[Congressional Record (Bound Edition), Volume 152 (2006), Part 7]
[House]
[Pages 8764-8766]
[From the U.S. Government Publishing Office, www.gpo.gov]




             THE PRESIDENT'S TAX CUTS AND THE MIDDLE CLASS

  Mr. McDERMOTT. Mr. Speaker, I ask unanimous consent to take claim the 
time of the gentleman from Illinois (Mr. Emanuel).
  The SPEAKER pro tempore. Without objection, the gentleman from 
Washington is recognized for 5 minutes.
  There was no objection.
  Mr. McDERMOTT. Mr. Chairman, the President has signed into law a bill 
that guarantees a massive tax increase for the middle class. They just 
do not know it yet. Make no mistake. The President's tax giveaway to 
the rich will be paid for by the middle class for generations to come. 
In fact, Americans living overseas are already reeling from the 
President's fuzzy math. It is the largest single tax increase in 30 
years for these Americans.
  I will enter into the Record a story published on Tuesday in the 
International Herald Tribune entitled ``Americans Abroad Outraged Over 
Tax Changes.'' Not only does the President's giveaway hurt Americans 
living and working overseas, his tax giveaway will actually encourage 
companies to hire executives in other countries because the new law is 
so onerous for Americans.
  The President declared ``Mission Accomplished,'' but the words ring 
as hollow now as they did on that aircraft carrier when he declared an 
end to major hostilities in Iraq on May 1, 2003, almost 3 years ago.
  What the President signed yesterday is a massive $70 billion tax 
giveaway. Americans earning $1 million a year will enjoy an average 
$41,000 windfall every single year through 2010. The President handed 
out $16 to the average middle class family.
  There is no money to pay for this presidential giveaway, just as 
there is no money to pay for the President's Iraq War. He keeps signing 
credit card slips for the U.S., but what kind of credit limit does he 
actually have?
  The Washington Post called it the ``Day of Reckoning for the next 
President in and Congress. I will enter into the Record a May 4 story. 
The story of the ``Day of Reckoning'' is January 1, 2011. Let me read a 
paragraph out of the Post story:
  ``At that moment politicians will face a choice: Either allow taxes 
to rise suddenly and sharply on everyone who pays income taxes, is 
married, has children, holds stocks and bonds, or expects a large 
inheritance, or impose mounting budget deficits on the government far 
into the future.''
  I urge you to read the rest of that story, which will be in the 
Record.
  This is not voodoo economics; this is black magic. The President and 
the Republican majority have made the surplus disappear. They have 
replaced a Nation enjoying strong financial security with a country 
insecurely surviving on a growing addiction to massive foreign debt. 
They are transferring the wealth of our Nation to the very rich and 
leaving the bill for the reckless plundering of the Treasury to the 
middle class, and they made sure the pain will not begin until the 
President leaves office.
  Two generations ago when income tax rates exceeded 70 percent, 
economists could argue that a tax cut could fuel economic growth. But 
that logic is as scarce today as gasoline at $1 a gallon.
  To independently confirm this point, I turn to none other than the 
very conservative Cato Institute. Here is what they said in the Los 
Angeles Times story on May 14, which I will put into the Record: In the 
story the Cato Institute shows that since 1981 for every dollar in tax 
cuts, the government spending increased by 15 cents. So they kept 
going. They gave away $1 and they spent $1.15. The President and his 
surrogates are pretending otherwise. The bills are piling up and so is 
the debt on the American middle class, until we stop.
  But the Republicans did the opposite. They rammed through a reckless 
budget bill yesterday. This much we know: The Republican budget is all 
gain and no pain for big oil. The Republican budget is all riches for 
the rich and rags for the rest. The President and the Republicans are 
hurting the poor, the disadvantaged, the vulnerable kids, the seniors, 
and the middle class. And the Republicans are passing on a legacy of 
debt, not to their children but to their grandchildren.
  When the President signed the latest tax giveaway, he gave those 
earning $1 million a year, earning $1 million a year, an extra $41,000. 
That is the average salary of the middle class in this country. For 
doing nothing. He just simply gave it to them. They will not work a 
single day for it. Meanwhile, the House Republican budget will add 
another $254 billion to the deficit to pay for that. They are going to 
borrow from the Chinese to give it to the rich. So the debt ceiling had 
to be raised again yesterday. Buried in the bill for the fifth time 
under Mr. Bush, we have raised the debt ceiling. Their spending is so 
out of control, they do not know how to stop. But that is not the half 
of it. In 2007 the rich will receive even more funding.
  There is no end to their spending. The only way is to take them out 
in November.
  By 2010, the Republican giveaway will cost as much as all of the 
funding for the Departments of Education, Veterans Affairs, Homeland 
Security, Housing and Urban Development, State, and Energy.
  And, median family income in America is down.
  Under this President, the tallest mountain in the world is no longer 
Mt. Everest; it's Mount U.S. Deficit. The rich are sitting on top with 
Republicans. Rock slides are crashing down on the rest of us. And the 
landslide is coming.
  This mountain of debt will collapse on the American people. That's 
the record of a Republican President and Republican majority who have 
defined themselves as the party of one percent, representing only those 
with a seven figure income or above.

               [From the Los Angeles Times, May 14, 2006]

                     Bankrupted by Voodoo Economics

                          (By Jonathan Chait)

       If you remember the 2000 election, you probably remember 
     President Bush's warning about why we needed to cut taxes: if 
     we did not return the surplus to the taxpayers, Washington 
     would spend it. Well, we all know what happened next. Bush 
     returned the surplus to taxpayers--and Washington spent the 
     money anyway.
       Conservatives have a number of analogies to explain why tax 
     cuts will lead to spending restraint: Cut your child's 
     allowance. Starve the beast. But the analogies are all wrong. 
     The child has a credit card. The beast has a private meat 
     locker. Washington can spend whatever it wants, regardless of 
     how much it taxes.

[[Page 8765]]

       The right has been congenitally unable or unwilling to 
     grasp this lesson. Last week, though, there was a faint 
     glimmer of recognition. William Niskanen, chairman of the 
     fervently anti-government Cato Institute, did a calculation 
     showing that, since 1981, every $1 in tax cuts tends to 
     produce 15 cents of extra spending. Likewise, every $1 of tax 
     hikes tends to reduce spending by 15 cents. The notion that 
     tax cuts cause spending to dry up, or that tax hikes 
     encourage more spending, is not just wrong, it's completely 
     backward.
       Now, Niskanen is not the first policy wonk to discover this 
     correlation. Four years ago, Richard Kogan of the liberal 
     Center on Budget and Policy Priorities discovered the same 
     thing. I wrote about it in the New Republic--and nobody paid 
     any attention.
       But Niskanen's finding is getting some attention. Moderate 
     libertarian Jonathan Rauch wrote about it in the Atlantic, 
     and a Washington Post columnist picked it up from there.
       You'd think conservatives would pay some attention to a 
     study that empirically demolishes one of the central 
     underpinnings of their domestic policy. Indeed, my fellow 
     columnist, Jonah Goldberg, wrote on National Review's blog 
     last Monday that ``conservatives are going to have to respond 
     to Jonathan Rauch's argument in the new Atlantic.''
       Of course, no response ensued. Indeed, the next day, 
     National Review was on its merry way, editorializing for more 
     tax cuts, as if Niskanen's study didn't exist.
       The curious thing is why conservatives persist in 
     supporting a strategy that is demonstrably counterproductive 
     to their stated goal of shrinking government. The answer can 
     be found in the same entry by Goldberg. He proceeded to 
     write: ``There are others better qualified to deal with the 
     economic issues. But if tax increases can be demonstrated to 
     shrink government in some significant way, I'm certainly open 
     to them.''
       Indeed, there is plentiful evidence that tax hikes can slow 
     spending. There is a sizable chunk of the Democratic Party 
     that is willing to inflict pain on their constituents in the 
     form of spending cuts as long as the rich bear some of the 
     burden in the form of higher taxes. In 1982, 1983, 1990 and 
     1993, Democrats in large numbers voted for budgets that 
     ratcheted back spending and raised taxes.
       In 1995, many Democrats offered to cut spending and balance 
     the budget. But Newt Gingrich and the Republicans quashed 
     that move by insisting on huge tax cuts too.
       The insistence on tax cuts tends to weaken fiscal restraint 
     all around. Having tended to the rich with tax cuts, Bush had 
     to buy off enough voters with spending hikes to win 
     reelection.
       Most conversatives are like Goldberg--they want to shrink 
     spending. But most conservatives, also like Goldberg, tend to 
     think that ``others are better qualified'' to make those 
     decisions. Conservative option outlets tend to subcontract 
     out their economic thinking to a handful of polemicists, and 
     virtually all of them are committee advocates of supply-side 
     economics. They're theologically committed to tax cuts and 
     don't really care about spending cuts. They studiously ignore 
     any evidence that weakens their case--which is to say, most 
     of the evidence.
       So, basically, you have a handful of supply-siders leading 
     the rest of the conservatives around by the nose. The 
     conservatives could cut a deal with the Democrats to tighten 
     spending and taxes, but the anti-tax nuts are the ones who 
     set policy for the movement.
       It's funny. Almost all the conservatives, including 
     Goldberg, are furious at Bush for raising spending. But it 
     hasn't occurred to them to question the dogma of the voodoo 
     economists who led them into this mess in the first place.
                                  ____


         [From the International Herald Tribune, May 16, 2006]

               Americans Abroad Outraged Over Tax Changes

                           (By Dan Bilefsky)

       Brussels.--Americans living abroad have reacted angrily to 
     a decision by U.S. lawmakers to approve $70 billion in 
     election-year cuts that will benefit wealthy taxpayers in the 
     United States but impose what some experts have called the 
     biggest tax increase on American expatriates in 30 years.
       President George W. Bush is scheduled to sign the tax cut 
     bill this week.
       Under the bill, which the Senate approved last week, 
     Americans working abroad will be exempted from paying U.S. 
     taxes on the first $82,400 of their foreign earned income, up 
     from $80,000. But the tax exemption on foreign housing 
     expenses will be significantly reduced, and investment income 
     will be taxed at a higher rate.
       In addition, the amount of foreign earned income that 
     surpasses the level of exemptions will be taxed as though the 
     income had been earned in the United States, at a much higher 
     rate, and income from foreign retirement accounts, which 
     previously did not reach taxable levels, can now be taxed.
       ``This is the worst hit to Americans living abroad for 
     three decades,'' said Eric Way, a tax specialist at the 
     Federation of American Women's Club Overseas who also works 
     as a senior engineer in France for Volvo. He estimated that 
     Americans abroad who earned $20,000 in investment income 
     could expect to see their U.S. tax bill double.
       A single manager living in Paris who earns $75,000 and 
     whose company pays his $3,000-a-month housing would see his 
     income tax bill rise to $5,110 from $600 because of the 
     capping on tax exemptions for housing costs, Way said.
       This changes, will apply to the 2006 tax year and were 
     introduced in a modification to the tax bill, were guided 
     through Congress by Charles Grassley, Republican of Iowa, 
     chairman of the Senate Finance Committee.
       In 2003, Grassley played a leading role in trying to 
     eliminate the $80,000 exclusion on income earned by Americans 
     abroad. He called the exclusion an unnecessary ``subsidy'' 
     and contended that it did little to increase U.S. exports. 
     His efforts to repeal the tax break failed, however, 
     following a corporate lobbying offensive that extended to 
     Bush.
       Republicans are hoping that the current tax legislation 
     will give a lift to Bush and the Republican-controlled 
     Congress, which have experienced their lowest approval 
     ratings in polls since his election in 2000.
       But many Americans abroad protest that it unfairly targets 
     them. The Joint Committee on Taxation in the U.S. Congress 
     estimated that the new measures would cost $200 million a 
     year in taxes for the 4.1 million Americans--excluding 
     military personnel and Foreign Service officers--living 
     abroad.
       The United States is the only developed country that 
     imposes worldwide income tax on its citizens working 
     overseas. Tax experts say that new taxes on Americans working 
     abroad could prompt U.S. companies to start hiring employees 
     from places like Britain and Canada, while provoking American 
     executives in Europe and Asia to return home.
       American taxpayers working abroad can deduct some housing 
     expenses, a benefit that has helped attract U.S. executives 
     to jobs in high-cost European capitals such as London or 
     Paris.
       But under the new system, this tax exemption on housing 
     will be capped at $11,536, although is some cases the 
     Internal Revenue Service could adjust it based on geographic 
     differences in the cost of living.
       Lucy Stensland Laederic, a free-lance translator based in 
     Paris and American liaison for the Federation of American 
     Women's Clubs Overseas, said she was particularly aggrieved 
     that her France-based retirement fund would not be subject to 
     U.S. income taxes.
       ``We are 4.1 million ambassadors living outside the U.S.,'' 
     she said. ``We buy American products, fly American airlines, 
     send our children to American universities and improve the 
     image of Americans overseas. Why are we being punished?''
                                  ____


                [From the Washington Post, May 4, 2006]

                     Tax Deal Sets Day of Reckoning

                         (By Jonathan Weisman)

       With this week's hard-fought agreement on a $70 billion 
     tax-cut extension, President Bush and congressional 
     Republicans have effectively set a date for a fiscal day of 
     reckoning for the next president and a future Congress: Jan. 
     1, 2011.
       House and Senate negotiators reached agreement this week on 
     legislation to extend the deep tax cuts on capital gains and 
     dividends beyond their scheduled 2008 expiration date, 
     through 2010. Final passage of the agreement must wait until 
     Republican tax writers agree on a second tax bill that 
     includes many of the tax breaks jettisoned from the measure 
     on capital gains and dividends. If the deal wins 
     congressional approval, every major tax cut passed in Bush's 
     first term will be set to expire on the same day five years 
     from now.
       At that moment, politicians would face a choice: Either 
     allow taxes to rise suddenly and sharply on everyone who pays 
     income taxes, is married, has children, holds stocks and 
     bonds, or expects a large inheritance, or impose mounting 
     budget deficits on the government far into the future, 
     according to projections by the nonpartisan Congressional 
     Budget Office.
       ``It is now a decision-forcing event,'' said Robert L. 
     Bixby, executive director of the Concord Coalition, a budget 
     watchdog group. ``This is a potential calamity that cannot 
     happen. They are going to have to deal with it and face the 
     consequences.''
       In a speech yesterday before the American Council of 
     Engineering Companies, Bush hailed the agreement to extend 
     his 2003 tax cuts on dividends and capital gains, and he 
     implored Congress to make all his tax cuts permanent.
       ``If the people have their way who want this tax relief to 
     expire, the American people will be hit with $2.4 trillion in 
     higher taxes over the next decade,'' Bush said. ``A tax 
     increase would be disastrous for business, disastrous for 
     families and disastrous for this economy.''
       Taking a partisan turn, the president mocked Democrats who 
     had opposed his tax cuts and had warned that they would lead 
     to economic disaster. ``The Democrats' record of pessimism 
     has been consistent: It's been consistently wrong,'' Bush 
     said to loud applause.

[[Page 8766]]

       But the decisions taken now inevitably will cause 
     politicians in the future to confront difficult choices--a 
     trade-off that Bush did not acknowledge in his speech.
       Rudolpy G. Penner, a Republican and former director of the 
     Congressional Budget Office, agreed that tax increases so 
     broad and sudden would be a major shock to the economy.
       Tax cuts that have accrued over five years of the Bush 
     administration--lowering income tax rates, benefiting married 
     couples, doubling the child tax deduction, cutting tax rates 
     on investment returns and eliminating the estate tax--would 
     disappear overnight.
       ``I can't even imagine that happening,'' Penner said.
       At the same time, Republican and Democratic budget experts 
     said they could not imagine all the tax cuts being extended 
     simultaneously. According to CBO projections, if the Bush tax 
     cuts are extended in 2011, a deficit of $114 billion forecast 
     for the year of their expiration will more than double, to 
     $274 billion. A budget surplus of $67 billion, anticipated 
     for 2016 if all the tax cuts expired, would turn into a $310 
     billion deficit.
       And the red ink would only grow worse from there, as the 
     baby-boom generation swells Medicare and Social Security 
     costs, said Douglas Holtz-Eakin, a former Bush White House 
     economist who recently retired as CBO director.
       In that sense, Holtz-Eakin said, synchronizing the tax-cut 
     expiration dates will have a positive impact, forcing 
     politicians to confront what they so far have refused to 
     acknowledge: the mathematical disconnect between government 
     spending and a tax system that can no longer finance those 
     programs.
       ``The next president has to have a plan for this, at a 
     minimum,'' Holtz-Eakin said. ``This is going to have to be 
     elevated to the top end of the political spectrum soon.''
       Both Bush and the Republican congressional leadership 
     expressed no alarm yesterday. Speaker J. Dennis Hasert (R-
     Ill.) said sharp reductions in the tax rates on dividends and 
     capital gains have boosted business investment, created jobs 
     and buoyed the economy since their passage in 2003. That 
     outcome, in turn, brought more revenue to the federal 
     government, not less, he said.
       Bush said the budget could be balanced by controlling 
     spending while maintaining his tax cuts.
       ``The best way to reduce our deficit is to keep pro-growth 
     economic policies in place so the economy expands, which will 
     yield more tax revenues, and be wise about how we spend your 
     money,'' the president said.
       Democrats attacked the agreement to extend the tax cuts for 
     dividends and capital gains as another gift to the rich. 
     Senate Minority Leader Harry M. Reid (Nev.) declared: 
     ``Bush's tax plan offers next to nothing to average Americans 
     while giving away the store to multimillionaires.'' House 
     Minority Whip Steny Hoyer (Md.) said Bush's comments on 
     fiscal rectitude ``read like a passage from `Alice in 
     Wonderland.'''
       This kind of rhetoric bodes ill for future cooperation on 
     tax and spending questions, Penner said. ``Unless there is 
     some reduction in the vicious partisanship that has come to 
     dominate our politics, it's very hard to imagine people 
     coming together on anything,'' he said.

                          ____________________