[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.

                          ____________________