Statements on Introduced Bills and Joint Resolutions
Floor Speech
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - January 22, 2008)
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Mr. SPECTER. I have sought recognition to introduce two bills with a view to aiding an emergency economic stimulus package. I am pleased to see that the President and the Democratic leaders of the House of Representatives and the Senate have stated their intentions to work together to provide an economic stimulus package. There is no doubt, based upon what is happening in markets around the world, that there is an urgent need for such a package.
It has been well known that the American people have not looked kindly on what is happening in Washington, DC. The approval ratings of the President are low. The approval ratings of the Congress are low. It appears sometimes as if it is a race to the bottom as to who is going to be the lowest the fastest.
But now I think we have an opportunity, in the face of an emergency--what may accurately be described as a real crisis--to take some effective action. It is my hope we will move with dispatch, with all due deliberation. We have the finest economic minds at work on the issue. There have been a lot of studies, and with our background of knowledge we are in a position to move.
There is no doubt the Congress can move promptly when the Congress has the will to do so with the President. Congress and the President have the capacity to move promptly. It is only a question of the will. I think this is an opportunity for the Federal Government to redeem itself in the eyes of the American people by acting.
I am pleased to see that Federal Reserve Chairman Bernanke has acted this morning to drop interest rates by three-quarters of a percentage point to 3.5 percent. The Chairman of the Fed does not quite go so far as to say we are in a recession, but he has pretty dire news saying:
The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.
I think it is really an understatement. I think the credit market is a shambles, that if you look at the indicators in terms of borrowing on a variety of sources, credit is simply not there.
Many had urged the Fed to lower the rate to 3 percent. Candidly, that would have been my choice. But I think three-quarters of a percent is decisive action, and that should be the starting point for an economic package from Congress.
I appreciate the fact that the President has honored the wishes of the leaders of the Democrats in Congress to await specifics until there has been a meeting and a rejoinder of action. But I think the time has come now to be specific.
The two legislative proposals which I am suggesting today deal with depreciation schedules. Currently, there are depreciation schedules on the 3-, 5-, and 7-year mark which my legislation would expense--or, that is, depreciate--in the year when the expenditure is made. Calculating the cost of this legislation over a 10-year period, the Joint Committee on Taxation should find that it will not cost a great deal on the books.
The second bill which I am introducing would give a bonus depreciation of 50 percent on items purchased on all depreciation schedules. The bonus of 50 percent in 2008 or 50 percent in 2009, if the purchases are made in either of these 2 years, will be a considerable stimulus.
These are not original ideas of mine; these ideas have been proposed from a variety of sources, including a commentary article from The Wall Street Journal dated January 12, 2008. The ideas were forwarded last week to the Secretary of Treasury, Secretary Paulson, and the Chairman of the Council of Economic Advisers, Edward Lazear.
It is my hope we will move promptly with an economic stimulus package. It is my hope that while there may be divergent views and many different points of view, that the efforts are being focused to the maximum extent possible on progrowth ideas.
There is no doubt we have a very serious problem with credit today. What the Federal Reserve has done in lowering the rate three-quarters of a percent to 3.5 percent is a significant start, but more needs to be done on seeing to it that credit is available in our economy.
Mr. President, I have sought recognition to introduce two pieces of legislation designed to provide immediate economic stimulus for an economy hindered by a housing crisis, rising oil prices, unemployment, sagging stock markets, and battered consumer confidence. Both bills I am introducing today, S. 2539 and S. 2540, provide incentives for firms to place new equipment and other assets into use, thus creating new job opportunities. Specifically, my proposals allow firms to deduct, or expense, a greater share of new equipment in the year placed in service. The need for aggressive action is becoming more apparent with each passing day.
There is increasing sentiment that timely action is needed by Congress to stimulate growth beyond what the Federal Reserve can achieve through lower interest rates. Many experts, including former Federal Reserve chairman Alan Greenspan and former Treasury Secretary Lawrence H. Summers, have indicated that the U.S. economy is not faring well and that a recession may be in our future.
Meanwhile, Federal Reserve Chairman Ben Bernanke has been hesitant to classify the deteriorating economy as being in recession. However, in response to an international stock sell-off and the likelihood of a sharp drop in America, the Federal Reserve cut its benchmark short-term interest rate by 3/4 of a percentage point to 3.5 percent this morning, Tuesday January 22, 2007. In a statement, the Federal Reserve said: ``The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.''
Our current economic difficulties were accentuated with the subprime mortgage crisis. With interest rates at all-time lows, lenders increasingly offered mortgages to those who previously either would not have qualified for a mortgage or could not have afforded the payments on a mortgage. Many borrowers with adjustable rate, interest-only or no-down-payment mortgages have been unable to keep up with their monthly mortgage payments that have reset to higher rates. The implications of the subprime mortgage crisis have now spread beyond the housing sector.
A mere 18,000 jobs were added in December, falling significantly short from the 70,000 that were projected by industry analysts. According to the Labor Department's monthly report, the unemployment rate also jumped to 5 percent, up from November's 4.7 percent. Our economy has not seen that level of unemployment in 2 years. On January 2, 2007, crude oil prices hit the $100 per barrel milestone for the first time. The high cost of energy continues to drive up the cost of doing business. This also means a higher cost of living for American consumers. The Consumer Price Index increased 0.8 percent in November, its largest advance since September 2005. A weak holiday shopping season also suggests that consumer confidence is low. According to the International Council of Shopping Centers, sales growth for retailers was the lowest in 7 years.
On Friday, January 18, 2008, the President made clear that timely action is needed during a televised address with his economic advisors. The President outlined a broad framework for an economic stimulus package, one that: is big enough to make a difference; is built on broad-based tax relief; is temporary and takes effect right away; and does not include any tax increases. Specifically, the President called for Congress to enact temporary tax relief consisting of rebate checks for individuals and investment incentives for businesses. He has tasked Treasury Secretary Henry Paulson and Ed Lazear, Chairman of the Council on Economic Advisors, to work with Congress on agreeing on details of a package.
Many in Congress are floating ideas for a package to kick-start the economy, including boosting spending for extending unemployment benefits and providing States with fiscal relief. No matter what the final product, it is my belief that any package passed into law should include tax incentives to spur immediate business investment. The two bills I introduce today are designed to help firms acquire new capital and expand their operations. Incentives for investment will lead to job creation and help dampen the threat of a recession. In the long-term, investment incentives will lead to increased growth. On January 16, 2008, I wrote to Edward Lazear, Chairman of the President's Council of Economic Advisors, urging him to consider these proposals as cornerstones of any economic stimulus package. I sent a similar letter to Treasury Secretary Hank Paulson on January 18, 2008.
My first piece of legislation provides 2 years of ``bonus depreciation'' for all sectors of the economy. Specifically, firms would be allowed to expense 50 percent of the cost of new equipment in the first year the asset is put to use. Remaining value would be deducted over the course of its useful life by using the Internal Revenue Code depreciation schedules. By allowing firms to expense a greater share of the value of an asset in the first year, this proposal frees up additional resources for firms to hire more workers and expand their operations.
In the long-run, the cost of this proposal is minimal because it simply accelerates a tax benefit that is due over time. This proposal does not create a new deduction. However, because this proposal will affect assets depreciated on schedules longer than 10 years, this bill will have a static revenue cost over a 10-year scoring period.
The second piece of legislation I offer today will allow a variety of sectors to take advantage of one-hundred percent up-front expensing for new assets that are placed into service during tax years 2008 and 2009. Specifically, this legislation would allow all equipment which is currently depreciated on the 3-, 5-, and 7-year schedules to be fully expensed in year one. Under current law, when a company buys an asset that will last longer than 1 year, the company cannot, under most circumstances, deduct the entire cost and enjoy an immediate tax benefit. Instead, the company must depreciate the cost over the useful life of the asset, taking a tax deduction for a part of the cost each year. While the company will get to deduct the full cost of the asset, delaying this benefit is a disadvantage to the company. By allowing firms to deduct the cost of a new asset in year one, expensing spurs new investments quickly, which helps to drive immediate job creation.
The assets that currently depreciate on these schedules are so varied that virtually every sector of the economy would be able to take advantage of this benefit and expand their businesses. Some of the assets and sectors on these schedules include office equipment, transportation equipment, agriculture, textiles, furniture manufacturing, steel products and high-tech manufacturing. I have included at the conclusion of this statement a full list of the asset classes impacted by this bill.
One particular advantage to this legislation is the minimal cost impact as viewed by the Joint Committee on Taxation, the Congressional unit which investigates the operation and effects of internal revenue taxes and the administration of such taxes. Because revenue legislation is scored over a 10-year window and the tax benefit inferred by this bill still occurs within that span, quicker, it is my belief that the revenue impact will be negligible. This point is of particular importance in the 110th Congress because of PAYGO scoring rules that require offsetting revenue raising provisions to be included in order to ``pay for'' tax relief.
A January 12, 2008, op-ed in the Wall Street Journal entitled ``The JFK Stimulus Plan,'' by Ernest S. Christian and Gary A. Robbins, provides an excellent argument for the approach I have identified with these two bills. According to Mr. Christian and Mr. Robbins, ``More investment means more productivity--and 80 percent of the net benefit from increased productivity goes to labor. Expensing is a no-risk tax cut. It worked four times in the 1960s and 1970s. It worked in 1981-1982 and again in 2002-2004.'' They cite a 2001 analysis conducted by the Institute for Policy Innovation: ``Each $1 of tax cut from first-year expensing produces about $9 of additional GDP growth.'' A copy of the op-ed is included for the Record.
To address a short-run need for economic stimulus, I urge my colleagues to support this legislation as Congress begins making important decisions on how best to address our slumping economy. These bills are supported by the U.S. Chamber of Commerce, the National Association of Manufacturers, Americans for Tax Reform, and the National Restaurant Association.
In the long run, it is my belief that Congress should consider taking steps to both enhance and make expensing tax benefits permanent. There are strong arguments for allowing all businesses to deduct these costs fully in the year paid instead of requiring them to collect a benefit over a long amount of time. In addition to the issue of providing tax incentives for businesses to invest in new growth capital, I believe it will also be important in the long-run to provide sustained relief for American taxpayers. The President has acknowledged that while passing a new growth package is our most pressing economic priority, Congress needs to turn next to making sure that tax relief that is now in place is not taken away.
I look forward to working with my colleagues to rapidly enact a bipartisan fiscal stimulus package to help our sluggish economy.
Mr. President I ask unanimous consent that the text of the bills of supporting material be printed in the RECORD.
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