[Congressional Record Volume 149, Number 16 (Wednesday, January 29, 2003)]
[Senate]
[Pages S1709-S1712]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         THE STATE OF THE UNION

  Mr. KYL. Madam President, I will speak about the President's 
proposals articulated last night in his State of the Union speech to 
ensure job creation and economic growth for the United States for the 
benefit of all American families, and for our future.
  I note with interest some of the comments my colleagues have uttered. 
I will respond to some of those before I get into what the President 
said last night.
  I noted that the Senator from New Jersey and other colleagues have 
been very quick to criticize the President, but I have heard absolutely 
no proposals emanating from that side of the aisle that offer an 
alternative to what the President has proposed. There is an old phrase 
that you cannot beat something with nothing, and I think that is true 
here. If they have a better plan, then I would like to see it. If they 
understand better than President Bush and his economic advisers how to 
ensure and sustain long-term growth in this economy, how to provide 
more jobs for American families, how to better protect the investments 
of our senior citizens and the like, then let us see those proposals.
  It is easy to stand on the sidelines and criticize, but it is not as 
easy to present good, solid information and be willing to defend it. I 
am ready to defend what the President has proposed, and I would like to 
see those who have been critical come up with some ideas of their own 
rather than rhetoric.
  Most of the people who have been critical of the President, 
especially if they are Members of the Senate, begin that criticism by 
noting the President's proposal, in their view, will increase the 
deficit and they regard this

[[Page S1710]]

as a most serious sin. Virtually every one of these critics voted last 
week for $502 billion more in new spending for the fiscal year 2003 by 
virtue of supporting amendments that were offered to the fiscal year 
2003 omnibus appropriations bill. They cannot have it both ways. They 
cannot argue on the one hand they are very concerned about deficits, 
about not having a balanced budget, and on the other hand vote over and 
over again last week to increase spending above what the President has 
proposed, above what the Appropriations Committee has proposed on the 
floor, by over a half of a trillion dollars in 1 year. Compound that 
spending over time and, of course, the growth is exponential.

  The bottom line is the critics of the President's plan, A, need to 
come up with a plan of their own if they are going to be credible and, 
B, if they are going to be credible about concern over the deficit then 
they should recant the votes they cast last week over and over again 
for over half of a trillion dollars in new spending above what the 
appropriations bill called for and that we all supported.
  Let's look at the specific criticisms they make. I note that almost 
all of them say the President needed to pay more attention to the needs 
of States. This is a curious argument. It is true that almost all 
States are suffering from lack of finances to serve the needs of the 
people of the States. That is true in my State as it is in other 
States.
  There are a lot of reasons for that. First of all, the Federal 
Government imposes some unfunded mandates. That is not fair or right. 
The Federal Government should make up for those, but that does not 
explain the whole problem. The problem of State and local governments 
is essentially the same problem the U.S. Government faces: Namely, the 
economy is not as robust as it should be, as we would like it to be, as 
we hoped it would be. Therefore, it is producing less in the way of tax 
revenues.
  In the case of the United States Government, we can relatively easily 
go into debt. States cannot do that. As the distinguished Presiding 
Officer knows from her experience in State government, you have to pay 
as you go in State government. So they are hurting because the economy 
is not as strong. People are not making as much money, and the States 
are not collecting as much in tax revenues as they had projected. So 
they are in a deficit situation.
  What do we do about that? What is the Federal Government expected to 
do about it? Should the Federal Government tax American citizens even 
more, bring the money back to Washington and then write 50 checks to 
the States and send it back? How would that help the people who have 
just had the Federal Government take their tax dollars, then write a 
check back to the States? I do not see the logic of that.
  States can raise their own taxes. If raising taxes is the answer, 
they all have the capability of raising taxes much more quickly than 
the Federal Government does, and of collecting that tax revenue because 
they can do it in sales taxes so that the effect is immediate. They do 
not need to wait for a whole year for income tax collections, which is 
the Federal Government's means of financing to catch up with revenue 
needs.
  I found it interesting that the Senator from New Jersey said the 
President's plan ignored sales taxes and property taxes. Rightly so. 
Those are taxes traditionally left to the States to fund needs of State 
governments--not the Federal Government. Woe be to the Senate and the 
House of Representatives if we begin collecting sales taxes and 
property taxes as a means of financing the Federal Government. Woe be 
to us. That is not right.
  States and local governments can raise those taxes if they want. The 
reality is most of them are not going to do it. They understand, as 
most of us understand, that taxing people more does not make them 
better off. It does not help to collect taxes at the State and local 
level and provide benefits to the very same people who paid the taxes.
  What does make sense? What has always made sense in the past? If the 
economy grows, it will create jobs, it will produce more wealth for 
American families and, at the same time, more tax collections to the 
governmental entities that collect taxes.
  The Federal Government's problems are primarily a result of a 
sluggish economy. It was pointed out yesterday in the confirmation of 
the President's nominee for Treasury Secretary that just a 1-percent 
difference in growth in our economy from 3 percent to 4 percent means--
I hope this figure is correct--$8 trillion over a 10-year period. That 
is a lot of money. It illustrates the fact that very small measures of 
growth differential can mean a great deal in tax collections for both 
the Federal Government and the State government.
  If we can encourage economic growth on a sustained, long-term basis, 
we will not have to worry about balancing budgets or about deficits or 
the financial straits our States are in. A healthy economy not only 
helps families but it also helps the State and local governments and 
the Federal Government collect the necessary tax revenues to provide 
services.
  Therefore, when critics--such as Governors--say the President ignored 
the States, I guess I put the challenge back to them: Do you think the 
Federal Government should raise taxes from your citizens so you can 
give it back to them? If so, why don't you raise the taxes?
  Tax increases are not the answer. Almost all would agree that a 
robust economy is the answer. How do we get to a robust economy? The 
Senator from New Jersey is correct that there is not that much economic 
stimulus in this current fiscal year in the President's proposal. He 
identified about $34 billion worth. I cannot contest that figure. It 
may well be correct; I don't know. In any event, it was $34 billion 
more than the Democrats proposed because they did not pass a budget for 
fiscal year 2003, provided no tax relief for fiscal year 2003, provided 
no way to stimulate the economy, provide economic growth or job 
creation.
  It was the Democratic Party that was in control of this body last 
year. I guess it could be fair to say that $34 billion is not enough, 
but it certainly beats what the Democratic leadership was able to 
produce last year, which was exactly nothing.
  Is the answer a stimulus? It is hubris in the first degree to suggest 
that the Congress--in fact, the Government--can really affect a 
multitrillion-dollar economy very much in a rapid way by the policies 
we institute here. We can do far more to help the economy, as Alan 
Greenspan has said, by curbing our appetite to spend taxpayer money 
than almost anything else we do. Yet my Democratic friends last week 
were willing to spend over half a trillion more than the appropriations 
bill provided and that the President had requested. I don't think they 
are in a very good position to argue about the proper prescription here 
for economic growth.

  The reality is the best way to promote economic growth is to reduce 
the tax burden of American businesses, small businesses, and American 
families. That is what President Bush has attempted to do in the 
proposal he has made. Does he pretend that in 1 year we can turn 
everything around? No. As he said last night, if the tax relief we 
passed a year and a half ago, which was phased in over time, is good in 
5 years, 6 years, 7 years, why is it not even better to make it 
effective now? If my friends on the other side of the aisle are so 
concerned about doing something now to stimulate the economy, then I 
challenge them, let's make the tax reductions we passed a year and a 
half ago, that were phased in over a 10-year period of time, effective 
now. That would do a lot of good. It goes up and down the entire 
spectrum of American taxpayers, from those who are the wealthiest all 
the way down to those who are the least wealthy.
  Interestingly enough, those small businesses that create most of the 
jobs in this country--and we are very interested in job creation--would 
benefit significantly because they are organized under our laws to pay 
taxes at individual tax rates. For the most part, their tax rate is 
higher than the corporate tax rate. So the small businesses we are 
trying to encourage are paying a higher rate of taxes than the big 
corporations. I ask, is that fair? Is it a way to stimulate job 
creation, given they provide more of the jobs in the country than the 
large corporations?
  Let's look at the President's program in more detail. Some on the 
other side

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of the aisle have been very critical of the dividend section of the 
President's proposal, the part that says it is fair to tax dividends 
once when the corporation makes the profit but it is not fair to turn 
around and tax the dividends a second time when they are paid to the 
shareholder. It is a matter of basic equity and fairness and makes 
common sense.
  But there are some who say, for some reason or other, that is not a 
good idea. One of the arguments is that eliminating the double taxation 
of dividends gives money to shareholders. As my friend from New Jersey 
said a moment ago, that may be nice for the folks who receive it--
meaning the deduction for dividends paid by corporations--but does it 
do much to help the economy?
  Let's break that into two parts. It is nice for the people who 
receive those dividends. Now, over half of the adults in America are 
investors in equities. Half of Americans are stockholders. A large 
number of those will receive a benefit by not having their dividends 
taxed when the corporations pay the dividends to them.
  The President's object is not to provide for consumer spending. It is 
not to increase consumer spending. That is not the problem with our 
economy now, but to increase capital formation, which is the problem. 
For confirmation of that, the White House has provided some information 
comparing personal consumption expenditures with private investment. 
The top line, which is personal expenditures, is going up from $6 
trillion to $7 trillion in just over a 3-year period. Consumer spending 
is not the problem. The problem is this squiggly line down here, 
capital formation, gross private investment. Gross private investment 
has actually decreased from just after the year 2000, from $1.8 
trillion to currently $1.6 trillion. The problem is the need to enhance 
investment, not to deal with personal spending.
  The dividends being taxed today are not going into reinvestment, into 
business. But the President's proposal is to encourage this 
reinvestment by eliminating the double taxation of dividends. This 
attracts billions of dollars of new investment to the economy since 
increasing the aftertax returns to capital will make new investments 
sufficiently profitable to be undertaken. Reducing the tax on dividends 
should raise share prices by many times the amount of additional annual 
dividend payments. The more real earnings a company has, the more 
willing the managers are to pay dividends and the more the share prices 
increase--prosperity for everyone.
  Moreover, what is lost on some critics: To eliminate double taxation, 
this harmonizes tax treatment of debt and equity. We have been too 
favorable to debt creation in the corporations, so some major 
corporations have gone into bankruptcy because they created so much 
debt. As soon as we had a downturn in the economy, they could not 
handle the repayment of all that debt. We ought to promote less debt 
capitalization of businesses and more equity capital.
  Harmonizing the tax treatment of debt and equity removes the current 
tax preference for financing business expansions with debt. Debt is 
more risky because, while dividends can be reduced or eliminated during 
difficult economic times, companies that finance with debt must 
continue to pay the interest regardless of the economy. That is what 
leads to the bankruptcies.
  In addition, eliminating this double taxation of dividends will 
encourage better corporate behavior. We certainly understand the need 
for that, given some of the shenanigans that occurred during the last 
few years. Companies that pay dividends must have real cash earnings 
rather than possibly doctored paper earnings--which was the case with 
some corporations over the last few years.
  It will help create new jobs. The main beneficiaries of the increased 
investment activity will be the workers who are employed to use the 
additional capital and the consumers who get to enjoy the cheaper 
products and services that it makes possible.
  I mentioned that it is simply unfair to tax the same income twice. We 
sometimes forget that basic argument when we are talking about all the 
good reasons to eliminate the double taxation of dividends, but in 
practice I think we all appreciate that double taxation of dividends 
means that even an investor of modest means is paying a higher tax rate 
on dividends that wealthy taxpayers pay on their income.
  What about this distribution of benefits? Roughly 35 million American 
households receive dividend income that is taxable, and will directly 
benefit under the President's plan. So this is not something that just 
benefits a few--35 million American households receive dividend income 
that is taxable and will directly benefit as a result of the 
President's plan.
  Almost half of all savings from the dividend exclusion under the 
President's plan would go to taxpayers 65 years and older. The average 
tax savings for the 9.8 million seniors receiving dividends would be 
$936. To the argument that this dividend savings only goes to a very 
few, the point here is that the average will be almost $1,000 per 
senior receiving the tax break on the dividends.
  It seems to me it is very difficult to argue that eliminating this 
double taxation of dividends is bad for seniors, bad for shareholders, 
or bad for the economy.
  Let's talk about the other aspect of the plan, though, the major 
piece of the plan that the President spoke to last night and that is 
the benefit of accelerating the marginal rate reductions.
  What do we mean here? We are talking about the income taxes that we 
pay. Depending upon which bracket you are in, you pay a higher 
percentage of your income in taxes. We decided a year and a half ago to 
reduce those rates but we couldn't get the votes to reduce them all 
immediately, so we phased them in over time. We phased those reductions 
in over a 10-year period of time.
  Last night the President said, look, if it was a good idea to reduce 
the tax rate 6, 7, 8 years from now, why isn't it an even better idea 
to do it right now?
  I ask that question of my colleagues who oppose this. Why is it not a 
better idea to do it right now?
  Some of them might say that will cost the Federal Treasury money. My 
response to that is, Why did you vote for an additional $502 billion in 
spending? That also takes money out of the Federal Treasury.
  Let's just talk about this marginal rate reduction in terms of 
economic growth potential. This is where the economic growth really 
occurs, because reducing marginal tax rates provides an ongoing 
incentive for all taxpayers to work harder and longer, which is what 
creates the increased economic activity that we seek. It also creates 
additional income which can be taxed, so Government ends up making more 
money in the long run. Most importantly, it allows taxpayers to keep 
more of their own money, which they can use to invest or spend or save 
as they choose.
  When we talk about savings, we are really talking about investing. So 
regardless of how this money is used, it will benefit economic growth. 
If you save it, you put it in a bank and the bank immediately turns 
that money around, loaning it to others, and that will put the money to 
use creating more jobs. If you spend it, it is going to eventually find 
its way back into the capital market and help create jobs. Of course if 
you invest it, that is the most efficient way of all to provide 
capitalization to companies to hire new people and produce new things.
  I spoke before about small businesses and the benefit of the 
President's tax plan for small businesses. Reducing the top rate 
primarily helps these small businesses. The current top individual rate 
is 38.6 percent. That is the rate at which most small businesses are 
charged. The top corporate rate is 35 percent. So the small businesses 
are paying over 3.5 percent more in their income tax rate than the big 
corporation. Accelerating these rate reductions to the year 2003 will 
harmonize the small business income tax rate with the corporate rate. 
That is fair. It is equitable. It is the right thing to do, and it will 
stimulate economic investment and job creation because, as I said 
before, it is small businesses that create most of the jobs.
  The small businesses would receive about 79 percent, which represents 
over $10 billion, of the $13.3 billion in tax relief that comes from 
accelerating the reduction of the top bracket to 35 percent in the year 
2003, as opposed to the

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year 2006. That is why the President said let's bring that reduction 
forward 3 years and provide this benefit immediately.
  There is another benefit for small business that has not been talked 
about much. The President's proposal would increase from $25,000 to 
$75,000 the amount that small businesses may expense each year, that is 
to say that they can write off in their income taxes. There is broad 
bipartisan agreement that allowing small businesses to expense a larger 
amount of their investment in equipment will provide a strong incentive 
for small business to expand. As I said, these are the businesses that 
provide most of the new jobs in our country.
  Let me conclude by talking about this class warfare. The previous 
speaker said he didn't want to talk about class warfare but immediately 
got into the same argument about who benefits. He also acknowledged 
something that is very true. John Kennedy is famous for saying, back in 
1963 when he was proposing a capital gains tax reduction and people 
pointed out that there were not very many people who had capital gains, 
President Kennedy said:

       But a rising tide lifts all boats.

  If some taxpayers benefit, in the long run all taxpayers benefit. 
That is an acknowledged principle of economics.
  One ought not be asking why do you get a $3,000 benefit from 
President Bush's tax proposal and I only get a $1,500 benefit? But 
rather, they should say, I am glad I got the $1,500 benefit and I am 
glad you got the $3,000 benefit, because for all of it is going to make 
the economy healthier and in the long run it will make us all 
wealthier. That is the attitude, fortunately, most Americans have.

  According to the IRS data from 2000, the top 5 percent of tax filers 
paid more than 50 percent of all income taxes, and the top half of all 
tax filers were responsible for nearly all of our taxes, 96 percent.
  Who ends up paying a higher percentage or lower percentage after all 
of the Bush tax plan is put into effect? It turns out that the 
wealthier people end up paying an even higher percentage of taxes and 
the people in the lower brackets pay an even smaller percentage of 
taxes. So it does not help the wealthy at the expense of the poor. In 
fact, if you want to just measure it by that measure, the wealthy pay 
even more of the taxes than they do today.
  If your income is over $200,000, you are going to be paying 45.4 
percent of all of the Federal income taxes. Currently, they pay 44.8 
percent. So that is an increase in the amount of taxes that are going 
to be paid by people who make $200,000 or more. If you are making above 
$100,000 and less than $200,000, you are going to be paying 27.9 
percent of all Federal income taxes. Currently, you pay 27.6 percent--
an increase.
  Under the Bush plan, families with incomes of over $100,000 would end 
up paying 73 percent of all Federal income taxes.
  By the way, it takes 3.8 million low-income taxpayers off the tax 
rolls completely, the Bush plan does. So it is not even an effective 
rebuttal to say it benefits the rich at the expense of the poor.
  I have gone through all the different arguments. We talked about 
where is the alternative. We talked about the benefits to the States. 
We talked about the benefits to families. I haven't even talked here 
about the child tax credit or the marriage penalty elimination. All of 
these features of the Bush plan are designed in one way or another to 
help different parts of our economy, different types of families in 
America, so at the end of the day everybody benefits.
  It is possible to pick out one little segment of the tax cuts 
proposed by the President and say that does not benefit everybody. Of 
course. If you don't have any children, the child tax credit isn't 
going to help you. But for those families with children, it is going to 
help a lot. Same thing if you are two single people; ending the 
marriage penalty might not help you. If you are a married couple, you 
might get the benefit of that. But you put it all together and end up 
with a mosaic that provides not only help to all Americans but an 
economic long-term growth package that can sustain the kind of living 
we want in this country, while providing the kind of revenues to State 
and local governments as well as the Federal Government.
  That is the philosophy of the Bush tax plan. It is a good philosophy, 
and I look forward to a robust debate with my colleagues who may 
disagree with portions of that plan. It is a very defensible plan, and 
I am proud to support what the President has proposed here.
  I hope we will have plenty of opportunity to debate this in the near 
future so we can enact all of the President's proposal as soon as we 
possibly can for the benefit of the American economy but, more 
importantly, all American families.

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