[Congressional Record Volume 157, Number 62 (Monday, May 9, 2011)]
[Senate]
[Pages S2757-S2759]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
REDUCING THE DEBT
Mr. KYL. Vice President Biden has been kind enough to host
discussions--starting last week and going into this week and perhaps
beyond--with Members of the Senate and the House of Representatives to
try to find a way to reduce the huge debt that hangs over the United
States, as a prelude, I am sure he would put it, to the Congress acting
on the President's request that Congress increase the debt ceiling.
There have been generally two ways suggested on how to deal with our
debt. Many Democrats believe the wealthy in the United States do not
pay enough taxes, and therefore one way to reduce the debt is for taxes
to be increased, especially on the wealthy. Most Republicans believe
that is a bad idea, that since debt is our problem and we got into debt
because we have been spending too much, the better way for us to deal
with the problem is to begin reducing our spending and to make sure
over the years we are able to do that.
There are a couple of interesting things that have just come out in
the news recently that I think bear on this argument.
A lot of folks wonder about the debt burden in the United States, and
I think it is useful to point out the fact that last week the Wall
Street Journal reported that the Joint Committee on Taxation found that
``the percentage of U.S. households paying no federal income tax . . .
reached 51% for [the year] 2009.'' I think that is the first time in
the history of America that over half of Americans didn't pay Federal
income taxes. I do not think that is a good thing. While certainly
people in the lower income brackets are not able to pay very much in
the way of taxes, I think even a very small amount, an affordable
amount, would be appropriate so everybody has what they call skin in
the game, so everybody understands the relationship between the burdens
and the benefits of government. I would not impose a significant tax on
the lower half or certainly not the lower 10 percent, but I think it is
important for all Americans to know we all have a stake in this, and
that more than half of the people cannot just expect the so-called
wealthy to bear all of the burdens of government.
But the question remains, are American wealthy taxpayers undertaxed?
I think a useful measure to look at here is a comparison with other
countries, for example. The OECD countries--which stands for
Organisation for Economic Co-operation and Development--are generally
regarded as the most advanced economies in the world, and the United
States is one of those countries.
A study that is based on 2008 statistics found that the highest
earning 10 percent of the U.S. population paid the largest share among
24 countries examined, even after adjusting for their relatively higher
incomes, and it concluded:
``Taxation is most progressively distributed in the United
States,'' the OECD concluded.
The bottom line here is that for a country to be competitive, the
people who provide the capital for job creation, for economic growth,
have to have some capital remaining after they have earned it in order
to invest that capital, return it to their businesses, hire more
people, be more productive, create more wealth, and thereby provide for
the families of the people who own the businesses and, by earning more
income, increase the amount the Federal Government and the State
government take in as revenues.
Republicans are very happy to concede it would be helpful if the
government has more revenues in order to help close this debt gap we
have. The question is how we get more revenues. We believe more
revenues are a function of a growing economy. Here too some statistics
that just came out over the weekend, I believe it was, demonstrated
that we can actually delay the increase in the debt ceiling by some
period of time because revenues to the Federal Treasury have been a
little higher than previously expected. Why? Because the economy grew
more than expected, and as people made more money, they therefore paid
more in withholding and in Federal income taxes. That is the way for
the government to get more revenue--for the economy to do better, for
Americans to do better.
So if you tax more the people who are the ones likely to do the
investing into businesses, will you get more investment? Will you get
more Federal revenue? Well, you will get a little bit more to begin
with, but in the long run, you will get less. One of the reasons it is
not a good idea to tax more the very people whom we are referring to in
this study is because half of all the small business income reported is
reported as part of the highest income tax bracket for individuals. In
other words, small businesses do not pay as corporations, they pay as
individuals, and when a small businessman has to report his earnings,
he reports all of the income from his enterprise. A lot of that is
business expense, but that is how he has to report it. So you are
talking here about half of all that income reported being taxed at a
higher rate, if, in fact, the President and some of his colleagues have
their way. That will reduce the amount of investment and growth in the
economy and thereby make it harder for us to pay off this large debt.
The advocates of a gigantic tax increase are really very
shortsighted, therefore, in assuming that if they raise tax rates, they
are going to get more revenues. That is what they tried to do in Japan
during the late 1990s. It did not work out. Japan went back into a deep
recession, and it is not going to be possible for them to generate
existing revenue with their higher tax rates.
The way you get robust growth is not with higher tax rates but with
lower tax rates. A rapidly expanding economy does create new jobs and
income for investment and wealth-creating enterprises, and obviously
some of that wealth flows back to the government and can be used to
reduce the debt.
But the policy tools we decide upon in these negotiations will have a
lot to say about how we are able to reduce the debt and whether part of
that will be a result of economic growth in the future. Obviously, the
point here is not just to have economic growth so the Federal
Government can earn more in income tax revenue but to promote American
prosperity and a better future for our families.
So the question is, Will we impose tax hikes that discourage
investment and punish job creation or will we make the tax system more
efficient and conducive to growth?
I wish to cite a couple of studies to show why it is most important
for us to focus on reducing spending rather than raising tax rates,
because spending cuts, not tax hikes, are the best way to close the
massive budget gap and help to produce economic growth in our country.
One study was performed by two Harvard economists, Alberto Alesina
and Silvia Ardagna. By studying large-scale fiscal adjustments by
wealthy developed countries from 1990 to 2007, they determined that
``spending cuts are much more effective than tax increases in
stabilizing the debt and avoiding economic downturns.'' Moreover, they
found ``several episodes in which spending cuts adopted to reduce
deficits have been associated with economic expansions rather than
recessions.''
Two economists at Goldman Sachs, Ben Broadbent and Kevin Daly,
undertook a similar study and reviewed every major fiscal correction in
wealthy nations since 1975. They found:
Decisive budgetary adjustments that have focused on
reducing government expenditures have (i) been successful in
correcting fiscal imbalances; (ii) typically boosted growth;
and (iii) resulted in significant bond and equity market
outperformance. Tax-driven fiscal adjustments, by contrast,
typically fail to correct fiscal imbalances and are damaging
for growth.
So reducing spending was the way not only to reduce the debt of the
[[Page S2758]]
country, but it also boosted growth; whereas, tax-driven adjustments
had exactly the opposite effect and failed to correct fiscal imbalances
and were damaging for growth.
A final study--and I think this is interesting because it focuses on
what we think are big-spending countries. It is by the same two
economists, Broadbent and Daly. They pointed specifically to Ireland,
Sweden, and Canada. They pointed out cases driven by cuts in public
spending. Sweden, in particular, which is famous for being a generous
welfare state, was able to trim the size of government substantially--
all of which suggests to me that if Stockholm can do it, Washington
ought to be able to do it today.
Reducing the short-term deficit and stabilizing the long-term debt
are critically important to American prosperity and living standards,
and if you do it by reducing spending rather than increasing tax rates,
you can also have the additional benefit of increasing prosperity not
just for businesses and families but for the U.S. Government, which
would then make more in terms of income tax revenues.
The bottom line here is when we work to forge this bipartisan
compromise that everybody is looking to us to reach, we should bear
these basics principles in mind: Cutting spending, not raising taxes,
is the answer.
I ask unanimous consent to have two documents printed in the Record.
The first one was published in the National Review Online, dated May 9,
called ``The Future of American Prosperity,'' which I authored. The
second is a publication which was in weeklystandard.com on May 16, by
Frederick Kagan and Kimberly Kagan.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the National Review Online, May 9, 2011]
The Future of American Prosperity
(By Senator Jon Kyl)
Spending cuts, not tax increases, are the solution to our debt crisis
Members of both parties agree that Washington's present
fiscal course is dangerously unsustainable. We're now
borrowing 40 cents for every dollar we spend. This profligacy
continues to weaken the dollar, threatening its status as the
global reserve currency and fostering anxiety in the bond
markets. Last month, Standard & Poor's delivered a sobering
wake-up call when it revised its outlook on the U.S. long-
term credit rating from ``stable'' to ``negative.''
No question, our accounts must be brought into balance--but
not at the expense of economic growth. Those who advocate
gigantic tax increases are short-sighted. Amid a sluggish
recovery, abrupt tax hikes could drive the economy back into
recession. (That's what happened in Japan during the late
1990s.) Moreover, it will be impossible to generate
sufficient revenue without robust growth. A rapidly expanding
economy creates new jobs and income for investment in wealth-
creating enterprises. Some of that wealth flows back to the
government and can be used to reduce the debt.
The policy tools we use to restore fiscal stability will go
a long way toward shaping the future of American prosperity
and promoting the economic expansion we need. Will we impose
tax hikes that discourage investment and punish job creation?
Or will we make the tax system more efficient and conducive
to growth?
As these and other questions are debated, policymakers
should consult the evidence from other industrialized
countries, which overwhelmingly suggests that spending cuts,
not tax hikes, are the best way to close massive budget gaps
and help produce economic growth. Indeed, after studying
large-scale fiscal adjustments by wealthy, developed
countries between 1970 and 2007, Harvard economists Alberto
Alesina and Silvia Ardagna determined that ``spending cuts
are much more effective than tax increases in stabilizing the
debt and avoiding economic downturns.'' Moreover, they found
``several episodes in which spending cuts adopted to reduce
deficits have been associated with economic expansions rather
than recessions.''
Goldman Sachs economists Ben Broadbent and Kevin Daly
recently undertook a similar study that reviewed every major
fiscal correction in wealthy nations since 1975. They found
that ``decisive budgetary adjustments that have focused on
reducing government expenditures have (i) been successful in
correcting fiscal imbalances; (ii) typically boosted growth;
and (iii) resulted in significant bond and equity market
outperformance. Tax-driven fiscal adjustments, by contrast,
typically fail to correct fiscal imbalances and are damaging
for growth.''
Broadbent and Daly pointed to successful fiscal adjustments
in Ireland (1987-89), Sweden (1994-98), and Canada (1994-97).
In each case, the adjustment was driven primarily by cuts in
public spending. Sweden in particular is famous for the
generosity of its welfare state. Yet, when faced with a
crisis, Swedish officials were able to trim the size of
government substantially. If Stockholm could do it back in
the mid-1990s, Washington can do it today.
Reducing the short-term deficit and stabilizing the long-
term debt are critically important to American prosperity and
living standards. But studies show that if fiscal
consolidation relies heavily on tax increases, it will stifle
economic growth and prove counterproductive.
This is the lesson we must apply as we try to forge a
genuine bipartisan compromise to deal with our debt crisis.
____
[From WeeklyStandard.com, May 16, 2011]
Bin Laden Is Dead . . .
But al Qaeda isn't--We should build on our success in Abbottabad by
redoubling our efforts to defeat his movement
(By Frederick W. Kagan and Kimberly Kagan)
Osama bin Laden's killing was a great moment for America
and for decent people around the world. But allowing the
euphoria of that moment to drive us to irresponsible
decisions in South Asia would be devastating to America's
interests and security. Al Qaeda has not yet been dismantled
or defeated.
Osama bin Laden's death has no implications for the number
of American or international forces in Afghanistan, for their
mission, or for the timeline for their reduction. George W.
Bush sent forces into Afghanistan not to kill bin Laden, but
to oust al Qaeda from its safe haven there, defeat that
organization, and create political conditions that would
preclude its return to Afghanistan. Barack Obama reaffirmed
that mission in his December 2009 speech setting out the
current strategy. He chose a counter-insurgency approach
because a return of the Taliban regime to Afghanistan would
allow al Qaeda to re-establish safe havens there, whether
drawing on the historical friendliness between the two or the
inability of the Taliban to prevent their return to the
country. Furthermore, the protracted, virulent insurgency
creates opportunities for al Qaeda-linked Pakistani proxies
such as the Haqqani network to invigorate international
terrorist groups and use them in the fight in Afghanistan.
President Obama has been pursuing the right strategy, and the
forces the United States and its international partners have
committed to executing it are--just barely--adequate to
achieve it.
The outcome of the war in Afghanistan hangs in the balance.
American forces and their allies made dramatic gains last
year, clearing the Taliban out of safe havens throughout
southern Afghanistan, their heartland. Eastern Afghanistan,
where al Qaeda-linked groups have a stronger presence, has
also seen considerable progress. Contrary to some media
reporting, neither al Qaeda nor Lashkar-e-Taiba has
established safe havens in the wake of the withdrawal of U.S.
forces from isolated river valleys in Kunar Province. In
fact, a series of offensive operations in the valleys and the
province has inflicted great harm on elements of those
organizations. Kunar's capital, Asadabad, is a growing and
increasingly thriving town, as we saw on a recent visit. And
Afghan Army troops have remained in some of the outposts from
which U.S. forces withdrew, demonstrating their determination
to control their own territory.
Although al Qaeda has not reestablished sanctuaries in
Afghanistan, it has not been for lack of trying. U.S. forces
only recently killed a senior Afghan al Qaeda official in
Kunar, and there is ample evidence that al Qaeda and Lashkar-
e-Taiba, among other Islamist groups, would welcome the
opportunity to set themselves up in a lawless Afghanistan
once again. The need to help Afghans establish a state that
can prevent the reemergence of terrorist sanctuaries remains
after bin Laden's death, and the current strategy, adequately
resourced, is the only way to achieve that goal. Calling for
accelerating the withdrawal is tantamount to declaring that
Afghanistan has become irrelevant with bin Laden's death and
that succeeding there is no longer important for America's
security.
Consequently, there is a great deal of fighting ahead.
Continued military engagements are needed to make precarious
improvements enduring and handle other challenges. The enemy
will work hard this year to retake its lost sanctuaries in
the south, to conduct spectacular attacks in Kabul and
elsewhere, and to strengthen its remaining safe havens in the
east. Our forces will try to hold and expand security gains
in the south and make progress in the east, but conditions
are not set for any major reductions in those forces.
If there is cause for cautious optimism in Afghanistan,
there are ample grounds for pessimism on the other fronts in
the struggle with militant Islamism. Bin Laden's presence in
Pakistan has once again concentrated the minds of Americans
on the fact that Pakistan's leadership has yet to come to
consensus about the need to combat and defeat militant
Islamist groups within Pakistan's borders. Nor has the United
States developed any real strategy for addressing this
challenge. We can hardly expand the campaign of targeted
strikes further, particularly after the recent raid deep into
Pakistani territory. And the drone campaign will not
defeat the virulent terrorist groups it is attacking.
Overreacting to suspicions of Pakistani complicity in bin
[[Page S2759]]
Laden's presence in Abbottabad by suspending all aid or
military ties or by taking other drastic actions would
make it much harder, not easier, to operate against the
terrorists who threaten us.
On the contrary, withdrawing forces from Afghanistan and
cutting all aid to Pakistan would merely reinforce two of the
most prevalent conspiracy theories in South Asia--that the
United States will always abandon those who rely on it, and
that we were only there to get bin Laden anyway. We should,
instead, build on the symbolic victory of killing bin Laden
by following through with the president's strategy to
dismantle and defeat the militant Islamist groups supported
as proxies by some in the Pakistani security apparatus. Only
by defeating those proxies can we reasonably hope to compel
Pakistan to reevaluate its security interests and develop a
policy to oppose and suppress all militant Islamists
operating within its borders.
But al Qaeda has not confined itself to its sanctuaries in
Pakistan and Afghanistan. Al Qaeda thrives in political
weakness and has been in the process of expanding around the
globe. The core al Qaeda group of which bin Laden was the
head (often referred to as Al Qaeda Central) has long had at
best only a tenuous control over the operations of its
dispersed franchises. That control rested partly on resources
Al Qaeda Central directed, partly on the value of its
recognition of a particular group as worthy of the al Qaeda
brand, but largely on the symbolic importance of the
charismatic bin Laden. Bin Laden's likely successor, Egyptian
doctor Ayman al-Zawahiri, is far less charismatic. His
accession to the leadership role could prompt a competition
between Al Qaeda Central and its franchises over which group
really is at the center of the movement. Such competitions,
unfortunately, unfold in the form of spectacular attacks,
particularly those conducted on the territory of Western
states.
Al Qaeda in the Arabian Peninsula (AQAP), in Yemen, is the
most active and perhaps the most dangerous al Qaeda franchise
in the world. The Arab Spring has reached Yemen with a
vengeance--massive protests have led to the defection of
elements of the Yemeni military, with the result that armed
forces are concentrating for potential civil war in and
around the capital and elsewhere in the country. Attempts to
broker a negotiated departure for Yemen's hated president,
Ali Abdullah Saleh, have broken down. It is far from clear
that any such agreement would keep the peace there for very
long in any case. Already Saleh has brought back to his
capital some of the elite, U.S.-trained Special Forces units
supposedly dedicated to the fight against AQAP. As the work
of Katherine Zimmerman at AEI's Critical Threats Project has
shown, almost any likely scenario going forward will give
AQAP more freedom to train, plan, stage, and conduct attacks
from increasingly lawless tribal areas in which it has
considerable local support. The combination of Yemen's slide
toward state failure and bin Laden's death could create a
tremendous opportunity for AQAP. His death may also lead to
an increase in AQAP's efforts to conduct spectacular attacks
against the United States and the West.
Another al Qaeda affiliate already has control over large
portions of a state: Al Shabab is the de facto government of
much of southern Somalia outside of Mogadishu. It has not
been formally recognized as an al Qaeda franchise, but its
ties with AQAP are long and deep, and its ideology closely
mirrors al Qaeda's. Shabab is kept from controlling all of
southern and central Somalia only by the presence of
peacekeepers from Uganda and Burundi, who have been barely
able to hold parts of the capital. Shabab is unlikely to
suffer at all from bin Laden's death, but it may see a
chance--or feel the need--to expand the reach of its strikes
in sympathetic retaliation.
Al Qaeda in Iraq, fortunately, remains relatively
ineffective, despite efforts to revive itself as American
forces withdraw. But the continued presence even of American
military trainers in Iraq after the end of this year remains
in doubt, and it is not clear that the Iraqi military on its
own will be able to maintain the necessary degree of pressure
on that al Qaeda franchise. If the complete withdrawal of
American forces now underway leads to the explosion of ethnic
conflict between Iraqi Arabs and Kurds, as some analysts
fear, Al Qaeda in Iraq could find fertile ground to
reestablish itself, undoing the progress we have made since
2006.
A protracted stalemate in Libya could also set conditions
for al Qaeda groups to pose again as the only reliable allies
of eastern fighters feeling abandoned by the United States
and the West. Although the current Libyan resistance
leadership is not penetrated by al Qaeda or supportive of
that organization or its ideology, eastern Libya is the area
that has produced the most al Qaeda fighters in that country
and that has the conditions most conducive to the injection
of al Qaeda's ideas and leaders.
More remote scenarios could see the rise of al Qaeda
franchises or fellow travelers in Egypt, elsewhere in North
Africa, the Levant, or Equatorial Africa, but there is no
need to belabor the point. The struggle with al Qaeda, to say
nothing of the larger struggle against militant Islamism
generally, is far from over. Clear and present dangers are,
in fact, emerging. It can be tempting to argue that these
threats merely show the wisdom of withdrawing from
Afghanistan, which is not now a center of al Qaeda activity,
to focus on more pressing problems elsewhere. We must resist
that temptation. Our struggle against Al Qaeda in the Arabian
Peninsula will not be helped by our giving its affiliates and
allies free rein in Afghanistan and returning Taliban leader
Mullah Omar, whom all al Qaeda affiliates recognize as ``the
leader of the faithful,'' to a position of power.
Success in Afghanistan and Iraq remains vital. American
withdrawal from either commitment will be taken throughout
the Islamist community as a sign of weakness and indecision.
But success in those two theaters is not enough. This moment
in the war with militant Islamism is the time to take stock
of our global strategy and to develop coherent approaches to
the dangers already visible on the horizon. No one wants to
invade Yemen, Somalia, Libya, or any other country. But the
strategies we have been relying on in Libya and Yemen are
failing, and we have never had a strategy for Somalia. The
United States must seek every possible way of averting the
dangers of stalemate, state collapse, and the triumph of al
Qaeda groups, preferably without deploying more of our own
forces.
It may be that, in the end, America simply cannot be secure
if terrorist groups with international ambitions have
uncontested control over sanctuaries and resources. But the
U.S. government has never yet focused its attention fully on
these challenges, let alone focused resources on them. It is
past time to do so. Those sincerely concerned with America's
security should be demanding that kind of commitment and
should reject utterly the notion that bin Laden's death will
allow us to declare ``mission accomplished'' and withdraw
from the Middle East, and the world.
Mr. KYL. Mr. President, since my time is about expired, I will say
this is one of the best statements I have seen recently, by Frederick
and Kimberly Kagan, where they write about the result of the death of
bin Laden, not offering an excuse to end the war in Afghanistan or our
other efforts against terrorists but, rather, that success will come to
us when we understand the nature of the threat and maintain our efforts
to root it out wherever it may be, whether that be in Afghanistan,
Iraq, Pakistan, Yemen, Somalia, or wherever. I think it is an excellent
piece. I commend it to my colleagues as suggesting the way forward as
we continue to fight the radical Islamists who would continue to visit
ill on the United States and other western powers.
The ACTING PRESIDENT pro tempore. The Senator from Florida is
recognized.
____________________