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Mr. KYL. Mr. President, let me speak today about two recent CBO reports and what they portend for the economy and for policy that we might want to make in the Congress. CBO, of course, is the nonpartisan Congressional Budget Office, and from time to time it looks at economic conditions and presents studies or issues reports about the state of our economy based upon legislation the Congress has adopted.
There are two recent reports that I think suggest some very dire news for this country unless we in the Congress are willing to take some action. The first was a couple of weeks ago, and it dealt with the so-called fiscal cliff, the problem that will occur with the combination of two things automatically happening unless Congress and the President act.
The first is the automatic across-the-board cuts or sequestration that will affect both defense and nondefense spending to the tune of $109 billion next year, something which the Secretary of Defense has said would be ``devastating'' and ``catastrophic'' for our national security. That is the first problem. The Congressional Budget office said the combination of the sequestration with the second item, which is the automatic tax increase, which is a $4.5 trillion tax increase that begins on January 1, the combination of those two will put this country back into recession.
CBO projected the growth rate next year to be only about one-half of 1 percent. That, of course, is devastating for not just the economy but for job creation, for businesses, for families and the like.
The second recent report of the CBO just came out. It is a report that talks about the surging debt of the United States Government and talks about the probability of sudden fiscal crisis. So we have a combination of the potential for going back into recession, combined with the probability of sudden fiscal crisis because of the amount of debt the Federal Government is taking on.
Because this second report just came out, let me refer to some things that have been said about that, primarily in the Wall Street Journal in a piece on June 5 called ``Obama's Debt Boom.'' I will just quote a few lines from this editorial in the Wall Street Journal. It says:
The CBO's long-term budget outlook notes that Federal debt held by the public--
That is the part we have to pay back--will surge to 70 percent of the economy by the end of this year.
Which is the highest in the history of the country except during World War II.
I think that is about $49,000 or $50,000 for every man, woman, and child in the United States. They point out that under the present trend the debt will hit 90 percent of GDP by 2022. Then it balloons to 109 percent by 2026.
What does this mean in practical terms? Here is a quotation from the Wall Street Journal about the CBO projection:
We have never been deficit scolds, preferring to focus on the more important policy priorities of economic growth and spending restraint. But the Obama era is taking America to a place it has never been. Inside of a decade the country will have a debt-to-GDP ratio well into the 90 percent to 100 percent danger zone where economists say the economy begins to slow and risks mount.
CBO notes ..... that this level of debt increase increases the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates.
How bad is it? In the absolute worst-case scenario, CBO says debt would exceed 250 percent of GDP in 2035. At that point, CBO's economic model breaks, because so much debt is so far outside ``historical experience'' and the CBO's ``assumptions might no longer be valid.''
That is where we are headed if we don't do something about it.
Interestingly, what CBO assumed in order to reach these conclusions is that tax collections would continue to hold to the post-1972 historical average of 18 percent of GDP. The point is we are not talking about raising taxes in order to effect this. They are assuming we will have revenues of a historical level of 18 percent of GDP. The problem is not the tax collections; in other words, the problem is the excess spending. They point out that, of course, excess spending is primarily a factor of the entitlement programs--Social Security, Medicare, and Medicaid. They point out that the biggest of all those is in Medicare.
Then the Wall Street Journal concludes this way:
This is where the tax burden comes in, and on that score CBO admits that ``to the extent that additional tax revenues were generated by boosting marginal tax rates--
This is what President Obama proposed, remember--those ``higher tax rates would discourage people from working and saving, further reducing output and income.'' So even the Keynesians who dominate CBO admit that there are costs in lower growth .....
If they raise tax rates as the President has proposed.
This is, in effect, the most predictable crisis in history. So we have the combination of the CBO report talking about the fiscal cliff--what happens if both the sequestration and the automatic tax increases go into effect--combined with the most recent report about the debt, and we can see the United States is headed for a disaster without intervention by the Congress and the President.
Just one thing. The Director of CBO put it this way:
The explosive path of Federal debt ..... underscores the need for large and timely policy changes to put the Federal Government on a sustainable fiscal course.
What has the President and the Democratic majority in the Senate suggested? We turned to Jay Carney, who had a press conference Monday. He is the spokesman for the President. He said that ``the President is continuing to work with his team on potential new ideas.''
I would like for him to work with the Congress because we have had a lot of ideas. The House of Representatives passed almost 30 bills that deal with this, and they range all the way from the Keystone Pipeline, which immediately puts 20,000 people to work, easing environmental regulations, offshore oil exploration, and so on. So we would love to have him work with the Congress, rather than this anemic to-do list he has proposed, which, obviously, would not provide any relief.
The bottom line is that as was reported in a story by the Associated Press, by Andrew Taylor, I think. As he said, after talking about the bills passed by the House of Representatives: ``Democrats will try to stop Republicans from forcing a vote on it in the Senate.''
What he is talking about is the vote the House of Representatives intends to have before long that would extend the current Tax Code, so there is certainty in tax rates, and businesses and families don't have to worry about this $4.5 trillion tax increase. The Democrats will try to stop Republicans from forcing a vote on it in the Senate.
Why would the Democratic leader not want to have a vote on whether to extend the current tax rates as opposed to having an increase in taxes of $4.5 trillion? Actually, there are a lot of folks--leaders in the President's party, people who have worked with him--who have said it would be a good idea to extend those tax cuts. In fact, the President himself said so when he extended them for 2 years, along with the support from Congress, on December 1 year ago. He said not to do so would harm economic growth. He was exactly right then, and he is right now.
As a matter of fact, we had a better GDP growth back then than we do now. If that would have been harmful then, it would be more harmful now. His belief then is adhered to by people who have worked with him and former leaders. For example, former Democratic President Bill Clinton suggested Tuesday--yesterday--that Congress temporarily extend all the Bush-era tax cuts. That includes the tax cuts for the wealthy. Remember, the Bush tax cuts applied across the board. They applied to everybody. The President has said that is fine but not for the wealthy.
What President Clinton said is, no, the best thing would be for all of those tax cuts to be extended. I will quote what the former President said:
What I think we need to do is to find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now.
He was asked if that meant extending tax cuts, and he said:
They will probably have to put everything off until early next year. That's probably the best thing to do right now.
Then the President's former adviser, who is an economics professor, Larry Summers, said today that Congress should temporarily extend the Bush-era tax cuts. He said:
The real risk to this economy is on the side of slowdown ..... and that means we've got to make sure that we don't take gasoline out of the tank at the end of this year.
He said that on MSNBC's ``Morning Joe'' program. He said: ``That's gotta be the top priority.''
So here you have Larry Summers, former adviser to President Clinton on economic matters, and former President Bill Clinton, both of whom have said we need to extend these tax policies today in order to avoid further damage to our economy tomorrow--exactly what the President himself said when these tax rates were extended a year and a half ago.
I just note this from another Associated Press story regarding the comments by President Clinton. As they say:
The nonpartisan Congressional Budget Office and others have warned that letting both events occur--
That is to say, the sequestration and the automatic tax increases--
would suck so much out of the economy that it could spark a renewed recession next year.
That is when they refer to the statement of President Clinton that we need to find a way to avoid that fiscal cliff and that would include extending the tax cuts.
The reality is we have somewhat of a consensus beginning to develop that it would be a wise thing for the country to retain current tax policies and not allow this big tax increase, to avoid the sequester or the across-the-board cuts that otherwise would affect both defense and nondefense; and if we don't do those things, according to CBO, the nonpartisan office that advises the Congress, we are likely to go back into a recession with growth that would be only one-half of 1 percent of our GDP next year.
Let me conclude by referring to another article in the Wall Street Journal, dated June 5, entitled ``Defense Chiefs Signal Job Cuts.''
Here we are talking about the employers of people in the defense industries that are predicting that if we don't do something about sequester, they are going to have to begin laying off people. The article begins with this quotation:
U.S. defense contractors are preparing to disclose mass job cutbacks ahead of November elections if Congress fails to reach a deficit-reduction deal by then, industry officials said.
One of the people quoted is Robert Stevens, chairman of Lockheed Martin, a big contractor with the Defense Department. He said:
It is quite possible that we will need to notify employees in the September and October timeframe that they may or may not have a job in January, depending upon whether sequestration does or doesn't take effect.
One of the reasons is a Federal law that requires employers to provide this notice--the Worker Adjustment and Retaining and Notification Act, known as the WARN Act, which requires companies to notify employees in advance of mass layoffs or plant closings--if they have more than 50 or more employees, for example. One thing Mr. Stevens said is that it doesn't just affect the big companies such as his but also all these suppliers, people who have to provide the pieces or components of products that they end up putting together. They would have to be notified because they are not going to have subcontracts next year.
One of the industry officials said sequestration is already here. What he meant by that was the reality is that businesses are having to make decisions now. This talk in the Senate about we will somehow be able to deal with this in the lameduck session after the election is simply not true. I suggest to my colleagues in the House and in the Senate that if we try to wait until after the election, I think our constituents, knowing what is happening--some of whom will probably have gotten job notices that they may be subject to termination because of the automatic across-the-board cuts, known as sequester--I think they may be sending a message to us this fall and, therefore, it behooves us to act before rather than after the fact.
There has been talk today about what the Wisconsin recall election meant. I think one thing it must have meant is that people may complain about some of the decisions that are made when there are tough decisions, but they want people who are elected to do something about the problems, to act, have some courage, tackle the tough problems. Even if they don't totally agree with the solutions, I think they respect political leaders who are willing to do that. Scott Walker, the Governor of Wisconsin, took a lot of heat, but he took the bull by the horns and tried to solve a problem and, as a result of the things they were able to do, the fiscal situation in Wisconsin is much better than had they not taken those actions.
That is what we in Congress need to learn. The people understand we have a big debt crisis facing us, which is confirmed by the Congressional Budget Office. They understand there is a huge risk of another recession because of the twin problems of the biggest tax increase in the history of the country coming our way January 1 and this sequestration that also occurs on January 1. They would like us to do something about that. I think what they resent is politicians saying after the election we will take it up and begin thinking about it. First of all, that is too late for a lot of people whose jobs depend upon it, and it makes for a very inefficient way of running the government.
Secondly, I think political leaders owe their constituents the ideas they would like to put into effect. We don't wait and hide the ball from our constituents, refusing to tell them what we think until after the election. The idea of a democratic republic is people stand for office by saying: This is what I would do to solve our problems. Do you like it or not? If the voters say, yes, we think that is a good idea, they elect us and expect us to follow through on it. If they don't like our ideas, they elect the other person. But if we hide the ball and say we are not going to take votes in the Senate because we don't want to put Members on record because then the voters might know what they are thinking and they might not like it and not elect them, that is obviously a lack of political courage. It also runs counter to what the fundamental concept of elections is all about.
I suggest that what we ought to do is tackle these two issues now, not wait until after the election. Legislation has been introduced in both the House and the Senate to find a way to save the $109 billion that needs to be saved in order to avoid the sequester for next year.
This process will have to be undergone, undertaken, every year for the next 10 years because we have promised the voters we would save a total of $1.2 trillion.
So how will we do it next year? Well, there are any number of ways. Senators McCain, Ayotte, myself, Chambliss, Graham, and Cornyn, and some others have introduced legislation that says, well, here is a way you can save the $109 billion next year: Get half of it by simply extending the President's own pay freeze for many Federal employees through the middle of 2014, and the other half, instead of replacing every single Federal worker who retires or leaves the Federal workforce, only replace two out of the three.
Everybody talks about how wonderful the recommendations of the Simpson-Bowles Commission were. Well, the Simpson-Bowles Commission recommended hiring one new Federal employee for every three who leave the workplace. We double that. We say, well, let's hire two of the three back. The combination of just those two things would result in saving $109 billion.
If you don't like that way to save money, there are many other ways to do so, and there are revenues from the sale of Federal property, for example, that could also be put on the table. So there are many ways to do this. But let's get about it.
Why aren't we doing it? Well, the majority leader and the President say the only way they would consider doing this is if we also raise a bunch of taxes, and their wonderful idea about raising taxes is a tax on millionaires. Here is the problem with that. The very people we want to create the jobs are the businesspeople who pay these taxes.
According to President Obama's Secretary of the Treasury, that Department says 80 percent of the people who would be subject to this millionaires' tax are business owners--the very people who need the money to hire the workers to put the economy back in good shape.
When Senator Lindsey Graham asked Defense Secretary Panetta: Wouldn't sequestration be like shooting ourselves in the foot, he said: No, Senator, it would be like shooting ourselves in the head.
I submit that raising taxes on the exact people to whom we are looking to create jobs is the same thing. That is the reason Republicans have said that is the wrong way to come up with this $109 billion.
The whole idea of the Budget Control Act was to control spending, not to raise taxes. Since there are so many ways in which this government's $3 trillion-plus budget can save money, I don't think we have to turn to something that would itself have a negative impact on economic growth; namely, raising taxes. So that has been the reason this hasn't been taken up.
One side insists we have to raise taxes in order to deal with this sequestration problem. The other side says: No, we don't have to do that at all. Let's sit down and work together and find a resolution for this problem, and let's get it done before the end of the year. At that point it is too late for a lot of people who will have lost their jobs.
By the way, some of these industry people have told us some of the sole-source suppliers or subcontractors would probably end up taking bankruptcy because their orders could not be filled due to the uncertainty that a contract was there. So we could have a great deal of damage to the economy.
In fact, the estimate is--if sequestration or across-the-board cuts occur--in the Defense industry alone we are talking about 1 million jobs lost. Remember how many jobs were created last month? I think it was 69,000 jobs were created last month. Compare that to losing 1 million jobs, and you can see the significance of what the Congressional Budget Office was talking about. This is a fiscal cliff.
We cannot allow sequestration to occur, and we cannot allow these big tax increases to occur without understanding the damage that will do to the economy. They said it is going to put us back in a recession. That is before the report they just released on the increasing debt burden of this country.
So, Mr. President, I say to my colleagues, the evidence is here. Leaders such as former President Clinton and economist Larry Summers and, of course, many other economists have said the best thing to do is to keep the tax rates where they are. Don't raise them. Resolve this sequestration issue so we don't have that hanging over our heads, and then look for other ways to boost job growth and economic productivity. That is the way to get out of the recession. That is the way to help families. Ironically, at the end of the day, a growing economy, producing more wealth, produces more tax revenues for the Federal Government, and that helps us deal with the big debt we have accumulated.
So I think everybody agrees economic growth is ultimately the best way to get out of the government's fiscal problem. But it also, of course, is precisely the way for businesses and families to prosper.
I hope colleagues in both the House and Senate--both Democrats and Republicans--can see their way clear to respond to this crisis--this utterly predictable crisis--and to deal with this problem sooner rather than later, exercising the courage our constituents would like to have us exercise and thereby representing them in the way they deserve to be represented.
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