[Congressional Record Volume 154, Number 14 (Tuesday, January 29, 2008)]
[Senate]
[Pages S417-S418]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ECONOMIC STIMULUS

  Mr. GREGG. Mr. President, I wished to rise to talk a little bit about 
the proposed stimulus package which is working its way through the 
Congress and has been agreed to between the President and the Speaker 
of the House.
  First, I congratulate the Speaker, the Republican leader of the 
House, and the President, especially Secretary Paulson, for sitting 
down and trying to reach a bipartisan understanding as to how we move 
forward in what is obviously a very tentative economic time. We know in 
this Nation we are confronting some very serious issues, most of them 
brought on by a bubble in the credit markets relative to lending for 
housing construction. As happens with a classic bubble--and this is a 
classic bubble--when it bursts, when, in other words, the underlying 
security and the people responsible for paying back the debt cannot do 
that because money has been lent to people who are not in a position to 
repay their loans and the security under that debt has not been able to 
be maintained to reinstate the value of that debt, when that happens, 
that not only affects the loans, the immediate loans that are impacted, 
but it leads to a further contraction in the marketplace.
  I have been through this a number of times in my experience, and it 
always seems to happen the same way with loans which turned out to be 
not well made being called, and they are then followed by the people 
who lent the money and the capital markets having to contract in order 
to basically build back up their capital positions. So people who 
actually have good loans find that they cannot get credit extended 
further and it feeds on itself and you start to see a slowdown. That 
appears to be the type of issue which we may be confronting as a 
Nation, where we know we have a huge subprime problem. It is very big. 
We know that may lead to a further contraction. In fact, we are already 
seeing that.
  We know also, ironically, in this market, what happened was a lot of 
those loans were syndicated out and then they were put in synthetic 
instruments and actually multiplied their impact and we ended up with 
an inverted pyramid. We have one little loan with inadequate capital 
which can't be paid back, and then you have a pyramid with the way that 
loan is chopped up and can't be sold. So it is exaggerated in size. So 
this is a big issue for us as a nation. The question is how to address 
it.
  Well, first off, I congratulate the Fed because the Fed has stepped 
up. I wish they had stepped up earlier, but they have stepped up and 
reduced rates and, as a result, that should create more liquidity in 
the market. The second is fiscal policy, and that is where the 
President's proposal, working with the Speaker of the House and the 
Republican leader, has come forward. It is called a stimulus package, 
the purpose of which, in an economic slowdown, is to pursue classic 
economic policy, which is to stimulate demand during a time of economic 
slowdown in order to stimulate the economy, generally. That is a 
``black letter'' rule of how you try to abate the economic slowdown. 
The question is: Will it work? Will what has been put on the table make 
sense and will it work?
  Remember the last time we did this--with what is known as the tax 
rebate, which are not tax rebates because most of the people getting 
these don't pay taxes, it is an income transfer--we were coming off a 
period of surplus, the only time of surplus in the last 30 years we 
have had as a Federal government. We had 3 years of surplus, and we 
felt we had cash in the till to rebate or to pay out. Now we don't have 
the surplus. In fact, we have a deficit. It is not a huge deficit but 
still a deficit. It has been coming down over the last few years, which 
is the good news. But it does mean any stimulus package we pursue is 
going to have a debt effect.
  In other words, we are going to have to borrow the money in order to 
pay it out to people through this tax rebate or basic payment process. 
So who ends up paying it? Well, our children are going to pay the cost 
of this stimulus package, and it is going to be because it is a debt-
compounding event. In other words, if the package represented today is 
to be $150 billion in cost over its lifetime, which is supposedly 
confined to this year, that debt that you have to borrow to pay the 
$150 billion will have interest earned on it. So after 10 years, that 
becomes $200 billion in debt because it won't be paid back over 10 
years and our children and our children's children will have to pay the 
burden of that.
  So basically we are saying to our children, some of whom haven't even 
started earning money yet, we are going to give you a $200 billion bill 
for this stimulus package we are going to put in place over the next 6 
months. So if we are going to do something such as that, which is 
fairly significant, we better make sure the stimulus package works; 
that it actually stimulates the economy; that it actually does retard 
the slowing of forces slowing down the economy and, hopefully, 
reenergize it.
  The proposals which we have on the table and came from the House 
break into two basic approaches: First is a pure consumption approach, 
where you basically give people of middle and low incomes in this 
country--I think it is $80,000 of individual or $175,000 of joint 
income--a tax rebate of $600 to $1,200. That is a payment. It is 
structured in a way that some people who don't pay taxes will actually 
get the payment. The theory is they will take that money and they will 
go and spend the money and, as a result, the economy will see a boost.
  There are two problems with this theory we need to address, however. 
First, under the present structure of our Internal Revenue Service, the 
CBO,

[[Page S418]]

which is a fair arbiter--they do not have prejudice in this debate--the 
CBO has testified--the Congressional Budget Office--that the IRS--and 
they have consulted with the IRS on this--the Internal Revenue Service 
cannot get these checks out before midsummer, probably, or late June at 
the earliest.
  CBO has further testified that the actual economic impact of people 
spending this money, these rebates, these payments, will probably not 
occur until the late third quarter, early fourth quarter of this year. 
Interestingly enough, Dr. Orsak, the head of CBO, has also testified--
and again this is a fair arbiter--that the slow period, the period when 
you need stimulus, is the next two quarters or the next two-and-a-half 
quarters. And he has said, quite simply, that because of the 
limitations within the IRS, this rebate probably would not help those 
quarters.
  So that should be a concern to us. The money may not end up coming 
into people's hands--taxpayers or nontaxpayers--to be able to be used 
in the timeframe when it is going to be most needed.

  In fact, toward the third quarter of this year and into the fourth 
quarter of this year, it is again the testimony of the CBO Director 
that the cuts the Fed has put in place, the \3/4\-percent prime cut, is 
going to cause the economy to react to that cut in a positive way, 
hopefully, and that will occur in the third and fourth quarter mostly. 
So you could actually end up with two events on top of each other 
acting as a stimulus at the same time when we no longer need a 
stimulus. So we need to be concerned about that. That is of concern.
  The second problem which this proposal has--of taking a large amount 
of cash and putting it on the table for people--is that, again, it may 
not stimulate our economy. In other words, if somebody goes out with 
their $600 rebate and they buy a television made in China or they buy 
an iPod made in Vietnam--I don't know if that is where iPods are made--
or if they buy a washing machine made somewhere else--if the product 
isn't actually physically produced here--then, basically, you are not 
stimulating our economy, you are stimulating the economy where the 
product is produced. Since the assumption is most of these dollars will 
be spent on consumable items or will be used to pay down credit cards, 
which has no stimulus effect at all--theoretically, if it is spent on 
consumable items and, for example, is apparel or consumable goods which 
are manufactured overseas, then the stimulative effect for the United 
States is extremely limited, only at the margin. Again, this was 
testified to by the Director of CBO.
  So these are two concerns with this idea of infusing money into the 
package. The second part of the package says: Well, we are going to do 
an inventory of basically a business incentive event. We are going to 
allow people to expense capital purchases, versus depreciate, over a 
number of years. We are going to allow people bonus depreciation. Both 
of those are probably good tax policies from the standpoint of 
strengthening our economy over the long run because they make the 
economy more efficient. It means some small businessperson will be able 
to go out and buy a machine which makes their business more efficient, 
and as a result of being more efficient, it makes the American economy 
stronger. So yes, that is good policy, but it will have very little 
stimulus effect on the underlying economy.
  So the concern is the House package may not have the stimulus it 
claims to have and may end up being a debt event which our children 
will have to repay. What concerns me even more, though, is what is 
being talked about in the Senate. We are talking about taking the House 
package and significantly bidding it up. The House package bothers me 
to begin with, but to bid it up in the Senate is a mistake.
  We are talking about expanding the rebate to everybody. Now, that 
will have absolutely no stimulus effect, in my opinion. To say that 
high-income individuals or people with joint incomes over $100,000 
should get a stimulus, should get a $500 payment--first off, they 
probably don't need it; and, secondly, they do not need it if we are 
going to borrow from their children; and, thirdly, they are probably 
going to save it, which is great in the long run but has no immediate 
stimulus effect.
  Secondly, there is a proposal to include an extension of unemployment 
compensation benefits--unemployment insurance. Well, that would make 
sense if we were in a recessionary event, but right now the national 
unemployment rate is about 5.1, 5.2 percent, which is deemed full 
employment. Anything between 5 and 5.5 percent is historically a full-
employment situation.
  There are pockets of communities around this country which have 
higher unemployment, no question about it. But to put out a nationwide 
extension of unemployment insurance for an additional year, which is 
what is being talked about, or for an additional 6 months, which is 
also being talked about, that creates an incentive, in a full-
employment economy, to not cooperate, to not go out and find jobs. It 
has the opposite effect. It is intuitively obvious that has a perverse 
impact on what you want in the area of human reaction, which is to go 
and find a job, if the jobs are available. Jobs in a 5-percent economy 
are available.
  So any unemployment extension should be tied to a trigger, and that 
trigger should be set at what has been the historical levels of what is 
deemed to be recessionary, or a significant slowdown, which is around 6 
or 7 percent, so you don't extend unemployment insurance unless you hit 
that level of unemployment. You can also make it regional. If one 
region has 6 percent unemployment, then you give them the extended 
unemployment insurance. If one region doesn't have 6 percent 
unemployment, you don't give them the extended insurance.
  We are also talking about, on our side of the aisle, adding food 
stamps, adding FMAP, adding LIHEAP, adding infrastructure, and adding 
State and local tax deductibility. All this has been thrown out by 
other Members on our side of the aisle. State and local aid. It is 
making it a grab bag of everybody's ideas of whom they want to take 
care of and whom they want to attract in terms of political support or 
what is important to say to supporters or a group of people they think 
are important as their constituencies.
  And that makes no sense at all. First, it is going to slow this 
package dramatically if you do that. Second, you are not going to 
improve stimulus activities around here by doing that. So I would hope 
we would not proceed that way.
  I have a lot of problems with the initial package. I do congratulate 
the White House. I do congratulate Speaker Pelosi and Congressman 
Boehner for putting together a package and for recognizing the need.
  I have big reservations as to whether it is the most useful package 
from the standpoint of stimulus, but it appears, in light of what the 
Senate is now talking about, to be the high watermark. Maybe we should 
take the House package and pass it and acknowledge the fact that we 
have done something.
  The biggest impact of this event is very obvious; it is 
psychological. It is a big price to pay for a psychological event, $150 
billion, which adds up to $200 billion over 10 years to our children. 
That is the big impact, that the American people and the world can see 
the Congress and the President can work together to address what we see 
as an economic slowdown, even though what we are proposing probably 
will not have the effects we hope it will have in the short term.
  But we should not aggravate this problem by significantly increasing 
the lack of focus of the package by throwing in all these other ideas, 
by expanding the rebate to high-income individuals, by extending 
unemployment insurance in areas where there is basically full 
employment. Literally, the House package becomes the high watermark. I 
thought I would never say that, but that is the way it looks right now 
from the Senate activity.
  So I wished to make those points because I think we may have to have 
an open discussion of what goes on around here, but we also have to 
have expedited activity. I do not want to slow it down.
  I do want to make the points that if we start throwing all this 
baggage under the bill, we will probably set the train in the wrong 
direction.
  I appreciate the courtesy of the Chair and I yield the floor.




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