Mr. CONRAD. Mr. President, I thank my colleagues. These will be my final remarks to the Senate, and I thought I would share with my colleagues my observations on what has just occurred to put in perspective where I believe we are and where we are headed and to lay down a challenge for my colleagues as I depart. A very significant challenge remains for the Congress and the country, and I hope very much that we find the courage to take on these challenges. It is incredibly important to the future strength of our Nation, and we can do it. We have done much tougher things in the past, and we can certainly take on these challenges.
On New Year's Eve we were called into session and were briefed by the Vice President and other staff from the White House with respect to the deal that was before us. I told our colleagues on that night that I believed we had to support the proposal before us because to fail to do so would send us back into a recession. Most economists said the economy would shrink 4 percent in the first quarter, 2 percent in the second quarter, that 1 million more people would be unemployed, and that the 2 million people now on unemployment insurance would lose that and would have no safety net. So, Mr. President, I saw no alternative but to support this agreement.
At the same time, I told my colleagues: I hate this agreement. I hate it with every fiber of my being because this is not the grand bargain I had hoped for and worked for and believe is so necessary to the future of the country. This is not, by any standard, a deficit reduction plan. As necessary as it is, no one should be misled that this deals with our deficit and debt because it only makes our debt circumstance worse.
Now, some question that assessment, but that is precisely the assessment the Congressional Budget Office has come to. I would like to take just a few moments to put in perspective where we are.
The United States is borrowing 31 cents of every dollar it spends. That is an unsustainable circumstance. It is an improvement somewhat because we were borrowing 40 cents of every dollar we spend. So there has been some modest improvement. But, this cannot go on. It has to be addressed or we will weaken the Nation.
This chart puts in perspective the spending and revenue of the United States going back to 1950. Looking back 60 years, the red line is the spending line, and the green line is the revenue line. You can see our spending is close to a 60-year high. We are not quite at a 60-year high because there has been some improvement in the last 2 years. We are close to a 60-year low on revenue. So our colleagues who say this is just a spending problem are missing the point. This is a problem of the relationship between spending and revenue. The gap--much higher spending than we have revenue--is what leads to deficits and leads to additions to the debt.
The path we are on, we are told by the Congressional Budget Office, will take us from a gross debt of 104 percent of our gross domestic product today to 115 percent by 2022 if we fail to act. So further action is absolutely essential.
Why? Why does it matter if our gross debt is more than 100 percent of our gross domestic product? Well, because the best work that has been done on this question--by Rogoff and Reinhart--concluded, after looking at 200 years of economic history, the following. I quote from their study:
We examine the experience of 44 countries spanning up to two centuries of data on central government debt, inflation and growth. Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes.
To sum it up, Mr. President, when we have a gross debt of more than 90 percent of our GDP, we are headed down a path that dramatically reduces our future economic growth. That means we are reducing future economic opportunity for the people of our country. That is why this matters, because it will retard and restrict economic growth for our people.
Here is what the Congressional Budget Office tells us about the long-term path we are on, in terms of debt held by the public. CBO tells us we are headed for a circumstance where publicly held debt will be 200 percent of our GDP.
So, we are on a course that is utterly unsustainable.
If we look at what has been done--because those who say nothing has been done are not giving the full story either--the fact is we passed a Budget Control Act in place of a budget. We put in place a law in place of a budget resolution. That budget law dropped discretionary spending to historic lows. We were at--in the year 2012--8.3 percent of GDP going to domestic spending. The Budget Control Act, the law that was passed, will take that down to 5.3 percent of GDP going for discretionary spending. That is a historic low.
So when someone says nothing has been done, that is not accurate. We cut domestic spending, and cut it in a very significant way. We cut it to a level that will be a historic low, but that doesn't mean the problem has been solved; nowhere close to it, because at the same time the nondiscretionary accounts are rising dramatically. Medicare, Medicaid, and other Federal health spending is the 800-pound gorilla. That is where we see such a dramatic increase in spending, both in real and nominal dollars, and as a share of GDP.
Back in 1972, these health care accounts consumed 1.1 percent of our gross domestic product. By 2050, if we don't do something, they will consume 12.4 percent. That is totally unsustainable. It is gobbling up bigger and bigger chunks of our budget, putting increasing pressure on our deficits and debt, and eating up the ability of the United States to have the flexibility to respond to crises that might occur.
The aging population is the primary driver of Medicare, Medicaid, and Social Security cost growth. We can see in this chart, the effect of cost growth is the yellow part; the effect of aging is the red part; and the spending in absence of aging and excess cost growth is the green part of this chart. In other words, our spending on Medicare, Medicaid, and Social Security would actually be very stable absent the effect of aging and the effect of excess cost growth. Now the effect of aging has become the biggest driver. There is nothing we can do about that because these people have been born. They are alive today. They are going to be eligible for Medicare and Social Security, and we are going to have to find a way to be able to afford this combined effect.
The revenue side of the equation I think is critically important to understand. Many of our colleagues say: It is true we are at a very low share of GDP going to revenue today. In 2012, less than 16 percent of our GDP came as revenue to the Federal Government. Typically, it is about 18.5 percent of GDP. But if we look back on the last five times we have actually balanced the budget around here, revenue hasn't been 18 or 18.5 percent of GDP. The last five times we have balanced the budget, revenue has been 19.7 percent, 19.9 percent, 19.8 percent, 20.6 percent, 19.5 percent of GDP.
So those who say we have to get back to the normal revenue stream, I think miss the point. The average is not going to do it. It never has, at least going back to 1969.
We are going to have to have more revenue at the same time we have more spending discipline, especially with respect to the health care accounts.
We need fundamental tax reform. This Tax Code is out of date, it is inefficient, and it is hurting U.S. global competitiveness. The complexity imposes a significant burden on individuals and businesses. The expiring provisions create uncertainty and confusion. It is hemorrhaging revenue to tax gaps, tax havens, abusive tax shelters.
I have shown many times on the floor of the Senate a picture of a little five-story building in the Cayman Islands called Ugland House. Ugland House, this little five-story building, claims to be the home of 18,000 companies that all say they are doing business out of that building. I have said many times that is the most efficient building in the world. How can 18,000 companies be doing business out of a little five-story building down in the Cayman Islands? They are not doing business out of that building. The only business they are doing is monkey business, and the monkey business they are doing is to avoid the taxes they owe in the United States through shell games in which they show their profits in the Cayman Islands, where, happily, there are no income taxes to impose on those earnings. So they are avoiding showing their income there here and putting it in the Cayman Islands where they can shield it from taxation.
We also desperately need to restore fairness. The current system contributes to growing income inequality. I don't know how anyone can conclude otherwise. I have also shown many times on the floor of the Senate the report on one building on Park Avenue in New York, where the average income is $1.2 million of the people who live in that building and the average tax rate those people are paying is about 15 percent. The janitor in that building is paying a tax rate of 25 percent with an income of $33,000 a year. How is that fair? How can that possibly be considered fair? These long-term fiscal imbalances simply must be addressed, and revenue is going to have to be part of the solution.
Martin Feldstein, one of the distinguished economists in our country, conservative, chairman of the Council of Economic Advisers under President Reagan, said this about the tax expenditures of the country because we are spending $1.2 trillion a year in the tax expenditures category of the United States. We are spending more through the Tax Code than we are through all the appropriated accounts.
People say we are spending too much. Yes, we continue to have a spending problem and a revenue problem. But through the Tax Code, we spend more there than we spend through all the appropriated accounts.
Here is what Martin Feldstein said about the need to reduce tax expenditures:
Cutting tax expenditures is really the best way to reduce government spending. ..... [E]liminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment or risk-taking. It would also increase overall economic efficiency by removing incentives that distort private spending decisions. And eliminating or consolidating the large number of overlapping tax-based subsidies would also greatly simplify tax filing. In short, cutting tax expenditures is not at all like other ways of raising revenue.
I say to my colleagues, even after what has just happened, we are going to have to raise more revenue, we are going to have to cut spending, and we are going to have to reform entitlements. It is as clear as it can be that those things are going to have to be done to get the country back on track. Here is one of the most distinguished economists in the country telling us that reforming tax expenditures is not like other ways of raising revenue in terms of its economic effect. I think Mr. Feldstein has that exactly right.
By the way, who most benefits from these tax expenditures? Here is a chart that shows the increase in after-tax income from tax expenditures and here is the top 1 percent. On average, they benefit per year by over $250,000. The next quintile benefits by $32,000. The lowest quintile tax expenditures benefit by $707 a year. Wow. What an extraordinary disparity. The lowest quintile tax expenditures benefit $707 a year. The top 1 percent, their benefit from tax expenditures, on average, is over $250,000 a year.
Here we are, borrowing 31 cents of every $1 we spend. We are on course taking the debt of the United States from over 100 percent of our gross domestic product to over 200 percent if we fail to act.
That is why we had the National Commission on Fiscal Responsibility and Reform. The report we put out was called ``The Moment of Truth.'' What we called for in that report was $5.4 trillion in deficit reduction. We used the current baseline. That is what we would have provided, $5.4 trillion in deficit reduction. We lowered the deficit to 1.4 percent of GDP in 2022. We stabilized the gross debt by 2015. We reduced discretionary spending to 4.8 percent of GDP by 2022. We build on the health care reform savings. We called for Social Security reform and savings to be used only to extend the solvency of Social Security itself, and we also included fundamental tax reform that raised revenue and did it in part by reducing those tax expenditures I just referred to.
Here is what would happen to the deficit as a percentage of GDP under the fiscal commission budget plan. We can see in 2012, the deficit is at 7.6 percent of GDP. By 2012, it would be taken down to 1.4 percent of GDP under the plan.
Here is what would happen to the gross debt of the country as a percentage of GDP under the fiscal commission plan. From 104 percent of GDP in 2012, down to 93 percent of GDP in 2022. Stabilize the debt. Then begin to bring it down. That ought to be our challenge.
The plan that was just passed took individual rate increases from 35 to 39.6 for couples earning over $450,000. Capital gains and dividends were increased from 15 percent to 20 percent. PEP and Pease were reinstated. The estate tax was increased to 40 percent for those estates above $5 million. The alternative minimum tax was patched on a permanent basis to prevent some 30 million people from being caught up in the alternative minimum tax. It extended other expiring provisions.
On the spending side, the doc fix was put in place for 1 year to prevent doctors who provide care for Medicare-eligible beneficiaries from taking a 27-percent cut. It turned off the sequester for 2 months, the $1.2 trillion across-the-board cut in discretionary spending in both defense and nondefense. It provided for a 1-year extension of unemployment benefits and also for a 1-year extension of the farm bill.
Again, while I believe that plan had to be supported--and I did, albeit reluctantly because I think if we had failed to support it, we would be headed back into recession, an additional 1 million people would have lost their jobs, the unemployment rate would be headed to 9.1 percent, and 2 million people would have lost their unemployment benefits. So there was good reason to support that plan. But I want to end as I began. I hated that plan. I hated it with every fiber of my being because the truth is it increased the debt of the United States. That is not just my word; that is the word of the Congressional Budget Office that tells me the revenue loss from that plan is $3.6 trillion; the new spending, $332 billion. The total impact on the deficit and debt, $4 trillion. That doesn't account for the additional debt service which is another $650 billion. The total increase in the debt as a result of that plan is over $4.6 trillion.
So don't let anybody tell you that was a deficit reduction plan or a plan to deal with the debt because it was not and it is not. That leaves the unresolved challenge of our time. Because for this Nation's future, it is critically important that the next Congress, in its early days, try to get back to doing the grand bargain, the big deal, something that would reduce our deficits and debt by at least $4 trillion over the next 10 years to stabilize the debt to begin to bring it down.
I leave here in many ways with a heavy heart because I came here 26 years ago believing one of the foremost responsibilities of a Senator was to guide the fiscal affairs of this country.
I ask unanimous consent to have printed in the Record the announcement speech I made in 1986 in running for the Senate.
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Again, I leave with only one true regret and that is we were not able collectively to put in place a plan to get our country back on track. But I am not without hope because next year--this year, later this year--we will have more opportunities to do what needs to be done.