[Congressional Record (Bound Edition), Volume 151 (2005), Part 16]
[Senate]
[Pages 21953-21954]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           TAX RECONCILIATION

  Mr. KYL. Mr. President, let me speak briefly to a related subject 
dealing with relief for those adversely affected by hurricanes in the 
gulf region, the other side of the coin. We have a lot of programs we 
are going to have to fund for the relief of the people who suffered. A 
lot of us have felt we ought to be careful about how we spend that 
money and even make sure as much as possible we cut spending in other 
areas to pay for it. There are those who say the way to ensure we have 
enough money for these programs is to raise taxes. What I want to 
address is the fact that raising taxes, especially at this point, taxes 
that ironically would impact the very people who have suffered, would 
be absolutely the wrong thing for those people, for their communities, 
for the families of our country, for the economy, and for job creation.
  Raising taxes is not something you do when you want to help people, 
especially since we know the bulk of the growth that is going to occur 
in that region is going to come from the private sector. You don't make 
the private sector more healthy by extracting more money from it.
  Specifically, we are talking about a process in the Senate whereby we 
put real life into the budget we passed earlier this year through two 
bills we call the reconciliation bills, essentially reconciling income 
to our outgo. One of those bills deals with some of the tax policy we 
first effected in the year 2001 and then in the year 2003. Remember, 
the economy wasn't doing so well back then. When President Bush was 
elected in 2001, he said: We need to reduce taxes in some areas and 
thereby help the economy get back on its feet.
  In 2003, we brought that tax relief forward to that date and the 
economy took off. Marginal rates were reduced for all taxpayers. There 
were two taxes especially that helped with investment and job creation. 
We reduced substantially the tax on dividends issued by businesses, by 
corporations. We also reduced the taxes on capital gains. Capital gains 
are paid on virtually anything you sell and make a profit on.
  As a result of reducing those tax rates, did we have less money come 
into the Treasury? No. The reduction of the tax rates ironically caused 
all kinds of economic activity to occur because people weren't going to 
pay as much taxes on it, with the result that the taxes came rolling 
into the Federal Treasury. That is the situation we see today: Record-
breaking revenues coming in from the payment of taxes because we 
reduced the tax rate.
  Were we to allow those tax rates to go back up again, we can fully 
expect the exact opposite effect: less economic activity to tax; 
therefore, less taxes collected. It doesn't make any difference if you 
raise the tax rate; if there is nothing to tax, then you are not going 
to bring more revenue into the Treasury. Both because it would hurt the 
people you are trying to help in the gulf and around the country, and 
because it would bring in less revenue to the Treasury, a tax increase 
at this time is exactly the wrong response.
  There is an interesting phenomenon--I know the Presiding Officer is 
aware of it because he takes a significant role in studying the economy 
and its effects--economists who look at this say we will be able to 
rebuild from the effects of the two hurricanes. Our economy is big and 
strong, and there won't be any lingering damage. There will be a blip 
in this third quarter. But by the fourth quarter, our economy will be 
strong again.
  What they are worried about is the signals coming out of Washington 
that maybe in this reconciliation bill, we won't continue to support 
the lower capital gains and dividends tax rates, that we will in effect 
allow those tax rates to increase by not doing anything. Those tax 
rates are scheduled to increase in the year 2008, if we don't stop it. 
We are going to have a tax increase then, if we don't say we are going 
to continue the 15-percent rate. We have the chance to do that this 
year. I will explain why it is important to do it this year.
  What we are asking for is the ability to continue the tax rate as it 
is on capital gains and dividends 2 more years, from 2008 to 2010. That 
is important for a reason I will discuss in a moment. Some people say: 
At a time that we have to pay for hurricane damage and reconstruction 
and rebuilding, we ought to raise taxes, not keep the same rate we 
have.
  The point is, the tax rate we have today extends on through the year 
2008. We don't gain anything by raising that tax rate to so-called pay 
for the hurricane rebuilding. That doesn't happen until the beginning 
of the year 2009. We are not able to gain revenue by allowing that tax 
rate to go back up again, since it is not going to go back up again, if 
at all, until the year 2009. There is nothing to be gained by not 
acting and everything to be gained by sending a signal to the markets 
that we are serious about keeping these rates at the level they are.
  Why is this important? It is important because when people decide 
whether to invest, they foresee what the length of their investment 
will be, what they have to pay for it now, what they are going to make 
on it, and what kind of taxes they will have to pay. That is how they 
decide whether to invest. They capitalize their investment based upon 
the expectation of profit which is a condition of both what they will 
sell for and what the tax rate will be. We know what the tax rate will 
be through the year 2008. The question they ask is, what about the year 
2009 and 2010?
  Most of the investments made today are investments that are going to 
play out over the next 3, 4, or 5 years. It doesn't do a lot of good to 
look at the tax rates tomorrow or the next day. We do want to look at 
the tax rates in the years 2008, 2009, and 2010. That is when the 
profits will be realized, the taxes will be paid. It is hugely 
important what the tax rate is going to be in the year 2009 and 2010. 
That is why we have to act this year to extend the current law to make 
sure those rates stay right where they are, that we don't have a rate 
increase.
  There are some interesting statistics which I know the Chair is aware 
of, but I want to remind my colleagues with respect to the state of the 
economy today and the impact of the hurricane damage on it. The 
Congressional Budget Office estimates the two hurricanes will have only 
minimal effect on economic growth. They project that GDP growth in the 
second half of 2005 could be one-half percent slower than was 
previously predicted, but that by the fourth quarter and beyond, 
economic growth will return to its normal levels. We do know the 
economy was firing on all cylinders before the hurricane. In August, 
the month of the hurricane, CBO forecast the economy would ``continue 
to expand at a healthy pace during the second half of 2005'', and CBO 
projected GDP growth would grow by 3.7 percent in 2005, by 3.4 percent 
in 2006. As I said, the economy is doing great, firing on all 
cylinders.
  In August, the unemployment rate dropped to 4.9 percent, one of the 
lowest percentages ever. In May 2003, when the tax cuts were enacted, 
the unemployment rate was 6.1 percent. So it went from 6.1 down to 4.9. 
Most economists believe the tax cuts had a lot to do with that.

[[Page 21954]]

  I might contrast to our European friends. Through the first half of 
2005, the growth rate in the Euro area was 1.1 percent. The 
unemployment rate there stands at 8.6 percent. So we are doing very 
well in this country. Our economy is moving right along. It is not 
going to be adversely affected by the hurricane rebuilding. What we 
don't want to do is anything to slow that economic growth down, stop 
this engine of production. Tax increases would do exactly that.
  Since the year 2003, when the tax cuts were enacted into law, we have 
seen a sharp increase in revenues coming into the Treasury. While 
private economists expected that, it didn't show up in official 
Government estimates. In August, the CBO acknowledged that the revenues 
for 2005 will be $85 billion more than they were projected in March of 
this year. That is how wrong the Government was. It could even be more 
than that. So from March to now, we know we are going to have at least 
$85 billion more in Federal revenues than were projected.
  Here is the great statistic: CBO now projects the Treasury will 
collect $262 billion more in revenues in 2005 than in 2004, an 
unprecedented increase--$262 billion more. This is at lower tax rates. 
How can that be? When you have lower tax rates, it encourages people to 
invest more because they are not going to have to pay as much taxes. 
That investment produces economic growth which, in turn, is taxed, and 
that is why we are getting all the increased revenues to the Treasury.
  Interestingly, corporate income tax payments are up 42 percent this 
year. They were able to expand their operations because they have been 
able to attract additional investment. They are being attracted in part 
by the lower rates on dividends and capital gains.
  What would happen if we allowed those rates to increase? The 
nonwithheld income tax receipts are up 28 percent. What are these? 
These are the tax payments that don't come from employer withholding. 
In other words, they come from things such as capital gains and 
dividend income. Clearly, the 2003 reductions in the cap gains and 
dividends are having an impact there. We have to use the reconciliation 
bill this year to maintain the lower rates for capital gains and 
dividends and keep our economy growing.
  In summary, there is a strong economy that we don't want to hurt by 
raising taxes. Beyond being concerned about the tax dollars coming into 
the Treasury, we know the primary reason to keep the rates on dividends 
and capital gains relatively low is to give individuals and businesses 
the opportunity to invest, give businesses the capital they need to 
expand and create jobs. It expands the economic pie. It improves the 
standard of living for everyone. All Americans will benefit from 
keeping the 2003 tax rate on dividends and capital gains in place 
through the year 2010. I urge my colleagues not to respond to the siren 
song of raising money to rebuild from the hurricanes by raising taxes. 
It won't work. It will slow the economy down and that will hurt not 
only general revenues to the Treasury, but American families and 
individuals as well.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SESSIONS. Mr. President, I ask unanimous consent that the order 
for the quorum call be dispensed with.
  The PRESIDING OFFICER (Mr. Cornyn). Without objection, it is so 
ordered.

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