[Congressional Record Volume 143, Number 74 (Tuesday, June 3, 1997)]
[Senate]
[Pages S5271-S5272]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               THE BUDGET

 Mr. KYL. Mr. President, I rise to speak for a few minutes 
today about the budget that passed the Senate a week-and-a-half ago--a 
budget that I opposed. In particular, I want to discuss what appears to 
have made it possible for congressional leaders and the White House to 
bridge their differences and produce a budget agreement that allegedly 
leads to balance by the year 2002.
  Mr. President, it seems to me that it was a projected $225 billion 
surge of revenue from a strong and growing economy--an extra $45 
billion in each of the next 5 years--that helped bridge the gap. 
Without that additional revenue, which was identified by the 
Congressional Budget Office the night before the agreement was reached, 
no deal would have been possible.
  Of course, the negotiators did not reach balance by applying that 
revenue windfall to deficit reduction or tax relief, as you might 
expect. Most of it was used instead to accommodate higher levels of 
spending demanded by President Clinton and even some in Congress. In 
other words, balance would be achieved, but at a level of spending $45 
billion higher per year than if all the additional revenue were applied 
to deficit reduction or tax relief alone. The fact that the budget deal 
enlarges Government is one reason why I voted against it.
  Still, the budget negotiators rightly identified a thriving economy 
as one of the keys to solving our Nation's chronic deficit problem. And 
unlike previous budget agreements, they looked to economic growth to 
provide the additional revenue, avoiding the trap of tax increases, 
which limit the economy's potential and, in turn, make it harder to 
eliminate the red ink. They even found a way to provide a limited 
amount of tax relief.
  But with the deal so dependent upon economic growth, and no 
significant changes in policy to prevent the already lengthy expansion 
from running its course within the next few years, many of us believe 
that it will be difficult, if not impossible, to ever realize the extra 
revenues that the budget agreement depends on to bring the budget into 
balance.

[[Page S5272]]

  As you know, Mr. President, the agreement itself provides no tax 
cuts--no family tax credit, capital gains relief, death-tax relief, or 
education tax credit. It merely establishes the overall size of the tax 
cut that Congress will begin writing in a few weeks. It permits a net 
tax cut of $85 billion over the next 5 years--a minuscule amount 
considering that the Treasury will collect an estimated $8.6 trillion 
over that time period.
  Considering that even the modest tax-cut package congressional 
leaders proposed earlier this year--a $500-per-child tax credit, a 50-
percent cut in the capital-gains tax, estate-tax relief, and expanded 
Individual Retirement Accounts--will cost an estimated $188 billion, it 
is doubtful that Congress will be able to provide even that level of 
relief. It is more than twice the net tax cut allowed by the agreement. 
The limited amount of tax relief is another reason that I voted against 
the budget agreement.
  Rather than spread tax relief so thin that it does no one much good, 
some of us are now suggesting that we focus relief on just a few things 
that will do the most good for the economy overall--that is, on capital 
formation. After all, not one business can begin, not one company can 
expand, not one new job can be created, not one wage can be increased 
without the capital to start.
  With that in mind, the single best thing we could do would be to 
provide a deep reduction in the tax on capital gains. Ideally, the 
reduction should match that which was recommended by Democratic 
President John F. Kennedy as part of his economic growth plan in 1963--
a 70-percent exclusion for gains earned by individuals, and an 
alternative tax rate of 22 percent for corporations. Ironically, 
President Kennedy's plan, which I introduced this year as the Capital 
Gains Reform Act, S. 72, proposed even deeper capital-gains cuts than 
the Republican Congress passed a year-and-a-half ago.

  Capital-gains reform will help employers and employees. The American 
Council for Capital Formation estimates that a Kennedy-like plan would 
reduce the cost of capital by at least 8 percent, leading to as many as 
150,000 new jobs a year.
  It will also help the Treasury. Between 1978 and 1985, the top 
marginal tax rate on capital gains was cut by almost 45 percent--from 
35 percent to 20 percent--but total individual capital gains tax 
receipts nearly tripled--from $9.1 billion to $26.5 billion annually. 
That may come as a surprise to some people, but the fact is that when 
tax rates are too high, people merely hold on to their assets to avoid 
the tax altogether. No sale, no tax. But that means less investment, 
fewer new businesses and new jobs, and--as historical records show--far 
less revenue to the Treasury than if capital-gains taxes were set at a 
lower level.
  Research by experts at the National Bureau of Economic Research 
actually indicates that the maximizing capital-gains tax rate--that is, 
the rate that would bring in the most revenue to the Treasury--is 
somewhere between nine and 21 percent. The Capital Gains Reform Act, by 
virtue of the 70 percent exclusion, would set an effective top rate on 
capital gains earned by individuals at about 12 percent.
  President Clinton recognized the importance of lessening the capital-
gains tax burden by proposing to eliminate the tax on most gains earned 
on the sale of a home. That is a step in the right direction, but if a 
capital-gains tax cut is good for homeowners, it should be good for 
others who save and invest as well. I believe we ought to follow the 
Kennedy model and provide a permanent, broad-based capital-gains tax 
cut.
  Mr. President, estate-tax relief is the second item that should be 
accommodated within the limited amount of tax relief available under 
the budget agreement. I have proposed that such death taxes be repealed 
outright, as recommended by both the Clinton-sponsored White House 
Conference on Small Business in 1995 and the Kemp tax-reform commission 
in 1996.
  The respected liberal Professor of Law at the University of Southern 
California, Edward J. McCaffrey, recently observed that polls and 
practices show that we like sin taxes, such as on alcohol and 
cigarettes. ``The estate tax,'' he went on to say, ``is an anti-sin, or 
a virtue, tax. It is a tax on work and savings without consumption, on 
thrift, on long-term savings.'' The estate or death tax thus 
discourages the very activity that is necessary to help our economy 
grow and prosper.
  The tax is particularly harmful to small businesses, including those 
owned by women and minorities. It is imposed on a family business when 
it is least able to afford the payment--upon the death of the person 
with the greatest practical and institutional knowledge of that 
business's operations. It should come as no surprise then that a 1993 
study by Prince and Associates--a Stratford, CT consulting firm--found 
that 9 out of 10 family businesses that failed within 3 years of the 
principal owner's death attributed their companies' demise to trouble 
paying death taxes.
  In other words, instead of passing a hard-earned and successful 
business on to the next generation, many families have to sell the 
company in order to pay the death tax. The upward mobility of such 
families is stopped in its tracks. The proponents of this tax say they 
want to hinder concentrations of wealth. What the tax really hinders is 
new American success stories.
  The Heritage Foundation estimates that repeal will, over the next 9 
years, spur $11 billion per year in extra output, lead to the creation 
of an average of 145,000 additional jobs, and increase personal income 
$8 billion a year over current projections.
  Mr. President, I know that my two bills--one providing a deep 
reduction in the capital gains tax, and the other eliminating death 
taxes--will probably not pass in their current form. The small amount 
of tax relief allowed by the budget agreement will not permit it if we 
are to provide child-tax credits, education credits, and other tax 
relief as well. But it is capital-gains and estate-tax reform that 
could help keep the economy on track, producing the revenues needed to 
bring the budget into balance.
  As President Kennedy put it, ``An economy hampered with high tax 
rates will never produce enough revenue to balance the budget, just as 
it will never produce enough output and enough jobs.'' Capital-gains 
and estate-tax relief should be at the top of the list when it comes 
time for Congress to write a tax bill in the coming weeks.

                          ____________________