Chairman Cox Speaks to Laffer Associates' Annual Conference

Chairman Cox Speeks to Laffer Associates' Annual Conference

Welcome to the Capitol, everyone! I go back a long way with Art. We go back to about 1971, and so I have benefited from his advice for a very long period of time. That advice was taken most seriously during the 1980's, when Ronald Reagan drove our marginal tax rates down from 70% to 28%, the top rate went from 70 to 28 - an extraordinary period of growth as you recall.

And that, in many respects, is the premise on which all of our national debate is now conducted, so even while each year that Republicans have been in majority in this Congress, we have moved a tax cut bill. It is also true that at election time, Democrats vote with us. We've just passed a tax bill very recently, as you saw last week, and the Democrats voted in droves for it. While coming to the floor to say how awful it was in debate, but they just had to vote for it because apparently the voters wanted them to do that. That's the way democracy works.

But unlike the Democrats, I was Chairman of the Republican Policy Committee and very comfortable with my vote in support of moderation in tax rates. Because I recognize that the best way to provide government services, the best way to make sure that government gets the resources that it needs, is to have a healthier economy. And a tax policy that doesn't recognize that impact on the health of our economy is not possibly going to balance our books.

It is possible that we can raise tax rates high enough so that we can cover any amount of spending that you might want to have. When we do that, we are going to diminish economic policies and make them unsound enough to destroy the economy.

Since President Bush's last tax bill was signed into law, tax revenues are up. But there has always been this argument-a difficulty in distinguishing between tax revenues and tax rates. Tax cuts can mean both. And so we talk about that at our peril. This year, the federal government will take more money out of the American economy than ever before in American history. That's consistent, I think, with moderation in tax rates.

But we have to get a grip on our spending. In my capacity as Homeland Security Chairman, I have been wrestling, for some time now, with the question of how much homeland security spending is the right amount. There is, of course, an infinite variety of things that we can spend our homeland security funding on. And we live in a world of finite resources.

We are spending enormous amounts, I want you to know. The Homeland Security Department itself, recently minted, is already the third largest cabinet department. Federal funding for first responders since September 11th has been increased over a thousand percent. The rates of growth in all of the programs that were folded into DHS-not to mention the homeland security functions of the FBI, and intelligence community and Department of Defense-all are growing at a very, very rapid clip, yet there is a much bigger universe of things that we haven't even commenced yet in order to defend ourselves. So how much is the right amount and how do we go at this problem?

The 9/11 Commission recently has made recommendations. Those recommendations are being translated into legislation that will be debated this week in the US Senate. That's moving through committees and the House of Representative this week and will be on our floor next week. Each of the recommendations embedded in this legislation is designed to infer from the lessons of September 11th and take corrective action.

The biggest change that is being made is to create a National Intelligence Director and a National Counterterrorism Center, and to completely change the way we collect, analyze, and distribute intelligence.

That's because we are finding that the most important goal in the Homeland Security mission statement is prevention. DHS itself has a tripartite mission: prevent terrorism; protect against potential terrorism, by which is meant hardening infrastructure and so forth; and, prepare to respond and recover.

Of those three missions, prevention is by far the most valuable, because cleaning up after the dirty bomb, cleaning up after a bioweapons attack, cleaning up after the horrific things that we can all imagine, is not nearly so good as stopping it from happening in the first place.

In fact, in some cases, in the worst cases, such as a particularly virulent strain of smallpox being released in our country, it is not clear quite how you would go about cleaning up and recovering. Some of these things are civilization busters. And, we want to make sure they don't happen in the first place.

Prevention equates directly to intelligence. The way that you stop terrorism before it happens is to find out what the terrorists are doing before they do it. To understand their capabilities, to know their intentions, and to interdict them. So a focus on intelligence is vitally important. And yet no amount of intelligence is enough to make us perfectly safe.

My classmate from 1988, when we were both first elected to Congress together, Porter Goss, has just been confirmed as the new Director of Central Intelligence, and he was also my Vice Chairman on the Select Committee on U.S. National Security in the late 1990's. And, I can tell you that he will do a fabulous job of reorienting the intelligence community and reorienting human intelligence to deal with the massive amount of collection that we have with human beings at the other end.

There is a story out right now that you might see in the newspaper, or on television, about a recently declassified briefing yesterday. The Inspector General's report found that the FBI hasn't got the linguists it needs to deal with the signal intelligence that it is collecting.

In this IG report, they analyze and report only voice intercepts that they are dealing with. That is in fact the lion's share of what we have to translate.

What they found is that not only do they not have enough translators-some 1,200 nationwide with the increase since September 11th-but also, the backlog that was being created because we did not have enough translators was being deleted automatically by the computers after a certain time. It was as if we had a document retention policy and when the date on the calendar rolled along, the information was just erased-not archived, but destroyed, so it is no longer there.

That obviously cannot continue, and we've got to focus more resources where they are most needed. Human intelligence and human beings dealing with the massive amount of technical collection that we have around the world is at the core of that. Porter Goss would do a great job.

But what about these other pieces? First responders are finding that despite the huge amount of money that we are spending at the federal level and at the state and local level, compared to pre-9/11, they are not seeing it. We've had over 50 hearings in the Homeland Security Committee over the last few years, focused on this problem, and for a while it looked like Enron or some accounting scandal.

We knew that Congress was appropriating the money, and the Department of Homeland Security was granting it to the states. We talked with the governors, and they said they were trying to push it out and yet when you put the chief of police or the fire chief or the emergency medical personnel on the witness stand, they said they haven't seen the money.

Where was the missing money? Where did it go? The answer is that most of it, well over two-thirds, even from a couple years ago, has not yet been spent. It's obligated, it's available, people know they are going to get it, but they haven't spent it because they haven't been able to. There have been rules in place preventing them from doing so. One such restriction exists in New Hampshire, where after when a grant is received, you have to have a town hall meeting to approve it, and the town hall meetings aren't scheduled until the next year.

There are all manner of different bureaucratic silliness that has resulted in this money not being spent. The most central, the most significant, is that there has not been a requirement that you focus on where you can spend the money before you get the grant. So we have put legislation that I wrote through my own Homeland Security Committee. It was approved unanimously by my Committee, and it has come out of other important committees of the House.

It is now included in the 9/11 legislation on the floor next week, and it's called the Faster and Smarter Funding for First Responders Act. It's going to get rid of all this red tape, make sure the money gets to the first responders on time, and also implement a 9/11 Commission recommendation that the basis of the funding not be pork-barrel, not be an errant spending formul, that evenly distributes it throughout the United States. But rather that we distribute it based on threat. That would be a real change in the way we allocate this money.

Then lastly, what about the infrastructure protection piece? What about guns, gates, and guards. What about cybersecurity? What about the electric power grid or ports, airports, seaports, and so on? Here we had the opportunity to spend the most amount of money with the least certain payback. We might invest, for example, in MANPADs and arm every commercial airliner against a potential shoulder-fired missile-an attack that has never occurred in our history, but conceivably could. We might therefore save the lives of the people on the airplane, but at a cost of a million dollars or more per aircraft.

When you multiply that times the size of our commercial fleet, that is a big cost. How do you figure out whether that's the place to put our money or whether you put it somewhere else? I will add that it's a grizzly business to try to monetize and compare spending and investment choices to save American lives-that the number of people that might be lost on an airplane, measured in the hundreds, might be compared to the number of people that will die on our highways, 43,000 this year. And, I don't have multibillion-dollar proposals that are coming into my office to reduce that number by 500, yet I have lots of such proposals in the homeland security area.

So how do we deal with this? My strong conviction after looking at this for a long time is that we've got to make our homeland security investments sustainable, that means we have to do them year in and year out. This is not like World War II, where we're building liberty ships faster to bring it to a quicker conclusion. We've got to build it into our finances.

And therefore we need to get back to what I was talking about at the outset, and that is the health of our economy. We've got to make sure our homeland security spending helps to grow our economy and that is possible. Right after 9/11, the presumption about homeland security investment was that we wanted to do the least amount of damage. Slow down the passengers moving through the airport as little as possible. Try to disrupt American life as little as possible.

We can be more ambitious than that. Technology and technology investment can speed up productive processes. And so it should be the rare exception when we do not demand that the homeland security investment improve the productive process in which it is being introduced.

Let's take the ports of Los Angeles and Long Beach, where 40 % of the containers shipments into and out of the United States occur. I've been to those ports many times, as I've been to the ports around the country in New York, Seattle, and Miami. The Committee has been abroad, as well as here in Washington, looking at these things. Those ports are fascinating things to look at. They're an amalgam of job-shops more than they are big assembly lines. And every single one of them can benefit from technology investment from a commercial standpoint.

With the Container Security Initiative, the Department of Homeland Security has focused on the entire supply chain. Now we're putting US personnel, US agents, in Singapore, in Hong Kong, in the mega-ports that are cooperating with us so that we can find out when the cargo is loaded in the first place, where the risks are, and then track them through the whole system.

Tracking cargo has significant commercial benefits. Customers demand that. And if you can keep better track of where a shipment is, and if you can know not just which container it is, but where is the container, there are significant commercial applications. If we take a little more care and ask for investment in technology to improve the commercial side as well as the homeland security side, we can get a twofer, and that will help keep our economy growing.

Remember the brownouts that we had very recently in the northeast? It turned out after we investigated this in the Energy and Commerce Committee, where I also serve, that there is a Mrs. Leary's cow in this equation, when an alarm in Ohio failed to go off. Now, hardening our infrastructure is another way of making it more reliable.

Electricity reliability, I can tell you, as someone from California, has big commercial consequences. So, by targeting our investment to stop terrorists from interfering with our power grid in a way that also increases commercial reliability, we can get a twofer and grow and improve our economy. I can give you dozens more examples.

But the point is that Osama Bin Laden seeks not only to kill innocent civilians but to destroy our economy. He has stated it in his tapes amply. If Osama Bin Laden's war aim is to destroy our economy, then if we are to fight against him, our theme should be to grow our economy. And everything that we do in homeland security should keep that in mind. If we can grow our economy at the same time that we are making our country safer for all of our families, for all of our life, then we will doubly defeat Osama Bin Laden, Al Qaeda, and the terrorists who seek to destroy our civilization.

I know that many of you here are involved in various areas of finance. I want you to know that as someone who worked in corporate finance for 10 years before I came to Congress, I am constantly amazed at how little Congress either understands, or at least acts upon, that which you all take for granted and know and understand in your profession. The couple trillion dollars that we spend through every year, and even more that we spend when you count our borrowing, is conducted with such a lack of discipline, that I am amused if not ashamed by the indignation that we would show when we have executives from WorldCom or Enron or Arthur Andersen come before us and get high judgment.

The requirement that the federal government be fiscally responsible has not been met, and so your advice, your help and your support, your active involvement in politics, your being here in Washington is a great thing for our country.

I want to thank you for what you do. You keep our country growing. You make it possible for government to function. You make it possible for all of the social services, therefore, to be dispensed to people who need them most-from a cleaner environment to health care to national defense to education. All of these things government does because we have the best, most vibrant private sector in the world. For your contribution and for your leadership I salute you. Thanks very much for being here this morning, and thanks for inviting me.