[Congressional Record Volume 143, Number 70 (Friday, May 23, 1997)]
[Senate]
[Pages S5098-S5100]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  CONCURRENT RESOLUTION ON THE BUDGET

  Mr. MOYNIHAN. Mr. President, as we were voting on various matters 
this morning, leading to passage of the concurrent resolution on the 
budget for the fiscal year 1998, which I voted against, I found myself 
musing of the very different time just 4 years ago when a starkly 
divided Senate passed a far more stentorian measure than that before us 
today. In an interval between votes, I wrote to the members of the 
Finance Committee of that time:

       As we close out this embarrassing budget season, cutting 
     taxes, increasing some spending, promising a balanced budget 
     somewhere in the next century, it might restore a measure of 
     self respect to recollect a not distant time when we knew 
     better and did differently.
       1993. Democrats had won the Presidency and held the 
     Congress. The world was tranquil enough, but our finances 
     were seemingly a wreck. In the twelve previous years the debt 
     had quadrupled and there was no money for anything. On 
     another occasion we can discuss how this came about: I am 
     concerned here with what we did. The Finance Committee (with 
     some help from others) put together and passed, in committee, 
     on the floor, the largest package of tax increases and 
     spending cuts in history. Our purpose was direct and avowed. 
     To show we could govern. The more conservative our critics, 
     the more apocalyptic the pronouncements. Ruin all round was 
     surely at hand.
       In the event, we succeeded beyond imagining. The latest 
     Monthly Treasury Statement shows a booming economy throwing 
     off unexampled revenue. (Recall, a fortnight ago the 
     Congressional Budget Office discovered an additional $225 
     billion in anticipated revenues for the next five years. 
     Fortuitous, perhaps, but not fake.) A nice detail? Last month 
     the Treasury paid off $65 billion in debt, the largest 
     repayment ever.
       It was all done by the narrowest of margins. Bob Kerrey at 
     the very last moment--he had wanted an even sterner measure. 
     But we did do it. I would like to think it will not now be 
     undone. This is not yet clear.

  The contrast between the Omnibus Budget Reconciliation Act of 1993 
and this legislation is illuminated by an important article that 
appeared in yesterday's Wall Street Journal under this headline:

Tax on Wealthy Is Boosting U.S. Revenue Treasury Says 1993 Increase Is 
                        Helping Cut the Deficit

  The article, by Michael M. Phillips, reports that the cataclysmic 
predictions of so many Republicans about the economic effects of the 
1993 legislation have not been borne out. To the contrary, as a result 
of the 1993 act, the deficit as a percentage of GDP is at its lowest 
level in a quarter century, and the expansion is in its 74th month, 
with full unemployment and little or no inflation. The Treasury is 
awash with revenue. As Mr. Phillips writes:

       The inflow provides persuasive, if not conclusive, evidence 
     in the continuing debate over the economic impact of the 1993 
     tax increases, which raised marginal income-tax rates to 35% 
     from 31% on taxable incomes between $140,000 and $250,000, 
     and to 39.6% on incomes above $250,000.

  Which leads to another important point, about which I will again 
quote the Wall Street Journal:

       The recent flood of revenue pouring into Treasury coffers--
     enough to push the federal budget to a record $93.94 billion 
     surplus for the month of April--appears to have come mostly 
     from the nation's biggest earners, indicating that the 
     controversial tax increase may indeed be taking from the 
     rich.

  How do we know this? Because the unexpectedly high revenue inflows 
have come from taxes other than those withheld by employers. These 
``non-withheld'' taxes are mainly paid by wealthier taxpayers, who owe 
taxes on other income such as stock options, bonuses, and the like. In 
April, according to the Monthly Treasury Statement, the Treasury took 
in $110.8 billion in nonwithheld revenues, almost twice

[[Page S5099]]

what it received in 1992, before enactment of the 1993 legislation.
  It fell to the Finance Committee to assemble the package of spending 
cuts and, yes, tax increases that would pass the Senate. It was not 
easy. In the end, we put the bill through without a single Republican 
vote. One Republican Senator declared on this floor:

       We are buying a one way ticket to a recession * * * When 
     all is said and done, people will pay more taxes, the economy 
     will create fewer jobs, Government will spend more money, and 
     the American people will be worse off.

  It was not pleasant. But we were clear. On June 23, 1993, as the 
Senate debate on the bill was coming to a close, I put it this way:

       Why do we have to do it, Mr. President? Because after 12 
     years of mounting deficits and devastatingly increased debt, 
     we are sending a message to the financial markets of the 
     United States and of the world, which now have as much effect 
     on our affairs in a manner never before known because of the 
     debt we have incurred, that we are going to stop it.

  We made the tough choices in 1993, and they have paid off handsomely 
in economic and fiscal dividends.

  Now compare 1993 with what we are doing today. By failing to address 
the overstatement of the cost of living by the Consumer Price Index, 
this budget misses a historic opportunity. An accurate cost-of-living 
index, as recommended by the Advisory Commission to Study the Consumer 
Price Index appointed by the Finance Committee--the Boskin Commission--
would have saved $1 trillion in 12 years, freeing us from the 
protracted fiscal crisis of the last two decades. Had we seized the 
opportunity, we could now be taking on big issues, such as the future 
of Medicare and Social Security. Instead, the all-consuming quest to 
reach balance--if only for a moment--in the year 2002 has reduced this 
to a series of small debates over often derisory sums.
  This budget also fails to address the demographic problems facing our 
two biggest Federal entitlement programs, Social Security and Medicare. 
These are the serious issues in Federal budgeting, yet this resolution 
postpones the day when Congress must, inevitably, confront them. Even 
so, it should be recorded that a correction of 1.1 percentage points in 
the measurement of the cost of living would in an instant have kept 
Social Security in actuarial balance until the year 2052.
  This resolution unwisely calls for net tax cuts of $250 billion over 
10 years. Coupled with this budget's failure to address long-term 
entitlement spending, these tax cuts will lead us right back to giant 
deficits in the outyears. Preliminary estimates, which are just 
beginning to come in, indicate that in the second 10 years, 2008-2017, 
the proposed tax cuts could lose in excess of half of $1 trillion.
  Even if one believes, as some do in good faith, that tax cuts are 
necessary and appropriate at this point, the particular tax cuts agreed 
to by the White House and the Republican leadership will make for poor 
tax policy. It is beyond any serious dispute that the proposed 
reductions in the rate of tax on capital gains will disproportionately 
go to the very wealthiest taxpayers. Likewise the estate tax relief 
called for in this budget will benefit a tiny fraction--less than 1.5 
percent--of estates. And the proposed tax cuts for education, most 
thoughtful observers agree, could be better spent in ways that would 
demonstrably help students and their families, such as making permanent 
the provisions for employer-provided educational assistance.

  Nor does this budget follow the spirit of the 1993 legislation in the 
area of deficit reduction. The provisions of the 1993 act were 
initially estimated to reduce the deficit by $500 billion over 5 years; 
in fact it reduced the deficit by nearly twice that amount. The deficit 
reduction in the budget before us is questionable; its balance in the 
year 2002 will be momentary at best. And it makes only feeble, 
shortsighted choices in tax and entitlement policy.
  In sum, Mr. President, I voted ``no'' because this budget is an 
unworthy successor to the Omnibus Budget Reconciliation Act of 1993, 
which was perhaps the most consequential legislation of this decade. I 
ask unanimous consent that the article from the Wall Street Journal of 
May 22, 1997, be included in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                Tax on Wealthy Is Boosting U.S. Revenue


         treasury says 1993 increase is helping cut the deficit

                        (By Michael M. Phillips)

       Washington.--President Clinton sold the 1993 income-tax 
     increase as a way to shrink the budget deficit at the expense 
     of the rich.
       Republican adversaries predicted it wouldn't generate much 
     revenue because the rich would work less and take bigger 
     deductions: Now there's growing, if still tentative, evidence 
     that Mr. Clinton may have been right after all.
       The recent flood of revenue pouring into Treasury coffers--
     enough to push the federal budget to a record $93.94 billion 
     surplus for the month of April--appears to have come mostly 
     from the nation's biggest earners, indicating that the 
     controversial tax increase may indeed be taking from the 
     rich. ``The available data suggest the surge in tax 
     collections has come from the taxpayers with high incomes, 
     who were the only ones affected by the 1993 changes,'' says 
     Deputy Treasury Secretary Lawrence Summers.
       Corporate taxes, which were increased modestly under the 
     1993 law, also have brought in more revenue, but at about the 
     level the Treasury had been predicting.
       Treasury officials had expected healthy revenue growth from 
     the tax changes all along. After all, the economy has been 
     expanding at a steady clip and unemployment stands at 4.9% of 
     the work force, meaning more people are taking home 
     paychecks, making money on stock options, raking in bonuses--
     and giving the government its cut.


                           surprising amounts

       But the dimensions of the inflows caught officials by 
     surprise. Individual income-tax liabilities rose about 11% in 
     the fiscal year ended Sept. 30, 1995, and a further 12% in 
     fiscal 1996. Data aren't yet available to prove whether those 
     sudden increases came from the poor, the rich or those in 
     between. Treasury officials see convincing signs, however, 
     that upper-income Americans are behind the revenue surge.
       Lower- and middle-income workers usually have their taxes 
     withheld by their employers. Upper-income taxpayers are much 
     more likely to receive year-end bonuses or income from 
     exercising stock options, so they are also more likely to 
     have to send in checks with their returns.
       This year, revenues from those non-withheld taxes are 
     running many billions of dollars above the Treasury's 
     expectations. In April, when individual returns were due, the 
     Treasury took in $110.8 billion in nonwithheld tax revenues, 
     up from $89 billion in April 1996 and nearly twice the $57 
     billion it received in April 1992, before the tax increase 
     took effect.
       ``It turned out we got more revenues than were anticipated 
     and also more revenues than could be explained by the growth 
     of the economy,'' says Eric J. Toder, an economic consultant 
     and Mr. Clinton's former deputy assistant secretary of the 
     Treasury for tax analysis.


                            big debt payment

       Some of the revenue growth could be coming from individuals 
     who are cashing in stock options. And some companies are no 
     doubt deducting those costs from their own taxes. But, on 
     balance, the government is taking in billions more than it 
     had expected, and most of that is in the form of nonwithheld 
     individual income taxes. In fact, revenues have been running 
     so high even conservative budget watchers have reduced their 
     five-year deficit projections by $225 billion. And last 
     month, the Treasury announced the government would pay off 
     $65 billion of the federal debt--the largest such payback 
     ever and $50 billion more than officials had planned just a 
     few months earlier.
       The inflow provides persuasive, if not conclusive, evidence 
     in the continuing debate over the economic impact of the 1993 
     tax increases, which raised marginal income-tax rates to 36% 
     from 31% on taxable incomes between $140,000 and $250,000, 
     and to 39.6% on incomes above $250,000. The law also 
     effectively boosted Medicare taxes on high-income individuals 
     and implemented other changes.
       The package, part of the 1993 budget agreement, drew harsh 
     criticism from the right. Texas GOP Rep. Dick Armey, who is 
     now the House majority leader, predicted dire results. ``Who 
     can blame many second-earner families for deciding that the 
     sacrifice of a second job is no longer worth it?'' he wrote. 
     Then-Sen. Robert Packwood, an Oregon Republican and chairman 
     of the Senate Finance Committee, made this forecast: ``I will 
     make you this bet. I am willing to risk the mortgage on it. . 
     . . The deficit will be up; unemployment will be up: in my 
     judgment, inflation will be up.''


                         Armey Praises Congress

       Mr. Packwood later acknowledged that his prediction was 
     wrong. A spokeswoman for Mr. Armey credits the Republican-
     dominated Congress, not the tax increase, for sparking 
     economic growth and higher tax revenues.
       Other doomsayers, in the face of a booming economy, have 
     softened their predictions. But Martin Feldstein, a Harvard 
     economist and chairman of President Reagan's Council of 
     Economic Advisers, took a more academic approach to analyzing 
     the tax increase he labeled ``a bad mistake.''
       In a 1995 study, Prof. Feldstein, who counts Mr. Summers 
     among his former students,

[[Page S5100]]

     and co-author Daniel Feenberg argued the increase had 
     produced disappointingly little revenue--just $9 billion in 
     1993--while encouraging the rich to work less, deduct more 
     and generally change their behavior to avoid paying more 
     money to the government. In particular, couples with joint 
     incomes of $140,000 to $180,000 were more inclined to seek 
     larger mortgages, take more time off instead of working extra 
     hours or otherwise reduce the amount of income they would 
     have to report as taxable, Prof. Feldstein says.
       Even now, with the Treasury flush, Prof. Feldstein contents 
     that the tax increase has proved to be an unjustified drain 
     on the U.S. economy. The unexpected revenue surge could be 
     due in part to the spectacular performance of the stock 
     market--and executives' stock options--in recent years, he 
     says. Besides, he adds, the budget situation would have been 
     even better without the tax boost.
       That what-if question is a thorny one. Hard data aren't yet 
     available to show whether in fact the tax increase led high-
     income Americans so reduce their taxable income in 1995 and 
     1996.
       But present and former Treasury officials say the recent 
     revenue flood has tilted the debate against Prof. Feldstein 
     and indicates that the tax boost is probably raising large 
     sums from the wealthy.
       ``The basic fact is that people looked at the 1993 budget 
     agreement and said there'd be a recession, the deficit would 
     go way up and that tax collections would go way down,'' says 
     Mr. Summers. ``What has happened is there has been a boom, 
     the deficit has gone way down and tax collections have gone 
     way up.''

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