[Congressional Record (Bound Edition), Volume 149 (2003), Part 1]
[Senate]
[Pages 473-475]
[From the U.S. Government Publishing Office, www.gpo.gov]




                               CRY UNCLE

  Mr. REID. First of all, I am not going to spend a lot of time talking 
about the organizing resolution. I think we should follow the Durbin 
plan of government, which he enunciated here today--the golden rule: Do 
unto others. We are willing to take what we were given last time by the 
Republicans. And the Senate has changed; last year at this time, there 
were 51 Democrats; now there are 49. Today, there are 51 Republicans 
and 49 Democrats. We can take the same thing that we were given. That 
is what this debate is all about.
  There were four boys in our family, and my wife and I had four 
children. We have kind of followed a tradition that I am sure is in a 
lot of families with boys. When you wrestle and do other things, one of 
the rules I had with my brothers and my children is, if there is a 
little too much wrestling, or maybe you are putting on a little too 
much pressure, let him cry uncle on it; then you stop.
  I think the time has come with this, as reported in a number of 
accounts yesterday, bizarre, foolish, crazy tax plan the President has 
given us. I think it is time that he cry uncle because it simply won't 
work. Even people from his own party--U.S. Senators--are saying enough. 
I think what they are saying in so many words is: Please cry uncle, Mr. 
President.
  You can look at what some journalists have had to say. David Broder 
said, among other things:

       The dividend tax would likely deepen the growing budget 
     deficits. The first round of Bush tax cuts will cost more 
     than $1.3 trillion in revenue over the next 10 years.

  Kevin Phillips said, among other things:

       The congressional leadership and the White House are so 
     wedded to an economic policy keyed to helping those at the 
     top that they lined up behind what is really a program to 
     make stock dividends into a 10-year, $300 billion individual 
     income tax shelter. This isn't just trickle down economics. 
     The benefits to the rest of the economy, even to the stock 
     market, are so conjectural that trickle down looks to become 
     misting down.

  That is by Kevin Phillips, a Republican.
  All we need to do is look in the Washington Post, which has run a 
story by a man by the name of Allan Sloan, a Newsweek Wall Street 
reporter. He writes for Newsweek. The Washington Post ran this story. 
Among other things, he says there are too many leaps of faith in the 
Bush tax cut plan. He says that the debate is focused largely on the 
question of fairness and affordability.
  I ask unanimous consent that the full column of Allan Sloan be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

[[Page 474]]



              Too Many Leaps of Faith in Bush Tax-Cut Plan

                            (By Allan Sloan)

       Do you remember those happy bygone boom days when the stock 
     market was going to save us from a variety of ills? Rising 
     stock prices would solve the problem of Social Security 
     shortfalls; boost federal, state and local income tax 
     revenue; and let us all retire young, rich and happy. It 
     never happened, of course. And now that stocks have been in a 
     three-year funk, we the taxpayers are being asked to bet 
     around $500 billion on the dubious proposition that we can 
     jack up stock prices by changing the way we tax dividends. 
     And that higher stock prices will bring back the good times 
     so many of us got used to in the late '90s.
       What I'm talking about, of course, is the dividend tax cut 
     that's the heart of the proposed economic stimulus package 
     from President Bush, our MBA-in-chief.
       The debate has focused largely on questions of fairness and 
     affordability, which are certainly important. But lost amid 
     the din are some important unanswered questions, such as 
     whether a $33 billion-a-year dividend tax cut can really 
     provide serious help for an ailing $10 trillion economy. And 
     whether a dividend cut whose benefit is concentrated among a 
     small number of high-income households is a better way to 
     jump-start the economy than House Democrats' proposals to 
     send out millions of one-time checks in the $300-to-$600 
     range. And, finally, whether we should even be trying to 
     stimulate the economy with tax cuts, rather than letting it 
     seek its own path.
       Bush's proposal is designed to eliminate double taxation of 
     dividends. That's when a corporation pays taxes on its 
     profits, then pays out after tax money as dividends to 
     investors who pay tax on them.
       Bush's plan, simple in sound-bite form but horribly complex 
     in the real world, would make some cash dividends that 
     companies pay tax-free. But a company's status depends on how 
     much income tax it paid the IRS. So you wouldn't know what to 
     count on from year to year.
       The Treasury estimates that the dividend package will 
     reduce tax revenue by $364 billion over 11 years--my $33 
     billion-a-year number. But we'd have to pay years of interest 
     on a larger national debt, hence my $500 billion cost 
     estimate.
       You've got to take several leaps of faith to believe a $33 
     billion cut can bring back the good times. The leaps look 
     like this: Cutting dividend taxes jacks up stock prices. 
     Higher stock prices make capital cheaper, encouraging 
     companies to expand, adding jobs. Combine these jobs with the 
     good feelings that higher stock prices would generate among 
     the populace and people run out and spend, stimulating the 
     economy big time. That's enough leaps to give you shin 
     splints.
       This is actually a simplified version of the thesis floated 
     by economists including R. Glenn Hubbard, head of Bush's 
     Council of Economic Advisers. At various times, Hubbard has 
     said that eliminating dividend taxes would raise stock prices 
     by 20 percent or 10 percent or 7.5 percent. He's co-written 
     papers asserting that dividend taxes depress stock prices. 
     But academic opinion is divided on the subject. Besides, 
     who'd risk $500 billion on an academic theory? Not me.
       When you enter the real world, you run into more problems 
     with the dividend-cut-to-the-rescue plan. To wit: About half 
     the dividends eligible for this break go to non-taxpayers, 
     such as pension funds and retirement accounts, for whom tax 
     cuts are irrelevant. Besides, the big players who drive stock 
     prices--professional traders, hedge funds, mutual funds--are 
     generally rated on their results without taking taxes into 
     account.
       Finally, the double-taxation problem is smaller than it 
     used to be. That's because corporations pay less income tax 
     (as a percent of profits) than they did before the advent of 
     aggressive corporate tax shelters, and dividends are far 
     lower, relative to stock prices, than in the pre-'90s days.
       If we're going for quick stimulus through tax cuts--which 
     I'm not sure would work--I'd take the Democrats' version. If 
     we want to fix a long-term problem, I'd reform the hideous 
     alternative minimum tax. The AMT, a complex trap designed 
     three decades ago to keep richies from ducking taxes 
     entirely, has morphed into a monster that threatens millions 
     of middle- and upper-middle-income people.
       The Bush tax package would mitigate the problem through 
     2005; Treasury types told me it would return in 2006. But the 
     Bushies can produce happy tables showing middle-income people 
     benefiting today. Apres moi, l'AMT.
       Even though I think the idea of reducing dividend taxes to 
     stimulate the economy is not likely to work and would be a 
     terrible waste of public money, I love the way the Treasury 
     tax types want to implement it. Instead of just making all 
     dividend payments tax-free, which is what I thought would 
     happen when I wrote about this last month, Treasury has come 
     up with an elaborate plan to make sure that only stockholders 
     of tax-paying corporations benefit from this break.
       One of the side effects of this proposal--which I doubt 
     that many people in the White House realized--is that each 
     corporation would have to announce every year how much in 
     federal income taxes, if any, it had paid.
       Can you imagine the uproar when someone made a list like 
     that public?
       Alas, even if this plan gets passed, I doubt we'll see this 
     type of disclosure. For what I'm sure are perfectly good 
     reasons, Treasury would allow companies to count foreign 
     income tax credits as taxes paid to the United States. So you 
     can see corporate America lining up to seek more loopholes--
     add back the deductions for pollution bonds, employees 
     cashing in stock options, state, local and social Security 
     taxes, all sorts of other high-minded stuff--until the 
     disclosures would become meaningless. But you've got to 
     commend the Treasury people for being intellectually honest.
       Letting corporations deduct interest payments but not 
     dividend payments has skewed balance sheets toward debt. 
     That's bad. But the way to fix it is to let corporations 
     deduct dividends the way they deduct interest. That idea 
     ``had a short shelf life,'' a Treasury tax techie said last 
     week, because it's much more costly then Bush's plan.
       The idea that cutting dividend taxes will save us should 
     have a short shelf life, too. This is beyond voodoo 
     economics. It's just a mistake. Call it booboo economics.
  Mr. REID. He says, among other things:

       Letting corporations deduct interest payments but not 
     dividend payments has skewed balance sheets toward debt. 
     That's bad. But the way to fix it is to let corporations 
     deduct dividends the way they deduct interest. That idea 
     ``had a short shelf life,'' a Treasury tax techie said last 
     week, because it's much more costly than Bush's plan.

  Last paragraph:

       The idea that cutting dividend taxes will save us should 
     have a short shelf life, too. This is beyond voodoo economics 
     [which was a term President Bush number 1 used in the 
     campaign against President Reagan]. This is beyond voodoo 
     economics. It's just a mistake. Call it booboo economics.

  Mr. President, the economic tax plan the President has given us is 
bad. It is something that is doomed to failure. If it passes, it will 
wreak havoc in this country. I hope that people of good will, Democrats 
and Republicans, will prevail upon the President to have him cry uncle 
and come forward with a reasonable proposal.
  Mrs. BOXER. Mr. President, if my friend will yield for a question.
  Mr. REID. Yes.
  Mrs. BOXER. I know my colleagues are here. I have one point I want to 
make, and then I am leaving the floor. I think it is an important 
point. I wonder if my friend can let me know if he agrees. I think 
America is now learning who benefits from this Bush plan. It is very 
clear. It is not rhetoric; it is fact. It is a boon to the millionaires 
and the billionaires, plain and simple. I know people in this very 
Chamber who have come up and said: This is absurd. We would much rather 
see a country that invests in its children, invests in its homeland 
security, and that gives tax breaks to those in the middle. They are 
fighting to stop this ill-advised plan. You have made the case that it 
makes no sense. We are talking about deficits as high as the eye can 
see and people being rewarded who don't need to be helped. It is not 
going to stimulate this economy. In the long term, it will lead to 
outrageous deficits.
  I ask my friend this question: Isn't it bad enough that this is a 
plan that won't do what we need; namely, have stimulus and long-term 
prosperity? Isn't it worse that at the same time the President is 
saying let's cut all these taxes for the millionaires, he is shorting 
homeland security and education? Our colleague, Paul Sarbanes, said it 
best when he said we ought to call this plan ``leave no millionaire 
behind.''
  We have President Bush sign a bill called Leave No Child Behind. We 
are going to get a bill pretty soon here that breaks the promise he 
made to the children of this country. He stood with Senator Kennedy, he 
stood with Congressman Miller, the champions of education and children, 
and now he will not fund it because he wants to give the money back. He 
is not funding homeland security, and our States are suffering as a 
result.
  So the juxtaposition of these two things--a plan that does not do the 
job, plus shorting our people in terms of education and homeland 
defense--isn't this a time that we have not seen ever before, a 
dangerous time for our people?
  Mr. REID. I say to my friend from California that there are some at 
16th and Pennsylvania Avenue who have

[[Page 475]]

tried to place upon the Democratic Senate that we are creating class 
warfare. My response to that is, we have not created class warfare; 
they have.
  I know the Senator from the State of California represents 
approximately 35 million people--35 million people. The Senator from 
California has had wide-ranging support over the years from poor, 
middle class, and the Senator from California received lots of support 
from very wealthy people. We are not opposed to rich people. They are 
good for the country. But Senator Harkin and I were here on the floor 
yesterday, and both of us, from the State of Iowa and Nevada--and I 
would like to hear from the three Senators on the floor--with New York 
not being here and Texas not being here, the most populous States in 
the Nation--Florida, Illinois, and California. I would like to know if 
you have had a ground swell of calls, people calling you who are rich 
saying please do this; it is good for the country.
  I say to my friend from California, for Michael Eisner--and I know 
him-- this tax boondoggle would give him an extra $2.6 million every 
year. Michael Eisner does not need that tax break. Michael Eisner does 
not want that. I say to my friend, is there anyone who has received 
phone calls from rich people saying: Please take away this dividend? 
No, they would rather, as the Senator from California said, that the 
money be spent on making us more secure in the form of better educated 
children, better protected citizens in our hometowns. The Senator from 
California is right on target.
  Mr. DURBIN. Will the Senator yield?
  Mr. REID. I will be happy to yield.
  Mr. DURBIN. I accept the Senator's invitation for comment. I can 
remember a comment made to me, even as I stand here. The CEO of a 
Fortune 500 corporation in Chicago, when I visited him and said: Do you 
believe the President's approach, tax breaks for the highest income 
categories, is the right way to stimulate this economy? He said: Of 
course not; we have to create demand for goods and services.
  He told me: I am not very popular in my country club.
  Here is what I told him. Throughout history, millions of Americans 
have sacrificed; they have given their lives to make this a great 
Nation. Is it too much to ask the wealthiest people in this country to 
pay their fair share of taxes? I do not think it is too much. These are 
people who have been blessed with creativity, skill, energy, and 
success, and to say they are the ones we are going to continue to 
reward defies any logic. Why are we not trying to reward and help the 
struggling families who are trying to pay their basic bills?
  Take a look at this chart. In terms of the Bush tax cut, the benefit 
for those making about $40,000 a year is $265, but if you happen to be 
a millionaire--$1 million of annual income--the Bush tax cut is worth 
almost $89,000.
  Paul Sarbanes was right--and I am going to credit him for this only 
one time and never again--the Bush tax cut is clearly a policy of leave 
no millionaire behind.
  Mrs. BOXER. Every year?
  Mr. DURBIN. Every year this is what it comes down to. Frankly, this 
is the average annual tax cut for millionaires, an annual tax cut of 
$89,000.
  What does the President cut to provide these tax cuts? Money for 
schools. Under his program, the education legislation, No Child Left 
Behind, the schools have all the mandates for testing, for evaluation, 
and for improvement, but the President will not put the money on the 
table. This is a President who posed for those holy pictures with the 
leaders in education in Congress, saying he was the education 
President, and yet when Mitch Daniels and OMB had a chance to write a 
budget, they did not put the money there. It is an unfunded mandate to 
the States when the States are desperately in trouble. The President 
cannot find the money to fund education, to fund his bill, but he can 
find money for a tax cut for the wealthiest people in America. He has 
abandoned No Child Left Behind so he can embrace a tax policy of no 
millionaire left behind, and that to me is unforgivable.
  That is the difference in the approach between the two parties, and 
that is the difference we need to dramatize as we talk about tax policy 
and spending policy in this Congress.
  Mr. NELSON of Florida. Will the Senator yield?
  Mr. REID. If I can respond to the Senator from Illinois. Senator 
Harkin has done a wonderful job working with Senator Specter on the 
appropriations subcommittee dealing with Health and Human Services, 
Labor-HHS, and he has done a lot for making sure we have money for 
school construction. We do not have nearly what we need. A little bit 
helps.
  The unfunded school construction in this country today, as we speak, 
is $189 billion. The average school in America is 45 years old. A lot 
of places, Florida and Nevada especially, have rapid growth and need to 
build new schools, and school districts are at the limit of what they 
can do with floating bonds.
  The Senator from Illinois is absolutely right. I was in the Chamber 
when the Senator from Illinois said schools are cutting back to 4-day 
weeks. When we are fighting to keep up with the demand of modern 
education, we are cutting back a day of these young kids' lives. I 
think it is just awful.
  I so much appreciate the Senator from Illinois bringing to our 
attention that we have to take care of priorities. Where are these tax 
cuts coming from? It is not as if there is a big building someplace 
down at 16th and Pennsylvania Avenue where they can go in and start 
hauling out wheelbarrows of money.
  Mr. DURBIN. Will the Senator yield? They are coming from the Social 
Security trust funds.
  Mr. REID. Absolutely.
  Mr. DURBIN. When baby boomers are about to retire and counting on 
Social Security, we are going to have the trust funds even deeper in 
debt, and the debt we are leaving behind is for our children and 
grandchildren. This approach betrays two generations: the baby-boomer 
generation and our children, who are going to have to pay off the debts 
incurred to give tax breaks to the wealthiest people in America at this 
moment in history.
  Mr. REID. To Michael Eisner, who does not want a tax cut--he has not 
told me that, but he does not need it. That money is going to Michael 
Eisner, and children in America are going to school 4 days a week. Not 
fair.
  Mr. NELSON of Florida. Will the Senator yield?
  Mr. REID. I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida.

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