[Congressional Record (Bound Edition), Volume 145 (1999), Part 12]
[Senate]
[Pages 16385-16387]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    THE NON-SOCIAL SECURITY SURPLUS

  Mr. DOMENICI. Mr. President, I will take a little time to speak about 
the surplus that we have over and above Social Security, which we call 
the non-Social Security surplus. That is the amount by which the 
taxpayers of this country have paid more into the U.S. Treasury than we 
need to run Government.
  I choose now to speak to a proposal that I made with the introduction 
of a tax bill yesterday. I introduced it and had it printed and 
reported to the appropriate committee because I thought that even 
though I am not on the Finance Committee, that some of my ideas and 
thoughts might be relevant. I wanted the Senate to have the benefit of 
what I thought should be a good way to fix the Tax Code while we are 
reducing taxes.
  Let me address this matter in a text that I have prepared and worked 
very hard on, including the bill that was introduced. I thank my staff 
for the diligent work and the Joint Committee on Taxation for their 
willingness to help us with evaluations of how much these various 
proposals will cost.
  T.S. Eliot wrote, ``April is the Cruelest Month.'' Millions of 
Americans agree, especially around April 15. The Congress is going to 
pass a tax bill to make April a little kinder. I say it is time to 
share the surplus. Since without tax relief it takes the average worker 
until May 11 to earn enough money to pay his or her taxes, our tax bill 
also lets people start working for their families' benefit earlier in 
the year.
  American families are currently saddled with an unprecedented tax 
burden. Total Federal tax collections are at a post-World War II high 
of 20.7 percent of the gross domestic product. Individual income tax 
collections alone are 10 percent of the gross domestic product and are 
projected to stay there. We have never experienced a government based 
on that level of income taxation, speaking of the income tax component 
of our total American government tax table.
  The 1990s are truly a decade when government taxed the total 
population of America at a very excessive rate. The President will have 
a choice to spend on government programs or resist the urge to splurge 
and instead return the overpayment to its rightful

[[Page 16386]]

owners in the form of a tax cut or tax relief. It is estimated the 
average American household will pay nearly $7,000 more in taxes than 
the government needs to operate the non-Social Security portion of the 
government over the next decade. The tax-writing committees of Congress 
are working right now to fashion a 10-year tax cut, phasing it in, that 
will total around $778 billion over the next 10 years. In the Senate it 
seems that they are working on that exact number because that is what 
the budget resolution we adopted said they should do. The House seems 
to be moving in a direction of a little larger tax cut over the decade, 
but we are talking now about $770 billion to $800 billion plus.
  The ideas that are encapsulated in the bill I introduced take into 
account that the economy is booming. Personal income tax, as measured 
against adjusted gross income, is up 8.25 percent from 1997 over 1996. 
That is a current year IRS statistic. That is, personal income, as 
measured as adjusted gross income, is up 8.25 percent. Income tax 
revenues are up 10.2 percent. This is good news and bad news, and these 
statistics encapsulate both.
  The good news is our salaries, capital gains, and interest income are 
growing. The bad news is that bracket creep is pushing more and more 
Americans into higher tax brackets, even though we do not have as many 
brackets as we had years ago when bracket creep was a major American 
problem because of high inflation.
  It is still pushing them into higher brackets, and at the same time, 
the code is working to make more and more American taxpayers pay what 
is commonly called now AMT taxes; that is, alternative minimum taxes, 
which really were never intended to cover the vast number of Americans 
that are currently being pushed into the alternative minimum tax 
portions of our code because they are being pushed into higher 
brackets.
  I share with the Senate the key components of the bill I introduced, 
and I want to recognize that this bill builds upon legislation 
introduced by Senators Coverdell, Torricelli, and Mack.
  The philosophy behind the various provisions is something important, 
as I view it. I have been a long-time advocate of fundamental tax 
reform. I believe it would be better for our economy and simpler and 
fairer if we could shift our tax base from income that is earned and 
instead tax income that is consumed. There are very few who disagree 
that that would be a very good approach to a philosophy of taxation in 
our country. I have often said our current code is hostile to savings 
and investing and that we, as a Nation, pay the price in the form of 
lower economic growth.
  The philosophical underpinnings of this package corrects some 
deficiencies. Let me go through it.
  First section. Broad-based tax relief for all taxpaying families. 
Purpose: To cut taxes for 120 million American taxpayers by lowering 
and widening the 15-percent Federal income tax bracket.
  Second, marriage penalty mitigation and burden reduction. The purpose 
is to return 7 million taxpaying families to the 15-percent bracket and 
to cut taxes for another 35 million taxpaying families who will benefit 
from a tax cut of up to $1,300 per family. It eliminates or mitigates 
the marriage penalty for many middle-class taxpaying families. That 
happens by merely adjusting the brackets downward and upward in the 15-
percent area. I repeat, you do not change the marriage penalty for 
middle-class taxpaying families, but by making the 15-percent bracket 
broader, adding $10,000 to the adjusted gross income people can earn 
and still be in that bracket, and lowering the bottom bracket 1.5 
percent, much of the marriage penalty is mitigated for people in those 
brackets.
  Third, dividend and interest tax relief. Adjusting the tax base to 
recognize that dividends and interest should not be taxed. Now, 
obviously, there is not room in a tax package to totally eliminate 
dividends and interest. But the purpose of our bill is to provide an 
incremental step toward taxing income that is consumed rather than 
income that is earned and saved. It simplifies the code by eliminating 
67 million hours of spent time in tax preparation. It eliminates 
Federal income taxes on savings for more than 30 million Americans in 
the middle-class families and reduces Federal income taxes on savings 
for an additional 37 million Americans. It essentially allows about a 
$10,000 nest egg to grow, tax free, and will let Americans enjoy the 
miracle of compound interest.
  Specifically, it excludes the first $500 in interest and dividend 
taxation. That permits you to grow this nest egg and not have to pay 
taxes on the interest and dividends for the first $500 in that kind of 
income. It sounds small, but it affects a huge number of Americans and 
starts us in the direction of saying we ought to save, and we ought to 
start taxing not earned income, but consumed income.
  The next provision is a capital gains cut by recognizing that 
investment and investing should be encouraged, not penalized. A Tax 
Code for the new century should exclude modest capital gains from 
taxation. The purpose of the provision is to provide an incremental 
step toward shifting our Internal Revenue Code away from taxing savings 
and investment. A savings-friendly Tax Code would lower the cost of 
capital so that prosperity, better paying jobs, and innovation can 
continue in the United States.
  The bill would eliminate capital gains for 10 million American 
families, 75 percent of whose income is $75,000 or less. This provision 
is also a 70 million man-hour timesaver. I can think of many activities 
to spend 70 million hours on rather than filling out tax forms. The 
specific of this provision is that it exempts the first $5,000 in long-
term capital gains from taxation. It eliminates it totally from 
taxation.
  Another important section deals with retirement savings incentives. 
The purpose of this is to say that the savings rate for all Americans 
will increase by reforming the system to favorably treat income that is 
invested for retirement. It provides targeted incentives to middle-
class families to increase their retirement savings in a traditional 
IRA by $1,000 per working member of the family per year. Specifically, 
it raises the contribution limit for traditional deductible IRAs from 
$2,000 to $3,000 and indexes the limit for inflation, when we can fit 
that into the dollars in the code.
  The bill includes a death tax phaseout. It recognizes that death 
should not be a taxable event in the 21st century. We do not have 
sufficient resources to do away with it in toto. Some will be proposing 
it. I think they will find that it is rather expensive, even with $782 
billion to spend. So the purpose of ours is to begin phasing it out. 
Specifically, it reduces tax from the top rate of 55 percent to 40 
percent.
  Then we have innovation and competitiveness. We all know those are 
characteristics that, at this point in our economic history, are 
rampant in our American economy. Innovation and competitiveness are the 
things that turned the American economy around and made Japan ask: What 
is America doing right? It made France and Germany ask: What are they 
doing right? Fifteen years ago, everybody was asking the reverse. Some 
were wondering if we should do things like they did things. I am 
grateful we did not, for most of the difference was planning by 
Government. They continued to do it and we came out of it with 
innovation and competitiveness.
  Now we ought to make sure we do what we can with this available 
surplus to make the research and investment credit turn out to be a 
permanent part of the Tax Code. This change recognizes that the single 
biggest factor in creating better jobs through productivity growth is 
innovation. Productivity growth is derived from research and 
development conducted in the private sector. Between 60 to 80 percent 
of the productivity growth since the Great Depression can be traced to 
innovation.

[[Page 16387]]

  Specifics of the proposal. The provisions here are the same as those 
contained in Senate bill 951, which I introduced. It makes this tax 
credit permanent, but also expands it to cover businesses that were not 
heretofore covered, including many small businesses that are filled 
with innovation but can't avail themselves of the research and 
development tax credit.
  Last, but not least, the bill includes a section on energy 
independence. All I will say is that America is, once again, looking at 
itself in the world and finding that we grow more and more dependent on 
oil from abroad. In fact, it has gotten so high that there is no 
question that America is now dependent for its very survival upon 
importing oil from foreign countries. We have probably reached the 
point where we cannot avoid that. We will always be dependent. But the 
question is, Should we let an American oil and gas industry--
principally made up of independent producers and risk takers--wither 
and die on the vine? Or should we change the Tax Code so more capital 
will be made available by the way we change the Tax Code for that kind 
of industry, the oil patch of America, for those who supply the 
services, take the risks, and those who pump the oil and gas.
  We have made some changes and many Senators are interested in some of 
these issues, such as oil and gas capitalization, through changing the 
Tax Code. I won't read them one by one. To be specific, with reference 
to my own State, this overall proposal cuts taxes for 574,000 New 
Mexican families who have to file an income tax return.
  First, the bill cuts taxes by 10 percent by lowering the 15-percent 
bracket to 13.5 with a 5-year phase-in. This lowers taxes for families 
with adjusted gross incomes up to $44,000 for joint filers and $28,000 
for single filers. The tax change puts 424,000 New Mexicans who weren't 
up to that amount in a new lower bracket and cuts their taxes by 10 
percent. This bill also raises the threshold on the 15-percent 
bracket--something that was included in the proposals made by the 
distinguished Senator from Georgia and Senator Torricelli from New 
Jersey. It raises that threshold by $10,000 so that middle-income 
Americans can earn up to $55,000 in a joint return and only pay 15 
percent, instead of being dumped into the higher bracket once they are 
at $44,000. This is going to cut taxes for families with adjusted gross 
incomes between $44,000 and $55,000. You know the rest.
  According to our own revenue and taxation department in my home 
State, approximately 151,000 New Mexicans would be returned to the 15 
percent tax bracket from which they have been pushed out; 83,000 of the 
families would see their taxes cut by $1,300 a year. Because of the 
progressive rate change structure, New Mexicans in the 28, 31, 36 and 
39.9 brackets would all see their taxes cut by a similar amount because 
of the marginal rate concept in our law.
  This bill excludes $500 in interest and dividends from taxation. The 
exclusion essentially makes a $10,000 nest egg tax free; 504,000 New 
Mexicans will be helped by it and file more simple tax returns. The 
bill exempts $5,000 in capital gains from taxation, amounting to a $1.4 
million tax cut for 118,000 New Mexicans.
  I close with a quote from Milton Friedman.
  Milton Friedman said, and I agree:

       The estate tax sends a bad message to savers, to wit: that 
     it is O.K. to spend your money on wine, women and song, but 
     don't try to save it for your kids. The moral absurdity of 
     the tax is surpassed only by its economic irrationality.

  The death tax is also one of the most unpopular taxes. While most 
Americans will never pay it, 70 percent believe it is one of the most 
unfair taxes. Its damage to the economy is worse than its unpopular 
reputation. The Tax Foundation found that today's estate tax rates 
(ranging from 18 to 55 percent) have the same disincentive effect on 
entrepreneurs as doubling the current income tax rates and NFIB called 
it the ``greatest burden on our nation's most successful small 
businesses.''
  The would make R&E credit permanent and phase-in some modifications 
during last five years. This is essentially the text of a bill I 
introduced earlier this year.
  The bill increases expensing to $250,000. This will simplify record 
keeping for 2.5 million small businesses and save them a whopping 
107,000,000 hours in tax preparation.
  It also phases out the AMT for both indivduals and corporations.
  The tax plan also recognizes that there are certain areas of the 
country--oil patch in particular that are being devastated. At the same 
time, the oil and gas industry pays some of the highest taxes in the 
country. For this reason the bill also includes oil and gas tax relief.
  While the Joint Committee on Taxation has not completed its revenue 
estimate, it is my intention that these tax provisions can be 
accommodated within the Budget Resolution.

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