INCREASING THE STATUTORY LIMIT ON THE PUBLIC DEBT--Continued -- (Senate - January 21, 2010)
AMENDMENT NO. 3302
Mr. KYL. Madam President, I wish to talk a little bit this afternoon about the amendment which Senators Conrad and Gregg have proposed and which we will be voting on next week. Both of these Senators are very well versed, as the chairman and ranking member of the Budget Committee, in fiscal policy and in the types of reforms everyone is looking for to get a handle on the deficit and the debt this country is facing. So it is with some trepidation that I oppose an amendment the two of them would offer.
I hasten to say that both are respected Members of this body who approach problems with principle in mind, and in this particular case, having talked to Senator Gregg, I know the idea that only by working across the aisle with each other and compromising can we hope to deal with the most vexing problem that seems to face this body; that is, how to deal with the problem of deficit and debt.
Having acknowledged their good will, however, I have to respectfully disagree with the approach they take in their commission. I do it for basically three reasons.
First, I have never found either the House or the Senate in a position where they were anxious to cut spending and thereby save taxpayer money. I have, on the other hand, seen an effort to raise taxes every time we seem to get into a deficit situation. It seems it is always easier to gather in more taxpayer money than it is to stop spending money they have already sent us. The problem with that is, it is no longer money they have sent us, it is money we have borrowed from other people such as China, for example. That borrowing has costs, foreign policy costs as well as interest costs. We eventually have to pay it back. Because we have borrowed so much, the Chinese are saying we better be careful about how much we have borrowed, and they will have to increase interest rates. There is a point at which you cannot be a great nation by being in debt to all the folks around the world.
It is not as if we haven't collected enough taxes. We are now at something akin to 23 or 24 percent of our gross domestic product on Federal spending. It used to be 18.5 percent or so. It is clear, therefore, it is not tax revenues that are the problem. It is spending that has gotten out of control. We know that from all these statistics a lot of us have been talking about relative to the budget last year and the debt ceiling that needs to be raised presumably next week. We wouldn't have to raise the debt ceiling by almost $2 trillion if we had been more restrained in our spending.
To put it in perspective, before I move on to the next point, the President's budget last year called for more debt in the 5-year period of that budget than all the debt that had been accumulated by every President of the United States from George Washington through George Bush. Think about that for a moment. In 220 years of history, take all the debt, including World War I, World War II, the Civil War, pile it all up, and this one budget included more debt than that. We double the debt in 5 years, triple it in 10 years. That is not responsible. And it is not for a lack of Federal revenues. It is not because we are not taxing the American people enough. It is because we are spending too much. The American people believe that. They understand it. I think it is one of the messages from the Massachusetts election.
When you have a commission that can make recommendations to the Congress that we have to, in effect, abide by, that permit either an increase in taxes or a reduction in spending to solve the problem, it is pretty clear to me which direction we will end up going. We don't have the courage to reduce spending so we increase taxes.
Second, our rules are premised on a fallacy. Unfortunately, I believe it will drive the commission because of this fallacy. The fallacy is, all the money in the country belongs to the U.S. Government and, therefore, if we reduce taxes somewhere, we have to make up that reduction in tax revenues somewhere else, either by raising taxes somewhere else or cutting spending. Of course, we never cut spending. So the idea is you have to raise taxes somewhere. If I want to give the American people a tax break by reducing their taxes, I should have the right to do that. Congress should be making the rules. We should have the right to say: We are going to reduce your tax burden. But under existing rules, unless you have 60 votes for a permanent change such as that--and even then it is difficult because of our scoring rules--any revenue that is lost because of an action we take in reducing taxes has to be made up somewhere else in some other way. It has to be offset.
What that generally means is, since we don't find ways to cut spending around here very often, you raise taxes over here to make up for the tax revenue lost over here. If I want to reduce the capital gains tax by 5 percent, for example, or to give a real-life example, I want to reduce the estate tax--and Senator Lincoln and I want to do that--I can't do that without ``paying for it.'' We just want to reduce the estate tax so that people when they die, their heirs will not have to pay as much estate tax. No, you can't do it. You have to make up the revenue that you would lose. It is one of the reasons why we don't cut taxes around here very much. Because it is hard to find offsetting revenue that is acceptable to people.
To carry this a little further, Senator Lincoln and I would simply like to repeal the estate tax. That is not going to happen. So we have agreed to a compromise in which we would have a $5 million unified credit; that is to say, that is the amount that is exempt from the tax and that is per spouse in a family. It would be indexed for inflation and then anything that remains above that in the estate would be taxed at the rate of 35 percent. That costs a certain amount of money, according to the budget scorers. I am not sure how much. Let's say $80 billion. We have to figure out a way to pay for that. So the question is, Is there some other place where we can raise revenue? Ordinarily, raising revenue means raising taxes. We don't want to do that. So we are relegated to the kind of political games, such as maybe phasing it in over time, because it doesn't cost as much if you bring the rates down over time, where you gradually increase the unified credit over time. That is how we got to the crazy situation we are at today, where we had the rate go down over a period of 9 years and then this year it went to zero. But next year it goes right back up to 55 percent. So the rules we have around here create crazy policy. Yet we are stuck with it.
I am afraid a commission that has the ability to both make tax revenue increase recommendations as well as spending reductions will not only focus a lot on the taxing side, because it is very hard for Congress to reduce spending, but also will be bound by the same rules so we will never get tax cuts anymore. Because every time you want to decrease a particular tax over here, you will have to raise taxes over here. I think we should start from the premise that the money in the country belongs to the people. It is their property. The government should not take it unless it needs to and unless the people acquiesce through their representatives. If Congress decides it wants to take less money from the people, for example, so they will have more money to invest in small businesses to create jobs and put America back to work again, we ought to be able to do that without saying: We are going to give you a tax break here, but we are going to have to raise your taxes over here by an equivalent amount. If the money belongs to the people, we wouldn't have a rule such as that. I think it is very elitist and very wrong to essentially start with the proposition that the money belongs to Washington so you can never give it back to the people without recouping it in some other way. That is the second reason why I think this is not a good idea.
Third, we should be focusing on spending reductions. Everyone talks about not spending as much. Yet we have increased spending dramatically over the years. One of the reasons why is because our constituents want lots of things. If a particular special interest asks for some spending, there tends to be political support for that. The opposition to it being spread over all the people, in effect being everyone's problem, is no one's problem. So you have in spending bills here Members who put earmarks in bills or request certain spending, and there is a constituency for that. By the way, when I talk about special interests, I am not necessarily talking about bad people. Every family in America is represented by some special interest. You have veterans in the family, and you have the veterans groups supporting them. Does anybody think those are bad special interests? If you have farmers, they belong to the Farm Bureau. That is not a bad special interest, but they may be coming to Washington asking for something specific.
I was visited today by the head of the police department and fire department in my city of Phoenix. Both of them are represented by groups in Washington. They are not bad special interests. There are a lot of special interests in the country. Because the government is so big and so powerful, a lot of what they do consists of persuading Washington it should engage in one policy or another because that is where all the power is, that is where the money is, and so they have to hire lobbyists to come back here. We listen to those special interests. Who pays the bill? Our constituents, the taxpayers, who don't have many representatives back here.
There are groups, such as the National Taxpayers Union, for example, that keep track of how much money we spend around here. They rate Senators based on how much they spend.
Citizens Against Government Waste is another one. But they are pretty general, and they are not specific such as a lot of the special interests. What you end up with is a big push to spend money and not much of a push to save it.
When colleagues of mine, such as my friend Tom Coburn or my colleague from Arizona, John McCain, come to the floor and criticize earmarks in bills, spending they don't think is necessary, they are criticized. Why don't you play the game? Why are you creating such a stir? Senator Coburn has an amendment we will be taking up next week that says let's at least get rid of a whole group of programs that a commission in the United States has decided are duplicative and not necessary. I have forgotten how many child nutrition programs we have or special education programs or job training programs. Probably many more than can efficiently spend taxpayer money to do the good things they are set up to do. But we never seem to get around to putting more efficiency into the system.
I think it was Ronald Reagan who said the closest thing to immortality in the United States is a government program. They are easy to create but hard to get rid of.
When you make deals that if you will just say we will solve the deficit problem, we will save money over here if you will raise taxes over here--I mentioned Ronald Reagan; I will mention him again. That was the deal he cut with Tip O'Neill and the Congress at the time. We got the tax increases, but we didn't get the savings. One of the things Ronald Reagan always said he regretted was being so naive as to make a deal assuming that if he agreed to raise taxes over here, Congress would agree to make savings over here. It is hard to do. Congress very rarely does it.
Another problem is, raising taxes for the purpose of raising revenue has two problems with it. No. 1, we don't end up saving money. We just end up spending it on new things. No. 2, it affects behavior from taxpayers in a negative way. If you raise taxes on businesses, for example, they will not hire as many people. They will not be able to invest as much money in their business. They will probably not make as much money. If they don't make as much money, what happens to their tax liability to the government? It goes down, not up.
On the other hand, frequently--and this has been demonstrated especially with taxes that have a direct relationship to revenues such as the capital gains tax--if you reduce the tax, business activity increases, producing more revenue for the government to tax, and Federal revenues actually go up. This is not true with all taxes, but it is true with some taxes. I mentioned capital gains.
If you have a high capital gains rate today and businesses are told the rate is going to go down next year, do you think you are going to see a lot of assets sold this year? You will have hardly any economic activity unless it is absolutely necessary. But on January 1 of next year, when the rate goes down, you will see all kinds of activity because the rate at which that activity is taxed is reduced. By the same token, if you have a rate that is low today and you say it is going to go up tomorrow, you will see a lot of activity today but not much tomorrow. That economic activity is what produces revenue, which is what the government taxes. As I said, ironically or paradoxically, a lower rate generates more revenue to the Treasury.
That is what happens when you reduce the capital gains rate.
I believe if the President were to announce tomorrow he is asking Congress to pass legislation to send to him that would fix the marginal income tax rates, the dividends rate, the capital gains rate at exactly where they are right now, for, let's say, a period of 5 years, the certainty that would create--even though some of those rates are too high, in my opinion; let that go--the certainty that would create because the rates would be known for a period of 5 years--and these, by the way, would be the so-called Bush tax cut rates so they would be much lower than they would be if they were allowed to go back up again--if the President were to do that, I think he would see the stock market skyrocket the next day. He would see job creation that would be incredible because businesses would know their taxes are not going up, that they could afford to hire people, and they would do so.
On the other hand, when you leave the tax rates in question or hint they are going to go up or, in fact, ensure they are going to go up--as they did under the health care bill, for example--it is no wonder businesses do not create jobs. In the health care bill, we actually have a couple payroll tax increases. All tax increases hurt business and hurt their ability to invest more and to hire more people, but a payroll tax is a direct tax on jobs. It says: The more people you hire, the more taxes you are going to pay; the more people you keep on your payroll, the higher your tax liability is going to be.
There is one provision that says, if one of your employees leaves and gets a subsidy for the insurance exchange, you have to pay an 8- to 10-percent payroll tax on all the rest of your employees. That is a job killer. Another tax raises, by just under 1 percent, the Medicare payroll tax. That is a job killer.
So there is a relationship between job creation and taxes, economic activity and, therefore, revenues to the Federal Treasury and tax rates. Tax rates and taxes are not the same thing. You can reduce tax rates and actually collect more taxes. Again, it sounds paradoxical, but it is true. Think of this analogy: When you go to the store just before Christmas and they slash their prices by 40 percent, they are not doing that to go out of business. They are still making money. They make more money on the volume that increases because a lot more people come into the store--even though they have reduced the cost of each of the items--than they would if they increased the cost of the items. I guarantee you, if they raised their prices just before Christmas, their competitors would be reducing their prices, not so they would make less money but so they would get more people in, they would have more volume, and they would end up making more. That is what happens when you reduce certain tax rates when you are the Federal Government. You actually increase your revenue.
So I am very reluctant to support a commission which I believe will undertake to reduce our deficit by raising tax rates. It is not good for job creation. It is not good for the economy. It is not good for families, of course. Ironically, I do not even think it is good for the Federal Government, but I mostly do not think it is because, at the end of the day, we always have the courage to talk big about cutting spending, but we do not do it.
I will close with this. The last budget increased the funding for the departments of government dramatically at a time when we are in a deep recession. Families are having to cut their budgets. Yet you go to the Department of Agriculture, and I think it was a 23-percent increase or 26-percent increase, about the same for the Department of State and so on. I think the average was over 12 percent. Only the Defense Department took a hit.
I think that says something else we need to be very careful of. It is one thing for a commission that is not elected by the people to have the specific goal of reducing the deficit. It is quite another to have the perspective of all the matters Members of Congress have to pay attention to in making decisions that offset each other or that take into account the needs across the entire spectrum of government.
It would be very bad, indeed, if we were not able to factor into our decisions, for example, the need to increase Defense spending next year. Because it got hit last year, it is going to have to be increased. I daresay, I hope and I almost predict the administration will find a way to increase in its budget this year Defense spending because it cannot be sustained at the level it is. Yet if we were having to cut spending across the board, that would be difficult to do.
That is what we are elected to do as Members of the House and the Senate. As hard as that job is, we should be doing it to adequately represent our constituents. I understand the argument we need some help sometimes, and, frankly, I support some alternatives to what I am talking about. Senator Sessions and Senator McCaskill, for example, have an amendment which I support because it focuses on spending. It starts with the 2010 budget, which is more than I would like to start with, but at least it says spending has to be constrained relative to that budget.
I think there will be another amendment that relates to spending which focuses on other ways to save money. Senator Brownback, for example, similar to Senator Coburn, has talked about trying to end duplicate programs or Departments or agencies or programs or commissions whose job is finished and we do not need them anymore, for example. Those are the kinds of things I think we need to look at, and we can save big money if we do.
The final point I wish to make is, some say: Well, isn't this a little bit like the health care commission that would reduce Medicare spending? The answer is, there is a similarity at least in concept. The idea in the health care commission, though, is to reduce spending primarily by reducing what we pay doctors and hospitals and other health care providers. That is a tough way to reduce Medicare spending and still provide the services our senor citizens deserve.
The way it should be done is to find the so-called waste, fraud, and abuse--and that is easier said than done. No one denies it is there. But we have had decades to get to the problem, and if we could, we would be doing it right now. I have no doubt if President Obama knew he could save $100 billion by eliminating waste, fraud, and abuse, he would have gotten about the job by now, and he would not be waiting to see what kind of provisions we put in a health care bill before starting the job.
The private sector cannot afford to waste that much money. Federal bureaucrats, as hard as they work, do not have the responsibility. It is somebody else's money. It is everybody else's problem. It is not my problem. In the private sector, they cannot afford to do that. It is one reason the insurance companies get criticized, because they have people making sure they do not pay claims that should not be paid, and sometimes they are criticized for that kind of activity. Their administrative costs are a little bit higher than the government's because of that. They hire people to make sure they do not have a lot of waste, fraud, and abuse. So the amount of waste, fraud, and abuse against the insurance companies is pretty low, and they are able to stay in business as a result.
With the Federal Government, you have the sort of ``Did you ever wash a rental car?'' syndrome, where it is somebody else's money, you do not have to be as careful about protecting it, and, as a result, there is a huge amount of money lost in government programs, such as the Medicare Program, for example.
The amendments Senators Sessions and McCaskill are presenting and, I believe, Senator Brownback and some others will be presenting are going to focus on how we can actually save money in the way I am talking about, rather than cutting services, because that is the wrong way to save money, if they are essential services, as the Medicare services are. That is the distinction between those two items that I think is important to draw.
So the bottom line: The people who are proposing this commission idea are very well motivated and I respect their position. Reasonable people can differ about the wisdom of what they are proposing. I would prefer to, first, focus on whether we could actually reduce spending with a little help from a commission or some other kind of group, depending upon which of the amendments you want to adopt that actually identifies where we can save the money and force us to act upon that. I would rather do that first than to start out with the proposition that we can do it through tax increases because that is a sure way to hurt economic recovery, prevent job creation, take more property and freedom from the American people and, potentially, in the long run, provide for less revenue to the Federal Government.
A friend of mine always likes to say: There is a rate. Well, there are two rates, he says, at which the government collects exactly no revenue: zero and 100. It is true. If you set a very high tax rate, you are going to get very little of whatever it is you are taxing. If you want economic activity that represents economic growth in this country and a high standard of living and a lot of job creation, you cannot achieve that by imposing a lot of taxes, even if you were not worried about the deficit. The way to solve that problem is to stop spending money rather than trying to take more money from the American people.
Madam President, I suggest the absence of a quorum.
BREAK IN TRANSCRIPT