[Congressional Record Volume 144, Number 138 (Tuesday, October 6, 1998)]
[Senate]
[Pages S11570-S11571]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      ENSURING ECONOMIC PROSPERITY

  Mr. ABRAHAM. Mr. President, I rise today to make a few observations 
regarding the state of the American economy and the steps policy makers 
should take to ensure continued prosperity in the future.
  Right now we have some good news about the state of the economy. 
Overall employment growth is strong. Unemployment is low at 4.5 percent 
nationally and an even lower 3.9 percent in my home state of Michigan. 
Family incomes continue to rise. And the technological and information 
age revolution continues to increase productivity and wealth throughout 
America.
  Hi-tech companies in particular are growing fast and creating 
thousands of spin-off jobs. Economist Larry Kudlow reports that the 
hardware and software industries combined account for about one third 
of real economic growth. What is more, this industry is increasing 
productivity throughout our economy in ways we can't even measure.
  So, on the surface things look pretty bright right now, Mr. 
President. But there are economic storm clouds on the horizon. Stock 
market investors are riding a roller coaster of volatility. The August 
Employment Report from the Bureau of Labor Statistics shows a drop in 
manufacturing jobs of 55,000--indeed, the number of manufacturing jobs 
in this country has declined for 5 straight months. Bankruptcies have 
accelerated. On the international front, the Russian economy is in deep 
distress. And our Asian economic partners continue in a state of crisis 
that threatens our balance of payments and our general economic health.
  As Federal Reserve Chairman Greenspan noted recently in a speech at 
the University of California at Berkeley, ``it is just not credible 
that the United States can remain an oasis of prosperity unaffected by 
a world that is experiencing greatly increased stress.''
  I wholeheartedly concur in Chairman Greenspan's analysis. And that is 
why I believe it is necessary for us to look closely and seriously at 
our current economic policies so that we can face coming economic 
uncertainties from a position of strength. We must, in my view, address 
a number of problems in current policy, lest they undermine continued 
economic growth and prosperity.

[[Page S11571]]

  To begin with, Mr. President, we should consider the current state of 
our monetary policy. The Fed's recent quarter point cut in the federal 
funds (or overnight lending) rate was followed by a significant drop in 
the stock market. A number of analysts have observed that this may have 
been caused by investors' conviction that, even with the cut, short 
term interest rates remain too high, and that the Federal Reserve 
should seriously consider cutting them further.
  The fed funds rate remained at 5.5 percent for two and a half years 
despite a drop in inflation to 1.7 percent. Even at its current 5.25 
percent, the real, after-inflation rate is about 3.5 percent--much 
higher for example than between 1992 and 1994, when it was only 0.6 
percent.
  Chairman Greenspan, along with former Chairman Paul Volcker, deserve 
great credit for reducing inflation through sound monetary policies. 
But real interest rates have remained high in the face of indications 
that we may be entering an era of deflation, and this cannot continue 
if we are to maintain price stability and a strong economy.
  Gold prices have fallen by more than 30 percent since early 1996. 
Commodity prices have fallen to 21 year lows. Corporate profits have 
declined on a year-over-year basis for the first time in a decade. Farm 
prices are plummeting.
  What is more, Mr. President, a number of economies in recent months 
have experienced significant currency devaluations. These devaluations 
have produced increasing demands for U.S. dollars. But, by keeping 
short term interest rates high, the Fed has refused to supply these 
dollars, precipitating a liquidity crisis around the globe.
  I firmly believe that the best environment for business, workers, and 
consumers is one of price stability. Price stability allows for 
accurate planning and investment over the long term. But price 
stability requires that we avoid both extremes, of deflation as well as 
inflation.
  Monetary policy is a matter for Alan Greenspan and his colleagues at 
the Federal Reserve. But it is my hope that they will examine the 
overall economic picture and conclude that it is time to lower interest 
rates in the interests of long term price stability and global economic 
growth.
  We should not look solely to the Fed, however, in seeking to ensure 
prosperity for the future. In addition to excessively tight monetary 
policy, the American economy and the American people are being put at 
risk from too-tight fiscal policy. Specifically, Mr. President, the 
current high and rising federal tax burden is keeping the economy from 
reaching its full potential.
  In 1997 federal taxes took 20 percent of the Gross Domestic Product 
of this country, the highest percentage since World War II. Federal 
taxes on the American people increased by almost a third in just four 
years--going up from $1.2 trillion in fiscal year 1993 to $1.6 trillion 
over the course of President Clinton's first term. In 1997 Americans 
paid 45 percent more in income taxes than they had in 1993. And, unless 
we act, this burden will increase. During the fourth quarter of 1997 
federal receipts approached a record 22 percent of GDP.
  Neither the American people nor the American economy can sustain this 
crushing tax burden. It discourages people from working, saving, 
investing, and engaging in the entrepreneurial activities that keep our 
economy growing. It must be lowered substantially, expeditiously, and 
in a way that encourages economic growth.
  Early on in the next Congress, Mr. President, I believe we should 
seriously consider significant pro-growth tax cuts, including:
  Using revenues from our budget surplus to save Social Security and 
encourage investment by lowering the payroll tax and allowing workers 
to put some of their own money in Personal Retirement Accounts.
  Marriage penalty tax relief.
  A capital gains tax rate reduction, perhaps to 15 percent as proposed 
by Majority Leader Lott.
  Estate tax relief.
  Widening the current 15 percent income tax bracket to apply it to all 
middle class American families.
  Expanding tax free savings accounts for education, health care, and 
retirement.
  Reducing income tax rates across-the-board--perhaps up to 10 percent, 
and allowing businesses to more quickly write-off the costs for 
investment in plant and equipment. This pro-growth tax incentive would 
be especially beneficial to America's struggling manufacturing sector.

  These tax suggestions are neither new nor radical, Mr. President. But 
it is time for us to implement them. They would spur savings and 
investment, and encourage work and entrepreneurial activity, assuring 
economic growth.
  But they are not enough. Over the long term, Mr. President, we must 
move toward more fundamental tax reform. We need to design an income 
tax that applies a lower rate to income, reduces the current bias 
against saving and investment, lowers the tax burden on working 
families, simplifies the code, and reduces the cost of compliance. Only 
this kind of fairer, flatter, simpler and more investment-friendly tax 
system can give us the sound fiscal policy we need to build a bright, 
sustainable economic future.
  Congress needs to institute other pro-growth reforms as well.
  We must reform our tort system to lower the ``tort tax'' from 
frivolous lawsuits. The Rand Corporation recently reported that the 
average lawsuit costs a company $100,000. Thus even a frivolous lawsuit 
can put a small company out of business, and a good number of workers 
out of a job.
  We need to institute serious cost-benefit analysis for federal 
regulations and federal unfunded, private sector mandates. Regulations 
cost our economy $647 billion per year, according to the GAO, and that 
is simply too much.
  We have to do more to improve our children's education so that they 
can qualify for good paying jobs in our technological, information age 
economy.
  We have to bring in a limited number of highly trained immigrants to 
fill some of the important positions our high-tech companies cannot 
currently fill and to help us solve the year 2000 or ``Y2K'' problem 
before it damages our economy.
  And within the next few days the Senate will pass and President 
Clinton will sign the American Competitiveness and Workforce 
Enhancement Act. This legislation will increase the number of temporary 
high-tech visas and provide scholarships and job training so that more 
Americans can gain the skills necessary to fill these positions in the 
long term.
  We also must continue to build on America's pro-free trade 
tradition--by extending fast track negotiating authority, and 
aggressively negotiating trade agreements that open markets for 
American products.
  We must reform the lending policies of the International Monetary 
Fund. All too often, the Fund requires developing countries to raise 
taxes and devalue currencies as a condition for receiving loans. These 
anti-growth policies only worsen a developing country's economic and 
debt problems. The Fund should instead promote policies that spur 
economic growth in these countries--lower tax rates, free markets, the 
rule of law, and sound currencies.
  In general, Mr. President, we must do more to encourage hard work and 
entrepreneurship so that all of us can benefit from the income and the 
jobs they create.
  Through prudent steps ensuring price stability and reducing 
governmental burdens on the private sector, we can sustain economic 
growth for the foreseeable future. But the time to act is now. The 
warning signs are there for us to see. I hope we will not wait until it 
is too late.
  I plan to work for pro-growth reforms whenever and wherever possible. 
I believe it is my duty to the people of Michigan, as it is our duty to 
the people of America, to safeguard their economic security by 
unleashing the entrepreneurial spirit that built this nation, and that 
can build a bright future of growth and opportunity.
  I yield the floor.
  Mr. LOTT. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. 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 (Mr. Gorton). Without objection, it is so 
ordered.




                          ____________________