[Congressional Record Volume 149, Number 74 (Monday, May 19, 2003)]
[Senate]
[Pages S6572-S6574]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            TAX LEGISLATION

  Mr. CONRAD. Mr. President, last week the Senate and House passed tax 
measures. I want to take a moment to comment on those tax measures. My 
personal belief is that they are fundamentally flawed, that they are 
ineffective as stimulus, irresponsible as tax policy, and ultimately 
unfair. In terms of stimulus, the plan that passed the Senate last week 
will provide $45 billion of stimulus the first year; the House plan, 
$48 billion--that in an economy that is $10.5 trillion in size.

  Most economists say that small a measure will do virtually nothing to 
give a lift to the economy. The proposal by Senator Daschle, which 
provided $125 billion of stimulus, is the minimum size most economists 
say is necessary to give any serious lift to a $10.5 trillion economy.
  But the bigger flaw is in the long-term cost of the proposals 
advanced by our colleagues in both the Senate and the House. In the 
Senate, the 10-year cost of the plan is $350 billion; in the House, 
$550 billion. But that substantially understates the true cost of these 
measures.
  We can look at the Wall Street Journal, which did an analysis. They 
concluded: ``Caution: Tax Cuts Are Bigger Than They Appear In The 
Budget.'' That is because of this phony sunset

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that has been adopted in both the House and the Senate to substantially 
understate the cost.
  If the sunsets were not present, what we find is that the House bill, 
which is advertised to cost $550 billion, would actually cost $1.1 
trillion. So when they say they have a tax measure that costs $550 
billion, the true cost, without sunsets, is $1.1 trillion on the House 
side. In the Senate, they say they have a package that costs $350 
billion. The true cost, without the sunset gimmick, is $660 billion.
  Some will say: Well, a sunset may be a valid thing. They may actually 
end that tax cut at the end of the time. Well, let's just look back 2 
years ago. Two years ago, they passed tax measures filled with sunsets, 
and now what are they saying? Now they are saying: If you allow them to 
sunset, it will be a tax increase. So they are saying, oh, no, they 
can't be sunset, they have to be continued.
  You know, fool me once, shame on you. Fool me twice, shame on me. 
Look, how can any of us be fooled about what is to come? It is very 
clear what they are going to do. They are going to insist on 
eliminating these sunsets and the costs will explode. Well, what 
difference does that make? The difference it makes, of course, is that 
we are already in record deficit. With these additional tax cuts, and 
with the increased spending provided for in the President's budget, we 
are headed for deficits that are utterly unsustainable.
  Not only that, this policy of sunsetting means you have a come-and-go 
tax policy that is bewildering and will have an adverse effect on the 
economy. As the chart says: ``Sunset and Phase-in Gimmicks Produce Bad 
Tax Policy.'' Here is just one example. The marriage penalty comes and 
goes, and it comes again under the policy adopted in the Senate just 
last week. It is really quite stunning what they have done.
  For couples who incur a marriage penalty because of the standard 
deduction, that marriage penalty would be eliminated when the standard 
deduction equals $9,500 for the year 2003. Under the plan passed last 
week in the Senate--and using constant 2003 dollars--we will have 
$9,267 this year, $9,500 next year, and then it goes down to $8,265 the 
year after that. That will mean a tax increase on married couples. And 
then it goes up to $8,740, $8,883--all of these standard deduction 
amounts over the 4 years after 2004 are below the amount necessary to 
address the marriage penalty. It is really a giant hoax on the American 
people. But look what happens in 2011 and 2012 and 2013. Then it goes 
down to less than $8,000--a significant tax increase on married 
couples.

  This is consistent, unfortunately, throughout the package passed last 
week. It is true of the dividend tax measure. What a bizarre thing that 
is. It is phased in with a 50 percent exclusion the first year, then it 
goes up to 100 percent for a few years, and then it is eliminated. One 
prominent Republican analyst, an economist who has testified repeatedly 
before Congress, called it the most patently absurd tax policy offered 
ever. I don't know if it is the most absurd offered ever, but it is 
pretty farfetched. And he is not alone in that view. Here is what he 
said:

       Administration sources admit that dividends will likely 
     decline relative to today under this plan between now and 
     2005. How can that be a harmless event given that increases 
     in dividend payments are viewed to be so wonderful? Clearly, 
     this proposal is one of the most patently absurd tax policies 
     ever proposed.

  As I say, he is not alone in that analysis. Here are two economists 
who say the Senate GOP dividend tax plan will not help the economy:

       [Mr.] Timothy M. Koller and Susan Nolen Foushee, 
     consultants at McKinsey & Co., noted in a recent report that 
     as of last year owners of 61 percent of all common stock were 
     not subject to tax, so markets are driven by investors who 
     are not concerned with tax treatment of dividends. Thus, 
     ``the proposed tax cut'' on dividends ``seems unlikely to 
     have a significant or lasting effect on U.S. share prices,'' 
     [they] said.

  That is from the Washington Post.
  What is even more bizarre is the President went around this country 
and told people this policy was to eliminate double taxation. His 
argument was that corporate profits are first taxed at the corporate 
level and then taxed again when they are paid out into dividends.
  So his initial proposal included a corporate accounting provision 
that guaranteed that taxes on profits were paid at the corporate level 
before those profits could be paid out to shareholders on a tax-free 
basis. Do you know what? Here in the Senate they took that provision 
out. So now you can have a circumstance where the money is not taxed 
either at the corporate level or when it is paid out as dividends. That 
is not a matter of eliminating double taxation, that is a matter of 
eliminating all taxation on corporate earnings.
  Now, if that isn't an utterly preposterous outcome, I don't know what 
is. That is what this Senate passed last week. I expect a lot of 
Members who voted for it did not even know that provision was taken 
out. I expect they did not know you are going to have a circumstance in 
which corporations do not pay taxes at the corporate level and then get 
to pay the dividends out completely tax free--well, at least for a few 
years until it is all restored and we face a massive tax increase on 
dividends that would do real damage to the economy of this country.

  As shown on this chart, here is a Republican tax analyst who 
ridicules the Senate GOP dividend tax plan:

       ``I can understand the political reasons why they put it in 
     that way, but it's such an incredibly bad idea,'' said 
     Norbert Michel, a tax policy analyst at the Heritage 
     Foundation, a conservative research group in Washington.

  That is from the New York Times.
  I think Mr. Michel had it right.
  This next chart shows that economists say the Senate GOP dividend tax 
plan makes little sense:

       Many economists say a temporary reduction of the dividend 
     tax makes little economic sense, blunting the goal of 
     boosting companies' stock prices and leaving them more money 
     to invest. ``Phasing something in but letting it go away 
     doesn't have a very large economic impact,'' said Christopher 
     Wiegand, economist for Citigroup Inc.

  This is according to the Associated Press.
  The evidence is mounting that what was passed here last week makes no 
earthly sense. It does not make economic sense. It makes no fiscal 
sense because the deficits of this country are already at a record 
level. This year some have said it would be a small deficit. Let the 
American people make the judgment if they think it is small.
  The deficit this year, on an operating basis, is going to be between 
$500 and $600 billion on a budget of $2.2 trillion.
  Some say that is a small deficit. What would they call a large 
deficit? A $500 to $600 billion deficit on an operating basis on a 
$12.2 trillion budget, and you know that is just the beginning. Once 
the President's plan is put in place, that increase is spent. That cuts 
revenue, and when we already have record deficits, you can only have 
one result; that is, deficits that multiply. It will also occur at the 
worst possible time because these deficits are coming at us right 
before the baby boomers retire.
  When I talk about a tax plan that makes no sense, it is not just 
people on our side of the aisle saying that. You have Republicans 
saying what was passed in the Senate makes no sense. Here is another 
lawmaker who says he considers the bill a bad idea. It is the Speaker 
of the House, Dennis Hastert, who described the plan as an ``all of a 
sudden you see it, and now you don't'' idea. He went on to say:

       If the dividend tax is 50 percent and then nothing, and all 
     of a sudden it is back to 100 percent or whatever it is, my 
     feeling is that it does not solve the problem.

  But he did not mention that his Chamber's bill also sunsets a half-
dozen major provisions.
  Rarely have we seen tax bills so riddled with gimmicks and false 
assumptions.
  This is what the Joint Committee on Taxation found when they did a 
``dynamic analysis'' of the bill passed in the House of 
Representatives. They concluded that the increased deficits that will 
be created will eventually outweigh the benefits of tax cuts.
  This is what a number of us have been saying repeatedly. These are 
not tax cuts offset by spending reductions; these are offsets paid for 
by borrowing money from the Social Security trust fund. In fact, 
virtually every penny of Social Security trust fund surpluses over the 
entire next decade are being taken to pay for these tax cuts. And 
people think that is a good idea.

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  The President says this is the people's money. He is exactly right 
about that. This is the people's money. But do you know what? It is 
also the people's debt. It is also the people's Social Security. It is 
also the people's Medicare. All of those are the people's. The policy 
he has fashioned is taking Social Security trust fund surpluses from 
the people in order to pay for a tax cut; taking from a circumstance in 
which people are paying payroll taxes--by the way, 80 percent of 
American taxpayers pay more in payroll tax than they pay in income 
tax--it is going to take from their trust fund surpluses and use it to 
give an income tax cut that flows overwhelmingly to the wealthiest 
among us. You talk about Robin Hood in reverse, this is it. It is not 
good economic policy, it is not good tax policy, it is not good fiscal 
policy, and it is going to put us in a deeper and deeper hole.
  The Joint Committee on Taxation said this about the plan:

       This stimulus is reduced over time because the consumption, 
     labor, and investment incentives are temporary, and because 
     the positive business investment incentives arising from the 
     tax policy are eventually likely to be outweighted by the 
     reduction in national savings due to increased Federal 
     Government deficits.

  That is exactly what is wrong with this plan. It is not the economic 
growth plan, it is a plan to borrow from the future and to take Social 
Security trust fund surpluses and give a big tax cut to those who are 
the wealthiest among us.
  This plan also flunks the fairness test. The plan benefits the 
wealthiest in a way that is truly stunning. Taxpayers with income over 
$1 million will get a benefit of $73,790 in this tax year alone. The 
typical taxpayers--those in the middle income in this country, the 20 
percent of taxpayers who are in the middle of the income distribution--
will have an average benefit of $245.
  Let me conclude by saying I hope my colleagues will take a second 
look at what was passed. I think it is going to prove to be a serious 
mistake for our fiscal future.
  I thank the Chair and yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from North Dakota.
  Mr. DORGAN. Mr. President, am I recognized for 10 minutes?
  The ACTING PRESIDENT pro tempore. The Senator is recognized for 10 
minutes.

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