[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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