[Congressional Record Volume 148, Number 7 (Tuesday, February 5, 2002)]
[Senate]
[Pages S337-S338]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            KENNEDY PROPOSAL TO REPEAL LAST YEAR'S TAX CUTS

  Mr. GRASSLEY. Mr. President, I would like to address a proposal by 
the Democrat leadership to repeal the future individual income tax 
reductions enacted in last year's historic tax cut bill.
  At this time last year, the CBO reported that, as a percentage of 
GDP, Federal taxes took 20.6 percent of GDP, a record post World War II 
level.
  Individual income taxes were at even more dramatic levels. CBO 
reported individual income taxes were at 10.2 percent of GDP.
  Even after last year's tax cut is fully in effect, however, the CBO 
estimates that Federal taxes will still take between 19.2 percent and 
19.9 percent of GDP over the next 10 years.
  That is still way above historically average levels of Federal 
taxation. Just look at the chart behind me.
  This chart shows total Federal tax receipts as a percentage of gross 
domestic product over that past 40 years, and it projects tax receipts 
over the next 10 years as a result of last year's tax cut.
  As you can see, even after last year's tax cut, the level of taxation 
remains at historically high levels of GDP.
  As this chart shows, tax receipts have fluctuated frequently since 
1960, but have escalated significantly since 1993. They will remain at 
historically high levels for the next 10 years. Now look at the history 
on this chart.
  The most shocking spike in tax receipts began in 1993. The CBO's 
January 2001 report to Congress shows that in 1992, total tax receipts 
were around 17.2 percent of GDP. Since that time, Federal receipts 
climbed rapidly.
  By the year 2000, Federal receipts had exploded to an astronomical 
20.6 percent of GDP.
  The significance of this percentage can only be appreciated by 
historical comparison. In 1944, at the height of our buildup during 
World War II, taxes as a percentage of GDP were 20.9 percent--only \1/
2\ percent higher than they are today. By 1945, those taxes had dropped 
to 20.4 percent of GDP.
  Even after last year's tax cut is fully phased in, taxes will still 
average around 19.4 percent over the next 10 years. As you can see from 
this chart, it is still higher than most of the levels over the past 40 
years.
  Taxes were higher during the years 1993 through 2000, which were 
attributable to the tax increases forced through by President Clinton 
in 1993.
  Similarly, the increase in receipts from 1965 to 1969 was 
attributable to the Vietnam conflict. The runup in receipts from 1976 
to 1981 was caused by ``bracket creep,'' which occurs when inflation 
causes wages to increase, forcing people into ever higher rates 
brackets. We corrected that problem years ago.
  So as you can see, while the Democrats rail against last year's tax 
cut, it was actually rather modest. When compared to the levels of 
taxation imposed over the last 40 years, we still remain at 
historically high levels of taxation even after last year's tax cut.
  We hear now a great hue and cry from some on the other side of the 
aisle that last year's tax cut should be repealed. But I ask: Are high 
taxes the only way to balance our budget?
  One of the most ardent advocates of repealing last year's tax cut is 
my good friend Senator Kennedy. I have been pleased to work with 
Senator Kennedy on many bipartisan proposals and look forward to 
continuing those efforts.
  Senator Kennedy is an important leader. Whenever he speaks, I pay 
close attention because he's a serious and effective legislator who 
often reflects the

[[Page S338]]

heart and soul of the Democratic caucus.
  Last year's tax cut legislation carried the support of over one-
fourth of the Democratic caucus. Although the tax relief has been 
defined by its harshest critics in terms of its budget effects, it's 
important to look behind the numbers and consider what this legislation 
means to the American people.
  Before I get to that point, however, I want to make clear that those 
of us who support bipartisan tax relief and accelerating reduction of 
the 27 percent rate do not agree with a fundamental premise of Senator 
Kennedy's proposal.
  Senator Kennedy and the Democrat leadership are arguing that the 
budget effects of the bipartisan tax relief deny the Congress and the 
President the resources to tackle other domestic priorities such as a 
prescription drug benefit for Medicare, Social Security reform, and 
education reform. This argument, however, is based on a couple of 
critical assumptions with which I disagree.
  The first assumption is that the tax relief measures beyond 2004 will 
have no effect on the growth of our economy.
  So, for instance, bringing the top tax rate for successful small 
businesses to a level equal to that of America's largest corporations 
at 35 percent is assumed to have no effect on the economy. That 
assumption flies in the face of economic theory and more importantly, 
the anecdotal evidence I gathered from some small business folks in 
Iowa. From my vantage point, the best way to bolster Federal revenues 
is to put policies in place to grow the economy.
  The second assumption is that the only way to approach Federal budget 
policy is to maintain record levels of Federal taxation on the American 
people. That view is reflected in the chart behind me.
  Senator Kennedy's proposal assumes even higher taxes are necessary to 
address all of our priorities. So in facing budget choices, Federal 
spending goes unchecked.
  The assumption is there are no savings to be made on the spending 
side of the ledger. Implicit in this assumption is growth in both 
federal revenue and Federal spending as a share of our economy is a 
desirable objective.
  To a certain extent, the proposal that Senator Kennedy and the 
Democratic leadership have put forward is a reversal of their previous 
support for significant tax relief.
  Last year, Senate Democrats proposed a tax cut of about $1.26 
trillion. That compares with a bipartisan tax cut that we enacted that 
came out at $1.35 trillion.
  Their proposal was only about 6.7 percent less than the cut that was 
enacted. To hear the Democratic budget people describe it, however, you 
would believe it was a 67 percent difference.
  Keep in mind that 48 of 49 Democrats, including Senator Kennedy, 
supported their alternative.
  Now, I know that despite votes for long-term tax relief, many of the 
opponents of the bipartisan tax relief now think that we should keep 
the rebate and repeal the long-term tax relief.
  Nothing could be worse for a slumping economy.
  Do we really want to send a signal to workers, investors, and 
business people that their taxes are going to go up? Even if the 
Democrats are talking about a repeal that takes effect in 2005, higher 
taxes in the future are higher taxes.
  If the Democrats believe that the only way to solve our budget 
problems is to raise taxes, instead of reducing spending, what will 
they do to make up the difference?
  Let's start with the basis for the rebate. That is, the new 10 
percent bracket. The revenue loss for this part of the package is $421 
billion over 10 years. It is the biggest tax cut in the bill, by the 
way. I can not believe or any other member of the Senate wants to 
dismantle that piece.
  Where do we go next? The marginal tax rate cuts lose almost $421 
billion over 10 years. It appears some folks think 35 percent is too 
low a top rate. Well, guess what. As I alluded to above, repealing the 
marginal rate cuts hits small business, the biggest job generator in 
our economy, the hardest.
  According to the Treasury Department, small business gets about 80 
percent of the benefits of the cut in the marginal rates. Do we want to 
raise the tax rates of small businesses in a slumping economy? Does 
that make any sense?

  Where do we go next? Do the opponents want to repeal the proposal to 
double the child tax credit? Or how about the refundable piece that 
helps 16 million kids and their families? That proposal loses $172 
billion over 10 years. Does the Democratic leadership really want to 
deny American families the increase in the child tax credit that kicks 
in, in 2005?
  How about the death tax relief package? That package scores at $138 
billion over 10 years. Most of the revenue loss is attributable to 
increasing the exemption amount and dropping the rate to 45 percent on 
already taxed property. Is it unreasonable to provide additional relief 
from the death tax?
  Let's take a look at the marriage penalty piece. It is the first 
marriage penalty relief we've delivered in over 30 years. This proposal 
scores at $63 billion over 10 years. Again, I do not think many folks 
would want to raise taxes on folks because they decide to get married. 
Under Senator Kennedy's proposal, most of the marriage tax relief would 
be eliminated.
  Continuing on through the bipartisan tax relief package, let's take a 
look at the retirement security provisions. This package, which will 
help Americans save more for retirement, scores at $50 billion over 10 
years. With the aging of the baby boomers, does anyone really believe 
we should reduce incentives for savings? Under Senator Kennedy's 
proposal, workers who want to put an additional $1,000 in an IRA or 
section 401(k) plan would lose that right beginning in 2005.
  Finally, let's talk about education. The bipartisan tax relief 
package includes $29 billion in tax incentives for higher education. In 
this era of rising higher education costs, should we gut tax benefits 
for families to send their kids off to college? Do the Democrats really 
want to cut back on these bipartisan investments in higher education?
  Now, I have just gone through about $1.3 trillion of tax relief. It 
sounds like a lot in abstraction, but it provides relief to every 
American who pays income tax. I would ask any of those who want to 
``adjust'' or ``restructure'' the bipartisan tax relief, including the 
Democrat leadership, why would you cut the tax relief package?
  I think the American people would like an answer to that question.
  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Corzine). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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