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Senate Budget Committee Holds Hearing on FY2004 Budget Review

Location: Washington, DC


Thank you, Mr. Chairman.

And Mr. Daniels, thank you for coming. And we all want to focus on increased productivity and efficiency for the precious dollars that are available.

I would focus on two things. First, in terms of economic models, I continue to feel the need to say to colleagues, over and over again, that we don't have to debate economic models. We have experience in our lifetime of models that have worked and not worked.

We have the '80s and we have the '90s. In the as, there were supply side economic tax cuts that were put forward, very much like this administration with the hope that it would trickle down, with a massive buildup in spending, most of which was defense spending at that time.

I lived through the '80s as a state legislator in Michigan and lived through the highest unemployment, at least in my lifetime, an explosion in interest rates as a result of a massive buildup in debt. That's one model.

We come to the '90s. And I had the opportunity in the mid-'90s -- 1997, in fact—to be in the Congress, in the House, when for the first time in 30 years, we balanced the budget.

We had a different approach. We had to focus on fiscal responsibility, paying down the debt, more focus on demand side tax cuts for the middle class, an actual slowing in spending, contrary to what's often said, a slowing in spending. I was there for the voting on cuts in spending at that particular time.

And there was a focus on education and innovation, increases in dollars there, that helped to increase that productivity that you, in fact, are talking about, that we have seen in the private sector, because of the increase in education focus and innovation.

So now we come back to 2001, 2002, 2003. And we see again, like the '80s, a focus on supply side economics, trickle down economics, a great increase in defense spending. And I have voted for that, given the current situation. And all of us have great concern about safety and security for our citizens.

But what have we seen as a result of this? We are seeing a great increase in defense spending. And what do we have now? Over two million private sector jobs lost in the last two years—you have to go back to the Eisenhower Administration to find that kind of a number—and a dramatic increase in the national debt.

So I would just say to my colleagues: we don't have to debate economic theory. We have real life experiences that we have all lived through.

And for many of us, we are scratching our heads as to why we would choose a 1980s economic model versus a 1990s economic model that would work. And before asking you to respond, I would just say to look at where the economic uncertainties come from in the CBO comments a week ago, we were told that there is excess capacity from overinvestment during the bubble years of the late 1990s, inhibiting investment, and that the growth of consumer spending is uncertain in the near term because demand is weak in many sectors of the economy and that they—again, strength of demand is the concern that was raised.

Now that says to me that we need tax cuts, like we have suggested, that put dollars directly into the pockets immediately of middle-income consumers, small businesses, those that will move the economy in the short run. And I continue to scratch my head, Mr. Daniels, as to why we are not using that approach that is backed up by experience of the '90s: of fiscal responsibility and keeping an eye on the debt; paying down the debt; balancing the budget; and focusing on tax cuts that go directly to the middle class.


Well, thank you, senator. I see things in part the same and in part differently. I take a slightly different lesson from the history.

Both the '80s and the '90s were periods of extraordinary economic growth in this country. It's astonishing to me that people have a memory blank like some do.

But I think an honest reading is both were very strong decades. We just had a 20-year run, from '82 to—well, 19 years—to '01 with only one small, very short interruption until the recession started in '01.

And the lesson I would take is that there is no one model that is perfect in all circumstances at all times. We had good results. One thing we've got to be careful about is assuming that it is what Washington does that dictates the outcomes because there are always many more factors involved.

But in terms of those things that government can do to create the right climate for growth, it may not be the same answer all the time. I would certainly argue, from the results, that the tax cuts, which began to take effect at the depth of the recession in '82, led or had something to do with the gigantic increase in economic growth, 20 million new jobs and, some forget, a lot of new revenue to the government.

You quite correctly pointed out that there were other things going on. We were facing the Soviet Union. There was a lot of spending on defense and also on non-defense programs that came along at the same time and which consumed all the new revenue and more. And some people think too much more.

But in terms of an economic outcome, it was spectacular by any measure. And the '90s were spectacular in their own way.

And certainly, in the situation like that, we were able to spend the peace dividend. Most of the cuts, as you know, most of the spending moderation was achieved because of defense, changes in the defense budget. And certainly, at a time like that, it was good policy to get the surplus.

People in both parties, people in this room, had a lot to do with it. Get the surplus, pay down some debt, exactly the right thing.

Now the question, in a very different sort of environment, is: what's right now? And before you got here, we talked about this. What's the right balance of our priorities? Where do you put balanced budget versus the war on terror, homeland defense, economic growth and so forth?

And honest people can certainly differ about how high on that list it ought to be. But that's how I think I would frame it.

Lastly, I agree with you that if we're going to have a growth package—as the president and others believe—that certainly at least a substantial piece of it ought to involve the near term, ought to involve consumers. And there are elements of this package that we believe do that.


I appreciate your comments. My concern is that two- thirds really of what you propose has nothing to do with the short run and is estimated to continue to increase the national debt. And many of us—both sides of the aisle, the business community that I talk to in Michigan—are extremely concerned about where we are going back into deficit spending.

Let me shift though to one other item and that is the question of healthcare, to follow up on Senator Wyden's comments and others. Again, talking to the business community, the largest cost, the explosion in costs that they are most concerned about relates to healthcare costs, not just seniors but the business community, workers. It's certainly the biggest drain right now and the most sense of being uncontrolled, in terms of the explosion on prices and so on.

And when we talk about Medicare, I mean, there are really two pieces on the healthcare front. One is updating Medicare in some fashion.

I would argue that, in fact, anyone who has paid the payroll tax all their life in order to have healthcare available at the time they retire, called Medicare, who then turns around and pays the bulk of their healthcare and prescription drugs, which isn't covered, is being double taxed, I would argue. And that is much bigger double taxation than anything that the dividend tax would provide for most seniors. And that is a real issue, out-of-pocket costs and double taxation.

But on the business front, we have been working to create more competition as it relates to brand-name prescription drugs to lower prices. Strong evidence, major coalitions. We have all kinds of business organizations and employer groups and Blue Cross Blue Shield of Michigan is playing a major role and others to create more competition to lower prices.

Last summer, we passed on a very strong bipartisan vote -- 78 members voted for a bill that would tighten the generic laws, open the border to Canada to change the market pressures to be able to lower prices and create more flexibility for states in negotiating lower prices for the uninsured in their states. This passed with a very strong bipartisan vote. And I'd like to know if the administration, as we introduce it again this year, will support that effort to lower prices, which are the largest driving factor in the explosion of healthcare costs.


Well, the president will, I'm sure, take a look at anything that might help Americans with cost of healthcare. And you mentioned prescription drugs which, though it's something like a dime on the dollar, is growing faster than other areas. And that's an area of real concern.

The president acted, as I think you noted, late last year to make sure that there wasn't abuse of the patent extension process, something that had been, I think, misused on several occasions. He's tried to move repeatedly to make discounts available to especially lower-income senior citizens until we can get to comprehensive Medicare reform that includes prescription drugs.

And Secretary Thompson has gone a long way working with individual states, along the lines you talked about, to give them some flexibility to wrestle with this cost problem. So any reasonable proposal in this area, I'm sure he will look at.


Thank you. We need to move on, if you don't mind.


Yes, absolutely. We look forward to working with you. There is certainly much to be done in this area.

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