Congressional Record, Volume 156 Issue 59 (Monday, April 26, 2010)

[Congressional Record Volume 156, Number 59 (Monday, April 26, 2010)]
[House]
[Pages H2868-H2875]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

THE AMERICAN ENTERPRISE SYSTEM

The SPEAKER pro tempore. Under the Speaker's announced policy of
January 6, 2009, the gentleman from Iowa (Mr. King) is recognized for
60 minutes as the designee of the minority leader.
Mr. KING of Iowa. Madam Speaker, I appreciate your indulgence this
evening and the opportunity to address you here on the floor of the
House.
Not having had the opportunity to listen to the dialogue of the
previous people, I will take this up where the front of my mind and my
conscience happens to be, and that is what is happening with and to
America, what are our priorities, where are we going to go from here,
presuming that we could actually reverse many of the things that have
taken place over the last 1\1/2\ years or longer.
Madam Speaker, I would ask your indulgence to just cast your mind
back into the last 1\1/2\ years or so, this being April 2010. In fact,
I would take us back into August and September of 2008, perhaps a
little more than 18 months by now. And what we have seen happen is that
we saw a concern about the potential economic collapse of the free
world, the fear that global currency and the confidence that allows us
to trade in that currency could collapse and that we would see the free
market economy and the markets within the world, including the Dow
Jones and a number of the other market indexs, the Nikkei market,
European market, and that list goes on, those lose the confidence of
the investors if that happened, if the investors pulled their money
out, if, in fact, there was any money to be pulled out, we could have
seen a downward spiral that could have been a crash of our economic
system that could have potentially eclipsed that of the Stock Market
Crash that precipitated the Great Depression in October 1929.
We saw the Secretary of the Treasury, Henry Paulson come to this
Capitol on September 19, 2008, and make a request, a very serious
request, and some might characterize it as a demand, for 700 billion
taxpayer dollars, 700 billion taxpayer dollars to inject into this
economy in a fashion that he saw fit, in a fashion that wasn't
necessarily laid out for us. We didn't understand particularly his
presentation. We heard the words he said but it wasn't definitive. It
wasn't clear. And as we found out after the $700 billion worth of TARP
passed, even those words didn't hold so very accurately when we looked
at the actual practice of how the $700 billion was spent.
So, Madam Speaker, that was the start of this long saga of what
America's free enterprise economy, what is left of it, might look like
and how we might manage these finances.
It's interesting to me that since that time, I have done some
traveling around the world and I recall listening to Angela Merkel and
the leaders in Germany the following February, if my memory serves me
correctly, so it would be February of 2009, say to us, America, you're
spending too much money. You should not dump the $700 billion in TARP
in. It is a waste of money. It is irresponsible. You need to pull back.
Their proposal in Germany, even though that is a social democracy, a
nation that wants to have as much of it, apparently, within the hands
of the government to manage as they can and a minimal amount within the
free enterprise system, they have a different belief in it than we
have.
They had a $450 billion plan; ours was a $700 billion plan followed
by a $787 billion plan, coupled with $1 or $2 trillion disbursed by the
U.S. Treasury that wasn't within the province or the guidance of this
Congress, and I think it's awfully hard to track what that might have
meant.

{time} 2130

Theirs was $450 billion. I believe the number was $80 billion in
targeted expenditures and the rest were loan guarantees. So one might
argue the German approach to this--the people that originated
socialized medicine, by the way--was they would spend $80 billion in an
economic stimulus plan. Now, granted, their economy is not as large as
ours, but $80 billion versus $700 billion, and another $787 billion,
Madam Speaker, and we have the Germans admonishing us because we're
spending too much money in trying to stimulate the economy in this
robust Keynesian approach. And then since that time we've heard the
President of France lecture us on the dangers of appeasement.
Oh, what a world we have today. How so much it has changed in the
last 2 or 3 years, Madam Speaker. How so much the philosophy that has
made America great has been pushed to the sidelines, hasn't emerged
very much in the thought process, the decisionmaking component of this,
at least, even though it remains in the hearts and minds of the
American people.
So, Madam Speaker, here we are today, $700 billion in TARP spending,
gone, spent, blown. This, yes, was initiated under the Bush
administration, as was the nationalization of several financial
institutions and the beginnings of the nationalization of AIG. However,
the balance of all these things that I'm about to talk about came about
under the Obama administration. And everything that I'm talking about,
from the $700 billion TARP funding all the way through to today, was
supported by either then-Senator Barack Obama, candidate for the
Presidency Barack Obama, or the President of the United States, Barack
Obama. That policy is indistinguishable whether he supported it as a
Senator, whether he supported it because he was a candidate for the
President or because he supported it as the President-elect or the
President of the United States.
And George Bush gave some deference to Barack Obama on how he would
approach this economy. One day

[[Page H2869]]

I hope to have that conversation with President Bush. But, in any case,
there's no component of this voracious appetite for overspending and
pushing government into every corner of our private sector lives,
there's no aspect of this that wasn't supported by the President of the
United States, Barack Obama.
The American people know that and they understand it, Madam Speaker.
And so what we have seen, we have seen the support for the $700 billion
in TARP. In fact, this Congress limited the first half of that to $350
billion. And that went, essentially, without strings attached. And the
balance of that, the other $350 billion, had to be approved. This was
in October of 2008, so it had to be approved by a Congress to be
elected later and by a President to be elected later. We know what
happened. The second $350 billion was approved by the Congress elected
in November of 2008 and approved by the President who was elected in
2008, Barack Obama.
So this entire lexicon of things that happened economically, good or
bad, are not the fault of George Bush. They are not laid at the feet of
the previous President. These are the responsibilities of this
Congress, the House, the Senate, under the leadership of Speaker
Pelosi, the leadership of Harry Reid down that aisle, and the
leadership of Barack Obama, whom I have sometimes described as a ruling
troika, Madam Speaker. That would be, as I warned America about during
that same period of time, if you elect Barack Obama as the President of
the United States and re-renew the Speakership of Nancy Pelosi--in
other words, reelect the Democrat majority here in the House--and you
continue to expand the majority of the Democrats in the United States
Senate, we will have created, and this is something that I believe is
part of the Congressional Record, a ruling troika in America--that
ruling troika being the President, Speaker Pelosi, Harry Reid, who
could, by my words then, upheld to be true since then, go into a phone
booth, the three of them--haven't done so literally, but figuratively
they have--and decided what they would do to America.
Their accountability isn't to the American people. It isn't to the
will of the American people. Their accountability is only to the
members of their own caucus as to whether they would not just reelect
them as leaders but decline to un-elect them as the leaders of their
caucus. That is the only restraint that is on them and then the
restraint of pushing policies that they couldn't pull the votes to get
past.
It came very close here in the House a couple of times. And I have
respect for political operators that have an ability to get those tough
votes through and get them passed. In fact, if it's the right thing to
do, it's a hard thing to run a good country--in fact, a great country--
if you can't get those tough votes accomplished. But I will suggest,
Madam Speaker, that many of the things that have happened in this
Congress, the 111th Congress and the 110th Congress that preceded it,
are anathema to the American vision and anathema to the American Dream,
that they run contrary to the principles that made America great.
I can take us down this path. TARP is one of them. The Federal
Government's business isn't to come in and decide which businesses are
too big to be allowed to fail and then put a huge bill against the
taxpayers, their children and their grandchildren; borrow the money
from the Chinese and the Saudis; and then make decisions on which
businesses should be allowed to succeed, with government help, and
which businesses should be allowed to fail.
This country has got to be run by free enterprise, by the free
markets; and if businesses fail, they have to be allowed to fail. And
investors need to be able to come in and pick up the pieces at the
discount that is available when they go through chapter 11 or 7. Their
assets are still there. They can be managed by other corporate entities
or noncorporate entities, for that matter.
It isn't that if a bank went under or if AIG the insurance company
went under that all of a sudden all of the assets that they have are
dispersed or sunk into the ocean somewhere. The hard assets are still
there. The accounts are still there. They can still be managed by some
entity that comes in and picks up the pieces. I have seen this happen a
number of times far too close to make me comfortable within the banks
that were closed back during those years in the farm crisis years of
the eighties.

It happened over and over again, hundreds and hundreds of banks went
under. And when they went under, they were recapitalized. New board of
directors. New investors came in and picked up those shares of stock.
They looked at the loan portfolios, they looked at the deposits, and
they made management decisions to put that bank back on a profitable
track. Many of those banks, most of those banks, and I don't know that
I could say all of those banks actually got turned back into profit.
Yes, there were banks that were closed. There were those whose doors
were shut and didn't open again. But many banks came under new
ownership because they were sold back into the private sector. Even
though the FDIC found themselves brokering assets of banks no longer
solvent, they did not hold on to the assets of those banks and operate
those banks as if they were players in the private sector.
But what we have seen happen with this Obama White House is entirely
different than what we saw during the farm crisis years of the
eighties. First, this idea of too big to fail. Too big to fail, Madam
Speaker. No one in America's britches should be too big to fail. Too
big for their britches, but they can't fail.
I'd point out a presentation that was made to us about 3 years ago at
an 8 a.m. Wednesday morning meeting which I host, a breakfast which I
host and have done so for 5\1/2\ years, the Conservative Opportunities
Society. One of the very smart financial presenters there--since that
is off the record in that meeting, I can address what he said, but not
his name--we were talking about the subprime mortgage crisis. And he
said, When you're in the business, the investment banking business,
where he'd been for 30 years, what you do in this business is--and he
paused for effect and said, Pretty much whatever everybody else does.
That way, if they're making money, you're making money. But if things
melt down and there is a bailout, then you will be bailed out with
everybody else.
Madam Speaker, it's not hard for me to imagine what that does to the
investment minds of people that are operating investment banks if they
know implicitly, not explicitly, that they can take a lot of risks and
they are never really going to go under because the Federal Government
will come in and bail them out. That was the implicit guarantee in
banks that were too big to be allowed to fail. And it was followed
through upon by this government, by this President, in this
administration, in this time, and approved by him as a United States
Senator and approved by him as a candidate for the Presidency.
Too big too fail became too big to be allowed to fail. Too big to be
allowed to fail. The Federal Government would come in, and if we didn't
have the money to bail out these businesses, then we would tap into the
United States Treasury, who would borrow it and borrow it from the
Chinese and the Saudis and anybody else that could invest in U.S. bonds
and pick up these businesses.
So the Federal Government nationalized three large investment banks
in the aftermath of this September 19 visit to the Capitol by Henry
Paulsen, then the Secretary of the Treasury. Three large investment
banks, ownership taken over. Ownership or control taken over by the
Federal Government. AIG, the insurance company, $180 billion invested
in an insurance company, was guaranteeing securities.
And then we back this up to the late seventies when the Community
Reinvestment Act was passed because there were lenders that were not
willing to make bad loans in bad neighborhoods. They had drawn red
lines and concluded the asset value was diminishing, not appreciating,
and the return on that investment, let's say the collateral value was
shrinking. Therefore, if they loaned against that collateral value,
they would find themselves upside down in those mortgage loans. So they
drew lines around the neighborhoods where the value of assets was going
down.

[[Page H2870]]

Now, some argued that it was a racist decision. I don't know that. I
wasn't in those rooms and I don't know those people. For all I know, I
never met the people that were making those decisions. If it was for
the racist reason, it's kind of like racial profiling. If that is your
only reason, then it's wrong. But if it's an indicator that makes you
look at the totality of the record, okay, then it may not be wrong. But
lenders were drawing a red line around these neighborhoods, and they
refused to make those loans into those neighborhoods.
And there was a political decision made in this Congress that they
were going to force lenders to make loans into those neighborhoods that
had red lines drawn around them. That was the Community Reinvestment
Act. But the problem was that they couldn't get the banks to make
enough loans into those neighborhoods because the collateral value was
going down and the underwriting requirements for Fannie Mae and Freddie
Mac prohibited them from picking up on the secondary market some of
those bad loans.
So in 1978 I believe was the year when the Community Reinvestment Act
was passed. They expected that there would be a lot more loans made
into these neighborhoods that were redlined. There were more lines made
but not enough to satisfy the organizations out there in the inner
city. The community organizers--we can ask the President about
community organizers. What do they do? They advocate for taxpayer
dollars and redistribute those taxpayer dollars into the neighborhoods.
They don't contribute to the free enterprise economy. They just tap
into the taxpayers, distribute those taxpayer dollars, and in exchange
trade off for political power. That is what community organizers do.
So these community organizers concluded that they weren't going to
get enough loans into those neighborhoods so they came back to this
Congress and lobbied this Congress in the nineties to make changes
in the Community Reinvestment Act and, by the way, because of the
Community Reinvestment Act, they also found out that Fannie Mae and
Freddie Mac had strict enough underwriting requirements, that because
of those capital requirements and the underwriting requirements, Fannie
and Freddie, the secondary loan market, the GSEs in the United States,
could not pick up those loans off of those lending institutions.

And so they have refreshed the Community Reinvestment Act and made it
a little more strict, but also into the bargain they lowered the
underwriting requirements for Fannie Mae and Freddie Mac. Now we have
created a scenario for real bad loans in bad neighborhoods, real net
loss to the lenders. But the lenders weren't on the hook so much
because as soon as they could make a loan into a neighborhood that was
approved by organizations like ACORN, they could peddle that loan off
into the secondary market and Fannie Mae and Freddie Mac would pick up
the entire tab on that and the original lender would be off the hook.
So there's plenty of incentive for the original lenders to be retail
marketing bad loans in bad neighborhoods as long as they could package
them up, sell them into the secondary market under Fannie Mae and
Freddie Mac. Fannie Mae and Freddie Mac then got to this point where
they could see that they need to divest themselves of some of those
loans, and they sliced them and diced them, and turned around and spun
them back into the tertiary market and beyond.
So as this mortgage market was moving along, it was still moving
slowly through the nineties. And we got towards the end of the
nineties, and actually to the year 2000, when George Bush was elected,
we had at the end of the nineties the bursting of the dot-com bubble.
When the dot-com bubble was burst--and I suspect it was pierced by the
class action lawsuits that were brought against Microsoft by the State
attorneys generals, my State Attorney General Tom Miller included--in
fact, one of the ringleaders in the lawsuit against Microsoft. I
actually think that the dot-com bubble would have burst anyway. Because
what it was, it was a speculator's bubble. Yes, there was value in our
ability to store and transfer information more effectively than ever
before. The speculators invested in that. They bet that would return on
their investment and these technology companies would blossom and make
huge profits and they would cash in on them.

{time} 2140

But this bubble was created out of that speculation, and the thing
that wasn't corrected for some time until the bursting or the piercing
of the dot-com bubble was the inability for the market to consider that
having that technological ability to store and transfer information
more effectively than ever before didn't necessarily translate into
profits for companies. You have to produce something more efficiently
in order for the value of that company to be there.
So, with the Internet, for example, whatever the Internet does to
improve the productivity of all of our companies--and anybody that is
engaged in business will know that it does improve your productivity as
a company--you have the value of that productivity as to what it's
worth, not what you speculate you can store or transfer for
information.
The only other things that you got to add to that dot-com bubble
value was the increase in productivity and the value that you have for
recreation. So if people surf the Internet, and they were willing to
pay for that, that was a component of our economy.
But the dot-com bubble burst. And as it collapsed, we were seeing the
end of the Clinton administration. That was the recession that they
talked about during that period of time. And as George Bush was
elected, we saw Alan Greenspan make an evaluation--and I suspect this
is accurate, and he would have a different opinion of it perhaps--but
that we needed to make some adjustments in this economy in order to
compensate for our declining economy because of the bursting of the
dot-com bubble. Remember, the bubble burst, and it left a depression
within our economy. And I don't use that in economic terms. I use that
in, let's say, literal terms.
So Alan Greenspan looked at that and decided that we need to recover
this economy. How do we do this? Well, unnaturally low interest rates.
We're going to promote more mortgage loans. We are going to create a
housing market and a housing boom, and we are going to use that to fill
the hole in the dot-com bubble. That's the scenario that was playing
out.
So unnaturally low interest rates with an encouragement for people to
borrow money on terms that they hadn't seen in their adult lifetimes,
you couple that with the Community Reinvestment Act, passed in the
seventies, refreshed in the nineties, coupled with the lowering of the
capital and the underwriter requirements of Fannie Mae and Freddie Mac
and an aggressive lobbying part on the part of ACORN, who came to this
Congress and lobbied to lower the underwriting standards for Fannie and
Freddie and to push the Community Reinvestment Act, and ACORN finding
themselves and putting themselves in a position in the communities
whereby they got to approve or disapprove of the effort of the lending
institutions to make bad loans in bad neighborhoods.
Now we have cooked up the perfect economic witch's brew, Madam
Speaker, that resulted in the toxic mortgages that nearly brought down
the global economy. That's a component of the scenario which nearly
brought down the global economy. And as these investment banks, lending
institutions picked up the mortgage loans on the secondary market,
Fannie and Freddie tranched them, sliced and diced them, packaged them,
shuffled them, cut the deck, sorted them out and began to sell them on
up the market.
AIG, the insurance company, was looking at these bundles of mortgage-
backed securities, setting a premium risk rate on these bundles and
charging that premium. And whenever they were packaged and bundled and
marketed for a profit, the people that were doing that were taking
their profit out and passing the risk on, and AIG was passing judgment
on that risk with no check and no balance and no one looking over their
shoulder, and no one knew the market. They just trusted that AIG would
know the answer because, after all, they were the premiere insurance
company. They had been growing by leaps and bounds. But their agents
were skimming--I don't know if

[[Page H2871]]

I would say ``skimming'' is a fair enough word. But their agents were
taking a profit out for the marketing of the policies and the premiums,
but there was no continued responsibility and liability.
So I'll suggest that when people make investments and they pass those
investments up the line and they can take profit out of them at every
step along the way, it's kind of like the reverse of the value-added
tax, isn't it, Madam Speaker, where every time you can bundle up some
mortgage-backed securities, package them up, get AIG to set a premium
on that and get a guaranteed return rate because AIG's premium is
there, pass that on up the line, you take your margin out of that, it's
kind of like selling the wheat and paying the tax to the Federal
Government and sending the invoice along with it while the guy at the
mill grinds the wheat into flour. He takes the invoice from the value-
added tax and uses that for his credit, and it goes on up the line. He
pays his 10 percent tax and goes to the baker, and the baker then uses
the two invoice credits of the 10 percent on the wheat and the value
added that is another 10 percent on the increased amount on the flour
that's milled from the wheat that goes to the baker who pays the tax of
what's left on the value added before it goes to become the bread.

{time} 2150

The same was going on during the era of the Community Reinvestment
Act and Fannie Mae and Freddie Mac and the tranche mortgage-backed
securities and AIG guaranteeing, passing that thing all of the way up
the line. It became, yes, there was foundational value underneath these
mortgages. That is the market value of the real estate, but it also was
a huge chain letter that was marketed all of the way up through. And
when the investors in the world lost confidence that they no longer
knew the value of these bundles of mortgage-backed securities, then
that happened, then we were threatened with an economic meltdown, Madam
Speaker.
That is kind of how we got here. And now, as the economy spirals
downward, or more or less the threat of the economy spiraling downward,
we look to a President who is a Keynesian economist on steroids. He
believes, and I have certainly heard it directly from his lips in very
short range that Franklin Delano Roosevelt lost his nerve on spending
and that he just didn't spend enough money. If he would have spent a
lot of more money, it is the view of the President, whom I take at his
word, that the Great Depression would have been over in the 1930s and
we wouldn't have had to wait until World War II that brought about the
most effective economic stimulus plan ever. That would also be the
President's view.
But I will submit when the stock market crashed in October of 1929
and we saw my Iowa President do some things that FDR may well have
approved of, and FDR went in with the New Deal, which, in my view, was
a really bad deal, and in President Obama's view was a pretty good deal
and could have been a better deal if he spent a lot more money, it
didn't bring about a recovery from the Depression that started in
October of 1929, but what it did when the Federal Government borrowed a
lot of money, and they borrowed it from the American people in the form
of bonds, they created a lot of make-work projects, had to pay the
interest, had to pay the principal, we had all of this debt going on at
the beginning of World War II. And then we had to take on a lot more
debt. But at least during that period of time, had we not borrowed all
of that money, not spent all of that money, then the United States
economy would not have had to service all of the interest and service
all of the debt.
Interest and principal. Could it be that the people in this country
have forgotten what interest and principal is and what it takes in cash
flow to service the debt. And will they ever figure out what it is like
to be on the other side of this?
I recall a very good neighbor and a wise mentor friend of mine,
Dennis Lindberg, who has since passed away, told me a story about when
he was a young man and how he had the experience of paying interest at
a very young age. He said to me, I decided early on that if I was going
to have anything to do with interest, I was going to be the one
collecting it.
But this government looks like they will have a lot to do with
interest, and they will forever be the ones paying the interest rather
than collecting the interest.
So this economy has been diminished by the burden that has been put
upon it, just like it was diminished in the 1930s by the burden put
upon it. The stock market crashed in October of 1929, and it didn't
recover during the Great Depression years of the 1930s. It didn't
recover during World War II. The stock market was still struggling to
get back to where it was at the end of World War II, at the beginning
of the Korean War, at the end of the Korean war. It wasn't FDR who
solved the problem. FDR delayed the recovery by borrowing all of that
money and spending all of that money in the New Deal during the Great
Depression. The stock market didn't come back to where it was in 1929
until Franklin Delano Roosevelt had been dead for 9 years; 1954 is when
the Dow Jones Industrial Average recovered to the place where it was
when it crashed in October of 1929. All of those years, 9 years after
Franklin Delano Roosevelt passed away.
And I want to give him a tip of the hat and a nod, and a significant
measure of respect for the way he led this country in World War II. He
was solid. He was an anchor, he was stalwart, and a commander in chief.
He had a vision for full, all-out 100 percent war demanding total
surrender from our enemies. I can take some issue with some of the
decisions made along the way; but on balance, Roosevelt was a very good
wartime President. I just don't think he was a very good depression-era
President.
And this President, I have no idea what kind of wartime President he
would be. We are not in a depression. Some will say we are in the Great
Recession. That is the vernacular that has been adopted most. But this
Great Recession that we appear to be in has spent a lot more money than
was spent during the Great Depression of the 1930s. The result, I
believe, will be similar.
If you take a business, we can think in terms of a small business, a
small business that generates $100,000 a year in gross receipts, and
perhaps has a $10,000 mortgage with a 10 percent loan on it. This is so
I can do the math as I am talking. So your $100,000 in gross receipts
needs to pay the proprietor, pay the utility bills, and all of the
overhead, as well as the interest. So if you are grossing $100,000 with
a $10,000 loan, then 10 percent of that loan would be $1,000. And if
you are paying $1,000 in interest, and let's just say you are going to
retire that debt on a 10 year loan, so you pay 10 percent of the
principal each year.

The first year it would be $1,000 in interest and another $1,000 in
principal; $2,000 out of your $100,000 goes to pay the debt, to service
the debt you have. And then you have to take your margins, your
expenses out of the remaining $98,000 and have enough to feed the
proprietor and keep the proprietor engaged in the business
Let's just say that all of a sudden, we have this economic crisis and
the business is having trouble. It gets flooded or burned out or
whatever it might be, and along comes on the Small Business
Administration or some other entity, and they say we can keep you in
business, but you can't stay in business unless you borrow $100,000 and
we will inject that $100,000 of capital into your business. Well, that
is nice. You get to stay in business.
Now you have $109,000 worth of debt to service, but I will just go
with the $100,000 because I am speaking off the cuff and I can do the
math as we fly. Now your interest burden is not $1,000 on the $10,000
debt you had, it is $10,000 interest on the $100,000 debt you have, and
the 10 percent you were paying on principal of the $10,000 debt, that
$1,000, now becomes $10,000.
So your business that was servicing with $2,000 a $10,000 debt, now
has to have two $20,000s to serve the $10,000 worth of interest and the
$10,000 worth of principal on your $100,000 debt.
You have taken your ability, your gross receipts in the business are
similar or the same. You can only service $2,000 on the old way of
financing with the $1,000 of interest and $1,000 worth of principal,
$2,000 out of your $100,000

[[Page H2872]]

gross, but when they give you this nice loan that you borrowed
$100,000, now you have to figure out how to service $10,000 worth of
interest and $10,000 worth of principal out of a $100,000 worth of
gross receipts. Instead of it being 2 percent, now it is 20 percent.
I hope this example, Madam Speaker, is explanatory to the President
of the United States, to Larry Summers, to the people that are looking
at this economy and believing that John Maynard Keynes had some
answers. He had answers all right, but they were the wrong ones, Madam
Speaker.
We need to reduce the debt. We need to reduce spending, and only when
we do that can we have a free market economy that will work its way out
of this and let us be able to pay the interest and pay down the debt so
that this economy can finally get around to the side where it is not
constantly burdened servicing interest and debt as opposed to the
legitimate functions of government.
We did had 2 or 3 years here where we had a balanced budget. There
are some reasons for that. I will give Bill Clinton a little credit.
And I will give the Republican Congress a lot of credit. They came in
here revolutionaries and they decided that they were going to choke
spending down, and they did that. I think also, though, the economy
outgrew their predictions and so they were a bit surprised when they
balanced the budget.
I think Bill Clinton was a bit surprised when the budget came
balanced. Those are the fortunate happenstances of history. We need to
be more prudent than that even.
We are going to have to go back. This debt commission that meets
tomorrow, that starts out with Erskine Bowles and former Senator Alan
Simpson as co-chairs, they are going to examine all of this debt and
figure out how to look at the debt and the income to bring America into
something that is more responsible. I don't think that they think that
they are going to balance the budget or make a proposal that will
balance the budget, I think they believe that they are going to look at
the spending and the income and make some kind of a recommendation that
would help compensate the calamity that we are in.
But, Madam Speaker, I would submit that if you want a committee to
produce a result, write up that result. Tell me the result you would
like and present it to me, and I can appoint for you the committee that
will produce the result that you want. That is how it has been done
around this Hill since time immemorial, how it is done in the real
world, how it is done in the city council meetings and the county
supervisory meetings and within the outside committees of our State
legislatures. And that is not a criticism of the people who sit on that
debt commission.

{time} 2200

They are good people by and large and by balance. But they do not
represent, I don't believe, the creative ideas in the United States.
First of all, I look through that list of people on the commission; I
don't find a single person on that commission that supports a national
sales tax. I don't find a single person that has advocated for the
abolishment of the IRS and the Federal income tax. Not one. Smart
people there, yes. Their decisions, though, and their positions, from
what I have seen, are not economic positions exclusively. They are
pragmatic economic decisions that are tempered by their judgment of
political reality.
So couldn't we at the very least, if we wanted to provide solutions
for America, couldn't we set all of our politics aside, take away all
of this pragmatism that is political pragmatism, not economic realism,
throw that off to the side, park it over there in the parking lot,
can't we clean out all of the political jargon that's there and sit
down and first ask the question: What would be the smartest thing we
could do economically in this country? And in the process of doing
that, how do we fund this government, the necessary components of the
Federal Government?
Madam Speaker, those are the basic questions I have been asking about
this country for 30 years. And I am making a recommendation to the debt
commission. And I trust that they will overhear this discussion that
you and I are having tonight, Madam Speaker. But it comes down to this:
if we were going to devise a tax policy for the United States starting
from scratch, that proverbial blank slate or a blank piece of paper,
that tax policy, Madam Speaker, would not be the Internal Revenue tax
or code. We would not generate the IRS. We would not look at this as a
tax on income.
Because here is what Ronald Reagan once said. Ronald Reagan once
said, ``What you tax you get less of.'' He also said, ``What you
subsidize you get more of.'' But I will stick with the tax side of
this. What you tax you get less of. The tax is a punishment. We here in
America tax, and that is in quotes ``punish'' all productivity in the
United States.
If you have earnings, savings or investment, if you punch the time
clock and go to work, if you start a business and put your sweat equity
matched up with what capital you might have, package that together and
start a little factory or a service company, or start marketing an
invention, whatever it is that you might do, the IRS will come along
and identify that productivity and tax it, punish it, shrink it, take
away your incentive to produce it.
Production is what drives this economy, not spending. That's a
Keynesian mistake. It's not and never has been an economy that is
driven by government spending or the Federal Government borrowing and
bonding and putting cash in the hands of people so they spend it into
the economy to get this to recover. That is not the answer.
Our answer is we need to produce. We need to increase the production
in America, in competition with the rest of the world, and market more
goods and services and drive our gross domestic product up. And when we
do that, we will see prosperity, the prosperity that comes from our
efficiencies, from our productivity producing goods and services that
have value. And so when Ronald Reagan said, ``What you tax you get less
of,'' he was recognizing that we punish productivity.
The Internal Revenue Service and the income tax code are completely
dedicated to taxing all productivity in America, punishing all
productivity in America, setting aside everything that is good and
productive about our economy and taxing it.
So if you punch a time clock and you go forward and you earn wages,
you are taxed on it. At least the payroll tax. The Social Security,
Medicare, Medicaid tax, that is on there. You will pay your income tax
when you reach a certain threshold. If you have earnings, savings or
investment, if you are going to cash in your dividend check, your
capital gains, your interest check, all of that's taxed by the IRS.
If you go through life and you acquire an equity base, a net worth,
and perhaps you pay the tax on all of your income as you go along, and
maybe even your investments didn't appreciate in value and were never
taxed in that fashion--if they were you would have paid it--but you
have a nest egg of, let's say, $10 million, which is a pretty good
lifetime of work, this year you could die and pass it along to your
children because the Democrats are asleep at the switch. They would
like to tax your estate. They just haven't gotten around to doing that,
partly because the gavel in the Ways and Means Committee has been in
three different hands, all of that within 24 hours by the way.
All of your productivity, all of your earnings from your work, all of
your earnings from your investments and your management of whatever
business you might start or your dividends, your capital gains, your
interest income, your estate tax, all of that is taxed, all of that is
productivity, all of that is punished by the Federal Government today.
So what do we get? We get less productivity. We get less investment
because the cost of capital goes up. And we get less savings because
the interest income on the savings will be taxed by the IRS.

We will have fewer dividends because companies are looking to figure
out how they can avoid the corporate income tax in order to not pay out
the dividends that come from the profits. And their dividends
themselves are taxed. When the board of directors cashes in on those
dividends, they are looking at the tax liability; so they are thinking,
let's roll it. I don't want to take that out because the IRS will come
in and tax.
And by the way, investments in foreign lands, if they are repatriated
into

[[Page H2873]]

the United States, there will be a capital gains tax against that or an
income tax against that as well. So there is in the order of $13
billion in private sector capital that is stranded overseas that isn't
coming back to the United States because there is a penalty there for
bringing it into this economy. If we would just suspend the tax on all
the capital overseas, we would see trillions come back into the United
States. Five trillion perhaps in the first year, most if not all of
that in the succeeding years.
That's why the fair tax is the right way to go. There are many good
reasons why the fair tax is the right way to go, Madam Speaker. But the
biggest reason--two big reasons--one big reason is the fair tax ends
the IRS. It ends the Internal Revenue Code. It ends the punishment to
productivity in America. It stops the punishment of earnings, savings
and investment, and lets a person earn all they can earn, save all they
want to save, invest all they want to invest, and in fact take the
proceeds from the investments out and move them around, put them in an
investment where they will return better rather than having to pay tax
when you cash that check in.
So now we have all of these people that are involved in tax
avoidance, all the tax attorneys that are involved, H & R Block
involved in tax avoidance because the taxes may be avoided, they are
delayed; but in effect they are often not circumvented. They must be
paid eventually. Most of them. That's what this Tax Code is set up to
do.
My position is this: I am for H.R. 25. I am for the national sales
tax. I am for the fair tax. And what it does, it takes all tax off of
productivity, it abolishes the IRS, it puts the tax over on
consumption, where it provides an incentive for savings and investment.
When you tax consumption, that encourages people to invest and save.
And they can build their nest egg. And the capital comes back to the
United States. That big chunk of that $13 trillion comes back to the
United States.
And all of these high-rise buildings that have highly paid tax
lawyers in it and the corporations that have whole floors of their
buildings dedicated to tax attorneys, tax advisers, accountants for the
purpose of avoiding taxes, all that goes away. And that human capital,
the very smart people, moral, hardworking, ethical people who have
legitimate jobs in today's environment, they could turn their focus
into producing something that has value rather than tax delay or tax
avoidance.

{time} 2210

Think what it would be like to take all of those smart brains and
turn them loose to help us figure out how to be more productive. Some
of them will go out and start a business. Those businesses will go up,
and they will be publicly traded businesses eventually. Some of them
will go to work for other companies, and they will add to the value of
those companies because of their creative ideas. Some of them will be
such good nuts-and-bolts accountants that they'll find other ways for
companies to make money, and it might well be their companies. Some are
entrepreneurs, but the creativity of America is diminished because
we're locking up a bunch of human capital to audit and punish the
productivity of the American people.
What sense does that make, Madam Speaker? Why do we have a sense of
class envy against people who would be productive and who would make
money?
Now, I'm not among them. I'm not going to die a rich man, Madam
Speaker. There is nobody in my lineage who's going to pass it along to
me. I've dedicated my life to this public service and have made a
little money in my time, not enough to talk about and certainly not
enough to brag about, but I've engaged in this free enterprise economy.
I started a business in 1975 when I had a negative net worth of
$5,000. I went out and bought an old, beaten-up bulldozer, an old D-
717A. That machine was so decrepit that I couldn't even put it to work
to make my first dollar until I took the welder out and welded on it
for 2 weeks before I could get it stuck together enough that I could
put it to work. I put it to work. After 3 hours, I watched the old
pressure gauge go from the peg of high pressure all the way down to
zero--just about like that. As that happened, I dropped the throttle
down and shut the machine off. I had to tear the engine all the way
down and had to put it all the way back together in the rain. My wife
was standing there, 4\1/2\-months pregnant with our first child, and I
was torquing head bolts on a D-7, in the rain, in September. That's how
we got started.
I have an appreciation for what it takes to start a business, to make
that business go, to grow that business to where we can hire people and
can pay wages and benefits. I certainly have an appreciation, Madam
Speaker, for walking into my construction office sometime in the early
1990s when I first noticed this. My secretary had taken our Christmas
tree and had decorated that Christmas tree with gold silhouettes of
Christmas trees, of Santa and a sleigh, of baby Jesus, of the Star of
Bethlehem, of snowflakes. Each one of those on that tree was engraved
with the name of either an employee, a spouse or one of their children,
and there were enough who were dependent upon King Construction to
decorate that entire Christmas tree. That was the time it really hit me
that the decisions that I made affected the lives of all of those
families and their children. It was something that weighed on me
heavily but that also gave me great joy during that time--to see that
we had built something that so many people were dependent upon,
something that was good and just and honest and decent and productive.
Of course, the tax burden on that was one of the anchors that we had to
drag all the way through.
So I had come to a conclusion that I wanted to eliminate the IRS,
that I wanted to end this punishment for productivity, that I wanted to
put the tax on consumption, to let people earn all they could earn, to
save all they could save, to invest all they wanted to invest, to
accept the proceeds of their investments, and to move them around
without penalty. Sell anything you want to sell. Take your capital
gains. Put it in the bank, and do what you want to do. Yet, when you
spend the money, pay the tax.
I understand, and I would think that anybody at this level of
government should understand that businesses don't pay taxes.
Corporations, sole proprietorships, LLCs don't pay taxes. They collect
taxes for government. They pass the costs of taxes through to the
consumer, but they don't pay taxes. If they didn't pass those costs
along, they would be broke, and we all know that. Businesses are
effective and efficient collectors of taxes for government, but they
are not taxpayers. So we can get to two principles here:
One I've spoken about in some depth, which is that taxing
productivity reduces our productivity. Increasing our productivity is a
solution for our economy, so we should take all of the tax off of
productivity, and we should put it on consumption.
The next principle is that businesses don't pay taxes. They collect
taxes from consumers. So why wouldn't we just allow the 44 or 45 States
which currently have a sales tax to use the engine that they have, the
system that they have, to collect the sales tax in the same fashion
that they're collecting it at the retail outlets within their States
now? No exemptions. We'd have to tax sales and service. Yes, government
would have to pay that tax. They're paying it today in the embedded
costs of the things that they buy. The government has to pay tax. There
has got to be a tax on sales and service, and it would only be the last
stop on the retail dollar.
So, if it's a farmer, for example, rest easy because, if you go out
and buy a new combine or a planter or a tractor or a rotary hoe, or
whatever it is that it might be that you need, you wouldn't have to pay
sales tax on that equipment because that's a business input cost. So
you can buy equipment. You can put it into your fleet. You can work it,
but you don't have to pay sales tax on that equipment because it's a
business input cost; but if you buy, for example, a cap to put on your
head while you ride around in that combine or while you pull that
planter on that new tractor, you'd pay sales tax on the cap because
that's a personal item. That's how the differentiation comes down. We
would have to tax all goods and services.
So, if people are sitting there thinking, well, my pharmaceuticals
will be exempted, no, sorry, we can't exempt

[[Page H2874]]

them either. Pharmaceuticals wouldn't be exempted. Neither would Pablum
or Pampers or any of these products that we would call ``food'' or
preferred items for those organizations or entities that we think we'd
like to untax, because, as soon as we start creating exemptions, then
there's another exemption that has equal or more merit. Pretty soon, it
would narrow the tax base to the point where the rate would be too high
and we couldn't sustain this. It has to be no exemptions. All tax on
sales and services must be paid.

If you were to go out and build a new house, you would pay a sales
tax on the materials--on the lumber, on the plumbing, which are all of
the things that go into a new house, and on the labor. Though, if you
would sell that new house the next week, there would be no sales tax on
it because it would be a used house, and the tax would have already
been paid on the materials and on the labor. Now, that might seem like
a high cost for a new house except that the cost of those materials
that would go into the house would be, on average, 22 percent cheaper.
That's because there is an embedded Federal tax in everything that we
buy, which averages at 22 percent. Remember, these businesses don't pay
taxes. They pass them along to the consumers. Here is how it works,
Madam Speaker:
Their businesses will factor it into their prices, and they must.
That $1 widget has an average of 22-cents' worth of embedded Federal
taxes in the price. So, if you would pass this national sales tax, the
Fair Tax, you would see competition drive the price down. Your $1
widget would be priced then at 78 cents. Twenty-two percent of the
embedded cost of that $1 widget would go down to 78 cents. Yes, you'd
have to add back in a 23 percent embedded national sales tax in that on
the sales and on the service. Yes, that would take that up to just a
skosh over $1 again. Yet people would get 56 percent more in their
paychecks. They would have a lot more money to spend. The retail prices
wouldn't look a lot different when you'd be done paying the tax than
they would today, but the difference is that everybody would see how
expensive the Federal tax is, and they would make less demands on
government because it would make everyone a taxpayer.
Let me tell you the story of little Michael Dix, who is the son of an
outstanding once and future State legislator in Iowa. Little Michael
was about 8 years old when this happened. We have a 7 percent sales tax
in the State, in many of the regions, and I trust it was in this one.
He'd saved up his money, and he wanted to go in and buy a little box of
Skittles--those little sweets that are there on the counter. They were
89 cents, and he'd saved his money and had counted it out. He went in
and got his Skittles out and laid them up on the counter at the
convenience store. He counted out his money, the 89 cents, all the way
up to the right penny.
The lady who ran the checkout register rang it up, and said, Okay.
That'll be 96 cents.
He looked at her, and he said, But they're 89 cents. That's what it
says on the box.
She said, Well, no. You've got to pay the Governor. You've got to pay
the tax.
So there he is with the 89 cents, having saved it to buy his
Skittles. It's a transaction that's pretty important to Michael Dix, as
it should be to any young child that age. He found out that he had to
pay the tax and that she wanted 96 cents.
He turned to his dad, and he said, Dad, I have to pay tax on
Skittles?
Imagine, Madam Speaker. Imagine what that does. I don't think Michael
Dix is going to be a guy who's going to grow up demanding that the
Federal Government produce more things for him. I don't think he's
going to be one who's going to tolerate higher taxes. I think this
young man is going to grow up to personal responsibility, very well
aware of how burdensome the Federal and the State governments are.
He'll make sure that when government provides a service that it's a
good value for that and that it's a necessary service, not one that's
frivolous--or, man, he's going to know always that the money came out
of the pocket of Michael Dix and that it didn't come out, necessarily,
of the pocket of some anonymous person.
It's personal. The national sales tax, the Fair Tax, makes this
personal, Madam Speaker. It makes it personal for millions and millions
of kids who are growing up in America and who are making billions of
transactions. Every time, they're being reminded that the Federal
Government is expensive. An expensive Federal Government that makes
everybody a taxpayer becomes a Federal Government that those taxpayers
demand less of. More freedom. Less taxes. That's the equation.
The national sales tax, the Fair Tax, H.R. 25, is transformative.
It's transformative from an economic standpoint because it takes all of
the taxes off of productivity, and it puts all of the taxes on
consumption. It provides an incentive for earnings, savings, and
investments. It abolishes the punishment for production, which is a tax
on corporate, personal, and business income tax and taxes on capital
gains, investments, interest income, and all of the components--the
State tax included. It does all of those things. The Fair Tax does
everything good that anybody's tax reform does. It does them all. It
does them all better, and the American people are getting closer to
understanding what this means.
The American people can visualize what happens--a world without the
IRS, a world without punishment for production, a world that has little
kids growing up like Michael Dix, who is now a young man who
understands that paying taxes is a personal experience. It's
transformative, Madam Speaker, for this country to move down the path
of a national sales tax and toward abolishing the IRS.
Some will say they support a national sales tax, H.R. 25, the Fair
Tax, provided that we first repeal the 16th Amendment, but that sets up
an impossible bar. Can we imagine any piece of legislation that we
would predicate upon the passage of a constitutional amendment? What if
we had the flat tax and we had to pass a constitutional amendment
before we could adopt the flat tax? What if we had to pass a
constitutional amendment before we raised the debt ceiling? What if we
had fixated in the Constitution of the United States a debt ceiling
that we couldn't surpass? I think that would be a good thing, actually.
I'd like to ratchet it down from where it is now. We couldn't pass that
constitutional amendment. The bar is too high. The bar is too high to
set the standard that passing the repeal of the 16th Amendment is a
condition to adopt a national sales tax. Here is the reality of it:

H.R. 25, the Fair Tax, does this. It starts the process for the
repeal of the 16th Amendment and abolishes the IRS. It abolishes the
Income Tax Code in its entirety.
Can we imagine the American people freed of the burden of the IRS--
freed from the fear of audit? The American people get 56 percent more
on their paychecks. They make their own decisions on when to pay their
taxes, and the IRS becomes a thing of history, and the Internal Revenue
Code--the punishment, the tax on all productivity--is gone.
Do we think for a minute, Madam Speaker, that this Congress of the
American people would tolerate the reestablishment of the IRS or the
reestablishment of the Income Tax Code? No, they would not. In fact,
they would be so glad to get 56 percent more on their paychecks and
would be so glad to have the freedom to make the decisions on when to
pay their taxes rather than having the IRS tell them, You shall pay it
out of every dollar that you make, that they would never tolerate the
reestablishment of the IRS nor the reestablishment of the Tax Code.
It's that simple. They would, I believe, chase the 16th Amendment down
with a great joy that they would be relieved of it, and they would
eventually abolish it and repeal it.
Yet, to set the condition as a bar to pass the Fair Tax, it is too
high a bar. It's not an impossibility, but it's an extreme difficulty,
and it becomes a semantics argument rather than a practical one. So,
Madam Speaker, I'll make this point:
In 30 years of making this argument, I have never run into an
argument for some other tax reform that is economically superior to the
national sales tax, to the Fair Tax. I have not run into that argument.
I have not been in a debate where I thought that the other side made a
point that I had trouble addressing economically. The only

[[Page H2875]]

point that they can make is that, in their judgment, it's too difficult
to pass politically.
Well, when you tell the American people that the IRS is going to be
gone and that we're going to put those smart, good people at the IRS to
work in the productive sector of the economy instead of in the
burdensome sector of the economy, they're going to cheer. They're going
to stand up, and they're going to applaud. They've done that for me
over and over again.
The time is right. The economy is in a sad condition. We don't have a
President who understands this free market economy. I don't think he
believes in it. He has been nationalizing it right and left. He has
been nationalizing the three large investment banks; AIG, the insurance
company; Fannie Mae and Freddie Mac; General Motors; and Chrysler. The
Student Loan Program has been completely taken over by the Federal
Government. ObamaCare has swallowed up the most sovereign thing that we
have, our bodies. Our skin and everything inside it has now been taken
over and is managed by the Federal Government.
This President and this majority in Congress don't begin to
understand the sovereignty of the individual or the free market system
that we have, but the American people understand, Madam Speaker. The
American people are going to be given a choice this November. They are
going to choose freedom. They are going to choose liberty. They are
going to choose constitutional conservatism. I look forward to the
transformation, to the freedom, and to the liberty that comes from the
people who step up to their own personal responsibility.
I thank you so much for your indulgence and for your attention here
this evening, and I yield back the balance of my time.

____________________