Statement of Senator Edward M. Kennedy on the Republican Economic Plan: Ineffective, Unfair, and Unaffordable

STATEMENT OF SENATOR EDWARD M. KENNEDY ON THE REPUBLICAN ECONOMIC PLAN: INEFFECTIVE, UNFAIR, AND UNAFFORDABLE

This Conference Report reflects the real priorities of the Republican Party. It cuts back tax relief for working families in order to expand tax breaks for the wealthiest taxpayers. The child credit and marriage penalty relief were both reduced so that more money could be spent on dividend and capital gains tax cuts. As a result of this backroom Republican deal, an average family of four will face a tax increase of $850 in 2005, right after the election; while tax breaks for the wealthy continue for additional years. The bill employs so many gimmicks to help the rich that even the Wall Street Journal called it "the Great Tax Shelter Act" of 2003. No wonder this legislation was put together behind closed doors and is being rushed through Congress with little time for scrutiny. The Republican leaders who authored it know that this bill could not survive in the light of day. Clearly, their priorities are not the American people's priorities.

The Bush Administration apparently believes that the biggest problem in today's economy is that the rich are not rich enough. Republicans think that if you give tax breaks to the wealthiest taxpayers, they will invest more and the economy will grow. It's called "trickle-down" economics. The problem with this theory is that the wealthy may not use the money in ways that create jobs and expand production. If there is no demand because consumers are not buying, companies will not produce more. They will just wait until the economic climate improves.

Democrats believe that tax relief and public resources should go to America's working families. They are the ones who are struggling most in this brutal economy, and they will quickly spend the money. That will create the demand which is needed to get the economy moving again.

Two very different approaches to stimulating the economy. Republicans keep making the same mistake. If "trickle-down" economics worked, the economy would not be stagnating today. In 2001, at President Bush's insistence, Congress passed one of the largest tax cuts in history, and wealthy taxpayers got the lion's share of the tax benefits. America has lost more than two and a half million jobs since the first Bush tax cut passed. The Republican response is more of the same. This Conference Report provides more of the same. But the American people want a new approach.

Over 400 respected economists - including 10 Nobel laureates - say the Bush plan is the wrong way to go. Unfortunately, the President has repeatedly rejected the pragmatic advice of mainstream economists, and opted instead for an ideologically rigid and ineffective strategy.

His single-minded commitment to ever larger tax cuts for the wealthy as the cure for every economic ailment has made a bad situation worse. The Administration has ignored remedies that would provide a significant stimulus this year, while implementing policies that will undermine our future economic strength. As a result, the economy continues to stagnate, and the number of families facing hardship continues to grow.

Unemployment is still on the rise. It climbed to 6.0 percent in April. There are now 8.8 million men and women unemployed across America. The economy has lost more than half a million jobs in just the past three months, and there is no end in sight. In the absence of an effective stimulus from the federal government, the economy is not likely to improve quickly.

Behind such disturbing statistics are people who need our help. A strong economy allows working men and women to have greater control over their lives, and more opportunity to pursue their personal dreams. A stagnate economy takes much of that control out of their hands, leaving families vulnerable to circumstances they cannot control.

Across America, in the last two years, workers have lost their job security. As layoffs mount, they live in fear of being the next to be let go. There are 2.7 million fewer private sector jobs in America today than there were in January 2001. Those looking for a job are finding it increasingly difficult to obtain one. The number of long-term unemployed has tripled. The average time it takes an unemployed worker to find a new job is the longest it has taken in 19 years. Yet, this bill does nothing to directly help these unemployed men and women and their families.

The pain caused by this destructive wave of economic stagnation is not limited to those who have lost their jobs.
Health insurance is becoming less and less affordable for workers and their families across the country. The Congressional Budget Office now estimates that over the course of a year, 60 million Americans go without health insurance. Nationally, the average cost of health insurance is rising at double digit rates - up by 11% in 2001 and another 12.7% in 2002 - nearly four times the rate of inflation. The health care squeeze on working families is getting tighter and tighter.

Senior citizens who desperately need prescription drug coverage are suffering, too. The cost of prescription drugs is
escalating at double digit rates - increasing an average of 16% each year.

Children who are being asked to do more in school are receiving less support. School districts, faced with declining local tax receipts and the failure of the federal government to provide promised resources, have been forced to increase class sizes, cut weeks from school calendars, and lay off teachers.

The cost of higher education is rising beyond the reach of more families. The gap between the cost of college tuition and the tuition assistance provided by the federal government has grown by $1,900 in the last two years.

Millions of families have seen their retirement savings seriously eroded. The value of savings in 401(k) plans and other
defined contribution plans has declined by $473 billion in the last two years.

These are the realities American families face today.

It is imperative that the national government respond to the growing economic crisis. There is much that government can do to stimulate economic growth in the near-term without generating huge deficits that will undermine prosperity in the long-term. Unfortunately, the Bush Administration has consistently refused to follow such a course of action.

The Republican plan does not maximize the economic impact in 2003. Only 17% of the $350 billion cost of their legislation would reach the economy this year, when it is needed to jumpstart a sluggish economy. We could create many more jobs sooner by better targeting the resources provided in the legislation.

The Conference Report spends more than $150 billion reducing dividend and capital gains taxes and $35 billion lowering the tax rate on the highest incomes. These cuts, which constitute more than half of the entire cost of the bill, do not provide effective stimulus and they take resources away from proposals that would. It is incredible that Republicans could not find the dollars to extend unemployment benefits and to provide tax relief for low-income workers, but they could find the money to pay for these tax breaks benefitting the wealthiest taxpayers.

According to an analysis by the Urban-Brookings Tax Policy Center, the provisions in the Conference Report would provide an average tax cut of $93,500 to taxpayers with an annual income over one million dollars. In start contrast, 53% of American households would receive a tax cut of $100 or less. The Republican conferees plan is even more tilted to the wealthiest taxpayers than the original Bush plan.

The few provisions that benefit middle class families have been limited to just two years, while the dividend and capital gains tax cuts extend much longer. The conferees also eliminated a Senate provision that would have benefitted 11.9 million low-income children and their families, one of every six children in the nation.

The richest 5% of taxpayers would receive 75% of the tax benefits from the dividend and capital gains tax cuts. All of the tax benefits from reducing the tax rate on the top income bracket will go to the richest 1% of taxpayers. They are certainly not the ones who are struggling to make ends meet in the faltering economy. They are not the ones who need our help. Nor are they the ones who will quickly spend the money they receive, creating an immediate economic stimulus.

The Republican plan is simply not an effective stimulus. The reduction of the income tax on corporate dividends, the centerpiece of their plan, is one of the least effective forms of stimulus, generating less than a dime of stimulus for every dollar of federal revenue lost.

A well designed stimulus plan could generate far more economic activity at a small fraction of the cost of the Republican Conference Report. The Senate Democratic plan would inject $125 billion into the economy this year, and is designed to maximize the stimulus effect of each dollar. That is more than twice as much in 2003 as the Conference Report, and three times as much as the Bush Administration's plan.

Three widely respected economic models all show that the Democratic plan would generate substantially more growth in 2003 and create a half million more jobs this year than the President's plan.

One of the few positive provisions in the Conference Report is the $20 billion in assistance to states, $10 billion through
the Medicaid program and $10 billion in general financial aid. The current fiscal crisis in the states is the most severe in decades.

It is important to remember that more people need to rely on state and local programs in an economic downturn. The number of people eligible for Medicaid grows substantially in times of recession, and many other costs rise as well. Without jobs and without health care, families have no where else to turn. We have an obligation to make certain that the needed resources are available to them. While the $20 billion of financial assistance to the states is a step in the right direction, the level of aid is clearly inadequate. Congress should be providing at least double this amount. A number of states will also lose significant state tax revenue due to the impact of tax cuts contained in the Conference Report. Thus, the net amount states will receive will be below even the $20 billion.

The Republican authors of the dividend and capital gain tax cuts in the Conference Report intend those tax breaks to be permanent. They have repeatedly said so. If not arbitrarily sunsetted after 2008, the dividend and capital gains provisions alone would exceed the $350 billion which is supposed to be the total cost of the entire bill over the next ten years. The real cost of the bill before us is far in excess of $350 billion. If all its provisions were extended for the full decade as our Republican colleagues intend, the real cost would be closer to one trillion dollars.

The conferees have resorted to this "sunsetting" subterfuge in order to evade the requirements of the Budget Act. But, what they cannot evade is the adverse economic impact their one trillion dollar raid on the public Treasury would have. It will not stimulate the economy. In fact, it could well prolong the recession by leading to an increase in long-term interest rates, harming the ability of businesses to create new jobs. It will add enormously to the deficit, making it much more difficult for us to effectively address the nation's urgent needs in job creation, in education, in health care, and in homeland security. Those are the real priorities of the American people. Unfortunately, they are obviously not the priorities of the Bush Administration and the Republican Majority.

An NBC News/Wall Street Journal public opinion survey conducted over the past week shows that a substantial majority of the American people do not believe these tax cuts are the way to create jobs. By a margin of 64% to 29%, they think there are better ways to improve the economy than to cut taxes. 68% believe the President's economic policy "relies too heavily on tax cuts and not enough on direct job creation"; and 66% believe his plan "benefits the wealthy more than average people." The American people are not being fooled by this bill. They know precisely what it will do - benefit the wealthy; and what it will not do - stimulate the economy. They also understand that extravagant tax breaks for the rich mean that the resources will not be available to address America's real needs. By a margin of 55% to 36%, they would prefer to use limited public dollars to help pay for health care than to finance a tax cut.

The Conference Report which the Senate is about to pass by the narrowest of margins does not reflect the priorities of the American people. Unfortunately, their voices were unable to penetrate the closed room where the Republican leadership wrote this irresponsible bill. If a majority of Senators would have the courage to vote no, we could defeat it and being work on a genuine stimulus bill.