[Congressional Record Volume 147, Number 112 (Friday, August 3, 2001)]
[Senate]
[Pages S8904-S8906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE BUDGET OUTLOOK
Mr. ALLARD. Mr. President, on July 20 the senior Senator from the
great State of North Dakota made a series of thought-provoking comments
on the
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floor of the Senate. Many of those comments related to a speech Larry
Lindsey, President Bush's economic advisor and a distinguished public
servant, delivered in Philadelphia on July 19.
In his statement my colleague alleges that Dr. Lindsey misrepresented
his views on raising taxes at a time of economic slowdown. In fact, on
page 12 of his speech, Dr. Lindsey said, ``In recent hearings conducted
by Senator Conrad at which Budget Director Daniels testified, the
Senator agreed that raising taxes this year might not be a good idea
given the economy. But he went on to be clear that next year might be
different. He hinted at a tax increase in 2002, just as the economy is
recovering.''
If, when he made his remarks on the floor of the Senate, Senator
Conrad had not seen a copy of Dr. Lindsey's speech, I can well
understand that he may not have realized that his allegation on the
matter of his favoring a tax increase this year was false. As to
Senator Conrad's views on the advisability of a tax increase next year,
I must say that the transcript of his floor statement on July 20 only
reinforces the view that he might support a tax increase next year when
the economy is growing more robustly. Independent observers have drawn
the same conclusion about Senator Conrad's views from his public
statements. Robert Samuelson, in the July 11 Washington Post wrote,
``To protect on-budget surpluses, Conrad says the Bush administration
has `an affirmative obligation to come up with spending cuts or new
revenue (tax increases).''' If this is not the case, and Senator Conrad
is opposed to tax increases next year, I can assure you that I would
applaud his decision.
In his Philadelphia speech, Dr. Lindsey provided compelling reasons
why we should not even be talking about the possibility of raising
taxes next year. First, a tax increase next year would undermine the
sense of permanence associated with this year's tax cut. That sense of
permanence is key to the success of this year's tax cut. Talk of
increasing taxes, or of repealing the tax cut next year, thus reduces
the effectiveness of this year's tax cut. Furthermore, you need only
look at Japan's experience when it increased taxes early in an
expansion. It wasn't pretty.
A second point of concern in this dialogue involves the timing of the
tax cut. I am pleased to discover the amount of agreement between the
administration and Senator Conrad on the need for a fiscal stimulus
this year. When he announced his tax program in December, 1999, the
President said that the country may need an insurance policy. Thus,
while he proposed a basic plan involving a 5-year phase-in, the
President left flexible the actual timing of his tax reduction,
explicitly letting it depend on macroeconomic circumstances. In January
he indicated a need to work with Congress on an acceleration of the tax
cut. And in his formal proposal in February, the President said
explicitly, ``I want to work with you to give our economy an important
jump-start by making tax relief retroactive.'' That was a full month
before the distinguished senior Senator from North Dakota proposed his
$60 billion tax cut proposal for this year.
Fortunately, Congress did pass a fiscal stimulus for 2001. Senator
Conrad's floor statement indicates support for a $60 billion tax
reduction this year. That figure is very close to the $74 billion
figure that actually passed and was signed into law. I don't believe
that the $14 billion difference in these figures could be the basis for
Senator Conrad's assertion that the administration is ``driving us into
the fiscal ditch,'' especially given a $2 trillion Federal budget and
the Senator's apparent support for cutting taxes during an economic
slowdown.
Furthermore, the spending side of the fiscal year 2001 budget was
determined last fall under President Clinton. At that time, the
President and the Congress increased discretionary spending by more
than 8 percent. Had that rate of spending increase been sustained, we
certainly would have deficit problems later this decade. Fortunately
President Bush proposed a budget, and Congress adopted a budget
resolution, with a sharp deceleration of that rate of spending
increase.
Looking forward, a comparison of the Democratic alternative that
Senator Conrad referred to in his remarks and the bill that actually
passed is instructive. For example, in fiscal year 2002 the bill that
passed the Congress and was signed by the President was scored at $38
billion. By comparison, the Democratic alternative was scored at $64
billion. Would the Democratic alternative tax proposal have driven us
into the ``fiscal ditch'' deeper and faster than the President's
budget?
In fiscal year 2003, the relevant scoring by Congress' Joint
Committee on Taxation shows the bill that actually passed cost $91
billion while the Democratic alternative cost $83 billion. In fiscal
year 2004 the figures were $108 billion for the bill that actually
passed and $101 billion for the Democratic alternative. In fiscal year
2005 the actual legislation cost $107 billion while the Democratic
alternative cost $115 billion. Surely this $7 billion difference
between the two bills over a three year period cannot plausibly be
labeled ``driving us into the fiscal ditch'' either.
One must assume that Senator Conrad's assertions are based on the
long-term revenue effects of the President's proposal. Yet, in fiscal
year 2006 and later no one is forecasting anything but a large budget
surplus. Thus, it is hard to find any factual basis for claims that the
President's tax plan is ``driving us into the fiscal ditch'' by any
definition of that term that does not also apply to the proposals
Senator Conrad and his Democrat colleagues advanced during the budget
debate.
It is apparent from Senator Conrad's remarks that he and Dr. Lindsey
differ on the proper measure of fiscal tightness. Dr. Lindsey asserted
in his speech that the best measure of the Government's effect on the
financial markets is the Unified Budget Surplus. This was a concept
created by a special commission appointed by President Lyndon Johnson
and has been in use for more than 30 years. It has long been the
standard for non-partisan analysis of the budget. For good measure, on
page fifteen of his speech, Dr. Lindsey quoted Robert Samuelson
regarding the usefulness of alternative definitions.
As to the appropriate size of the unified surplus, I concur
wholeheartedly with the administration's view that the unified surplus
should be at least as large as the Social Security surplus. Dr. Lindsey
outlined in his Philadelphia speech why this is appropriate. But,
Senator Conrad and Dr. Lindsey disagree fundamentally regarding the
right term to apply to Medicare. As Dr. Lindsey stated in his speech,
every dollar of Medicare premiums paid by beneficiaries and every
dollar of Medicare taxes paid by workers and their employers is spent
on Medicare. In addition, Medicare receives $50 billion in extra money
from the rest of the Federal budget. Frankly, the ``surplus'' concept
does not make much sense under the circumstances.
In his floor speech Senator Conrad made an analogy to ``defense,''
noting that all of its funding is paid for from the rest of the Federal
budget. But no one talks of a ``defense surplus.'' Indeed, the concept
of a ``surplus'' in a program that requires net inflows from the rest
of the budget seems to make little sense. I therefore do not see why
references to the budgetary funding of defense conceivably supports the
assertion that Medicare has a ``surplus.''
Finally, Senator Conrad and Dr. Lindsey also seem to disagree on the
extent to which the Government should control the fruits of our
Nation's labor, saving, and risk-taking. Over the last 8 years, the
share of GDP taken in Federal receipts has increased from 17.3 percent
to 20.3 percent. Even if the President's original campaign proposal on
taxes were to have been enacted, the tax share of GDP would have been
rolled back only modestly, and would still have been above the post-War
average. I believe that I am on firm ground stating that Senator
Conrad's opposition to even this modest rollback means that he supports
something close to the current record-setting tax take.
As a member of the Senate Budget Committee, I urge my colleagues to
consider these facts as they consider the appropriate course for fiscal
policy in the months and years ahead.
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