special Supplemental Feeding Program for Women, Infants and 
     Children (WIC). WIC would be cut by $1.4 billion under this 
     scenario. Nearly 2.5 million fewer women, infants and 
     children would receive benefits. WIC provides supplemental 
     coupons for specialized foods to low-income families as well 
     as nutritional, educational and health care referrals. 
     Studies show that the WIC program improves birth outcomes and 
     has reduced the incidence of childhood anemia.
       Low Income Housing Energy Assistance Program. A 32 percent 
     cut in LIHEAP could mean that about 2.75 million households 
     could find themselves without heating assistance. The LIHEAP 
     program serves low income families and senior citizens who 
     otherwise might not be able to afford heating in winter.


           alternative ways to pay for republican tax breaks

       As explained above, this study has calculated the effect of 
     the Republican tax breaks using the approach adopted by 
     Senator Robert Dole in last year's presidential campaign. 
     Senator Dole offset most of the costs of his proposed tax 
     breaks by cutting nondefense discretionary spending. This 
     approach seems likely to be adopted again, especially given 
     strong public opposition to past Republican proposals for 
     cuts in Medicare, Medicaid and other mandatory programs. 
     However, considering their record in the past, it remains 
     possible that the Republicans would choose other methods to 
     pay for their large tax breaks.
       To help explain an alternative scenario for offsetting GOP 
     tax breaks, the table below shows the relative contribution 
     of different categories of spending to the spending cuts in 
     last year's budget resolution.

        DISTRIBUTION OF SPENDING CUTS IN REPUBLICAN BUDGET: 1996
                          [Dollars in billions]
------------------------------------------------------------------------
                                                       Last Year's GOP
                                                           Budget
                                                   ---------------------
                                                      Amount    Percent
------------------------------------------------------------------------
Discretionary.....................................      -$233         34
Medicare..........................................       -158         24
Medicaid..........................................        -72         11
Other mandatory...................................       -195         30
                                                   ---------------------
    Total.........................................       -657        100
------------------------------------------------------------------------

  If Republicans chose to distribute the additional cuts to these 
programs, in addition to nondefense discretionary, both Medicare and 
Medicaid cuts would increase dramatically from the levels proposed by 
the President. Medicare would receive nearly one-quarter of any 
additional cuts, and Medicaid cuts would increase by 14 percent. The 
table below shows how dramatically the cuts in the President's budget 
for Medicare would rise under this scenario, over a five- six- and 
seven-year period.

DISTRIBUTION OF ADDITIONAL SPENDING CUTS TO MEDICARE AND MEDICAID, BASED
                      ON PREVIOUS REPUBLICAN BUDGET
                        [In billions of dollars]
Medicare:
  President's budget...........................................      -88
  President's plus Republican cuts:
    5-year ($200)..............................................     -138
    6-year ($256)..............................................     -181
    7-year ($290)..............................................     -239
 
Note: President's budget cuts assume alternative policies that achieve a
  balanced budget under CBO assumptions.

       With the additional cuts, the cumulative reductions in 
     Medicare would grow from the $88 billion in the President's 
     balanced budget to $138 billion over five years. Over six 
     years, cuts would increase to $181 billion and the seven-year 
     total would reach $239 billion.

                          ____________________