FDCH Transcripts

FDCH TRANSCRIPTS
Congressional Events

Sens. Feinstein and Chafee Hold News Conference on Taxes
FEINSTEIN:
Good morning, everybody.
First of all, let me just begin by wishing you a very happy new year, and I do that on behalf of Senator Chafee and myself. Let's hope it's a good year for all of America.

With the nation facing growing budget deficits, Senator Chafee and I will today introduce legislation to freeze the top income-tax rate at the current level of 38.6 percent, and would do so until such time as the federal budget returns to surplus.

We believe that the ballooning deficit is bad for the economy, it's bad for interest rates and it's bad for the health of the nation.
Under current law, the top income-tax rate is scheduled to drop from 38.6 percent to 37.6 percent in 2004, and then to 35 percent in 2006. Now, this rate is applied to the adjusted gross income of those who earn over $312,000 a year. This top rate freeze would save some $88 billion between now and 2010 and $132 billion between now and 2012. And that's what this chart shows.

Everybody should understand, though, that this top rate is paid by just 908,000 of the 128 million income tax payers nationwide. That's just 0.7 percent of American taxpayers. So it's a very small group of people.

We believe that this is not a time for tax policies which benefit only a small portion of the population. It's a time for fiscally responsible policies. And we believe that those fiscally responsible policies best ensure long-term growth and in themselves provide a stimulus to the economy. That was certainly true in the last decade.

In June of 2001, I voted for the president's tax plan. And I believe it was truly a different time: 9/11 had not taken place, war had not appeared on the horizon, revelations of corporate fraud had not surfaced and a recession was not evident. Those times are as different from today as day is from night.

At the time, Senator Chafee and I, along with 12 other senators from both parties, introduced and supported a trigger on the 2001 Bush tax package. This would have frozen future tax reductions under the Bush tax cut if the budget returned to deficit.

FEINSTEIN:
Unfortunately, there were but 49 votes to pass that trigger. So we came very close, but we didn't make it. If that trigger were in place today, obviously there wouldn't be a Bush tax plan, another one.

Now it is estimated that we face $1.4 trillion in cumulative budget deficits between now and 2012. That's a CBO figure. And that's why we returned to the idea of the trigger in our bill.

I believe that we should not allow the rate reduction for the top rate to proceed until we return to budget surpluses.
Now, let me just spend a few minutes, from my own perspective—and I don't know if Senator Chafee shares this—but my perspective of the president's current plan.

The Bush administration's $674 billion tax cut and economic stimulus is, in my view, the wrong plan at the wrong time. It digs the nation deeper into debt. It is not a stimulus. It is skewed to the wealthy. And it severely limits the government's ability to pay for needed programs, like education, transportation, law enforcement.

The president's plan would be a major contributor to massive budget deficits. The proposal would result in a budget deficit of approximately $482 billion this year, if the Social Security trust fund were not used to balance it. Without the Social Security—excuse me. Using the Social Security trust fund, the deficit would still be $325 billion. And that's from the revised CBO proxy baseline with the Bush policies.

This does not include, though, the costs of a possible war with Iraq, the extension of federal unemployment benefits which were just passed, and the FY '03 and '04 appropriation bills.

FEINSTEIN:
Furthermore, as the federal debt increases, the government will spend billions more in tax dollars on servicing this debt. Instead of priorities like homeland security, health care, education and transportation, money will be going to interest on the debt. And interest on the debt is already projected to be $1.3 trillion higher than expected, even before this new package. And this package would add more than $100 billion in new interest payments over the next 10 years.

Now, it's important for everybody to know that interest on the debt is not like interest on a home mortgage. It doesn't decrease with time. It is simply rolled over from year to year. So, in fact, it compounds.

Secondly, the president's tax cut is skewed to the wealthiest 1 percent of Americans. And this chart shows that taxpayers with income of over $1 million, which actually is the bulk of that top 1 percent, would gain $88,873 from this tax bill; whereas middle-income taxpayers, from $21,000 to $38,000, gain $265 from this proposed tax cut and stimulus.
This is a very disparate picture. One third of all benefits go to the wealthiest 1 percent, with less than 10 percent of the benefits going to the 60 percent making under $54,000.

Third, I deeply believe the proposal is not stimulative. The central figure—or the central part of the administration's plan, which is an elimination of taxes on corporate dividends, which costs about half of the $674 billion, would not begin to be felt until April of 2004. And we're in January of 2003. So if it were to be a stimulus, it would have to be immediate. And this is not.

And when those savings do kick in, they would largely benefit the wealthiest taxpayers, with more than half of the benefits, $225 billion, going—well, with almost half of the benefits, $225 billion, going to the top 5 percent of taxpayers. So to say this is a stimulus, I believe is inaccurate, and I also believe it's somewhat misleading.

So in conclusion, we are going to urge the Senate at the appropriate time to freeze this tax rate, the top bracket, and use those monies to lower the deficit.

It's a great delight for me to introduce to you the senator from the great state of Rhode Island, Senator Lincoln Chafee.

CHAFEE:
Thank you, Senator Feinstein, very much.

And I do share with Senator Feinstein our concern about deficit, the rising deficit. And of course this bill is triggered, as she said, the tax cuts would be enacted once we get back into surpluses.

And just to give you a little history from my perspective, we got into deficits. We had surpluses in the early '60s, but as a result of the Vietnam War and the Great Society, deficits occurred. And through the '70s and then of course into the '80s, where a Republican president with a Republican Senate had big tax cuts, but they still couldn't control the spending. And the deficits just rose enormously.

CHAFEE:
And as a result, both Democrats and Republicans together decided we've got to tackle the deficits. And that's what happened in the early '90s.

And as a matter of fact, in 1980 the deficits were 26 percent of gross domestic product. And in the early '90s, they had risen to almost 50 percent of GDP.

And so together, Republicans, Democrats—Democrats with President Clinton raising the taxes, with some fighting from the Republican side; the Republicans cutting the spending on welfare reform and particularly in the BBA with some opposition from President Clinton, but eventually agreeing to it—we did tackle the deficits and we got back to projected surpluses. But now, we're falling back into deficits. And I just don't think we can allow that to happen.

And I don't think it's a coincidence that—there are very few former mayors in the Senate, but there's two of them standing here: Senator Feinstein from a large city, one of the largest in the country, San Francisco; and, me, from a small town in Warwick, about 90,000 people. And we're used to dealing with expenditures, which are taxes and fees, and with revenues—excuse me. We're used to dealing with revenues, which are taxes and fees, this is what we live by, and expenditures, which, of course, is spending. And this is, as mayors, that's what we live by, our revenues. That's what we're allowed to plow our streets and educate our children. And we don't touch those revenues unless we can touch our spending.

And so, I don't think it's any coincidence that we're here. We are saying we've got to do something about these rising deficits. Because we're used to protecting those revenues in our best interest. If you control spending, control the expenditures, then, as this bill says, we can address the revenues and the taxes.

As Senator Feinstein said, the most important thing—one of the important things with this, as we look at this deficit, is the interest. And the interest on our debt is enormous. It's a big piece of the pie of what we spend in the federal government. Of course, there's Medicare and Social Security, and then there's military. And right after that is our interest on our debt. I think all Americans can relate with the pain of having to pay interest. And as Senator Feinstein says, it is compounded.

And lastly, I'd like to say that, I see this as a Republican issue, with all due respect to Senator Feinstein. It was Republicans for years that fought for the deficits. And so here we are, two centrists standing together saying this is something that we have to address. For all the years the Republican Party has said deficits are a rallying cry and it's time we join forces and address this problems.

Thank you.

QUESTION:
At a press conference yesterday, Senator Santorum said that deficit reduction should take a back seat to other priorities now. Do you that's a pervasive view within your caucus, that the deficit reduction is a second tier priority right now?

CHAFEE:
Unfortunately, that seems to be the case. And I think a number of us share concern, but there just seems to be momentum to agree with the president on some of his philosophy of how to stimulate the economy.

I have a quote here—I think I brought it—from December 15, 2000, so I believe President Bush had just been confirmed by the Supreme Court. And Denny Hastert was saying at that time, at the time the tax cut was supposed to be $1.3 trillion—of course it rose to $1.6 trillion in a matter of weeks—but he said that he would oppose it at that time.

CHAFEE:
And he said, "I would think that the first few pieces of tax relief that we would attempt would be incremental." And he said, "We are most successful, especially in tax policy, when we start to take tax ideas and do them at a piece at a time."

And that's what we were doing when I got here in the late '90s. Trying to do marriage penalty. We're trying to do something on estate tax. Inch it up from $600,000 maybe to whatever, $1.5 million. Or address them incrementally. And somehow we've gotten away from that, and I think even fellow Republicans at a time shared the sentiment, as Denny Hastert said back in December of 2000, it's better when we do these things incrementally so we can see how they play out.

FEINSTEIN:
Can I just make one quick point here?

When we voted for the first Bush tax plan in June of 2001, the surplus was then predicted to be over $0.5 trillion over the next—actually 5.6 over the next 10 years. And then the economy changed, 9/11 took place, all of the things that we know about happened.

To put in what is a massive plan on top of a $1.3 trillion tax cut that is now just beginning to go into place—it didn't have an immediate effect, some of it is now just beginning to go into effect—is exactly what Lincoln is saying. You can't really make adjustments along the way as you can if you do an incremental plan, if you do small things at one time, watch them, see what impact, what effect they have.

And that's where I think we as centrists in the interest coalition really were aiming and trying to do. But, you know, we have this $1.3 trillion tax cut that was put in in 2001 that is now just beginning to be felt.

QUESTION:
Senator Chafee (OFF-MIKE) the White House, have you talked to the White House about this plan? (OFF-MIKE)

CHAFEE:
The new Bush stimulus plan or our bill?

QUESTION:
(OFF-MIKE)

CHAFEE:
Excuse me, but talked about what? The president's plan...

QUESTION:
Tax cuts.

CHAFEE:
... or our plan?

QUESTION:
Tax cuts. The president's plan. Have they briefed you? And have you talked to the White House about it? Do you feel that you've been sort of in the loop on it?

CHAFEE:
No, I'd say not.

QUESTION:
(OFF-MIKE)

CHAFEE:
Not, yes.

QUESTION:
Have you had any second thoughts about (OFF-MIKE)?

CHAFEE:
No.

QUESTION:
Senator Feinstein, you are in favor here of freezing the top rate. But is there any other part of the Bush tax cut that's just been announced that you think you would support? And do you know of any other centrist that voted of the tax cut last time, have you any sense of how they feel about the new Bush plan?

FEINSTEIN:
On our side, I think there's deep concern. With respect to the first part of your question, I think something that many of us have been working on, as Senator Chafee said, is the marriage penalty, child tax credits going up, those kinds of sort of discrete things.

FEINSTEIN:
When you get into this huge dividend proposal, which is so complicated and will probably need a whole bureaucratic staff to carry it out, it just isn't the time for that, and nobody really knows what the impact is going to be.

I want to just say one thing about how I view the economy, and maybe this is being a Californian and having gone through the energy crisis and now seeing the fraud and manipulation that had accompanied those years of energy crisis, and then seeing almost a scandal a week.

We have a problem of small investor confidence in the economy. People are worried. Their IRAs have declined in value; many have lost retirements, let alone jobs. They see the scandal a week emerging, they see the signs of fraud and corruption in the marketplace, and I, for one, believe very strongly that there are ways to improve that.

First, whomever is appointed as the new SEC head—Securities Exchange Commission head—should be tough, vigorous, independent. The SEC should be fully funded so that it can carry out its oversight responsibilities over the securities market.
Second, the Commodity Futures Trading Commission should be beefed up.
Third, the Federal Energy Regulatory Commission be given more authority to supervise and see that rates are justifiable and fair.
And transparency should be throughout the marketplace, and it should be a fair and open marketplace.

If we can achieve that, then I think you restore investor confidence. To those people that aren't the sophisticated buyers of big amounts of stock or doing deals or buying companies, but the average person who is now afraid to invest in the marketplace, needs to be reassured because productivity—I understand last quarter was up, housing starts are up—there are many good things in our economy, and we know that, basically, at its root, it's sound.

FEINSTEIN:
But if you have fraud and manipulation, and you don't have oversight and you don't have penalties for that, then people lose confidence.

QUESTION:
Senator Chafee, could you comment on the president's economic stimulus plan? And would you vote against it if it came up for a vote in its current form?

CHAFEE:
Yes, I couldn't agree with Senator Feinstein more that consumer confidence, I believe, is tied to the decisions we make here. And I do think the American people are very smart. And when they see us protecting our revenues and trying to address our expenditures, they recognize we're doing good things here, as what happened in the '90s. And as a result, they get confidence, just what Senator Feinstein's talking about. And when you have confidence in what we're doing here and in the marketplace with our financial decisions, you see the economy grow. And I can't see us giving away any more of our revenues, which we're doing with tax cuts. Those revenues are important.

QUESTION:
Senator Feinstein, do you think this will have a stimulative effect (OFF-MIKE)?

CHAFEE:
No, not per se. I don't think it's a stimulus. I think it's a fiscal matter. The great bulk of people in this category are millionaires. I have never had a—my state has the largest number, 133,000 I think it is, out of—what is it? -- 14 million taxpayers in California—I've never had anyone in the top bracket come to me and say, "We need a tax cut."

QUESTION:
Senators, given that the Democrats supported the president the last time on the tax cut (OFF-MIKE) Republicans, not just Lincoln Chafee, but others, is this plan dead on arrival, the president's latest plan dead on arrival here in the Senate?

CHAFEE:
Dianne was quoted...
(LAUGHTER)
Well, I saw your quote this morning saying, "I don't know any Democrats that are supporting it." That's a good start. And here's one Republican. So as you start to do your arithmetic, if that's accurate, there could be problems.

QUESTION:
Correct me if I'm wrong. This may be the first attempt, legislative attempt to roll back or to freeze these tax cuts since they were enacted in 2001. Maybe I'm wrong (OFF-MIKE).

Senator Chafee, I wouldn't expect your leadership to be here supporting you, but, Senator Feinstein (OFF-MIKE) you expect the Democrats perhaps to be here—the Democratic leadership to be here to support you on this. Are you concerned that they aren't as—I don't know—supportive of this idea. Do they consider it be futile?

FEINSTEIN:
Well, I don't know that they wouldn't support it. I haven't really asked anyone else to be here. Senator Chafee and I have been talking about this for—what would you say—six, eight months now, quite a while. And we decided to wait until this new Congress. And I really haven't asked anyone else to be here.

So I would be hopeful that people would see the merit of what we can do to—I thought we had a chart on the savings—oh, here it is, excuse me—of what we can do at least to take this one step.

Now, it's true, these savings from taxpayers, but they're really taxpayers that are at the top of the ladder now. They're not the people that are worried about their IRAs. They're not the people that are going to lose their job. They're by and large affluent, well-off, sophisticated.

QUESTION:
(OFF-MIKE)

FEINSTEIN:
Well, we haven't convened yet this session. So it's hard to tell. I suspect we will be. Senator Breaux has been chairing it for us and Senator Snowe for the Republicans. And I assume we'll be sitting down shortly and seeing what we can put our—probably over prescription drugs.

QUESTION:
(OFF-MIKE)

CHAFEE:
We always hope we will.
(LAUGHTER)

QUESTION:
(OFF-MIKE)

FEINSTEIN:
No, you know what I remember? When we put our centrist plan to balance the budget on the floor, we got 48 votes without working it.

FEINSTEIN:
And that was a pretty good thing. I think increasingly people are beginning to realize that the center of the political spectrum is really the best place to solve many of these problems.

QUESTION:
In 2001, your group came out initially pretty strong against Bush's plan. But in the end almost everyone voted for it, as I recall. I mean, is there any sense that you guys will actually—if you hold together you could actually rewrite this plan in a significant way (OFF-MIKE) centrist coalition. Is there any prospect for you are willing to work together and put together an alternative?

CHAFEE:
That's a good question. As Senator Feinstein said, back then of course the surpluses were projected. And there was a feeling: Perhaps we could afford this. If the economy does continue, perhaps we could. I don't think anyone shares that now. We're back to deficits, they're increasing. There are added costs, as Senator Feinstein said, with the war, homeland security, and No Child Left Behind and other initiatives.

QUESTION:
Republicans wanted to eliminate a planned increase in Medicare spending. Democrats refer to that as a Medicare cut. Is it fair to refer to this proposed elimination of a tax change as a tax increase using that same logic?

FEINSTEIN:
I don't think it's a tax increase. All I'm saying is, and all we're saying, is let's freeze it. Let's freeze it until we have a surplus.

And, see, I'm one that believes if you even look back into the last decade of the economy pumping along in extraordinarily vigorous ways and our struggles to get that deficit down, to get the budget into balance, and I remember the enormous pride that I took when that was accomplished. It's just, you know, a small part of this Senate pie to see, to actually be here when a deficit that has existed for a substantial period of time was no more and we were going to be able to project surpluses for the next 10 years. That was an incredible situation, because then you begin to think, we really can help the homeland.

Now, if you look at what happened on 9/11 and the costs, I mean, we're looking at just $12.6 billion additional just for things we didn't contemplate. We're looking at $60 billion minimum additional if there is an attack on Iraq. We're looking for entitlements, Medicare, Medicaid, the CHIP program, all of the entitlements are increasing whether we do anything or not.
As a matter of fact, I think it is 55 percent of all the federal outlays in 2003 will be mandatory programs. And that excludes defense, it excludes discretionary spending. But it includes interest on the debt.

CHAFEE:
Can I just add also to that, that of course that happens when you're trying to hold the line or freeze a tax increase or—I mean, a tax decrease that's labeled a tax increase. And I think most of the American people, when they look at those making over $311,000, will say, "I don't care whether it's a tax increase or a freeze, those people can afford it." And both Senator Feinstein and I ran in 2000, as she said, we were out there vigorously campaigning, we didn't hear it, "We need a tax cut." We didn't hear it. I didn't.

FEINSTEIN:
And I didn't either.

QUESTION:
In regard to that, the administration argues that top rate cut is aimed at small-business owners, and there is some economic evidence to back them up. How would you respond to that?

FEINSTEIN:
Well, I respond to that that the majority of people in that class earn a great deal of money, more than $1 million. And, you know, if you look at California, which you know well, there are only 133,000 people in that top bracket in a state of 35 million people, and I believe the great bulk of them are extraordinarily wealthy.

So if you're going to look at a tax cut because you want to prime the pump and increase money going into the economy, you're not going to look at that top rate because they're going to do what they're going to do regardless. You're going to look at people who don't have a lot of disposable income and see what you can provide to them so they can invest in this economy one way or another, whether it's in the so-called Wall Street economy or whether it's going out and buying the refrigerator they've looked at and didn't buy because they had a tight pocketbook.

QUESTION:
Senator Chafee, could you tell us how many of your fellow Republicans share your concerns regarding President Bush's proposal? And have you talked to anybody who would actually vote against it?

CHAFEE:
It's pretty recent. Just this week it was introduced. And I'm hearing mumblings from the usual suspects.
(LAUGHTER)
So we'll see as we go forward.

QUESTION:
Is this something that you want to offer as an offset to that, to any kind of stimulus, if there is a stimulus, or should it be done—do you think it should be done regardless?

FEINSTEIN:
My own view is that the 2001 tax cut is just beginning to come in. It's phased in over a period of time. And as the time goes on—it was backloaded, but as the time goes on, it becomes more fulsome, and, therefore, if tax cuts do impact the economy, this is going to have some impact on the economy.

In 2002 it did not, which raises the question: Do tax cuts really have an impact? And what I'm saying here is that the dividend package, which is half of this tax cut in amount, can't be felt until next year in any event.

So in terms of a stimulus, I think showing that we're being responsible, that we're moving toward balancing the budget, that we want to keep interest on the debt down so those vital dollars can be used for things that really care about, like a prescription drug plan, health care, education, the interest dollars are minimized and there are more dollars for these other programs.

QUESTION:
Senator Feinstein, you've warned about the ballooning deficit, and yet what you're proposing here would only curb the cost of the tax cut by 85 percent.

FEINSTEIN:
That's right. It's not, you know—we haven't said it's monumental. But it's ethical, I believe. It's the right to do, I believe. It reduces the skewing in this package. And I think that's the right thing to do, as well. Plus, these are people who can most afford to help.

And, you know, Lincoln talked about days as mayor. And I had some tough days as mayor. And at one point right after Proposition 13 passed, when one half of our revenues were cut out for San Francisco, I had to increase taxes, but I did it on a fair-share basis where everybody did a little bit. And I deeply believe as a matter of public policy that fair share is kind of the way to go.

And that's why when you have a package, half of which is really aimed at a corporate sector that is riddled with loopholes already, I, for one, have real problems with it.

QUESTION:
(OFF-MIKE) that it makes sense to phase in the rest of the tax cut (OFF-MIKE)?

FEINSTEIN:
Well, I'm not going to vote for the rest of the tax cut. I think the tax cut at this time is a mistake. In view of the deficit, in view of us accruing more interest, in view of the probability of a war in Iraq and all the unknowns that that's going to bring with it, which are substantial, that the best thing we can do is work as hard as we can to solve some domestic problems, see that our military are well taken care of and try to be as cost-effective as possible.

QUESTION:
So targeting the top bracket, do you think that reflects, in a sense, the public mood right now, after looking at this proposal by the president and seeing what it does for those who earn over $1 million, do you think the public, you know, views it this way?

FEINSTEIN:
We didn't do it because of the public mood. As I said, we began talking about this, what, six, eight months ago, and debating it back and forth among the two of us as to this was the only thing we would do at the time. And we felt now that the deficit is going to surely balloon that one way of saving some money and unskewing this tax cut—I mean, Lincoln's party is in control. Whether that tax cut goes through or not, I don't know. But I wanted to be as fair as possible. And I suspect there will be other changes, as well.

QUESTION:
Senators, you were asked earlier (OFF-MIKE) centrist coalition (OFF-MIKE) and I'm wondering...

FEINSTEIN:
It's a good idea.
(LAUGHTER)

QUESTION:
Well, that's what I'm wondering, you know, what are you going to do beyond this toward altering the president's economic stimulus package?

FEINSTEIN:
Well, we've been in session for two days. And you have to give us an opportunity to take the necessary soundings. And I think we should and see if there is a possibility of so doing.

See, I think this is a bad time, though, to cut taxes. I think we need to stay the course. I think we need to protect revenues at a time of great revenue uncertainty. I think we have to reestablish consumer confidence in this great economy.

FEINSTEIN:
And I think it can be done. But I don't believe that cutting these taxes at this time does it.

QUESTION:
Is this a trial balloon to see if you have the backing to challenge the president's plan?

FEINSTEIN:
I beg your pardon?

QUESTION:
Is this sort of a trial balloon to see...
(CROSSTALK)

FEINSTEIN:
No. No, it's something we deeply believe. And we're putting it out there.

CHAFEE:
And I'll just add one, before we break up, is that I respect the president. He has a different philosophy on how to stimulate the economy. And he firmly believes that cutting taxes will stimulate the economy. We have a different philosophy. We believe that consumer confidence in wise financial decisions, conservative financial decisions, will stimulate the economy.

FEINSTEIN:
Thank you, everybody.
(CROSSTALK)

QUESTION:
Do you support the draft call?

FEINSTEIN:
Well, let me say. This has come up suddenly. I haven't taken a look at it. But, I mean, I did hear the secretary of defense we're getting all we need from a volunteer Army.

Thanks, Lincoln.
And I basically have always believed that the volunteer Army, or volunteer military, is the best way to do it.
I deeply respect Congressman Rangel, and as I listened to him during the break speak about it, he was saying to make the draft, to make it (OFF-MIKE). And I would counter that by saying these are people that volunteer. If you volunteer, you want to be there.