[Congressional Record Volume 144, Number 136 (Friday, October 2, 1998)]
[Extensions of Remarks]
[Pages E1890-E1891]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ASSESSING TAX CUTS

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Friday, October 2, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Friday, October 2, 1998 into the Congressional Record.

                           Assessing Tax Cuts

       With the new congressional session approaching and a 
     projected $1.6 trillion surplus in the U.S. Treasury over the 
     next ten years, it is not surprising to see Washington 
     politicians crafting and talking about tax cuts which will 
     appeal to constituents. People will naturally be eyeing the 
     several proposals to determine how they affect their own 
     pocketbook. That is an entirely appropriate perspective, but 
     people ought also to be looking at another question: What 
     impact will the tax proposals have on the distribution of 
     income and wealth in the country?
       Broad income trends: Tax proposals need to be assessed in 
     light of two broad trends in our country--the widening income 
     gap between the haves and the have nots, and the difficulty 
     middle-class families have had in improving their status 
     despite the current economic boom.
       There is not much doubt but that the gap between the 
     nation's poorest and richest workers has widened. Adjusted 
     for inflation,

[[Page E1891]]

     the incomes of the poorest fifth of working families dropped 
     by 21% between 1979 and 1995, while the incomes of the 
     richest fifth jumped by 30% during the same time period. So 
     during both good times and bad the gap has grown. Most 
     economists think that a principal reason for the widening gap 
     is technology. Other factors are the erosion over several 
     years of the minimum wage, international trade, the decline 
     of unionization, and immigration. So while the new 
     technologies are creating growth in the economy and new 
     opportunities, they are also increasing economic inequalities 
     and sharpening social divisions.
       In the last few years, lower-income workers have gotten 
     some help from the strong economy and from the 90 cent an 
     hour increase in the minimum wage in 1996. Yet middle-class 
     members overall have not done as well in the race to improve 
     their incomes. At the top and the bottom of the economic 
     ladder, wages have risen briskly but in the middle they have 
     risen more slowly. Computers, technology, and imports have 
     diluted the demand for medium-skilled workers, and corporate 
     downsizing has made middle-income people feel less secure in 
     their jobs and more reluctant to push for wage increases.
       The middle class today is not complaining too visibly 
     because their pay has gone up faster than the inflation rate 
     over the last two years, even if the increase is not as great 
     as the one by lower- and upper-income workers. But the longer 
     the expansion of the economy lasts, the more people will 
     begin to understand their position in the total economy and 
     the less happy they will be. If a recession occurs and the 
     trends continue they will become quite angry.
       Policy choices: There is no shortage of answers to this 
     widening income gap. The best medicine may be steady economic 
     growth and the extraordinarily low unemployment rates we have 
     today that can help push workers' hourly wages up. But 
     several other steps have been proposed. Some people want to 
     remove regulatory barriers, improve school systems, and 
     expand programs to improve workers' skills. Others want to 
     concentrate on tougher trade rules, better anti-poverty 
     programs, and strong labor protections. We need to create and 
     keep good high-wage jobs.
       But it seems to me that we also need to consider carefully 
     the impact of any proposed federal tax cuts. Tax policy 
     should recognize the need to improve the lot of moderate-
     income working Americans. At a minimum it shouldn't worsen 
     the income gap by giving the most benefits to those already 
     very well off.
       The income trends in the American economy are disquieting. 
     The scale of the problem and the dearth of solutions add up 
     to difficult political challenges ahead in the not too 
     distant future. Historically tax policy has helped keep 
     inequality from going too far. Too much inequality almost 
     certainly leads to making societies unstable. There may be 
     little risk of instability at this point, but nonetheless the 
     broader question of the impact of tax cut proposals on the 
     distribution of income and the wealth in society should not 
     be ignored.
       House proposal: The main tax cut currently being considered 
     in Congress is a House proposal to cut $80 billion over the 
     next five years. The biggest tax cuts in the package--
     accounting for three-fourths of its total cost--would provide 
     ``marriage penalty'' tax relief to two-income married couples 
     whose tax liability is higher than if they were single; 
     expand the amount of interest and dividends excluded from 
     income taxes; and move up the date for exempting from 
     taxation estates worth up to $1 million.
       This proposal faces problems in the Senate and a likely 
     Presidential veto because it spends money that we don't have. 
     98% of the projected overall budget surplus is due to the 
     temporary surplus being built up in Social Security in order 
     to help cushion the blow when the baby boomers retire. For 
     now and the next several years the budget is in deficit, 
     other than Social Security. If it were not for Social 
     Security, the federal budget would have an estimated deficit 
     of $137 billion over the next five years.
       Looking at the tax cut bill's impact on the income gap, it 
     has some reasonable provisions, and it is certainly tilted 
     far less toward the wealthy than other recent House-passed 
     tax bills. But it is still not what we would propose if one 
     of our primary concerns was looking out for moderate-income 
     people. For example, it does nothing to address Social 
     Security payroll taxes, even though most lower and middle-
     income workers pay more in Social Security taxes than they 
     pay in federal income taxes. And several of its provisions--
     such as its tax relief for million-dollar estates--benefit 
     primarily upper-income Americans. Overall, the changes in 
     this tax bill would make the tax system less progressive.
       Conclusion: It is inevitable that we will be hearing more 
     proposals to cut income taxes in the days and months ahead. 
     There are many ways to assess proposed tax cuts. But the 
     increasing income gap in America suggests to me that it may 
     be time for us to ask what they mean for the country, not 
     just for each of us as individuals. That's not an easy 
     question to answer, but in light of recent economic trends it 
     appears to me to be an important factor in making a judgment 
     on tax cuts.

     

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