[Congressional Record Volume 152, Number 105 (Wednesday, August 2, 2006)]
[Senate]
[Pages S8605-S8606]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page S8605]]
                 STRONG FOUNDATION FOR ECONOMIC GROWTH

  Mr. KYL. Mr. President, yesterday, the Senator from North Dakota gave 
a speech on the Senate floor on what he calls the wall of debt. My 
colleague said, ``We have cut revenue, cut revenue, cut revenue.'' 
Clearly, he misunderstands both the rationale and the economic effect 
of the tax cuts. I would like to take a few moments today to clear up 
several misconceptions.
  My colleagues know full well that the Senator's wall of debt is built 
of increased spending and runaway entitlement costs. Twenty years ago, 
entitlements accounted for 45 percent of the budget; soon, they will 
exceed 60 percent. Medicare alone is growing by almost 10 percent a 
year. In 30 years, the three big entitlement programs--Medicare, 
Medicaid, and Social Security--if left unchanged, will consume the 
entire Federal budget, leaving no money for border security or 
education or any other necessary program.
  Our problem is not that Americans are undertaxed; our problem is that 
entitlement spending has run amok.
  In characterizing the tax relief provided in recent years, we do 
better to call it a ``Foundation for Economic Growth.''
  When Congress cuts tax rates, it leaves money in the private economy, 
where it can be used more efficiently. Being taxed at lower rates, 
Americans have more incentive to work, save, and invest, which fosters 
economic growth. Tax rate cuts implemented by Republicans have kept 
America competitive by leaving $1.1 trillion in the American economy, 
where it has given us more than 4 years of uninterrupted economic 
growth.
  To illustrate the effects that low tax rates can have on the economy, 
I recommend to my colleagues a study conducted by Dr. Edward Prescott, 
a Nobel laureate in economics and a professor at Arizona State 
University. Dr. Prescott's study reveals an interesting fact. Based on 
labor marker statistics from the Organization for Economic Cooperation 
and Development, Americans aged 15 to 64 worked 50 percent more than 
their European counterparts in France, Germany, and Italy. Fifty 
percent more. But this difference in output has not always been so. Two 
decades ago, France's labor supply, as measured by hours worked per 
employee, exceeded the American labor supply, as did several other 
European nations.
  Why is this? According to Dr. Prescott, this discrepancy in the labor 
market is attributable to taxes. When you lower the rates on 
individuals, people work harder and greater productivity results. As 
the United States lowered its marginal tax rates, Americans had a 
greater incentive to work hard, work longer, and be more productive, 
relative to the European nations, which kept higher tax rates.
  The results of Dr. Prescott's study are telling. Ultimately, a 
country must establish an efficient tax system with low tax rates to 
achieve maximum economic productivity. This is exactly what this 
Republican Congress has tried to accomplish: a tax system that keeps as 
much money as possible in the private economy, with individuals and 
businesses. In contrast, Democrats seem to want to keep as much 
taxpayer money in Washington as possible.
  If my colleague from North Dakota doesn't believe that our tax and 
economic policies are working, let me quote some figures from the 
Office of Management and Budget's Mid-Session Review, released on July 
11. These figures demonstrate that our tax and economic policies are 
fostering economic growth in the private economy and that all of this 
new economic growth is helping to bring down the budget deficit.
  From 2005 to 2006, Federal receipts are projected to grow by 11 
percent, $246 billion, more than twice as fast as the economy itself. 
Since the tax relief was fully implemented in 2003, tax receipts have 
increased by 34.6 percent. The economy has grown for 18 consecutive 
quarters. The economy has created over 5.4 million jobs since August 
2003. This is more than Japan and the 25 nations of Europe combined. 
That is combined. The unemployment rate of 4.6 percent is lower than 
the average of the last four decades. There have been 34 months of 
consecutive job growth. Progrowth policies and tax receipts will allow 
the deficit to be cut in half by 2008, a year ahead of the President's 
schedule. The projected budget deficit for 2006 has fallen from 3.2 
percent of gross domestic product to 2.3 percent of GDP--and measuring 
our deficit in relation to the size of the American economy gives the 
most accurate assessment of how big or small the deficit is relative to 
other times in our history. The projected deficit of 2.3 percent of GDP 
registers at the 40-year average and is lower than the deficits in 17 
of the last 25 years.
  Although our economy has made many steps in the right direction, we 
ought not be content to stop here. My colleagues and I will continue to 
work to reduce Government spending and to make the tax cuts permanent.
  The issue that prompted this debate over the deficit, to be clear 
about it, is not how to reform entitlements. It is legislation the 
Senate will consider later this week to reform the estate tax. On this, 
as well, my colleagues labor under some misconceptions.
  I want to take a moment to explain to them how many people will 
actually benefit from this legislation and to debunk some of the myths 
we are hearing about the cost.
  If Congress fails to reform the estate tax, the exemption amount will 
revert to $1 million and the rate will be 55 percent in 2011. According 
to an analysis done by the Joint Committee on Taxation at the request 
of Senator Baucus, in that year, 127,000 estates would be subject to 
the death tax--meaning that 127,000 estates would have a value of $1 
million or more in 2011.
  But if Congress approves estate tax reform, at least 115,000 estates 
each and every year that would otherwise be subject to the tax--estates 
that are valued over $1 million, but less than $5 million--will be 
spared from this tax on productivity, once the reform proposal is fully 
effective in the year 2015. Under the proposal the Senate will consider 
later this week, we will be left with about 11,500 estates each and 
every year that will still be subject to the death tax.
  The official Joint Committee on Taxation estimate for the cost of 
death tax reform is $267.6 billion over 10 years. Some of my colleagues 
have used incorrect information generated by liberal interest groups to 
argue that this underestimates the cost of the proposal, since it does 
not begin until 2010 and is not fully phased in until 2015. Thus, they 
claim that the cost of the death tax reform would be $808 billion over 
the 2012 to 2021 timeframe. They claim that it would cost $1 trillion 
over the same period ``when the associated increases in interest 
payments on the debt are included.''
  There are several reasons this logic is faulty. First, Joint Tax has 
estimated that the proposal will cost $39.186 billion in 2012--the 
first year of the bogus 10-year $808 billion estimate. So if you assume 
that it will cost that amount, plus an increase for economic growth, 
each year thereafter, it could not possibly add up to $808 billion for 
that 10-year period.
  Using actual Joint Tax estimates--the estimates we are required to 
use around here--you can see that once the proposal is phased in, the 
annual cost will increase by roughly $5 billion as a result of economic 
growth. Thus, using actual JCT estimates through 2016 and then assuming 
that the cost will increase by $5 billion each year, the total cost 
between 2012 and 2021 would be around $627 billion, not $808 billion.
  Second, JCT does not produce estimates further ahead than 10 years 
because anything beyond that range is thought to be too speculative to 
be even close to accurate. We simply cannot predict how much revenue 
the proposed changes will bring into the Government's coffers that far 
down the road. The Congressional Budget Office and Joint Tax have had 
enough trouble accurately estimating revenue collections one year out, 
let alone 10. For example, reducing the long-term capital gains tax in 
2003, as estimated by the budgeteers at the Congressional Budget Office 
and the Joint Committee on Taxation, would cost $27 billion in 2004. It 
actually brought in $26 billion that year. If official estimators have 
difficulty producing accurate revenue estimates in the short-term, we 
should heed their warnings about not betting the farm on estimates that 
go beyond 10 years.

[[Page S8606]]

  Finally, as I said, Joint Tax is the official revenue-estimating body 
of Congress. Whether we like their estimates or not, at the end of the 
day we all know that is the estimate we all must rely on.
  I hope these facts will bring a little perspective to the debate we 
are having over the deficit, the effect tax cuts have on the economy 
and, more to the point this week, the debate over what is really a 
moderate and responsible proposal to reform the death tax--a proposal 
that deserves broad, bipartisan support.

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