[Congressional Record Volume 147, Number 163 (Thursday, November 29, 2001)]
[House]
[Pages H8636-H8642]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
JUMPSTARTING THE ECONOMY
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 3, 2001, the gentleman from Pennsylvania (Mr. Toomey) is
recognized for 60 minutes as the designee of the majority leader.
Mr. TOOMEY. Mr. Speaker, today I would like to engage in a discussion
about the economic situation we find ourselves in, the state of our
economy and what it is that we are going to do about it, what we have
done about it in the House, what needs to be done by the other body.
I would like to begin by just summarizing, reflecting briefly on
something I hope we all understand, I hope we all appreciate, and that
is the very difficult situation that we find ourselves in today. The
fact is our economy had been in a slowdown mode. We had been slowing
down the rate of growth of our economic output for over a year prior to
September 11, 2001, and certainly since September 11 the downturn has
accelerated. It has gotten to the point now where we know by various
experts, government and private sector economists, that we no longer
have economic growth that we can talk about. Today we are experiencing
economic contraction.
The consensus is almost a half, four-tenths of a percent, anyway, of
actual economic contraction in the third quarter of this year. There is
very little reason to believe that the fourth quarter is going to turn
around and show growth. Many believe that we started the contraction
back in March. In any case, in all likelihood we are in a recession
right now, and we are going to be in a recession for some time going
forward.
Now, of course, one of the very most unfortunate, tragic things about
a recession is the job losses that always result. Unemployment now is
at a 5-year high, about 5.4 percent. Our Nation has lost literally
hundreds of thousands of jobs since September 11 alone, when this
downturn accelerated. Consumer confidence fell for the fifth straight
month. It is now at its lowest level since 1994.
The bottom line is, the translation of all of that is people are out
of work. People who want to be working and productive and supporting
their families have lost their jobs and they are wondering how they
will get back to work. Layoffs are impacting just about everywhere in
our country and, as best as I can gather, certainly hitting my
district. Good solid companies that have provided great jobs for years
have had to lay off workers, and I know they do that reluctantly. And I
hope those openings will come back, those jobs will come back. But for
now, folks have been laid off at Kraft, at Rodale, at Lanco, at Pabst,
Agere, all across my district. Good companies. Jobs have been lost.
Nationally there are all kinds of job losses, Gateway, IBM. Boeing
announced huge losses of jobs. Solid companies laying off thousands of
workers, hundreds of thousands of workers all across the country.
So the question is what are we doing about this? What are we doing
about this in the House? What have we already done about it in the
House? What are our colleagues in the other body going to do about it,
if anything?
I think we have got a responsibility to create an environment that
maximizes the opportunity for our constituents to get back to work, for
this economy to pick up steam, for companies to begin to hire back the
people that they have laid off.
I think most of my colleagues share that view that that is our
responsibility. I think one of things that divides us, one of the
points on which we disagree, unfortunately, is how do you go about
that. How do you best encourage that economic growth? And to simplify
things a bit, but I do not think it is unfair, I think it is a
reasonable simplification of the debate that has been carried on in
this town, there are two schools of thought, maybe two major
philosophies about how we ought to go about getting this economy moving
again and getting people back to work.
One is the school that says the way you do this is government
spending, big government spending program, new program on all kinds of
things helps to get the economy going again. Some would describe that
as priming the pump. There are lots of other expressions, but some
think that is the way we ought to go. That has been proposed.
Especially it had been advocated by the leadership of the other Chamber
as the main thrust of how we ought to go forward here.
There are others who believe that there is an alternative that is a
better, more effective, more constructive way to get the economy moving
again, and that is major immediate tax relief, and that that would be
much more effective both in the near term and in the long term than
even more government spending.
{time} 1715
So let us take a look at these alternatives. Let us discuss this a
little bit. On the side of those who favor more government spending, it
seems that that is the traditional approach taken by those who hold the
Keynesian economic view, the demand-side model for how an economy
works. And one of the ways to look at the premise behind that
philosophy is that, in a way, it holds the view that the slowdown, an
economic slowdown, is generally caused when a demand for goods and
services is just too low; there is just not enough demand. That is what
it is called the demand-side model sometimes. But this is a Keynesian
idea. And if the demand is too low, then the way to solve the problem
is to increase the demand. And the easiest way to increase demand is to
flood the economy with money, so that people can go out and spend it.
That creates demand. And we hear people talking about getting money out
in the people's pockets as a way to get the economy going again.
Of course, for many who subscribe to this theory, they would, rather
than have individuals have more money in their pockets to spend, they
would rather just have the government do the spending. Because the
government is part of the demand; government expenditure contributes to
the total demand in the economy. So a lot of folks will say, just
short-circuit the whole process, go right to a big government spending
program, and that will get the economy going again.
Now, it is interesting to note that this, of course, is a convenient
theory. It can be used to justify and rationalize some other objectives
that some people might have. For instance, some people would like to
redistribute income, to a very large degree, in our society. They like
to take money from some people and give it to others, and they like to
be in control of that process. Well, you can justify that a little bit
better if you argue that this is all good for the economy too. And so
often this becomes a convenient theory for those who really have
ulterior motives.
But without getting into motives, because I do not want to dwell on
that, I want to look at the question of whether this is really the best
thing for the economy. Is a wave of government spending going to
increase the demand? Is that going to solve our problem? Well, I
suspect not, and I suspect not for several reasons, the most simple of
which is that this model, this way of viewing the economy, just has not
held up very well. The bottom line is I think that there has never been
a strong correlation. I do not think anyone has been able to prove a
correlation, much less a causation, between increases in government
spending and economic growth and prosperity. The correlation does not
exist. So that ought to give us some real pause.
Now, there are specific periods in times in history where we can look
at this and examine what has happened and what has not happened. One
case that comes to mind is the whole stagflation of the 1970s. Now,
under the Keynesian model, high inflation and high unemployment are
supposed to be impossible to occur at the same time. You could have one
or the other, but you would not have both. And the reason is because of
the idea that inflation is a manifestation of excess demand. If there
is too much demand for products
[[Page H8637]]
and goods and services, then everybody must be working to provide those
products and services so unemployment would be very low. Of course, we
know in the 1970s that was not true. Unemployment was quite high.
Now, conversely, if you have high unemployment, that supposedly is a
manifestation of inadequate demand. And if there is inadequate demand,
then there is nobody out there bidding up prices for things, or
certainly not a sufficient amount of that, and so we would have very
low inflation. If we have high unemployment, we would have to have low
inflation. That was not true. As I said, we had both. I think the real
reason we had both is we had a weak dollar, which gave us inflation,
and we had way excessive taxes, which caused an economic slowdown and
huge unemployment.
In any case, whatever you think the cause was, the Keynesian model
cannot explain what we know happened as a matter of historical fact in
the 1970s. And there are other periods of time when we have seen huge
government spending increases that have not resulted in economic
growth. The chart that I have here to my left just touches on a few
periods.
I will cite the very first here. In the 1930s, government spending
tripled; massive government spending beginning in the 1930s. But yet
during that very same decade, gross domestic product fell by 27 percent
in the first 5 years; and by 1940, 10 years later, unemployment had
doubled. Obviously, government spending did not solve the problem in
the 1930s. Probably because a lack of government spending was not the
cause of the problem we had in the 1930s, but rather protectionist
barriers to trade and an increase in taxes probably had a lot more to
do with the problems that we had in the 1930s.
It is interesting to take a look at what has happened in recent
years. From 1992 to 2001, government spending has grown by 41 percent,
and at the end of that period we have entered into a recession here.
So, clearly, there is not a strong correlation between increases in
government spending and an economic slowdown. But when we think about
it, it makes sense. If government spending were all it took to get out
of a recession, we would never have one. We would just ratchet up
spending a little bit and sail along on our merry way.
As this evidence points out, we certainly would not be facing a
slowdown now, because in recent years we have had a massive increase in
government spending. As soon as the surpluses arrived, we lost the
fiscal discipline that got us to that point in the first place,
spending took off; and yet here we find ourselves in a recession.
There is another great example that I want to touch on, and then I
will recognize some of my colleagues who have come to join me in this
discussion, but the Japanese economy is a fascinating example of how
this whole Keynesian demand-side, government-spending approach has not
worked.
Beginning in 1991, the Japanese proceeded with this approach to
dealing with a recession. Fact is they were 10 years into a terrible
recession despite excessive waves of massive government spending.
Arguably, they have had 10 different stimulus packages, largely based
on public infrastructure spending, massive government spending, which
has added up to trillions and trillions of yen, a quarter of a trillion
U.S. dollars equivalent, a huge percentage of their economy, and where
are they today? They are mired in a serious recession that continues
well into its 10th year.
So, clearly, excessive government spending, an increase in government
spending, is not the solution. But I will pause at this point and
recognize my esteemed colleague, the gentleman from North Carolina (Mr.
Jones), for any comments he may want to share with us.
Mr. JONES of North Carolina. I want to first thank the gentleman from
Pennsylvania (Mr. Toomey), as well as the gentleman from Wisconsin (Mr.
Ryan), who has just joined us, for their leadership, both of them, in
the area of reducing spending and also reducing taxes. And that is what
I want to take a couple of minutes to talk about.
As my colleagues know, we have had several conversations about the
capital gains tax. I represent the Third Congressional District of
North Carolina, which is a great district to represent; and we have a
lot of retirees that have moved into our district. We are more than
happy to have them living in the third district. Recently, with the
downturn of the economy and what has happened in the stock market, I
have had many of those retirees say to me, Congressman, why can you all
not, in this stimulus package, reduce the capital gains tax?
Now, I realize that that would not in the short-term be the answer,
but I think, and I would like to have my colleagues' comments, as to
the benefit not only for our retirees but primarily those who have
retired that are dependent on their investments that they worked 20,
25, or 30 years for.
And before I yield back to my colleagues for their answers, many
times the other side, the liberals, when we start talking about the
capital gains tax, they think we are talking about the rich of America.
I am talking about middle-income people who have worked all their
lives, and some that really are not middle income but are close to
being middle income, who have worked their whole lives, they have
invested, and now they are in their retirement years; and they are
concerned, and rightly so, as to how they are going to live.
Mr. TOOMEY. I thank the gentleman from North Carolina for mentioning
the capital gains tax, and our colleague from Wisconsin may want to
comment on especially the job creation aspect of lowering this tax, but
if I could follow up on one quick point.
The gentleman's point is exactly right. There just cannot be any
question that the capital gains tax is really an irrational tax. In the
first place, it is a punishment for saving and investing. Now, what
society really wants to punish people for saving their money and
investing it in the future? But that is what this tax does.
I think it is particularly unfair, especially to the those folks the
gentleman is referring to, in the sense that if someone makes an
investment in a stock, in a small business, in a piece of property,
anything one can invest in, and that investment grows in value, but
only maybe by the rate of inflation, a couple of percentage points here
and there, but just pretty much tracks inflation, so that the
individual has not really made any money, they have only kept pace with
the general price structure of our economy, well, after 10 or 20 years,
that is a significant amount of increase in the nominal value of that
asset because inflation adds up to a lot over 10 or 20 years. But the
individual has not really made a dime in terms of any real gains. All
that person has done is kept pace. Yet, if they sell that asset, what
do we do here in Washington? We attribute the entire increase to a
capital gain and we take up to 20 percent of that, despite the fact
that the person has truly made no money.
That strikes me as egregiously unfair. But maybe our colleague, the
gentleman from Wisconsin (Mr. Ryan), would like to share his thoughts
on it.
Mr. RYAN of Wisconsin. Absolutely. When we take a look at the family
farmer, who purchased an asset, or maybe inherited the family farm in
their early years, went on to sell it later on, they are going to face
a capital gains tax in excess of 20 percent, sometimes nearing as much
as 100 percent, because they are taxed on that inflated gain on that
asset.
As we take a look at what we can do to get this economy going again,
because a lot of people have lost their jobs and a lot more are losing
their jobs, the jobless rate is the highest rate of growth it has been
since 1981, 1982, we know we need to get people back to work. And when
we sit here in Congress trying to figure out how we can grow jobs and
retain jobs through growing the economy, we look at what works and what
does not work.
I notice my colleague from Pennsylvania was talking about what did
the second largest economy in the world do; what have they been trying
to do; what have we tried to do in our Nation's history. Look at Japan,
and like the gentleman from Pennsylvania said, 10 different stimulus
packages of federal infrastructure spending and rebate checks, and just
as many recessions. They have a debt-to-GDP ratio of 130 percent. They
have spent themselves deeply into debt. Their long-term interest rates
are about 1.2 percent, their
[[Page H8638]]
short-term rates are about zero. They cannot cut interest rates any
more. They cannot increase their money supply. They do not have an
economy where they can even save. And what did they get from it? A huge
debt.
Many around here are talking about doing the same thing the Japanese
did: more public infrastructure spending, more rebates. Well, what we
learned just 2 days ago from the NBER statistics would show us that we
are technically in a recession as of March of this year. And they show
us that it was not consumer spending that went down, it was not
consumer income that went down, it was investment that dried up. It was
business investment that dried up. Venture capital. That seed corn of
entrepreneurial activity is down 72 percent.
Mr. TOOMEY. Reclaiming my time for just a moment, the gentleman is
pointing to and getting exactly right to the crux of the problem here.
What we are talking about is the difference between massive government
spending and private sector investment.
I have had colleagues and I have constituents say, well, what
difference does it really make, as long as somebody is doing the
spending? If it is the government or the private sector, a dollar is a
dollar, and the dollar does not really know who is spending it. Right?
There is a huge difference for a lot of reasons, and I just want to
touch on one.
If we stop and think about it, we all know what drives government
spending is politics. What drives government spending is the political
system we have, and whose political bed gets feathered by some spending
is a big part of what does it. But there is no market force driving
political spending or government spending. There is no competition
within government over this, whether it is the Department of Housing
and Urban Development or any other Department. It does not have a
competing Department down the road that it has to outperform. So,
basically, the money just gets spent as politicians see fit.
Whereas, in the market, it is a totally different mechanism.
Consumers do not buy anything unless they think it is something
worthwhile, something of value, something they want to have. Investors
do not invest in anything unless they think it is a process, a business
that is providing goods or services that people want. So we have a
private sector mechanism that ensures that money goes to where it is
needed and where it is wanted. And we have a public sector, a
government system, that goes to where politicians want. And that is a
big part of the reason why one is much more effective than the other.
I will yield back to my colleague from Wisconsin, but I want to say
one more thing quickly, because I think all three of us agree on this
issue, which is that there is a huge amount of government spending
which is absolutely critical. In fact, right now I think we all agree
that we need more government spending on intelligence gathering, on
defense, and on homeland security. We need to increase spending there.
There is no question. That is something only the government can do, the
government must do. But I think it argues for even more restraint in
the other areas, especially when we know those other areas are not
terribly effective.
And did the gentleman from Wisconsin want to say something else?
{time} 1730
Mr. RYAN of Wisconsin. Mr. Speaker, I think the gentleman hit the
nail on the head. That is, if we thought more government spending was
the answer to our economic ills, we would not be in a recession. We
have the most spending we have had in the history of the Federal
Government today. We have been increasing spending at a rate greater
than inflation. If we thought more spending was the answer, why is
Japan mired in a 10-year-long recession?
We know that when we see business investment dry up, job losses take
place, we know that is where we need to focus; focus on getting people
back to work and getting businesses back up and running. And that is
not filtering money through Washington by keeping taxes higher and
spending more, it is letting people keep more of what they earn so they
can reinvest as they see fit.
When we look at the risk that is out there in the marketplace, when
we look at the cost of doing business, government has a negative bias
against investment. We have a bias in our Tax Code against saving and
investing. If you make money and spend it, the Federal Government
leaves you alone. But if you make money and save and invest it for your
family and business, the government penalizes you with a high tax.
We can reduce the price of saving and investment by reducing the tax
on it. Every time in this country in the last century when we cut the
capital gains tax or cut income tax rates, we have grown the economy
and encouraged more economic growth and activity. We have grown more
revenues coming to those lower tax rates.
I think we see before us a plan that is not necessarily even based on
ideology, but based on what works and does not work. Higher taxes and
more spending has proven to be utterly useless. Lower spending and
lower taxes has worked.
Mr. TOOMEY. Mr. Speaker, reclaiming my time, I thank the gentleman
from Wisconsin (Mr. Ryan), and I yield to the gentleman from North
Carolina (Mr. Jones).
Mr. JONES of North Carolina. Mr. Speaker, I came here in 1995 with
Mr. Gingrich. We became the first majority House and Senate in 40-some
years. We came here to reduce the size of government, and as the
gentleman from Pennsylvania (Mr. Toomey) has said and as the gentleman
from Wisconsin (Mr. Ryan) has said, we have not done the job. There is
more that needs to be done.
I hope sincerely that the American people understand that this is
their government and they need to speak through their elected officials
in Congress and in the Senate to let people know that we need to return
the money to the people, whether it be through capital gains tax, other
tax reductions. But the whole key is what has been said; this
government is growing too fast, is too large, and we need to do a
better job of reducing the size of government so Americans can keep
more of their money.
I thank the gentleman for taking the leadership on this Special
Order. I will continue to work with the gentleman and my colleagues to
do our very best to make sure that we reduce the size of government and
we reduce taxes on the American people.
Mr. TOOMEY. Mr. Speaker, reclaiming my time, I hope that we will be
able to move on to the discussion that the gentleman from Wisconsin
(Mr. Ryan) introduced, the idea, which is the historical fact, that
when taxes are excessively high and they are lowered, we get economic
prosperity and growth and new jobs. There is a reason why. I would like
to discuss why that works and why it has historically worked. But
before I do that, I yield to the gentleman from Michigan (Mr.
Hoekstra).
Mr. HOEKSTRA. Mr. Speaker, I thank the gentleman for taking the lead
in having this discussion about economic stimulus. I think it is
something that this Congress needs to act on, and we need to act
relatively quickly. It is my hope and expectation before we recess for
Christmas that we will complete a stimulus package, including many of
the items that my colleague has talked about.
In particular, one of the items that I think is very important to a
number of manufacturing companies in my district, and that is about the
accelerated depreciation that was included in the House-passed economic
stimulus package. It is not actually a tax reduction, it simply delays
some of the taxes that corporations will pay and allows and encourages
them to invest, to invest in new equipment, new products, new
investments which will increase their productivity, make them more
globally competitive, and it gets corporations buying again and
investing, which is good for all of us, and it is good for their
employees especially.
In Michigan, some have said this economic stimulus package is tax
breaks for corporations, but it is tax breaks for corporations that
kind of piggyback on the larger tax reduction package that we put in
place this year which is all targeted at individuals and personal
income taxes, so I think it is a very good balance. The end result is
that it is corporations, and some corporations in my district have had
to lay off 20 to 25 percent of their employees. It is our hope and
expectation that if we can
[[Page H8639]]
pass the accelerated depreciation, get corporations buying again, it
will enable these corporations to put these workers back to work.
The specific provision that we are talking about here is modeled
after a provision that was put in place in the early 1980s. The impact
in the 1980s was when we provided this accelerated depreciation, it
spurred corporate spending, it spurred corporate investment and was
really one of the things that enabled us to have the prosperity during
the Reagan years. And as we all know, during the Reagan years the level
of government revenues accelerated very, very quickly. It is good for
all of us when we cut tax rates. Most importantly, it is good for
American families because it puts workers back to work.
Mr. TOOMEY. Mr. Speaker, I thank the gentleman from Michigan (Mr.
Hoekstra) for that observation on this particular provision in the bill
which the House has passed, and the House has acted to try to lower the
tax burden and get this economy moving again. It is our colleagues in
the other body who refuse to do a thing about this, which I think is a
disgrace given the level of unemployment we have.
The gentleman's point is right; when a business has the opportunity
through an incentive in the Tax Code to have greater depreciation or
even expensing of a capital item, it benefits the workers who are able
to increase their productivity and hold on to their job because that
business remains competitive. The other folks that it helps are the
consumers. Who do people think pay taxes, corporate taxes? Corporations
pass those costs on to the consumer through the form of their prices.
When we lower that burden, we lower the cost of doing business for
that company. We enable them to hire more workers and lower their
prices and benefit consumers and help accelerate transactions.
This gets into another theme, but at this point I yield to the
gentleman from Arizona (Mr. Flake). I thank the gentleman for coming
here, and salute the gentleman for all of the great work he has been
doing to help lower the tax break for American people.
Mr. FLAKE. Mr. Speaker, there are a few comments I would like to
make. When I talk to my constituents in Arizona, they are not clamoring
for a few more months of unemployment or health care, they are
clamoring to get their jobs back. The best way to do that is to
recognize that we do not have such a problem with spending, as my
colleague from Wisconsin pointed out very effectively. If the problem
was spending, we would not have a problem. Government has grown over
the past 6 or 7 years at the rate of, I think, an average of 6 percent
a year. When we increase the baseline every year, that amounts to a
whopping amount of spending. That is not the problem.
The problem is investment for the most part. We penalize investment,
and we should not do so. What we need to do is lower the tax burden.
The President has said a number of times, and the administration has
indicated through a number of people, that the best thing to do is to
cut marginal rates. In the President's tax package, we did that. We cut
the marginal rate. The problem is that a lot of those cuts do not take
effect for a number of years, particularly the rate cuts at the top
end.
As our distinguished colleague Senator Gramm on the other side of the
Capitol likes to say, I never got a job from a poor man. We have to
recognize that class envy simply does not cut it. We have to recognize
that we cannot begrudge those who are making more than we are. We ought
to encourage them to make more and invest more. We can do that by
cutting the marginal rate at all levels; the top one at 39.6,
accelerate that cut, and cut the lower rates as well. That is the first
order.
The second thing has also been mentioned, cut capital gains. It has
been noted earlier, that is one of the quickest ways to spur stock
market, spur increased investment.
Mr. TOOMEY. Mr. Speaker, the gentleman has touched on something which
is worth discussing. I have heard people suggest that if we cut the
capital gains tax rate, it might be bad for the stock market. People
might think the capital gain is lower so I should sell stock now while
I enjoy a lower tax rate. I have heard people suggest if we ever cut
the capital gains rate, we could have a collapse in the stock market.
That strikes me as exactly the opposite of the likely effect. First
of all, we have cut capital gains tax rates before, and the stock
market has gone up. We cannot ignore the fact that we have historical
evidence on this. We have seen this happen before. And the reason why,
if we were to lower the capital gains rate tomorrow, we would
immediately increase the value of every asset in America. Because what
is the value of an asset? It is its ability to appreciate in value. If
you diminish the amount that the government is going to take of that,
it is worth more. So why would the stock market collapse when every
company in America became more valuable?
The gentleman points out if we cut the capital gains rate, in fact it
would help the stock market. That is counterintuitive to some people,
for the reason I just mentioned, but it is exactly right.
Mr. FLAKE. Mr. Speaker, we have to look at history. It has been cut
before, and the result has been an increase in asset values and more
investment. People are not going to take that out and stick it under a
mattress. They are going to invest again. There is a compounding
effect, and it is beneficial for the entire economy. That is extremely
important.
Congress needs to recognize that we have to stop the class warfare.
We have to stop saying let us get on this populist theme of spend more,
and get money in people's pockets. Let us make sure that Americans can
invest. That is where we need help.
Mr. TOOMEY. Mr. Speaker, the gentleman's points are very well taken.
Regarding class warfare, the gentleman from North Carolina made the
argument that lowering the capital gains burden helps low-income and
moderate-income people. It is a job-creation engine. It has nothing to
do with class warfare.
As we move on in this discussion, I want to just touch on an issue
that is raised sometimes. I think sometimes it is not obvious to see
the connection between lowering taxes and economic growth. Why does
that happen? How does it really generate economic growth? One of the
ways that I think is useful to think about this is the fact that there
are a lot of transactions that could be occurring in our economy,
transactions on the margin, one more home being sold, one more car
being built, and a few more services being provided. These are
transactions that are not happening because buyer and seller cannot
agree on a price. There are not enough buyers who can quite afford the
price that the seller needs, or there are not enough sellers who can
lower their price to the point that the consumer can afford. So there
is this inability to get the transaction done.
What is one of the biggest costs to every producer, every potential
seller of goods and services? It is their tax burden.
{time} 1745
What is one of the biggest costs of every consumer that takes away
their disposable income? It is the tax burden. So if you lower taxes on
producers and you lower taxes on consumers, producers are suddenly able
to pass on the lower costs in the form of lower prices and potential
buyers have more disposable income so they can afford more, and all of
a sudden you have these transactions that start occurring that cannot
occur today. If that just happens on the margin with just a small
percentage, it can have a huge impact on economic growth.
I think the gentleman from Wisconsin wanted to comment on that.
Mr. RYAN of Wisconsin. I just wanted to ask the gentleman a question.
What you are basically saying is that the government actually controls
to a large extent the price level of jobs, of retirement, of economic
activity. The government through its taxes actually can control the
price or the activity of job growth, investment, people's retirements,
their take-home pay. So if we lower that price, we get more of it. Is
that what you are saying? If we tax more of it, we get less of it; and
if we tax less of it, we get more of it?
Mr. TOOMEY. That is absolutely another way to describe it. Another
way that I think about it is there is this
[[Page H8640]]
barrier between buyers and sellers, between consumers and producers.
The barrier is the cost imposed by government. It is not only taxes. It
is regulation, it is tariffs, it is litigation that is encouraged or
tolerated by the government, but taxes are the biggest part of it. That
is why it is not just a coincidence that when we lower taxes, we see
economic growth. It is because when we lower taxes, we allow more
economic transactions and economic activity to take place. That is why
every time in our history, as the gentleman from Wisconsin pointed out,
that we have had a significant tax reduction, what have we seen without
fail? Prosperity, economic growth, people getting back to work, people
getting a raise, people having more disposable income. It helps all
Americans.
I have on this chart a couple of examples from our history. We have
really only had a few major, sweeping, across-the-board tax relief
bills enacted in our Nation's history and it was in the 20th century.
We have really had three prior to what we did earlier this year. The
1920s was the first. That is not on this board, but the 1920 tax cuts
initiated by Treasury Secretary Mellon ushered in an era of
unbelievable prosperity in the twenties. That era started to wane when
taxes were raised and a trade war began.
But let us look at some other tax cuts. In the 1960s, President
Kennedy had the good sense to realize that you lower taxes, you
generate more economic output. Sure enough in the 1960s, gross domestic
product grew by 50 percent. Staggering growth. The 1980s was the other
great tax relief act of the 20th century. President Reagan pushed
through a tax reduction. What resulted? Nothing less than the longest
peacetime expansion in our history. And, as the gentleman from Michigan
pointed out as we all know, a tremendous increase in revenue to the
Federal Government.
There were deficits in the eighties, no question about it. It was not
because we cut taxes. Cutting taxes caused revenue to double. It was
because spending was out of control. Spending tripled. That was the
problem that we had in the 1980s.
But further to that point or any other point he chooses to bring up,
I would like to recognize the gentleman from Arizona (Mr. Shadegg), the
chairman of the Republican Study Committee, the distinguished member of
the Committee on Commerce and the Committee on Financial Services.
Mr. SHADEGG. I thank the gentleman for yielding.
Let me first compliment the gentleman and his colleagues for this
important hour discussing these issues. I want to touch on a point the
gentleman just raised. It seems that the debate right now has our
colleagues on the other side of the aisle saying that any tax cut is
being done just to benefit the so-called rich. But I would like to put
the lie to that by history and talk about it in terms that the average
American can understand. I would just ask the gentleman a question. Was
it not President Kennedy, a Democrat President, who cut taxes in 1960?
And is he not the one who said in his famous phrase, a rising tide
lifts all boats? And was that not a reference to the fact that if you
cut Federal Government taxes when they become excessive that you
stimulate the economy and the reference to a rising tide lifts all
boats was that it did not just help some, it would help everybody. It
is not just going to help the rich or those who are currently employed,
it is going to help everybody, at every sector of our economy. And that
is our goal. And specifically to help those who are unemployed.
I have close friends in Arizona, a close friend who has been
unemployed now for quite some time. He does not want unemployment
benefits. He wants his job back. And stimulating the economy. That is
why I think it is so important. But is my history correct? Was it not
President Kennedy that made those points?
Mr. TOOMEY. That is exactly right. Reclaiming my time for just a
moment, when the President, President Kennedy at the time, made that
observation, he was correct. He initiated a round of tax cuts that
generated this prosperity. It is interesting that you pointed out,
quite rightly, that lowering taxes really only works when taxes are
excessively high. If we had extremely low taxes right now and an
appropriate level of government spending, then I do not think we would
be advocating for even further tax reductions. But right now we are at
a record high. The Federal Government has not consumed as large a share
of our total economic output as it does today since 1944.
Mr. SHADEGG. That was a war year, was it not?
Mr. TOOMEY. In 1944 there was a good reason. At this point we are not
at that level where the expenditures justify that, that level, and
certainly the taxes cannot be justified at this level. You are exactly
right. I would make one other observation before yielding back to the
gentleman from Arizona about the Kennedy tax cut which is the fact that
the Kennedy tax cut was much larger than the tax relief that we passed
this summer. The Bush tax cut plan which was originally $1.6 trillion,
we ended up at about $1.3 trillion, as you know, over 10 years which we
should not even be talking about that number, we never talk about
spending over 10 years but we sometimes talk about tax cuts over 10
years. The fact is as a percentage of the economy, the Kennedy tax cut
was much bigger.
Mr. SHADEGG. It was almost half again as big or even more, I believe.
Mr. TOOMEY. I think that is correct.
Mr. SHADEGG. It seems to me that this is an important concept for our
colleagues and for the people across America to understand. The bottom
line is that a stimulus package is not really a stimulus package if it
just extends unemployment benefits. If that is all it does, it is not
going to boost our economy. It may help people temporarily while they
are out of a job, and perhaps we need to do that, but if we do not go
beyond that, if we do not stimulate the economy by reducing taxes,
those people are not going to get their jobs back. At the end of the
day, the bottom line is unemployed Americans want to go back to work,
and that is why it is called a stimulus package.
Mr. TOOMEY. If I could reclaim my time for a moment on that point, as
the gentleman from Arizona and my other colleagues know very well, the
bill that we passed in the House contained a measure to expand and
extend unemployment benefits and even health care benefits through the
States. It was $12 billion. This is probably very appropriate. It is
probably an appropriate and necessary thing to do, but we ought to
recognize it does not have anything to do with economic stimulus. That
is a different thing. As the gentleman from Arizona pointed out quite
rightly and others have, too, the people who have lost their jobs that
I talk to, that I know of, they do not want to know how long can I stay
out of work, they want to know how quickly can I get back to work. That
is why while it is appropriate to make sure that there is an
unemployment system that is going to be there to help people get a
transition to regain their job, the most important thing is that they
get that job back quickly.
Mr. SHADEGG. Just to comment a little bit further, President Bush's
economic stimulus proposal would, according to a study by the Heritage
Foundation, create 211,000 new jobs next year. It seems to me that is
what a stimulus package ought to be about. The key elements of that are
acceleration of the personal tax rate reductions, the tax package we
passed earlier in the year. Let us move those dates up. The average
American understands that that bill passed but that the rate reductions
do not occur for years down the line. And a reduction in the capital
gains tax. That is a reduction that would affect every American. It
does not favor business; it favors every single American because we are
all in an investing economy right now. It seems to me as the Senate and
the House and our negotiators begin to go at this issue, it is not just
critical that we pass a stimulus bill, it is critical that we pass a
stimulus bill that will actually stimulate the economy and create the
job growth that will put America back to work, which is where people
want to go.
I compliment the gentleman and appreciate his efforts.
Mr. TOOMEY. Reclaiming my time, I want to thank the gentleman from
Arizona and just to point out, as we all know, I think all of our
colleagues need to be reminded, here in the House, we
[[Page H8641]]
have passed a bill that does those two things. It lowers the capital
gains rate. Okay, not as much as I would like to see, but it is a
movement in the right direction, and it accelerates the reduction in
personal income tax rates that we already passed last summer. It makes
some of it go into effect immediately. Okay, I would like to see more
of it go into effect immediately, but still this is progress. This can
only help the economy. But yet our colleagues in the other Chamber
continue to do nothing. This is just not acceptable.
Mr. SHADEGG. They not only do nothing, but what they are demanding is
pieces of this bill, large portions of it, their latest demand is that
half of it not go to stimulus at all and the other half go to stuff
that will not actually stimulate the economy. We do not need a stimulus
bill that does not stimulate the economy.
Mr. TOOMEY. Even at that, they refuse to put even a proposal such as
that on the Senate floor for debate.
I would be happy to yield to the gentleman from Michigan for his
comments on this.
Mr. HOEKSTRA. I thank my colleague for yielding. Just building off
the points, we maybe ought to start taking a look at this a little bit
differently. Maybe we ought to listen to what the other body is saying.
In the House bill, we had a pretty balanced approach. We put in the
extended unemployment benefits. We put in the protections to ensure
that more people would be able to keep their health care. That, I
think, is the right thing to do, to provide the protection for these
people in our districts who have been unfortunate and have lost their
jobs. But our belief is that by doing the proper tax provisions and the
proper incentives, we will stimulate the economy. But we ought to maybe
just say, if you want to do some more of that spending or put some more
of these government programs in place, put them in place, but give us
the stimulus package, because we will recognize that if the stimulus
package kicks in, the 13 or the 26 weeks of unemployment benefits will
not be needed. And we know that if we got to next summer and they were
needed, we would probably vote them in and through, anyway. Let us not
be worried about an artificial number because the other thing that we
saw in the eighties and again we saw with revenue growth in the
nineties is that if the economy grows, what happened during much of the
nineties, the economy grew so well, the biggest beneficiary was the
Federal Government. And as surprising as it may sound, we could not
spend it fast enough.
Mr. SHADEGG. I think the gentleman makes an excellent point. Both the
1960s tax cut and the 1980s tax cut stimulated the economy. Maybe we
ought to agree, okay, we will expand the size of the unemployment
benefits because as long as you will also give us the tax cuts because
then we can stimulate the economy and at the end of the day those
unemployment benefits will not be needed because America will go back
to work. Historically it has proven true. It is the direction we need
to go.
Mr. HOEKSTRA. The best thing for America is to get the stimulus
package in place and get Americans back to work. It is the best thing
for individual American families. It is the best thing for communities.
Some of our communities are really hurting. If they have got some of
their largest employers losing 20 to 25 percent of their employees, the
whole community feels the pain. Our States are feeling the pain at the
State level because of decreased revenues. We are not going to bail our
way out of this by more government spending. But if the other body
believes that that is the crutch that they want to build it off, we
ought to maybe just say, fine, but what we want is we want the tax
portions that will stimulate the economy because when we stimulate the
economy, we will not need these programs so we may not in effect end up
spending that money and we will get back to where we were in terms of
before the recession hit and before the war hit, where we will be in a
position that we will have a growing economy, people at work, we will
lead globally, and we will be back to the position where we were which
is paying down public debt and reducing taxes so that we can sustain
this growth into the future.
Mr. TOOMEY. I thank the gentleman. I think it makes perfect sense. We
have already demonstrated in the House that we fully recognize, our
society wants to be there for people who lose their job and who are
making every effort to find another one. Unemployment benefits
occasionally need to be extended. If that has to happen, that is fine.
I do not think any of us object to that. I think we all voted for the
bill that would do that. But how much better if you never need to use
them? Sure they can be there.
Mr. HOEKSTRA. But failure to act by the other body means that we do
not get a stimulus package plus that our unemployed do not get the
extension in unemployment benefits and they do not get the access to
health care. So their inaction is hurting those that are out of work,
short-term and long-term.
Mr. TOOMEY. Ironically, their inaction can guarantee a longer period
of time when people are out of work while they have not done anything
to help even those people. It is absolutely unacceptable.
I would be happy to yield to the gentleman from Arizona.
Mr. FLAKE. I thank the gentleman for yielding. I just want to echo
some of the comments that have been made. My colleague from Arizona
pointed out that the most important thing about a stimulus package is
that it provide some stimulus. I am reminded of my growing-up years. I
grew up on a ranch in Arizona; we often used when we had particularly
ornery critters if we could not get them through the chute, we would
use a cattle prod. It worked quite well, it stimulated them quite
nicely and they ran up ahead. Sometimes by the end of the day the
batteries would wear a little thin and we would be left with an
instrument that did not do much. It might scare them the first time,
but once you laid it on them, they would not move. It is much like the
stimulus package. Once the batteries are gone, once that charge is out,
once the incentive to invest, these items are out, you might as well go
back to a 2 by 4 because the stimulus is not there. You can call it
what you want. As my colleague from Michigan says, you might want to
provide these other things, but do not call it a stimulus package. Do
not assume that it is going to rev up the economy because it is not,
because the items simply are not there to do it.
Mr. TOOMEY. Reclaiming my time, I would also observe that we have
already engaged in a massive spending program very, very recently. By
some accounts, we have spent over $105 billion of additional moneys
just since the September 11 attack, emergency supplementals, victims'
compensation, airline assistance, additional discretionary spending.
Mr. SHADEGG. It is not as though there is not any spending going on.
Mr. TOOMEY. No, it has been a staggering massive increase. And I
think most of us feel it was necessary. These are areas that it was
appropriate. But has it gotten the economy out of this recession? No.
{time} 1800
Mr. SHADEGG. For those of you who have been here a little less time
than I have, I came in the 104th Congress and joined this body in 1995,
and for years after that we grew the economy at three and four times
the rate of inflation, grew the size of government at three and four
times the rate of inflation, year after year after year. We were
spending at 8 and 12 percent, year after year, and that did not
stimulate the economy.
Indeed, that government spending, as you point out in your chart,
from 1992 to 2001, if government spending was going to stimulate the
economy, we would have a booming economy.
The reality is, to stimulate the economy in this kind of
circumstance, you have to put some cash back into it. The way
government can do that is by cutting taxes.
Mr. TOOMEY. Well, I thank the gentleman. At this point we are running
low on time and I will probably wrap up with a few concluding thoughts
if I could.
Mr. HOEKSTRA. We have about 10 minutes remaining.
Mr. TOOMEY. Anybody who has any further points they would like to
add, by all means, let me know.
I think we have had a good discussion here about the fundamental
flaws in
[[Page H8642]]
the premise of the other side, the fundamental flaws in the belief that
by government spending, we are going to get out of this problem.
Now, we recognize there is spending we need to do right now, in
intelligence gathering, in defense, in homeland security. It is
critical. It is increases. We all voted for it and we are going to keep
voting for it. But that is all the more reason to be cautious on the
other areas that have nothing to do with the threat to our Nation, with
the attack that we suffered.
We need to be cautious there and rein in the excessive tendencies, so
we can at some point in the near future get back to balancing this
budget, get back to retiring some debt. But, most of all, in the
meantime, we have got to get this economy going. We have too many
people out of work, and that is our obligation.
Our responsibility is to create an environment where folks can get
back to work, where our economy can flourish, where businesses can hire
new workers. We started that process. In the House we passed a bill
that will move us in that direction. The President supports our bill.
The President, in fact, called for doing more than we did in the House.
I wish we had. But at least we moved in that direction, significantly.
And, yet, in the other chamber, we have not a bill on the Senate floor,
we have no meaningful progress. It is really a disgrace.
I yield to the gentleman from Michigan.
Mr. HOEKSTRA. Mr. Speaker, I thank my colleague for yielding. I think
that last point is the most important. We need to do a stimulus
package, and the inability of the other body to even consider in debate
a package is very disappointing. We do not help the workers that are
unemployed today. We do not put in place a package of stimulus items
that will help ensure that this is a short downturn and not a very deep
downturn. And the third thing, I think, is that it is difficult to
factor in, but it will send a psychological message that we are ready
to move on, and that we are about focusing on domestic issues, as well
as waging a war on the other side of the world; that we have not
forgotten about the issues at home.
So, these three items coming out of the House and moving forward, I
think, speaks well for our ability. It may not be a perfect bill, but
it is a whole lot better than doing absolutely nothing and not even
being willing to bring a bill to the floor for debate.
If our bill is not perfect, let the other body develop its own
version and move forward and bring it to conference, so that by
Christmas this President, this country and the American people will
have a stimulus package. That is the way the process is supposed to
work. But the shear inaction as our economy struggles is totally
unacceptable.
I thank my colleague for inviting me here.
Mr. TOOMEY. I thank the gentleman from Michigan very much for
participating in the discussion tonight and everything he added to
that.
Mr. SHADEGG. If I could just briefly as we summarize here kind of
reiterate an important point in this debate, because too often things
get politicized and we miss the issue, some people have pointed out
that we have already agreed in the House bill there needs to be an
extension of unemployment benefits and health care benefits. We need to
take care of people who have already lost their jobs.
But the other debate that goes on is a rejection of any kind of tax
relief. I think it is important for the listening audience to remember
that under both Democrat and Republican presidents, President Kennedy,
a Democrat in the sixties, President Reagan, a Republican in the
eighties, when we cut taxes, when they had become excessive and we cut
taxes, we stimulated the economy, and, as President Kennedy, a
Democrat, said, a rising tide lifts all boats. It put all Americans
back to work. It stimulated the economy for all Americans.
Every time I hear this phrase that tax cuts are just for the rich or
tax cuts for the rich, it enrages me, because the reality is the way to
stimulate this economy is to give all Americans some tax relief. That
is what we were proposing to do, that is what will stimulate the
economy, and that ought to be a part of the package and will benefit
every single American, not just one sector, as President Kennedy said.
Mr. TOOMEY. Well, the gentleman is exactly right. I would just
conclude with one other thought. You know, many of the fundamentals for
our economy are actually quite hopeful. There is reason to believe that
we could come out of this and we could have a return to some real
prosperity relatively soon if you look at some of those fundamentals.
Inflation is extremely low, our dollar is strong, and it is very
clear that all around the world people have enormous confidence in the
dollar. Our productivity levels are at an all time high. Never before
have American workers been so enormously productive. Our national debt
as a percentage of our GDP has declined dramatically, from 50 percent
of our economic output around 1995 down to about a third today. It has
also declined in absolute dollar terms.
So these fundamentals are strong. If we lower this tax burden now,
resist the urge for wasteful, excessive and inappropriate spending, and
lower the tax burden that is acting as a barrier between people who
could get this economy moving again, we will do that exactly, and the
folks who are out of work today can get back to work.
We have done our part in the House. We have taken an important and
enormous step forward. I am urging my colleagues in the Senate to do
likewise. It is long past time. It has been over 11 weeks since the
terrible attack that accelerated the decline in our economy. It is
overdue to have the kind of economic stimulus that we all need.
____________________