[Congressional Record Volume 149, Number 4 (Friday, January 10, 2003)]
[Senate]
[Pages S184-S187]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE PRESIDENT'S GROWTH PACKAGE
Mr. BENNETT. Mr. President, the Senator from South Carolina has just
concluded a rather lengthy and significant speech on the President's
growth package. I thought it appropriate that there be some kind of
response. If I may, I would like to start with something that some of
my staff might consider professorial, a little lecture, if you will, on
the nature of economics to sort of set the background for what I want
to say about the President's growth package.
There are laws in economics that apply regardless of how we like them
or do not like them. If I may create a somewhat crude analogy but one I
hope makes the point, there is a law in science known as the law of
gravity. The law of gravity says two bodies will attract each other
when falling in free space, so that an individual who walks to the edge
of a cliff and looks down and jumps into space will be attracted to the
mass of the Earth below him and end up down at the bottom of the
valley. We call this falling off a cliff.
Some people will go to the edge of a cliff and, in desperation, jump
off the cliff to commit suicide. Others will be playing at the edge of
a cliff, examining the beautiful view, and, by accident, stumble and
fall off the cliff. And there are those who say: Well, it isn't fair.
It isn't fair. The first person jumped off the cliff deliberately and,
therefore, to a certain extent, deserved his fate of death, but the
second person had no desire to kill himself, and he just stumbled, and,
by virtue of where he was, the law of gravity killed him, too. And it
isn't fair.
Well, we can rail all we want about fairness, but the law of gravity
operates regardless.
I make that point because a similar situation exists with respect to
economics. There are laws in economics that many in this Chamber will
stand here and say: It isn't fair. But they operate nonetheless. They
operate just as inexorably as the law of gravity operates. And they
have an impact on our lives and the way things work.
The most significant of these laws, of course, is the law of supply
and demand. The law of supply and demand operates in capitalistic
countries; it operates in communistic countries; it operates in
dictatorships; it operates in tyrannies; it operates in free societies
everywhere. The law of supply and demand is as inexorable as the law of
gravity.
There are some people who stand up and say it isn't fair for Michael
Jordan to play basketball for a living and be paid $20 or $30 million a
year, when someone else plays just as much basketball on a playground,
works just as hard as Michael Jordan, expends just as much sweat, and
doesn't get paid anything.
Well, there is no demand for the services of the second player. No
one wants to pay to see him perform. But there is great demand on the
part of sports-loving Americans to see Michael Jordan perform.
Therefore, since there is great demand for his services, and there is
only a supply of one Michael Jordan, he can command virtually whatever
salary he wants in that situation.
There are those who say: It isn't fair for Tiger Woods to be paid
millions and millions of dollars just because he plays golf. There are
plenty of Americans who would love to play golf all weekend, the way
Tiger Woods plays golf all weekend, and be paid millions and millions
of dollars for their efforts--it isn't fair--but for those who would
like to be Tiger Woods, no one wants to watch them play golf, there is
no demand for observing their abilities on the golf links, and the
number of people who want to watch Tiger Woods either in person or on
television is very high, a very high demand, a supply of only one,
Tiger Woods. As a consequence, he can charge, once again, virtually
anything he wants for his services.
The law of supply and demand cannot be repealed by the Senate. The
law of supply and demand cannot be repealed by the House of
Representatives. It operates, it dominates what happens in the economy.
Now we come to the question of what do we do to make the economy as
strong as possible. One of the first rules we should follow is to
respect the law of supply and demand and we do not attempt to repeal it
through government activity in the name of fairness.
Let's talk about taxes for a moment. Most Americans don't realize
that we have two Federal tax systems. We have additional tax systems at
the State and local level in sales taxes, property taxes, and other
kinds of taxes, but at the Federal level we have two tax systems. They
are completely independent of each other. Even though for accounting
purposes, the Federal Government mixes the money together and makes it
appear as if there is only one source of income, there are two.
The first is the payroll taxes. The payroll taxes have been
instituted by the Congress for the purpose of funding the Nation's
primary entitlement programs, which are Social Security and Medicare.
Everyone who works pays into the Social Security trust fund. Everyone
who works pays into the Medicare trust fund. There is no refund.
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There is no forgiveness. If you work, you pay into those trust funds.
Then at the end, when you retire, you get the benefits that come out of
those trust funds.
That is an entirely self-contained, single tax system of payments in
and benefits out. We can argue about the fairness of that one because
many people pay in all their working lives, die before they reach 65,
and get nothing back. Other people who are long lived pay in all their
working lives and then get 10 times back what they pay in. If you live
until your eighties or your nineties and you have been paying in Social
Security since you started work at 14, it is a great deal for you; you
get an enormous amount back. But if you pay in and die at 62, every
penny you put in is lost. That is the system. We can talk about dealing
with it at some point, and perhaps we should, but that is one entirely
self-contained tax system.
The other tax system the Federal Government uses is income tax.
Income tax is graduated. The more you earn, the more you pay. The fact
is that if you separate these two systems as they are separated by law
and practice, you discover that roughly 50 percent of working Americans
pay nothing into the second system. They make no contribution
whatsoever to covering the cost of government. The top 50 percent of
American wage earners pay all of the income taxes. Indeed, the top 1
percent pay something like a quarter of all of the income taxes. It is
heavily loaded to the top end. There are some who say that isn't fair,
some who say every citizen ought to pay something for the management of
government: Every working citizen pays something for the entitlements,
but every working American ought to pay something for the cost of the
Defense Department and the Commerce Department and the new Homeland
Security Department and all of the rest of it.
We have made the decision in the Congress that that is not the case.
We have made the decision that only the top half of Americans will pay
for the cost of general government. We have loaded it in such a way
that the very richest Americans pay the very most. Indeed, a very high
percentage of the total tax load is at the top 1 percent. When you go
to the top 5 percent, you are beginning to get close to half of the
whole of Federal revenues. Over half of all Federal revenue comes from
the top 10 percent of earnings.
Economics is about incentives. Tiger Woods has an incentive to
perfect his golf game better than anybody else's so he can get to that
point I have described where he is in short supply and there is great
demand. Michael Jordan has an incentive, an economic incentive, to
perfect his basketball game so he is better than anybody else so that
the law of supply and demand will work on his behalf. If we want to
grow the entire economy and, therefore, the amount of money that comes
from those top 50 percent of the taxpayers, indeed from the top 10
percent where the majority of the money comes from, we want to create
incentives for those people to perfect their skills and improve their
ability to create wealth.
Understand, all wealth is created from two things: One, risk taking.
There is no wealth created unless somebody takes a risk somewhere; and
No. 2, accumulated capital. Even the Communists learned that. They
tried to say, no, wealth is created by labor, but as they built their
own economy, they recognized that somewhere, someplace there had to be
an accumulation of capital.
The creation of a backhoe that can dig better ditches than people can
dig with sticks represents capital that is accumulated for the cost of
purchasing that backhoe. Somebody put that much capital together to
create that backhoe. We have in the United States the largest capital
investment of any nation in the world, and we have the strongest
economy in the world. We reward risk taking better than any other
country in the world, and that creates more wealth in the world.
This is not an accident. This is the way it happens. When you have
the right incentive to the right people, they will respond to that
incentive and, under the law of supply and demand, they will then
create skills that create wealth that benefits everybody.
As I have said, the top 50 percent pay all of the income taxes in
this country. The bottom 50 percent benefit enormously from that fact.
I remember in the Banking Committee, a question was asked of Chairman
Greenspan of the Federal Reserve system during the nineties, when the
economy was booming: Mr. Chairman, said the questioner, what portion of
American society has benefited the most from this economy?
Now, from the way the questioner asked the question, it was clear
what answer he expected and certainly the answer he wanted. He wanted
Chairman Greenspan to say the top 20 percent have benefited more than
anybody else because, look at all the money they have gotten.
Chairman Greenspan surprised the questioner and pleased me with his
insight when he said: Without question, the group that has benefited
the most from this booming economy is the bottom 20 percent. Oh, said
the questioner, look at the amount of money that has gone to the bottom
20 percent compared to the huge amount of money that has gone to the
top 20 percent. How can you say the bottom 20 percent benefited the
most? Because the lifestyles of the top 20 percent have not changed all
that much, he said. If Bill Gates is worth $80 billion, as opposed to
$60 billion, there is no big difference in his lifestyle. But if
someone at the bottom 20 percent, who barely has employable skills and
cannot find a job in a tough economy, can suddenly find a job at $2, $3
and $4 above minimum wage because jobs are scarce--why are they scarce?
Supply and demand. The economy is booming. There is a great demand for
labor and the supply is small and so the price goes up. He says, in
terms of the impact on the lives of people, this booming economy has
clearly benefited the bottom 20 percent far more than the other 80
percent.
I think that is the way we have to look at it, Mr. President. I think
we have to say, what is the best thing we can do for the citizens who
are at the bottom 20 percent. The first answer is that we can get them
a job. But if you go back to the Great Depression of the 1930s, 30
percent of Americans were without jobs. In those days, that only
included men; women were not in the workforce. If you were to add
unemployed women to the statistics, as we would today, because women
are now in the workforce, the 1930s would have been absolutely
devastating for the number of people who could not find jobs. As the
economy got bigger, as wealth was created through accumulated capital
and risk taking, people at the bottom began to find jobs.
The statistics are out this morning that unemployment is at 6
percent. This is unchanged from the last number. Some people find that
encouraging. I find it a little discouraging. I had hoped that the
unemployment rate would start to go down, even though I was taught in
school that 6 percent unemployment is full employment. This shows how
the economists have changed their attitudes. There was a time when
economists said structural unemployment built into the system is 6
percent, and if you ever get below 6 percent unemployment, the economy
will overheat and self-destruct through inflation. We know now that
isn't true.
We got the unemployment rate down below 4 percent in the late 1990s,
as the economy was expanding and growing. Now the economy is still
expanding and growing but nowhere near the rate it was. For the year
2002, the growth in the economy will probably come in around 2.9
percent. That is the current forecast. In historic terms, 2.9 percent
is a good growth year. In historic terms, there are many years when we
would be thrilled with a 2.9 percent growth. But compared to where we
were, 2.9 looks anemic. Indeed, compared to where we can be, 2.9 is
anemic. I clearly want to see the economy growing at 3, 3.5. I get a
little nervous when it starts growing at 4. Then you are getting into
the area where you are in danger of tipping over to inflation.
What does all this have to do with the President's growth package?
This is a nice lecture on economics. I hope nobody disagrees with it
because I think it is sound. But what does it have to do with the
President's growth package? Simply this: The President's growth package
recognizes the fundamental truths embedded in what I have had to say;
that is, all growth comes from capital accumulation and from risk-
taking, and the President's growth
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package is saying to those who have accumulated capital that we will
give you an incentive to take some risks.
There are two incentives built into the President's program: No. 1,
lower taxes. If you take your money and risk it and get a return on it,
you will get to keep more of it than you can now. That is an incentive
for you to take your accumulated capital and risk it more than you are
now.
No. 2--almost as important--is certainty. Markets flee uncertainty.
Markets get very nervous when we cannot have a sense of what the future
will be. The President is saying: Here is a tax cut. We want to move it
forward a year and, ultimately, we want to make it permanent so that as
you make your plans for how you are going to take risks with your
accumulated capital, you can have some certainty that you will be able
to keep a little more of it. And if they do that and the economy grows
at a rate faster than 2.9 percent per year, who will benefit the most?
It will be the people at the bottom. It will be the people who cannot
get jobs now who will find that jobs will become plentiful again. It
will be the people who are hurting now who will benefit the most from
the changes in the economy that will come about as a result of the
actions of the President's growth package. There are those who will
say: But this isn't fair. It is not fair for you to have an incentive
for the Michael Jordans of the world. Your incentives, or your money,
should be given to the unemployed. Well, we have extended unemployment
insurance. We did that the first day of the Congress, and we should
continue to pay attention to that. But the structural needs of the
economy are such that the best welfare program we can give the
unemployed is to get them a job.
The best way to create jobs is to see to it that the economy grows at
more than 2.9 percent per year. So for that reason, I think the
President's program is a sound one. There are those who say we cannot
afford it in terms of the Federal deficit--look, this is going to cost
us $600 billion over the next 10 years. How in the world can we afford
that?
Let's go back to the growth numbers. In the next 10 years, if we grow
at 2.9 percent every year for the next 10 years, that is an increase of
over 30 percent. So 2.9 compounded over 10 years comes to well over 30
percent. Let's say it is 3 percent and not compound it and say it is
exactly 30 percent. The economy is currently operating at the level of
$10 trillion per year. If we can keep the growth rate at 3 percent per
year for 10 years, that is a 30-percent increase. Again, we are not
compounding this; we are keeping the numbers simple.
Ten years at $10 trillion is $100 trillion. If the growth rate is
indeed another 30 percent, that is another $30 trillion. If what we do
in terms of incentives in the tax program can raise the growth rate
from 2.9 to just 3.1 or 3.2, multiply that over 10 years and you have
$150 trillion. Does $600 billion amount to anything when you are
talking about $150 trillion?
The numbers are staggering, but they are very important. If we can
raise the growth rate from 2.9 percent to 3.1 percent or 3.2 percent or
3.3 percent with the President's growth program over the 10-year
period, we will solve the social problems of those at the bottom. We
will get enough revenue for the Federal Government because the Federal
Government revenue does not come from the budget. The Federal
Government revenue comes from the growth of the economy. We can grow
our way out of this problem if we are only smart enough not to fight
the basic laws of economics. If we spend our time saying it is not
fair, we are like the people who will not build a fence on the edge of
the cliff because we say it is not fair for the law of gravity to kill
the fellow who stumbled across. Or do we say the law of gravity is
going to operate whether we like it or not, and let's go to the expense
of building the fence on the edge of the cliff; we will get the benefit
of saving the lives of those who stumble across.
I suggest that if we have the right kind of incentives for those who
accumulate capital and take risks so that the economy grows, it will be
worth whatever it costs, just like building the fence is worth it, even
though it is an expense, because of the saving of lives at the other
end.
People speak of economics as a science, and it is because it has
basic laws on which it is based, but it is also something of an art.
Certainly economic forecasting is an art. I have been in this Chamber
long enough to see the forecasts all over the place, and no forecast
that has ever been made by the Office of Management and Budget, be it
Democratic or Republican, or by the Congressional Budget Office, be it
Democratic or Republican, has ever proved to be accurate. There are too
many variables in the system. It is not that their forecasting tools
are wrong, it is that the economy is so fluid and changes all the time
and people react differently to incentives than others predict that the
forecasts almost always turn out to be either too high or too low.
For many years, OMB and CBO predicted surpluses, and we got deficits.
Then for some years, they predicted deficits, and we got surpluses. The
economy surprised us.
The plea I have made the whole time I have been in the Senate is,
yes, we need to pay attention to the forecasts, we need to pay
attention to the economists and their projections, but we need to be a
whole lot more humble in our assumption that these are scripture carved
in stone. We should focus more on the fundamentals of economics than on
the details of today's projections and today's numbers.
Looking at the world as a whole, this is what we see: The United
States has less structural taxation built into its system than any
other country in the world. The United States has the greatest rewards
for risk taking of any country in the world. The United States respects
accumulated capital more than any other country in the world. And guess
what. The United States has the strongest economy with the strongest
growth rate and the highest standard of living of any other country in
the world.
If we were to listen to our European friends who tell us what we need
to be doing, we should ask the fundamental question: Do we want the
U.S. economy to be like the European economy, which is not creating any
new jobs, which has a higher rate of taxation than we have and which is
virtually stagnant in terms of their GDP growth?
The Europeans are trying to create the world's second largest
economy, maybe the world's largest economy through the Euro zone and
the establishment of the European Community, but they are not getting
there. I submit one of the reasons they are not getting there is
because they do not reward productivity; they do not reward creativity;
they do not reward risk taking. In the name of fairness, they are
stifling the very activity that would create the wealth that would
allow them to solve their problems.
I have owned businesses in Japan. Japan is statistically the second
largest national economy in the world. Japan has been virtually in
depression for 10 years. Why? Because Japan, once again, is not willing
to take the kinds of steps I think President Bush's economic plan
represents because they say it is not fair. As a result, the pain is
spread over all of the Japanese, and they pay a serious price for their
inability to recognize that economics is about incentives and the
purpose of government is to get out of the way of those who create
wealth to the best degree.
Yes, those who create wealth should pay for the government, and in
this country they do. As I have said, once again, it is the top earners
who pay for the Government. The bottom 50 percent pay nothing for
governmental services. They have taxes deducted, once again, but those
taxes are in the entitlement system. They do not participate in any way
in the payment of Government services out of the general fund.
One last comment, Mr. President, and I will yield the floor. There
has been a lot of discussion here about the unfairness of the
President's proposal to reduce taxation on dividends. We can debate the
fairness argument, and fairness is in the eye of the beholder. There
are some who say, as they do out of the administration, it is unfair to
tax income twice. There are those in this Chamber who say: Hey, we tax
income twice all the time in America. People earn something and they
are taxed; they earn something and they are taxed again; they earn
something
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and they are taxed again. I will leave the fairness argument aside
because, as I say, fairness is in the eye of the beholder, and I will
not make the case that it is unfair to tax corporate income twice, even
though I think there is some validity to the case. I want to address
another fundamental question.
In this Chamber last Congress, we passed what is now known as the
Sarbanes-Oxley bill. It was a reaction to the Enron scandal and to the
corporate governance excesses we saw throughout all of corporate
America. Out of that came a phrase that stockholders had heard but that
general Americans had not heard before that scandal. It was the phrase
referring to ``managed earnings.''
I remember when I was running a public company. They talked about,
``We can manage our earnings,'' the accountants were saying, ``to
produce this kind of quarterly result, and Wall Street is looking for
this kind of number and we should manage our earnings to give them that
number.''
Mr. President, I ask unanimous consent that I be allowed to continue
for another 10 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BENNETT. Mr. President, I remember painfully when our public
company fell 1 penny per share short of the projection that Wall Street
was looking for. The stock dropped something like 20 percent that day
because we fell 1 penny short. When some people in the company said it
is not fair for us to be penalized that way, the reaction of the Wall
Street analysts was very interesting.
They said: You have the ability to manage your earnings, and if you
were not able to find that extra penny and change your number to
reflect it, that means you are in a whole lot more trouble than we
thought you were. The penny is not important. What is important is what
your inability to come up with that penny says about your ability to
manage your earnings.
The stock, frankly, has never recovered. When I came to the Senate,
it was in the low twenties. At one point in my Senate career it hit 40.
Today you can buy every share of that stock you want for $1.25.
Fortunately, I sold all of mine before it got there, but not at a high
enough number to leave me with anything like the net worth I had when I
came to the Senate. So I have had a very painful personal experience
with that situation.
Back to the question of dividends. I know as a CEO you can manage
earnings but you cannot manage cash. Earnings are an idea, a concept, a
hope, or a prayer. Cash is a fact. We created with the Clinton tax cut
an incentive for companies to manage their earnings because we put into
the law there could be no corporation deduction as an expense for CEO
pay over $1 million a year. In other words, if a company was going to
pay their CEO $2 million a year, they could only deduct as an expense
the first $1 million. So there was a disincentive to compensate the CEO
with cash. We did it because people on the floor said it was not fair
for a CEO to be paid that much money just like, as I say, some people
say it is not fair for Michael Jordan to earn so much more money than
any other basketball player.
We created an incentive for compensation to be tied to stock options.
Boy, did the Enron executives get that message. They and a number of
others under that incentive managed the earnings to drive up the stock
price so they could cash in. And those who understood that this was
phony accounting did cash in. They sold their shares at the highest
point.
That did not use to happen in American industry. It used to be that
the measure of a company's value was how high a dividend it paid. But
dividends are paid in cash. You can manage earnings but you cannot
manage cash. You have to manage the business in order to get cash.
If we were to say, OK, we will make it attractive for people to
invest in companies that accumulate cash and pay that cash out to their
owners, it will be taxed but it will only be taxed once and the owners
can look for a cash return, I think that would have a greater impact on
corporate governance and decisions in the boardrooms of America's
manufacturing corporations than all of the Sarbanes-Oxley bills we can
conceive of and pass. If we want to change the corporate culture in
America back toward more fundamental sound manufacturing and goods-
producing companies, what structural change could we make that would
have a more beneficial effect than saying if you concentrate on
accumulating cash which comes from real operations rather than managed
earnings, and there is an incentive for you to pay out that cash to
your shareholders so there will be an incentive for shareholders to
reward those managers who manage their business on sound principles
rather than managed earnings, we would have a cultural change that
would be tremendous.
Back to my beginning point. Ultimately, the solution to all of our
economic problems is to have the economy grow, to have it grow on a
sound basis, to have it grow on a consistent basis, to have it grow
year over year over year. If we can get the growth rate back up from
last year's 2.9 percent to 3.1 or 3.2 and maintain that for the next 10
years, at the end of the 10-year period with the 3-percent growth rate
sustained and compounded, we will have all the money we need in the
Federal Treasury to cover all projections of deficits. We will have an
unemployment rate well below today's 6 percent, even though 6 percent
is historically considered full employment. We will have all of the
things we need. If in the name of ``fairness'' we ignore economic laws,
we ignore the impact of the law of supply and demand, and we do things
now that look good for political rhetoric and hamper the long-term
growth of the economy, we will find ourselves 10 years from now with
bigger deficits and slower growth and higher unemployment and more
social problems.
Ultimately, we must keep our eye on the goal that we have: grow the
economy. Grow the economy intelligently on the basis of sound
principles, build incentives into the system that will reward those
that will contribute to growing the economy. And as we do that, we will
then be in a position to solve all of our economic problems.
I yield the floor.
The PRESIDING OFFICER. The Senator from New Jersey.
Mr. CORZINE. Mr. President, I understand we are in a period of
morning business.
The PRESIDING OFFICER. The Senator is correct.
Mr. CORZINE. I request I be permitted to speak up to 30 minutes.
The PRESIDING OFFICER. That authority has already been granted.
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