[Congressional Record Volume 147, Number 41 (Monday, March 26, 2001)]
[Senate]
[Pages S2918-S2921]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                TAX CUT

  Mr. GRAHAM. Mr. President, I am going to use this time at this late 
hour, not to talk about the subject that has been before the Senate 
most of the day but, rather, to an issue that I think is dominating the 
attention of the American people even more than the question of 
campaign finance reform, and that is what is happening in their 
wallets, what is happening to their economic well-being.
  We went through a long Presidential campaign in the year 2000. During 
that campaign there was considerable discussion about tax policy, 
fiscal policy, the direction of the economy. Each of the candidates 
tended to mark out their own position.
  Then Governor Bush basically said, beginning before the Iowa caucuses 
in January of 2000, that taxes were too high; that the surplus was 
generating more money than the Federal Government could intelligently 
utilize, and therefore a significant amount of that surplus should be 
returned to the taxpayers. He laid out a specific plan to return $1.6 
trillion of an estimated $5.6 trillion surplus; about a $2.6 trillion 
surplus minus the Social Security and Medicare trust fund.
  The Democratic candidate, Vice President Gore, said we should have a 
tax policy targeted to achieve a set of specific economic and social 
purposes. They ranged from education to encourage more people to send 
their children to college, to continue their own personal education in 
a changing economy, to energy conservation: How could we use the Tax 
Code to encourage a set of incentives for conservation?
  I suggest that just as the long campaign of 2000 finally ground 
itself to an

[[Page S2919]]

end, those arguments have, similarly, ground themselves to an end. What 
we have come to realize is that the issue no more is how to return an 
unending gusher of surpluses or how to target in a very clinical, 
almost surgical sense, tax relief in order to achieve specific economic 
and social purposes; rather, the question before us now is, What should 
the National Government be doing in a time of unexpected economic 
slowdown?
  We even had, in the period of the transition, the Vice President-
elect state the ``R'' word. He began to use the suggestion that we 
might be in or close to a recession.
  If that is true, and if we are clearly--as we are--in a slowdown, and 
if in fact we are moving to an even more serious economic situation, it 
is largely because consumers have suddenly lost confidence in their own 
future and in our Nation's economic future, and they have stopped 
spending. Since two-thirds of the Nation's economic output is 
predicated on the ability of consumers to spend and consume that 
output, that starts a process of a downward cycle. Spending slows on a 
grand scale. The economy slows. Layoffs begin. Pay cuts materialize. 
The cycle intensifies. The disease that may have started out largely in 
our heads is now in our bank accounts.
  Colleagues, we are in the throes of that illness today.
  Just a few statistics over the past couple of months:
  Layoffs totaling 275,000 jobs have been announced, and they have been 
announced from some of the businesses that we regard as the mainstays 
of America's consumer economy, such as last week's announcement of 
Procter & Gamble. This bad news has led to a 35-point plunge in the 
consumer confidence index from an all-time high of 142.5 just as 
recently as September of 1995.
  I think the good news in this dreary circumstance is that we do not 
have to stand on the sidelines as spectators and let the hand of the 
market control our destiny. We have the ability to take some steps that 
would soften the impact of a declining economy that might be able to 
even buy an economic insurance policy to protect us against an 
unnecessarily long or deep economic decline.
  Part of that ability is being exercised by the Federal Reserve Board 
as it has started the process of ratcheting down the interest rate 
increases which it ratcheted up over the preceding couple of years.
  We also have the opportunity to play a role not as a spectator but as 
a participant through our control of fiscal policy.
  In the past, Democrats would have said the fiscal policy that we want 
to follow is one to accelerate spending: Let's spend more money as a 
means of generating greater economic activity. Today, some of us who 
are the descendents of the Presiding Officer's noble son, Thomas 
Jefferson, believe that the step we need to take to stimulate the 
economy is to put additional dollars in the pockets of American 
families so that they can make the decision as to where to spend, and 
those decisions and the increased confidence they have will cause 
additional dollars to go into their pockets, and we will begin to 
attack this psychology of despair which has become such a significant 
reason for the decline in consumer demand.
  I believe that stimulative tax cuts in this year of 2001 and in the 
year 2002 are what are required of Members of the Congress to play our 
role as active participants in avoiding an unnecessarily severe 
economic downturn. I believe there are some characteristics those tax 
cuts should have. I believe that is where the debate is today.
  As recently as a month ago, if you had said I believe we ought to use 
the resources that are available through our surplus for an economic 
stimulus in tax cuts, you could not have commanded a majority on the 
Republican side because there would have been objection as to the 
direction in which you were suggesting the tax cuts flow. And you would 
not have gotten a majority on the Democratic side because they would 
have said tax cuts are too large in terms of our overall allocation of 
the surplus, and maybe a question as to whether tax cuts could make any 
difference as a stimulative matter at all.

  I believe that argument has now been decided, that the American 
people want us to--and the American people have concluded correctly, in 
my opinion, that it will be in their economic best interest if we 
provide an immediate significant tax stimulus.
  The American people understand what some of the characteristics of 
that tax stimulus must be. That tax stimulus must be large enough to 
make a difference. We might argue at the edges as to what the numbers 
would be, but my suggestion, based on the advice of a range of 
prominent economists, is that we need to be able to inject into the 
economy during calendar year 2001 at least $60 billion in tax cuts; 
and, if we can do so, we can anticipate that the gross national 
domestic product will grow by one-half to three-quarters of a 
percentage point greater than it would have grown had we not taken that 
action.
  Senator Corzine, who joins us now, and I have developed a formula 
that we believe meets the criteria of an effective economic stimulus. 
That formula came from an idea in President Bush's tax proposal; that 
is, that we create a new 10-percent tax bracket; that that tax bracket 
cover taxable income for single Americans up to the first $9,500 of 
their taxable income; and that for joint filers, for married couples, 
it would be up to $19,000 of taxable income; the first $19,000 would be 
taxed at the 10-percent rate; and that all of those would be effective 
as quickly as Congress could pass it but made retroactive to January 1, 
2001.
  That simple, easily enacted withholding rate change would result in 
single Americans this year--calendar year 2001--receiving a $475 tax 
cut if they had taxable income of $19,000 or more. For married couples, 
it would result in a $950 tax cut for the year 2001. Our proposal would 
continue this as a permanent change in the law, so those same 
reductions would be applicable in each future year.
  This plan is not deceptively simple; it is truly simple. That is why 
it would work. Taxpayers will see it. They will understand it. They 
will feel comfortable that this is not a one-time ``manna'' from 
Heaven; that it represents a permanent change in their tax 
relationship. They would feel comfortable as early as this summer in 
beginning to incorporate that into their economic expectations.
  While this tax relief is broad based--every American taxpayer, single 
or married, who pays Federal income tax would be a beneficiary of this 
plan--it would provide the largest portion of the relief to middle-
income families. That is not a statement based on class warfare or a 
statement based on fairness; it is a statement based on sheer economic 
reality.
  There is a correlation between the tendency of people to spend and 
the amount of their income. The lower the income, the greater 
propensity there is that the new additional dollar that would come by 
reducing tax rates would actually move quickly into the bloodstream of 
the American economy. So we are, for that reason, since our goal is to 
stimulate the demand side of the economy, suggesting this single rate 
change as the most effective means of getting that immediate surge of 
action in our economic bloodstream. It is large enough to make a 
difference but it is not so large as to crowd out other important 
budget priorities.
  While it is a substantial share of this year's budget surplus--
approximately $2 out of every $3 of the non-Social Security, non-
Medicare surplus in 2001 would be committed for this purpose--its claim 
on future surpluses is much smaller.
  If I could contrast this with other proposals that are before the 
Congress and before the American people: The President has a total tax 
plan of $1.6 trillion. That compares over 10 years with approximately 
$693 billion that would be the cost of the 10-percent plan Senator 
Corzine and I are advocating. But there are other differences beyond 
just the sheer scale of the tax measure.
  The President's plan would be largely backloaded. Most of the tax 
benefits would come in the last 4 or 5 years of the 10-year cycle. In 
fact, in the year 2001, when I believe the stimulus is most needed, the 
tax cut in the President's plan is only $183 million. That contrasts 
with the $60 billion Senator Corzine and I believe is the appropriate 
level of stimulus for this economy.
  Another plan that is before the Congress and has already passed the 
House

[[Page S2920]]

of Representatives is the Ways and Means proposal: The first phase of 
the President's tax plan, which is limited to changes in marginal rates 
of the income Tax Code for personal filers.
  In my judgment, this, too, falls far short of what is needed because 
it would only provide $11 billion of so-called stimulus in 2001. Eleven 
billion dollars is better than $183 million, but neither of them are 
adequate to the task of providing the stimulus that our economy needs. 
And these packages do not target those taxpayers who are the most 
likely to use this money, to spend this money in the ways that would 
best advance our economy.
  Three-quarters of all taxpayers do not pay beyond the 15-percent 
bracket as it is currently calculated. That means that three-quarters 
of all taxpayers have total taxable income of less than $45,000, which 
is the top of the 15-percent rate. Yet nearly 60 percent of the total 
cost of both the President's plan and the House Ways and Means's plan 
is devoted to persons who earn more than $45,000 in taxable income.
  Again, this is not an issue of class warfare. It is an issue that 
those higher income folks are less likely than the middle- and lower-
income Americans to spend that money and, therefore, create the 
stimulus in the economy.
  As I have said, Senator Corzine and I have been very impressed with 
the President's excellent idea of creating this new 10-percent bracket. 
We think that deserves to be the centerpiece, the focus, of an economic 
insurance policy that we can enact soon.
  What would this mean for a middle-class American family? With the 
kind of cut we provide, they could almost buy a new Dell computer. They 
could buy a new RCA 36-inch stereo color TV. They could buy a week's 
vacation in Florida. We all agree that America's hard-working families 
deserve that computer, that color TV, and especially that Florida 
vacation. We all agree that America's workers need job security. Now 
let's agree on a tax cut that can stimulate the economy and make that 
job security happen for all Americans this year.
  I am afraid that we are about to move from the chapter in which the 
debate was over: Should we have an economic stimulus, a chapter that I 
think has ended--we now have broad agreement that should be the title 
of whatever tax relief we provide first in the year 2001--and we are 
now about to go into a debate on which is the most perfect way to get 
to that objective. That then fall prey to exactly the comments that the 
Chairman of the Federal Reserve Board, Mr. Alan Greenspan, made in 
February to the Senate Budget Committee when he said he was skeptical 
about an economic stimulus tax plan, not because it did not have the 
economic potential but he did not believe that the Congress had the 
capacity to enact it quickly enough to make a difference; that the 
history of these efforts to use the Tax Code to stimulate the economy 
has been that a good idea was birthed but it was never nurtured quickly 
enough to be fully available while the problems still existed.

  To me, it is critical we have a plan that is simple and direct 
enough, that is sufficiently shorn of controversy that it can be 
enacted, ideally by the first of July, so that it could begin to affect 
paychecks in August of this year.
  We need to be bold and aggressive and recognize that this is our time 
to step out of the boxes above the arena down to the floor and become 
an active participant in assisting American families in dealing with 
this serious problem of a declining economy and the effect that it is 
having on the quality of their lives and on their psychological sense 
of the future for their families and our Nation.
  We have the opportunity to do so. We should grasp that opportunity 
now.
  Thank you, Mr. President.
  The PRESIDING OFFICER. The Chair thanks the Senator from Florida.
  The Senator from New Jersey.
  Mr. CORZINE. Mr. President, I ask unanimous consent to speak for up 
to 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. CORZINE. Mr. President, I rise to endorse the concepts about 
which the Senator from Florida has spoken this evening and to make the 
point that the economic necessity of this grows clearer every day.
  There is a need for a stimulative package, and it needs to be brought 
to bear in the quickest possible fashion. The apparentness of that need 
is reflected very clearly in the economic indicators we see reported 
almost daily, apart from what many people talk about in most of their 
conversations, which is the stock market, which is an important 
indicator of future economic conditions.
  We see a pattern of deterioration currently in place that needs to be 
focused on, particularly the pattern of layoffs coming out of corporate 
America. Those are broadening and are reflective of underlying 
recession business conditions, if not more broadly in the economy.
  This substantial deterioration is beginning to show up in consumer 
confidence numbers. At the end of last week we saw a deterioration in 
new home sales which reflects underlying consumer confidence. As we 
know, it is about 65 percent of our economic engine in the United 
States. These kinds of conditions are most properly underscored, most 
vividly underscored by actions taken by one of America's most important 
consumer companies, Procter & Gamble, which reported last week they 
would be laying off 9,500 people. This is another indication of growing 
economic weakness.
  Add to that that there are problems in our international sector, the 
reported deterioration in the Japanese economy. The central bank in 
Japan actually lowered their interest rates to zero percent trying to 
stimulate the economy. This is important because it demonstrates that 
if you only depend on monetary policy, as opposed to a combination of 
monetary and fiscal policy, you sometimes can lead the horse to water 
but it won't necessarily drink, and you won't get the kind of stimulus 
we need to make sure that this economy is secure; that we keep job 
growth increasing. International weakness is also one that we need to 
be concerned about, particularly in Asia, but we are seeing early signs 
of weakness in Europe as well.
  Right now we are depending far too much on monetary policy, where the 
Federal Reserve has moved, on a proportionate basis, actually faster, 
certainly than I have ever seen in my own personal experience, with 
three 50-basis-point cuts in interest rates in less than 2\1/2\ months, 
a very substantial move percentage-wise on interest rates. It is even 
more imperative that we move to have a fiscal stimulus as a partnership 
with the Federal Reserve to get that stimulus going. That needs to be 
substantial. It needs to be done efficiently and speedily. It needs to 
be sustainable.
  Too often, one-time cuts go into savings. Most economic thought would 
show that single one-time payments tend to go to savings as opposed to 
consumption. The plan Senator Graham and I are proposing is one that is 
intended to be substantial but sustainable through time. People can 
count on that tax cut over a longer period of time. It changes consumer 
confidence. It changes their way of how they are going to look at 
future earnings. They can discount that to the future. We think that 
will end up having a meaningful impact on current economic conditions. 
In fact, it is an economic insurance policy. If we are wrong and we are 
not in a recession, this is a good thing because it will boost economic 
growth. But if we fall into a slower period where recession actually 
takes place, and you never know that until after the fact, then we have 
a fiscal stimulus in place to go hand in hand with monetary policy.

  We believe strongly that this is a proposal that does reflect balance 
on many of the competing arguments we see. It is a direct lead-in from 
where the President suggested a 15- to a 10-percent cut. We just give 
it now as opposed to in future years. We think this is an important 
precondition to make sure we have a strong economy that will allow for 
all boats to rise on that rising tide.

[[Page S2921]]

  I thank the Chair for the opportunity to support the arguments and 
description of the program Senator Graham, my friend from Florida, has 
proposed.

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