[Congressional Record Volume 144, Number 136 (Friday, October 2, 1998)]
[Senate]
[Pages S11321-S11324]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAX CUTS
Mr. BYRD. Mr. President, as all Senators are aware, at midnight on
Wednesday, September 30, Fiscal Year 1998 expired. And with the
expiration of the fiscal year came some most welcome and almost
unbelievable news that, for the first time since 1969, the unified
Federal budget was in surplus for Fiscal Year 1998. We do not know the
exact figures yet. That will not be known until the Treasury Department
completes its calculations of actual revenues and expenditures that
occurred up through midnight, September 30, but we do know that the
latest estimate by the Congressional Budget Office of that unified
budget surplus is $63 billion. The President has announced that the
official administration projection of the Fiscal Year 1998 unified
budget surplus is about $70 billion. This unified budget surplus,
whether it be $63 billion, or $70 billion, or some other figure, is a
result of a dramatic turnaround from the massive budget deficits that
were projected just a few short years ago.
Who should be given the lion's share of the credit for this dramatic
turnaround in the country's fiscal fortunes? The President wants to
claim a large share of the credit. The Republican-led Congress likes to
say that things did not really change until they took over
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control of the House and Senate, and that they deserve the majority of
the credit. Many financial analysts give a substantial amount of the
credit to the policies of the Federal Reserve, which have attempted to
manage the country's fiscal fortunes through adjustments in interest
rates.
Suffice it to say, credit should be given to all of the above.
Speaking from first-hand experience, I believe that Congress does
deserve substantial credit for the turnaround from the triple-digit-
hundred-billion-dollar deficits of the twelve years under Presidents
Reagan and Bush. Those triple-digit deficits accumulated to the point
where the nation's debt rose from just under $1 trillion on the day
that President Reagan took office to more than $4,097,000,000,000 on
the day that President Bush left office. In other words, in the entire
history of the country, from the day that President George Washington
took office to the day that President Reagan took office, the nation's
accumulated debt amounted to less than $1 trillion. Twelve years
later--the day that President Bush left office, it stood at
$4,097,000,000,000.
Throughout the period of the 1980s, Congress attempted to rein in
these massive Federal deficits, for example, with the Gramm-Rudman-
Hollings sequester mechanism that was part of the 1985 Balanced Budget
and Emergency Deficit Control Act. This mechanism, Senators may recall,
required an across-the-board sequester of all Federal programs (with
few exceptions) sufficient to bring down any deficits that exceeded
those provided for in annual budget resolutions. In 1990, it became
clear that the sequester that would be necessary to achieve the
requirements of Gramm-Rudman-Hollings would have decimated the entire
Federal establishment, including a cut in the budget of the Department
of Defense ranging between 25 and 35 percent. Rather than allowing
those sequesters to proceed, Congress and the Bush Administration had
no choice but to convene what turned out to be a very lengthy and
difficult budget summit. I participated in that summit, as did a number
of my Senate colleagues who are still in the Senate--Senators Domenici
and Gramm, for example. After many months, including weekends and
around-the-clock sessions at Andrews Air Force Base, that summit
resulted in substantial changes in our budget discipline which have
played a positive role in helping to rein in Federal deficits since
their inception in 1990.
Under those mechanisms, sequesters of not only discretionary funds
take place when so-called discretionary caps are exceeded, but also,
for the first time, mandatory programs are under a pay-go system as
well. Under the Budget Enforcement Act of 1990, any new mandatory
spending must be fully offset. That 1990 Act also put in place a
process for considering emergency spending, which is allowed to go
forward outside the budgetary caps, if such spending is declared an
emergency by both Congress and the President.
By and large, that emergency mechanism, I believe, has been
beneficial and has been used in accordance with the intentions of the
summiteers. That emergency designation is allowed for spending outside
the caps for events that are sudden, urgent, unforeseen, and not
permanent. Such events include natural disasters, military deployments
around the world, and so forth.
The fact that the 1990 Budget Enforcement Act has been successful is
not just the opinion of this Senator. It is shared by many, including
the Chairman of the Federal Reserve Board, Alan Greenspan, who in
recent testimony before the Senate Budget Committee, made the following
statement in relation to that legislation, and I quote:
I think that--frankly, much to my surprise, as I think I
have indicated to you over the years, that the budgetary
processes, which were put into place by the Congress a number
of years ago, have worked far better than I would have ever
anticipated them working. And I would be quite chagrined if
we abandoned them because when you have a good thing, it
seems rather pointless to dismantle it.
I think those words by Mr. Greenspan are right on the mark.
Subsequent to the 1990 changes in the Budget Act and the Gramm-
Rudman-Hollings law, I believe that credit should also be given to
those who voted for the 1993 budget package which passed each House of
Congress by a one-vote margin and without a single vote from the
Republican side of either body. That package was anathema to the
Republicans. Yet, despite the dire predictions of economic doom which
came from the Republican side of the aisle at the time, the economy has
performed very, very well ever since the enactment of that legislation.
All of those who have been involved in reducing Federal deficits can be
justifiably proud of what is now a unified budget surplus for Fiscal
Year 1998 in excess of $60 billion.
But, while we are basking in the glow of high praise and compliments
all around, we must also take a heavy dose of realism. For reasons that
I shall now attempt to explain in some detail, this is not the time to
abandon the fiscal discipline we have undertaken for a number of years.
I believe very strongly that any budget surpluses in the coming decade
should be used for retiring the Federal debt, rather than for massive
tax cuts or increases in Federal spending.
Mr. President, on July 15, 1998, the Congressional Budget Office
issued its summer baseline projections for Fiscal Years 1998-2008 for
the unified Federal budget. Now, let me stop here and explain what the
term ``unified Federal budget'' means. The unified Federal budget
includes not only the operating budget of the various departments and
agencies throughout the Federal government, but it also includes the
Postal Service and--get this--Trust Fund surpluses, the most important
one of which is--guess what--the Social Security Trust Fund. By
including these Trust Fund surpluses in the unified budget, one ignores
the fact that none of the Trust Fund surpluses is available for
anything other than the purposes for which the Trust Funds
were established. In other words, it is to a large extent misleading
and certainly amounts to budgetary wizardry to count these Trust Fund
surpluses when one says that there is an overall unified Federal budget
surplus. Nevertheless, for the moment, let us talk about what has
happened to the projections of our Congressional Budget Office experts
as far as they relate to the unified Federal budget between the period
March 15, 1998, and July 15, 1998.
The unified budget surplus projections for the 11-year period 1998-
2008 provided to Congress in March of this year by the Congressional
Budget Office totaled $679 billion.
Let me say that again.
The unified budget surplus projections for the 11-year period 1998-
2008 provided to Congress in March of this year by the Congressional
Budget Office totaled $679 billion.
By July 15, 1998, just 4 months after its March 1998 projections, the
Congressional Budget Office sent to Congress its summer report, which I
have. In that report, CBO projects that unified budget surpluses for
the period 1998-2008 will total more than $1.6 trillion. That is a
change of some $932 billion in surplus projections for the next 11
years. So over a period of just 120 days, from March 15, 1998, to July
15, 1998, the Congressional Budget Office changed its projections of
unified budget surpluses for the next 11 years from $679 billion to
$1.611 trillion.
What caused the Congressional Budget Office, our premier independent
budgetary experts, to make such a massive change in budget surplus
projections in such a short time? The best that we have been able to
determine is that the largest the contributor to the upward revision of
future surpluses resulted in a change in CBO's treatment of revenues.
Previously, CBO had argued that there had been a surge of unexpected
revenues in the recent past, but that such surge was temporary. Now
they argue that there are good reasons to think that this unexpected
surge in revenues will continue indefinitely. This results in an ad hoc
addition of approximately $50 billion each year of the latest 11-year
budget forecast.
Does this mean, Mr. President, that the Congressional Budget Office
is inept and that perhaps the Congress should seek the services of
another budget prognosticator? Certainly not. Rather, my purpose in
highlighting this significant change in estimates is to support my
belief that, in all decisions affecting revenue and spending
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for future years, we must tread carefully on the planks of budgetary
estimation. Like an old man crossing a footbridge strung over a chasm,
only a small misstep can mean the difference between a successful
crossing and spectacular failure.
CBO would be the first to tell you that they have consistently missed
budgetary forecasts, as has the Office of Management and Budget. That
is to be expected. No human being can ever predict accurately what
revenues will come into the Treasury in a given year, or what
expenditures will go out of the Treasury, or what the unemployment rate
will be, or what the inflation rate will be, or whether there will be a
recession, or the duration and virility of recessions. In short, Mr.
President, there is no reason to believe that the CBO's current
forecast of the budgetary picture over the upcoming 10 years will be
any more accurate than have been its previous forecasts. Also, very
importantly, Senators should remember that budgetary estimates can
rapidly change and they can change for the worst, just as they have
turned for the better in recent years. We saw this firsthand during the
early 1990s when we suffered a severe and lengthy recession; there is
no reason to think that it cannot happen again. There is no reason to
think that it will not happen again. Consider the remarks of the
Chairman of the Federal Reserve Board of Governors, again, Mr. Alan
Greenspan, at a recent hearing by the Senate Budget Committee. This is
what he said:
According to CBO's figures, a recession comparable to the
1991 downturn would eliminate the unified surplus and create
a budget deficit of more than $50 billion within 2 years.
Over the next 10 years, more than half of the $1.5 trillion
in projected unified surpluses would be eliminated.
That was Mr. Greenspan talking.
With this in mind, we should never underestimate just how
unpredictable and capricious budget projections can be.
In virtually every CBO report, cautionary statements are made, such
as the following, which is included in the CBO's most recent budget
update:
. . . there is a risk that future events will cause a
significant divergence from the path laid out in the new
forecast. The economy could be more adversely affected by the
Asian crisis than CBO assumes; the tightness of the labor
market could cause a significant jump in the rate of
inflation; or the stock market could drop precipitously.
We have seen that happen all too many times of late.
Conversely, the Asian crisis could have little additional
effect on the United States; productivity growth might remain
higher than CBO anticipates, which would permit a
continuation of rapid noninflationary growth and stronger
profits; or labor force participation rates might again
increase rapidly, easing pressures on the labor market for a
few years. Such alternative outcomes could have a substantial
effect on the budget, increasing or decreasing its bottom
line by $100 billion or more in a single year.
That is the end of the quotation.
To this point, Mr. President, I have concentrated my remarks on the
``unified Federal budget'', which, as I stated earlier, combines not
only the operating budget of all Federal departments and agencies, but
also the Postal Service and Trust Fund surpluses. In so doing, the
unified Federal budget hides from view the question of whether, in its
operations, the Federal budget is in deficit or is in surplus.
Let us now look at a couple of other Federal budget calculations that
are available to us through the Congressional Budget Office. What, for
example, are CBO's baseline projections for the next 5 years for on-
budget deficits or surpluses? On-budget calculations, it should be
noted, exclude Social Security surpluses and the Postal Service, which,
I might add, are supposed to be treated as off-budget by law. CBO's on-
budget calculations project that we will suffer deficits for Fiscal
Years 1999, 2000, 2001, and 2003. In other words, if one leaves Social
Security surpluses and the Postal Service out of the budget
calculations, there is no surplus at all until the year 2002, at which
time CBO says there will be a $1 billion on-budget surplus.
Let me read that again. CBO's on-budget calculations project that we
will suffer deficits for Fiscal Years 1999, 2000, 2001, and 2003. In
other words, if one leaves Social Security surpluses--we are talking
about Social Security surpluses. We are talking about something that
interests a lot of people, something that involves millions of people
in this country, something that is of concern to the great mass of
people out there, old and young, women, men, children--if one leaves
Social Security surpluses and the Postal Service out of the budget
calculations, there is no surplus at all until the year 2002, at which
time CBO says there will be a $1 billion on-budget surplus. Deficits
for the other fiscal years total $138 billion. Therefore, over the
coming 5 budget years, CBO projects that, if we exclude Social Security
surpluses and the Postal Service--if we exclude them--we will suffer
deficits in 4 of those years totaling $138 billion and a surplus of
only $1 billion in one year--2002--making a net on-budget deficit over
the next 5 years of $137 billion.
Hence, it becomes obvious that for the next 5 years, there is no
Federal budget surplus at all if one excludes Social Security and the
Postal Service from the calculation. In fact, there is a net deficit of
over $130 billion.
Now, let us take a look at CBO's calculations of what is called, in
budgetary terminology, the ``Federal Funds Budget.'' This budget, by
definition, excludes not only Social Security and the Postal Service
but all Trust Funds. In other words, the Federal funds budget excludes
Social Security, the Postal Service, the Highway Trust Funds, the
Airport and Airway Trust Funds, the Medicare Trust Funds, the Civil
Service and Military Retirement Trust Funds, the Unemployment Trust
Funds, and many, many more. CBO's projections are that we will have
Federal funds deficits for 9 of the next 10 years. For that period,
Fiscal Years 1999-2008, Federal funds deficits are projected to total
$592.2 billion. Over that period, only the year 2008 is projected to
show a small surplus.
What this means is that when all obligations of the Federal
Government are taken into account, including the IOUs to all Federal
Trust Funds, we will not have any surplus until the year 2008--even if
these new, rosy CBO forecasts come true, and even if Congress restrains
itself from spending any of those projected surpluses or cutting taxes.
Now, let us shift our attention to a discussion of the National Debt.
Federal Debt is divided into two categories--namely, Debt Held by the
Public and Debt Held by Government Trust Funds. Under present policies,
CBO's latest projections show that Debt Held by the Public will
decrease from $3.7 trillion in 1998 to $2.3 trillion in 2008.
This is so because Debt Held by the Public does not include any of
the debt owed by the Treasury to Federal Trust Funds. Therefore, if
CBO's $1.6 trillion in projected unified budget surpluses come to pass,
those surpluses will go toward reducing Debt Held by the Public.
However, Debt Held in Government Trust Funds will rise, according to
CBO, from $1.8 trillion in 1998 to $3.9 trillion in 2008. In other
words, the surpluses in the Government Trust Funds that I have
previously named will continue to grow and add to the debt owed by the
U.S. Treasury to those Trust Funds. When one combines both types of
Federal debt, namely, Debt Held by the Public and Debt Held in
Government Trust Funds, one arrives at what is known as Gross Federal
Debt. This, to me, represents the truest picture of the debts being
incurred by the Federal Government that will eventually have to be
paid. CBO projects that Gross Federal Debt will rise from $5.475
trillion in 1998 to $6.222 trillion in the year 2008. In other words,
even if all of the projected surpluses of CBO come true over the next
11 years, and even if all of the $1.6 trillion in projected budget
surpluses come true, we will still face a massive mountain of Gross
Federal Debt which will have grown from $5.5 trillion to $6.2 trillion
over this same period.
Mr. President, I have attempted in these remarks to paint a realistic
picture of the condition of the Federal budget, including a true
picture of whether we are incurring deficits or surpluses and whether
we are increasing or decreasing overall Federal debt in the coming 10
years. It should be perfectly clear to any rational person that there
is no real surplus and that, even if CBO's latest 10-year forecast
proves to be accurate and if Congress restrains itself from cutting
taxes--there is a great hue and cry, a great
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push for cutting taxes--even if Congress restrains itself from cutting
taxes or increasing spending, Gross Federal Debt will continue to rise
by some $700 billion, even under CBO's rosy scenarios. Furthermore,
this could all change massively, as I have pointed out, with one
recession like the one suffered by the Nation in the early 1990s.
It is against this backdrop that the House recently passed what they
call the ``Taxpayer Relief Act of 1998.'' According to the Joint
Committee on Taxation, this House-passed tax cut would reduce Federal
revenues by $80 billion over the next 5 years and by $176 billion over
the next 10 years. Keep in mind that tax cuts, once enacted, are
permanent and the loss in revenues to the U.S. Treasury continue not
just for 5, 10, or 15 years, but forever, unless they are repealed.
So, if the Congress lost its collective mind, and if the President
joined Congress in losing our collective mind and signed such a
reduction in revenues, those permanent tax cuts would come to pass
regardless of whether CBO's latest projections of unified budget
surpluses come true or not. Furthermore, we should keep in mind that
over the next 5 years, there is no budget surplus at all--none--if one
excludes the Social Security Trust Fund surpluses from the
calculations. In effect then, the House-passed tax bill uses Social
Security to pay for its $80 billion, 5-year cost to the Treasury.
We should also keep in mind that the Gross Federal Debt is going to
continue to rise even without any tax cut. It follows that such a tax
cut would increase the Federal debt by $80 billion over the next 5
years; by $176 billion over the next 10 years; and by ever-increasing
amounts each year thereafter.
It should be noted, Mr. President, that the House-passed tax cut bill
is in direct violation of the 1990 Budget Enforcement Act. That Act, as
I stated earlier in my remarks, requires that any increase in mandatory
spending or any tax cuts must be fully offset under what is called the
``Pay-As-You-Go'' rules. Those rules, which have been wisely extended
through the year 2006 by the Budget Enforcement Act of 1997, allow for
a point of order against any such un-offset tax cut. This means that
the House-passed tax bill when, and if it comes before the Senate, will
be subject to a 60-vote point of order.
I hope that Senators will come to their senses on both sides of the
aisle and do what they know is right for the American people and vote
against any tax bill that reduces Federal revenues, keeping in mind
that even if all of the projected surpluses of CBO come true over the
next 11 years, and even if all of those surpluses are applied to the
Federal debt, we will still have massive Gross Federal Debt, which will
grow from $5.5 trillion to $6.2 trillion over this same period. To
fritter away billions of dollars at this time on massive tax cuts would
be the height of irresponsibility and would signal to all the world
that we cannot be relied upon to rid this great Nation of not only its
deficits, but also its gigantic national debt as well. And that should
be our solemn goal. It is ironic that after struggling mightily to
overcome the 12 years of recordbreaking, triple-digit-billion-dollar
Federal budget deficits under Reagan and Bush, the Republicans are now
calling for cutting Federal revenues by huge amounts based on what
could turn out to be flimsy projections by the Congressional Budget
Office, which, even if they come true, will have done little more than
put a small dent--just a small dent--in overall Federal debt.
Mr. President, you do not need any poll to do the right thing here. I
say to Senators, this is a no brainer.
Mr. President, I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Coats). The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. McCAIN. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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