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<html>
<title> - FRESHMAN MEMBERS DAY</title>
<body><pre>
[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
FRESHMAN MEMBERS DAY
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, FEBRUARY 7, 2001
__________
Serial No. 107-1
Printed for the use of the Committee on the Budget
______
U.S. GOVERNMENT PRINTING OFFICE
70-194cc WASHINGTON : 2001
COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
PETER HOEKSTRA, Michigan Ranking Minority Member
Vice Chairman JIM McDERMOTT, Washington,
CHARLES F. BASS, New Hampshire Leadership Designee
GIL GUTKNECHT, Minnesota BENNIE G. THOMPSON, Mississippi
VAN HILLEARY, Tennessee KEN BENTSEN, Texas
MAC THORNBERRY, Texas JIM DAVIS, Florida
JIM RYUN, Kansas EVA M. CLAYTON, North Carolina
MAC COLLINS, Georgia DAVID E. PRICE, North Carolina
ERNIE FLETCHER, Kentucky EDWARD J. MARKEY, Massachusetts
GARY G. MILLER, California GERALD D. KLECZKA, Wisconsin
PAT TOOMEY, Pennsylvania BOB CLEMENT, Tennessee
WES WATKINS, Oklahoma JAMES P. MORAN, Virginia
DOC HASTINGS, Washington DARLENE HOOLEY, Oregon
ROB PORTMAN, Ohio RUSH D. HOLT, New Jersey
EDWARD SCHROCK, Virginia JOSEPH M. HOEFFEL III,
JOHN CULBERSON, Texas Pennsylvania
HENRY E. BROWN, Jr., South Carolina TAMMY BALDWIN, Wisconsin
ANDER CRENSHAW, Florida [Vacancy]
ADAM PUTNAM, Florida [Vacancy]
MARK KIRK, Illinois [Vacancy]
[Vacancy] [Vacancy]
[Vacancy]
[Vacancy]
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, February 7, 2001................. 1
Statement of:
Hon. Edward Schrock, a Representative in Congress from the
State of Virginia.......................................... 1
Hon. Anibal Acevedo-Vila, the Resident Commissioner of Puerto
Rico....................................................... 5
Hon. Henry E. Brown, Jr., a Representative in Congress from
the State of South Carolina................................ 8
Hon. Jeff Flake, a Representative in Congress from the State
of Arizona................................................. 12
Hon. Adam H. Putnam, a Representative in Congress from the
State of Florida........................................... 15
Hon. Steve Israel, a Representative in Congress from the
State of New York.......................................... 27
Hon. Rick Larsen, a Representative in Congress from the State
of Washington.............................................. 30
Hon. Adam Schiff, a Representative in Congress from the State
of California.............................................. 32
Hon. Todd Akin, a Representative in Congress from the State
of Missouri................................................ 35
Hon. James Langevin, a Representative in Congress from the
State of Rhode Island...................................... 38
Prepared statement of:
Mr. Schrock.................................................. 3
Hon. Felix J. Grucci, Jr., a Representative in Congress from
the State of New York...................................... 7
Mr. Brown.................................................... 9
Mr. Flake.................................................... 13
Mr. Putnam................................................... 17
Hon. Mike Pence, a Representative in Congress from the State
of Indiana................................................. 23
Hon. John Culberson, a Representative in Congress from the
State of Texas............................................. 26
Mr. Israel................................................... 28
Mr. Larsen................................................... 31
Mr. Schiff................................................... 33
Hon. Dennis Moore, a Representative in Congress from the
State of Kansas............................................ 35
Mr. Akin..................................................... 37
Mr. Langevin................................................. 40
Hon. Rob Simmons, a Representative in Congress from the State
of Connecticut............................................. 42
FRESHMAN MEMBERS DAY
----------
WEDNESDAY, FEBRUARY 7, 2001
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 11:03 a.m. in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Sununu, Gutknecht,
Fletcher, Schrock, Culberson, Brown, Crenshaw, Putnam, Pence,
Spratt, Hooley, McCarthy, and Flake.
Chairman Nussle. The committee will come back into order,
please.
Today we will be having the first of a series of hearings
involving budget and budget priorities. Today we have invited
freshman Members of the 107th Congress to come before us to
testify on behalf of themselves, their districts, some of the
priorities that maybe they have heard about as they campaigned
over this last campaign season.
I think oftentimes in the Budget Committee and other
committees of Congress we tend to rely on some celebrity-type
witnesses who are often requested to come and give us their
opinions, and we forget that within our own conferences and
caucuses we have Members with a vast array of experiences from
a number of different industries and career backgrounds as well
as perspectives that they share with us from their
constituents. So we wanted today to invite the freshman Members
of the 107th Congress class to come before us and to present
testimony.
The first witness today will be the Honorable Ed Schrock
from Virginia, a member of this committee and president of the
freshman class for the Republicans of this year. Welcome both
to the committee and to our witness table. Your entire
statement will be part of the record without objection, and you
have 5 minutes to summarize your testimony, Mr. Schrock.
STATEMENT OF HON. EDWARD SCHROCK, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Schrock. Thank you, Mr. Chairman, and members of the
committee that are still here. It is an honor for me to be here
to detail the priorities shared by the 28 Republican freshman
Members of Congress.
As you know, the budget resolution frames our agenda and
priorities on both taxes and spending for the coming fiscal
year and beyond. I will first discuss our priorities on tax
relief for every American.
In our view, President Bush's tax relief promoting is fair,
responsible and allows the typical American family to keep at
least $1,600 more of their own money. The President's tax
proposal will cut taxes for everyone who pays income taxes,
will spur economic growth, and tear down the high tax barriers
that keep low-income Americans from accessing the middle class.
Specifically, we support the following provisions: Replace
the current five-rate tax structure with four lower rates--10,
15, 25 and 33 percent; double the child tax credit to $1,000;
eliminate the marriage penalty; eliminate the death tax; expand
the charitable deduction to include those who file with a 1040
EZ, or short form; and make the research and development tax
credit permanent.
We strongly support the President's tax plan because low-
and middle-income families are the biggest winners. For
instance, one in five taxpaying families with children will no
longer pay any tax at all, completely removing 6 million
American families from the tax rolls. A family of four making
$35,000 would get a 100 percent Federal income tax cut. A
family of four making $50,000 a year would receive a 50 percent
cut, receiving at least $1,600. The marginal income tax rate on
low-income families will fall by more than 40 percent.
There is no doubt that American families need a tax cut.
Indeed, the reason we are enjoying surpluses is that we are
taxing too much. We simply must cut taxes for the following
reasons:
The current Tax Code is unfair. Under the current system, a
single mom making $22,000 a year pays a higher marginal tax
rate than someone making $200,000 a year.
Federal taxes are the highest ever during peacetime.
Americans pay more in taxes than they spend on food, clothing,
and housing combined. Americans work more than 4 months per
year just to pay their tax bills. Recent layoffs by businesses
of every size prove that the American economy needs a boost and
quickly.
Many of us also support other tax cuts, including education
expense tax credits, expanding Medicare savings accounts,
medical savings accounts, IRA expansion of pension reform,
repeal of the Spanish-American War phone tax, small business
tax cuts and tax cuts in the capital gains rates.
But, to reiterate, we unanimously support President Bush's
tax proposal.
At this point in my remarks I would like to turn to our
priorities on Federal spending. For many of us, our highest
spending priority is national defense. The Congress of the
United States is constitutionally charged with providing for
the common defense, raising and supporting armies, and
providing and maintaining a navy. In our view, spending on
national defense must be increased to provide for pay raises
for all military personnel, force modernization and
maintenance, overseas deployments, and the acquisition of
modern weapons systems that will maintain our military
supremacy on seas, on land, and in the air.
Social Security and Medicare must be financially secured
for future current and future generations. We support securing
Social Security and Medicare surpluses so that these funds
cannot be used on general appropriations. However, there is a
tremendous concern about the Department of Health and Human
Services' Office of Inspector General report that disclosed
waste, fraud and abuse totaling $13.57 billion, over 8 percent,
of the amount spent on fee-for-service reimbursements at the
Health Care Financing Administration. In order to maintain the
integrity of Medicare and Social Security, strong and
successful efforts must be undertaken by all appropriate
Federal agencies to ensure that Medicare and Social Security
fraud is eliminated.
Furthermore, it appears to us that entitlement reform is
critical to the long-term financial viability of the United
States Government. Social Security, Medicare, Medicaid,
welfare, and other mandatory Federal entitlements now total
more than $1 billion per year. Because of our aging population,
the projected growth rate of these entitlement programs is
staggering. Congress must work in a bipartisan manner with the
President to reform these entitlements before they consume even
more of our tax dollars and make tax increases inevitable.
In the area of education spending, we support local control
of schools. Federal education spending should require
accountability measures at the State level. However, Federal
education dollars otherwise should come with little or no
strings attached. As a former State legislator, I know parents,
teachers and local schools can determine what is best for their
own community. While we support increased education spending at
the Federal level, these new funds should not be accompanied by
new mandates that stifle creativity and burden our local
schools.
Finally, I would like to discuss the Federal debt. We
applaud Congress' record of paying down $625 billion in debt
over the past 4 years. The Republican freshman class is
strongly committed to continuing these efforts to reduce the
Federal debt in a responsible manner. The near elimination of
the Federal debt will result in lower interest rates and would
provide, in essence, another tax cut for families who mortgage
homes and finance the purchase of cars.
In conclusion, Mr. Chairman, we stand ready to work with
you and this committee to develop a budget resolution that
provides tax relief for every American family and a spending
blueprint that will strengthen America's military, improve
education for our children, pay down the national debt, and
protect Social Security and Medicare.
Thanks for this opportunity to appear before you.
[The prepared statement of Congressman Schrock follows:]
Prepared Statement of Hon. Edward Schrock, a Representative in Congress
From the State of Virginia
Mr. Chairman, members of the committee, it is a tremendous honor to
be here today to detail the priorities shared by the 28 Republican
freshmen Members of Congress.
As you know, the Budget Resolution frames our agenda and priorities
on both taxes and spending for the coming fiscal year and beyond.
I will first discuss our priorities on tax relief for every
American.
In our view, President Bush's tax relief proposal is fair,
responsible and allows the typical American family to keep at least
$1,600 more of their own money.
The President's tax proposal will cut taxes for everyone who pays
income taxes, spur economic growth and tear down the high tax barriers
that keep low income Americans from accessing the middle class.
Specifically, we support the following provisions:
<bullet> Replace the current five rate tax structure with four
lower rates--10, 15, 25 and 33 percent.
<bullet> Double the child tax credit to $1,000.
<bullet> Eliminate the marriage penalty
<bullet> Eliminate the death tax
<bullet> Expand the charitable deduction to include those who file
with a 1040 EZ or Short form.
<bullet> Make the research and development tax credit permanent.
We strongly support the President's tax plan because low and
middle-income families are the biggest winners.
For instance,
<bullet> One in five taxpaying families with children will no
longer pay any income tax at all--completely removing 6 million
American families from the tax rolls.
<bullet> A family of four making $35,000 would get a 100 percent
Federal income tax cut.
<bullet> A family of four making $50,000 a year would receive a 50
percent cut--receiving at least $1,600.
<bullet> The marginal income tax rate on low-income families will
fall by more than 40 percent.
There is no doubt that American families need a tax cut. Indeed,
the reason we're enjoying surpluses is that we are taxing too much. We
simply must cut taxes for the following reasons:
<bullet> The current Tax Code is unfair. Under the current system,
a single mom making $22,000 a year pays a higher marginal tax rate than
someone making $200,000 per-year.
<bullet> Federal taxes are the highest ever during peacetime.
<bullet> Americans pay more in taxes than they spend on food,
clothing and housing combined.
<bullet> Americans work more than 4 months per year just to pay
their tax bills.
<bullet> Recent layoffs by businesses of every size prove that the
American economy needs a boost--quickly.
Many of us also support other tax cuts including education expense
tax credits, expanding Medical Savings Accounts, IRA expansion and
pension reform, repeal of the Spanish American War phone tax, small
business tax cuts and cuts in the capital gains tax rates. But to
reiterate, we unanimously support President Bush's tax proposal.
At this point in my remarks I would like to turn to our priorities
on Federal spending.
For many of us, our highest spending priority is national defense.
The Congress of the United States is constitutionally charged with
providing for the common defense, raising and supporting armies, and
providing and maintaining a Navy.
In our view, spending on national defense must be increased to
provide for pay raises for all military personnel, force modernization
and maintenance, overseas deployments, and the acquisition of modern
weapons systems that will maintain our military supremacy on the seas,
on land and in the air.
Social Security and Medicare must be financially secured for
current and future generations. We support securing Social security and
Medicare surpluses so that these funds cannot be used on general
appropriations.
However, there is tremendous concern about a Department of Health
and Human Services Office of Inspector General report that disclosed
waste, fraud and abuse totaling $13.5 billion, or about 8 percent, of
the amount spent on fee for service reimbursements at the Health Care
Financing Administration.
In order to maintain the integrity of the Medicare and Social
Security systems, strong and successful efforts must be undertaken by
all appropriate Federal agencies to ensure that Medicare and Social
Security fraud is eliminated.
Furthermore, it appears to us that entitlement reform is critical
to the long-term financial viability of the United States government.
Social Security, Medicare, Medicaid, Welfare and other mandatory
Federal entitlements now total more than $1 trillion per year.
Because of our aging population, the projected growth rate of these
entitlement programs is staggering. Congress must work in a bipartisan
manner with the President to reform these entitlements before they
consume even more of our tax dollars and make tax increases inevitable.
In the arena of education spending, we support local control of
schools. Federal education spending should require accountability
measures at the state level; however, Federal education dollars
otherwise should come with little or no strings attached.
As a former state legislator, I know that parents, teachers and
local schools can determine what is best for their own community. While
we support increased education spending at the Federal level, these new
funds should not be accompanied by new mandates that stifle creativity
and burden our local schools.
And finally, I would like to discuss the Federal debt. We applaud
Congress's record of paying down $625 billion in debt over the past 4
years. The Republican freshman class is strongly committed to
continuing these important efforts to reduce the Federal debt in a
responsible manner.
The near elimination of the Federal debt will result in lower
interest rates and would provide, in essence, another tax cut for
families who mortgage homes and finance the purchase of automobiles.
In conclusion, Mr. Chairman, we stand ready to work with you and
this committee to develop a budget resolution that provides tax relief
for every American family and a spending blueprint that will strengthen
America's military, improve education for our children, pay down the
national debt and protect Social Security and Medicare.
Thank you, Mr. Chairman for the opportunity to address the Budget
Committee.
Chairman Nussle. Thank you, Mr. Schrock. Are there
questions for this witness from members of the committee?
If not, thank you very much for your attendance and for
your testimony.
The next witness--and I may ask you for a little help with
the pronunciation; we have not met before, and this is one of
the advantages of having a hearing such as this--the Honorable
Anibal Acevedo.
Mr. Acevedo-Vila. That's fine.
Chairman Nussle. And do you add the Vila at the end?
Mr. Acevedo-Vila. That is the way we do it down in Puerto
ico, but it is fine if it is only Acevedo.
Chairman Nussle. We appreciate your coming before us today.
You are obviously from Puerto Rico, as you stated. We
appreciate your attendance and your testimony. Your written
statement, without objection, will be made part of the record
and you may summarize for the 5 minutes. Welcome.
STATEMENT OF HON. ANIBAL ACEVEDO-VILA, THE RESIDENT
COMMISSIONER OF PUERTO RICO
Mr. Acevedo-Vila. I would like to thank the chairman, the
ranking member, and the members of the Budget Committee for
this opportunity to testify here today.
As the new Resident Commissioner from Puerto Rico, I am
pleased to offer some ideas on the budget for fiscal year 2002.
This is a moment of great challenges and, at the same time,
great opportunities for this Congress and the Nation. We have a
balanced budget and a surplus which provide new alternatives
that some years ago were not available. On the other hand,
there are clear indications of an economic slowdown that has to
be remedied by Congress.
There is a consensus that it is time to use this surplus to
reward taxpayers with a tax cut. The issue is how much to cut
and how it should be done to forge real economic growth. As the
representative of Puerto Rico before Congress, I am here today
to work in a bipartisan fashion to guarantee that the 2002
budget will help the 4 million U.S. citizens living in Puerto
Rico. We have before us a unique opportunity to use the current
budgetary circumstance as a tool for economic development
through the creation of jobs and investment in businesses in
Puerto Rico.
During the period of 1993 to 1996, Congress took the
necessary steps to balance the budget and eliminate the
deficit. Puerto Rico paid substantially during this process. In
1993, Congress passed the Omnibus Reconciliation Act, which
included a provision that substantially curtailed the tax
incentives provided by Section 936 of the Internal Revenue Code
to U.S. companies doing business in Puerto Rico.
In 1996, Congress enacted another set of amendments that
eliminated all incentives for new or expanded business
operations and investment in Puerto Rico. Congress carved out a
separate section of the Internal Revenue Code, Section 30A, for
the possession's tax credit, which is applicable only to
corporations with operations in Puerto Rico during the phase-
out periods. As of today, Puerto Rico has no Federal incentive
to create new jobs, and those that apply to companies already
doing business in the island are set to expire in the year
2005.
The negative consequences of the decisions taken in 1993
and 1996 are clear. The phase-out of these incentives is having
disastrous effects on the Puerto Rican economy. In the last 4
years, more than 17,000 jobs have been lost in the
manufacturing sector as a direct result of the phase-out, and
Puerto Rico has not been able to attract significant new
economic investment to build upon. Many of these jobs are
moving out of U.S. jurisdiction to countries like Malaysia and
Singapore. Employment and wages by American companies are a
critical part of Puerto Rico's manufacturing sector, and the
manufacturing sector is the most important sector of Puerto
Rico's economy.
The results are clear. Today, we enjoy a balanced budget
and a rather large surplus. But my people don't have the jobs.
While the taxpayers in the U.S. have earned tax relief, so too
have Puerto Ricans who sacrificed during efforts to balance the
budget and grow the Federal budget surplus. It is time to
provide my constituents with tax relief through incentives for
job creation in the Tax Code.
Congress has been there for Puerto Rico in the past. In
1976, Congress enacted the special tax exemption under Section
936 of the Internal Revenue Code. This was part of an effort to
attract U.S. companies to Puerto Rico to create jobs for the
island's residents. At the time, Puerto Rico's economy was
suffering an economic slowdown, amidst recession, and
unfavorable tax changes in the United States. Unemployment
rates started to increase to alarming levels. A number of
foreign countries became more attractive to U.S. businesses
because they offered lower wage rates and more favorable local
tax incentives. Section 936 was an attempt to reverse that
trend, and it worked. During the 1980's and early 1990's we
were able to strengthen Puerto Rico's economy thanks in great
part to the jobs created by 936 companies.
As I mentioned earlier, one of the reasons to eliminate tax
incentives for U.S. companies in Puerto Rico was to balance the
budget. Now we are faced with a surplus. I will not ask this
Congress to reenact Section 936. What I am asking is to work
toward new and creative incentives to promote job creation and
investment in Puerto Rico. If there are no new jobs and the
companies that we have depart for foreign destinations, our
best resource also, our people, will be wasted. Clearly this
would be a setback for both Puerto Rico and the U.S.
As Congress did during the economic downturn in the 1970's,
I urge you to consider new and creative ways to foster the
economic development of Puerto Rico and make them part of the
2002 budget. The new administration in Puerto Rico is crafting
this new alternative that will be presented to the President
and Congress in the coming weeks. I have already discussed this
priority with influential Members of this body and the Senate,
and enjoyed a recent conversation with President Bush about
this important issue. Our proposals will be supported by all
the economic sectors on the island, be fiscally responsible,
simple and targeted to promote competition with foreign
jurisdictions. For now, I ask you to be open to these kinds of
incentives that are so necessary for our economy as a whole and
for the creation of sustainable and decent-paying jobs for
Puerto Rico.
Again, thanks, Mr. Chairman, ranking member and other
members.
Chairman Nussle. Thank you very much for your testimony.
Are there questions for our colleague? If not, thank you.
The next witness who was scheduled to testify today is the
Honorable Felix Grucci from New York. It is our understanding
that his mother-in-law passed away and, as a result, he will
not be here to testify today. Our thoughts and prayers are
certainly with the entire Grucci family and with his wife's
family.
Without objection, his testimony will be submitted for the
record at this point.
[The prepared statement of Congressman Grucci follows:]
Prepared Statement of Hon. Felix J. Grucci, Jr., a Representative in
Congress From the State of New York
Mr. Chairman, ladies and gentlemen of the House Budget Committee,
thank you for giving me the opportunity to submit this written
statement on behalf of the citizens of the First Congressional District
of New York. Unfortunately, I am unable to attend today's proceedings,
due to the death of my mother-in-law.
Our Nation is at a critical juncture. Over the last several years,
small business owners, entrepreneurs, and hard working middle class
families fostered a strong national economy, and created a historic tax
surplus projected by the Congressional Budget Office to be an estimated
$5.6 trillion.
However, economic storm clouds are on the horizon. Storm clouds
that threaten the economic viability of hundreds of business and
thousands of jobs and opportunities.
Our mission is certain.
While our small business owners, high-tech industry leaders,
manufacturers, farmers and hard working families do their part day in
and day out, from sunrise to sunset, to sustain a vibrant economy, it
is up to their government--this Congress--to proactively implement
reasonable tax relief, reduce our national debt, and protect critical
programs like the Social Security Trust Fund.
We must prioritize the allocation of Federal funds to where they
will best serve our citizens. We need additional resources to improve
our education system, protect our environment, improve our
infrastructure, strengthen our national defense, and enact a Medicare
Lock Box that ensures affordable health care is available to each and
every senior citizen.
As a locally elected town supervisor, I saw first hand how tax cuts
and controlled spending helped spur our local economy in the First
District of New York. By placing the taxpayers money back where it
belongs--in their pockets--we were able to create more than 20,000 new
jobs on Eastern Long Island.
The time is now to give the taxpayers back their money. They
created the tax surplus. They should have it returned. And in the
process, we should once and for all eliminate unfair taxes that
penalize middle class working families, small business owners, farmers
and our newest entrepreneurs.
The time is now to repeal the marriage penalty tax, which would
save the average working family about $1,400 per year. The time is now
to protect farmers and small business owners from being taxed twice by
finally eliminating the death tax.
And the time is now to remove obstacles from young entrepreneurs
who emerge from colleges, universities, and trade schools with bright
ideas and the business ventures for the 21st Century.
This surplus belongs to the people. They created it. It's
responsible and the right thing to do to return it to them.
We can do more. We can provide reasonable tax relief, and take the
necessary actions of protecting the Social Security Trust Fund, by
locking it away from bureaucrats who, would rather use the people's
money on wasteful programs, and ensuring it is there for seniors today,
and the retirees of tomorrow.
We can take this opportunity to improve the educational system in
our nation so no child is left behind. With additional resources to our
schools, we will be able to reduce class size and put our parents,
school boards and teachers back in charge of the classroom.
Our national surplus affords this Congress the unique opportunity
to enter into public/private partnerships to protect and preserve our
environment. By working hand in hand with property-owners, and State
and local governments, we can pool our resources to acquire more open
space from Long Island to the pacific coast.
It's a successful formula that has worked to protect our drinking
water on Eastern Long Island, and one that will prove beneficial
throughout all of the communities and neighborhoods of our great
nation.
With a commitment to take these critical steps today, in this
Congress--the people's House--in conjunction with the Senate and
President Bush, will jump-start our economy, decrease unemployment,
create jobs as well as new opportunities. Put more money in the hands
of the taxpayers, because they know better than any government
bureaucrat how best to spend it. Foster an environment where ideas grow
into successful new businesses, new jobs, and new opportunities.
By taking these steps now, we will successfully meet the challenges
we all face. It will be a journey along a path of new promise, new
hope, and a strong vibrant economy.
Mr. Chairman, ladies and gentlemen of the House Budget Committee,
and my fellow colleagues, thank you for this opportunity.
Chairman Nussle. The next witness is a colleague from the
committee, Mr. Henry Brown from South Carolina, who, as I
stated earlier, was the former chairman of the Ways and Means
Committee which handled budget issues in South Carolina. I
certainly hope that he will be able to share with us some of
the wisdom of the States. We often look to States as the
laboratories.
We are certainly honored to have you in the Congress and on
this committee and look forward to your testimony. Your entire
testimony will be made a part of the record and you may
summarize.
Mr. Brown.
STATEMENT OF HON. HENRY E. BROWN, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF SOUTH CAROLINA
Mr. Brown. Thank you very much, Mr. Chairman and Mr.
Spratt. It is certainly a pleasure and a special honor for me
to serve on this committee.
It was a significant time in my life to have the privilege
to chair the Ways and Means Committee for South Carolina for 5
years. We found South Carolina in a state of flux. We had lost
our triple A credit rating. We were having mid-year budget
cuts. The economy was going great, but the government was
spending more than the revenue coming in, so we were in a state
of real confusion.
It is a real pleasure to come and try to address some of
those same needs here at the Federal level. Because we did
regain our triple A credit rating, we were able to balance the
budget and, at the same time, we were able to make tax cuts.
And I think that is significant as we take a look at the budget
process here.
I am pleased that we will be able to send back some of
those revenues that those taxpayers have sent to us in excess
of the amount that is needed to fund government. I am pleased,
Mr. Chairman, to work with you to try to make some of those
things happen.
Our freshman president summed up a lot of the priorities
that we established in the freshman class. I won't belabor the
committee by going through this again; neither will I present
my formal presentation, which I submitted in writing earlier,
but I did want to come just to say that I am pleased to be a
part of this process, and I recognize that there are a lot of
issues that we need to deal with, like the marriage penalty
tax, the inheritance tax, and the death tax.
Also, I would hope that the committee would look at the
process of returning some of the monies back to the taxpayers--
that tax increase that was imposed upon the seniors which taxed
85 percent of their Social Security proceeds. I would hope this
committee would take a look at trying to repeal that or at
least go back to 1993, where 50 percent of those proceeds were
taxed.
With that, Mr. Chairman, I am open for any questions.
[The prepared statement of Congressman Brown follows:]
Prepared Statement of Hon. Henry E. Brown, Jr., a Representative in
Congress From the State of South Carolina
Mr. Chairman, I appreciate this opportunity to share with you and
this committee the legislative priorities of my constituents in the
First District of South Carolina. Just a few years ago, our Federal
Government was facing huge annual budget deficits and an ever
increasing national debt. Because of the hard work and productivity of
millions of Americans and fiscal discipline of recent Congresses, we
are looking at an unprecedented level of surplus revenues.
First, let me state that my constituents in South Carolina's Low
Country expect this Congress to continue to spend their hard earned tax
dollars wisely and responsibly. This is not the time to reverse course
and embark upon another spending spree that would jeopardize the
progress we have made in paying down our national debt and
strengthening the foundations of our economy.
There is no question we have serious challenges before us,
improving the quality of education throughout this land, safeguarding
Medicare and Social Security for today's senior citizens and future
generations, and rebuilding our military. It is my view, Mr. Chairman,
we can meet these challenges without risking a repeat of budget
deficits and a national debt out of control. I am also convinced we owe
our fellow citizens a more effective, responsive Federal Government,
and finally, long overdue tax relief.
As a former Chairman of South Carolina's House Ways and Means
Committee, I have seen first hand that it is possible to deliver
substantial tax relief without compromising the quality of much needed
government services and programs. With the Congressional Budget Office
projecting total surpluses of $5.6 trillion over the next 10 years, I
believe this Committee has an opportunity to take the first steps
toward reducing individual income taxes which are at the highest level
ever. The fact is that my constituents' taxes are growing faster than
our economy. According to the CBO, tax revenues increased by 10 percent
last year while our economy grew at 5 percent. No doubt we have Federal
programs and services that will require additional resources. It is
difficult to explain why Americans are continuing to pay record high
taxes at a time of peace and prosperity.
Like many of my colleagues, I believe we have a great opportunity
to reduce the tax burden and work for more fairness in our tax code.
Let's finish the job that was begun in the last Congress to eliminate
the marriage penalty. As Congressman Schrock mentioned earlier, this
change ought to be one of our highest priorities. Also, the death tax
needs to be buried once and for all * * * why should we penalize the
millions of small business owners and farmers who have worked hard all
their lives? Finally, Mr. Chairman, I want to work with you and my
colleagues in taking a hard look at repealing the 1993 tax increase on
Social Security benefits. It seems to me that this is another example
of our Federal Government discouraging hard work and initiative.
Once again, Mr. Chairman, thank you for this time for me share my
views. I look forward to working with you and the other members of this
committee in fashioning a responsible and forward looking budget.
Chairman Nussle. I thank you. Are there questions for this
witness?
Mr. Sununu. Mr. Chairman.
Chairman Nussle. Yes, Mr. Sununu.
Mr. Sununu. Congressman, can you talk a little more about
the scope of the tax cut that was put into place in South
Carolina, what the implications of that tax relief were when it
went into place, how revenues changed in the years following
the tax relief, and an assessment of the current state of the
budget in South Carolina?
Mr. Brown. We took a look at the total tax system and we
felt like one of the erroneous taxes we had was the school
operating property tax, particularly as it impacted the senior
citizens. So the first rush of returning some of the taxpayers'
money was to give them relief. For the first $100,000 of the
assessed value of their home, we would return back to those
locals the tax equivalent of $100,000, which the first year was
like $202 million and last year, $264 million. That was the
first cut.
Then, of course, we had several other cuts we made through
that 5-year period when I chaired the committee. One was to
raise the tax relief on senior citizens at 65, that they would
not have to pay income tax on the first $15,000 of their
income, which was a real boost to that segment of the society.
We also did something with the child tax credit; we doubled
that.
Anyway, there were several initiatives, and it really did
spur the economy because all of a sudden the taxpayers had $200
million more they could spend to stimulate the economy, to
enhance the economy, rather than go into the growth of, say,
government. So it was a boom.
I will have to report though that this year South Carolina
is faced with a budget shortfall for the first time in probably
7 or 8 years. So I am real pleased to be up here where there is
lots of money.
Congressman Spratt, down in South Carolina, now is a good
time to leave.
Mr. Spratt. You left town just in time.
Mr. Brown. Yes, sir, I think so.
Mr. Spratt. Listen, what is the problem in South Carolina?
Is it because of tax cuts that there is a diminishment of
revenues, or is there a downturn in the economy that is causing
this fall-off in revenues in South Carolina? Our State
legislator right now, Henry, is glad to be here because we are
coping with the problem of 15 percent across-the-board cuts as
we speak.
Mr. Brown. I think what happened is we had gotten too
complacent in our good economy, Congressman Spratt. We were
having surpluses of a couple hundred million dollars; every
year we would have to make supplemental appropriations to be
able to spend those surplus items. And I think what happened,
the legislature got caught in the thought that we were always
going to have $200 million worth of surplus each year, so they
started spending recurring revenue in one-time appropriations.
And I think this is where we have come to.
We actually have now about $500 million worth of those
recurring items that is built into the base of government,
which is not really recurring each year. I think that is the
real shortfall in the process. It is--the lack of budget
restraints is what has actually brought us into this position.
Chairman Nussle. Mr. Gutknecht.
Mr. Gutknecht. Could I tag onto that? I was reminded,
though, of the story of the old Indian chief who once said the
effectiveness of a rain dance is determined largely by the
timing.
Mr. Brown. That is a good saying.
Mr. Gutknecht. As the former chairman of the Ways and Means
Committee down in South Carolina, how much did you allow the
total State budget to increase by in those years? Do you
remember the numbers or the percentage?
Mr. Brown. Probably somewhere in the 6 percent range.
Mr. Gutknecht. Per year?
Mr. Brown. Yes.
Mr. Gutknecht. Because I have this crazy notion that
government's budget should not grow any faster than the average
family budget.
Mr. Brown. That's correct, 3 percent. I think we were
growing faster than the CPI.
Mr. Gutknecht. That is something I hope we can--as members
of this committee, can get back on course. Because for several
years this committee did a pretty good job of reining in some
of our friends on other committees as well as some of our
colleagues in the other body. The last couple of years we have
slid backwards just a bit.
It seems to me this committee ought to sort of hoist that
banner high, that there is no reason the Federal budget ought
to grow any faster than the average family budget.
Thank you.
Mr. Brown. I think that is the exciting thing about this
budget process here. We actually can now, by reducing the tax
tables, require less income coming in so that we can adjust
that exceeding growth.
Chairman Nussle. Thank you.
Any other questions for members?
I have a question. I was just curious how you handle
emergencies in South Carolina? Do you have a rainy day account?
Some States do that. And what would be your advice with regards
to handling of emergencies?
Mr. Brown. We have two trust funds we set up. One we call
the capital reserve fund, which is 2 percent of the revenue
from last year. The other is a general reserve fund, which is 3
percent. And those monies are held in trust in case there is a
shortfall.
We have a balanced budget amendment, which means we are
required to balance that budget each year. This prevents any
shortfall that might come. We attach those trust funds before
we actually make the budget cuts.
Chairman Nussle. What are the safeguards on the general
fund, emergency funds? In what ways do you either define
emergencies, in order to prevent raiding of that fund; or how
is it managed so that it is not just dipped into without
discretion?
Mr. Brown. The general reserve fund is pretty restricted.
You can only qualify to spend those monies if in fact there is
a midyear cut.
The capital reserve fund is a different item. It is 2
percent money we set aside. In fact, if we don't have a
shortfall in that particular budget year, then we are able to
appropriate those items at the end of the year, call them
capital reserve, which means they should only be spent for
capital items.
But this is the problem--in answer to Mr. Spratt's question
earlier, this is a problem we have gotten ourselves into. We
did not adhere to the rules of that fund, so they started
spending those; instead of on one-time items, capital items,
they started spending them on recurring items, and this is
where we got ourselves into trouble.
Chairman Nussle. Any other questions for this witness?
Thank you very much for your testimony and for your service
on the committee. We look forward to that.
Mr. Brown. Thank you. My pleasure.
Chairman Nussle. Because of Mr. Grucci's cancellation, and
one other, we are waiting for a couple of members that are on
their way, and as soon as they arrive, we will accept their
testimony. [Brief pause.]
Good morning.
Mr. Flake. Good morning.
Chairman Nussle. The next witness before the committee is
the Honorable Jeff Flake from Arizona. We appreciate your
coming before the committee to give us your thoughts about
budget priorities for the year. Your entire testimony will be
submitted for the record, and without objection you may use
your time to summarize what you would like to tell us.
So welcome to the Budget Committee. We look forward to your
testimony.
STATEMENT OF HON. JEFF FLAKE, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ARIZONA
Mr. Flake. Well, thank you very much. I really appreciate
the opportunity. I was just elected this past year, and so I
think what the voters and Americans need is fresh in my mind.
Certainly, in this case, I think that we are standing on
the verge of great opportunity concerning fiscal policy. We
need dramatic and substantial tax reform and relief, and I
believe that the President's package is a great place to start.
I think the President is right when he says that all
Americans who pay income taxes ought to get tax relief. I think
that is a statement that we can all live with. It certainly
cuts across the class warfare that will certainly come as these
budget priorities are discussed. Federal tax revenues consume
more than 20 percent of the economy's output. That is the
highest since World War II. We are certainly in line for tax
relief.
Also, if we look across the country--and this is true in my
district in Arizona as it is elsewhere--companies are laying
off workers. We are in a downturn here, and we need substantial
tax relief, not just because it is not right for government to
take 40 percent of one's income, but because giving people some
of their money back is the best way to jump-start the economy.
So I am definitely in favor of that as the highest budget
priority, to actually return money into the taxpayer's pocket.
There will doubtless be people who say we cannot afford to
do this. I think if we cannot afford to now, there will never
be a time when we can afford to cut taxes. The planets are
aligned just right. We need employers to employ, investors to
invest and consumers to consume, and the best way to do that is
to return money. We have a projected surplus of $5.6 trillion
over the next 10 years and that begs for substantial relief.
I encourage you to follow the lead of the American people.
When they set their household budgets, they say, we need relief
here and relief there and we have these priorities. I think our
priorities ought to be the same. We ought to pay off debt when
we can, and we also ought to put money aside, and we also ought
to do those things we know are going the start the economy. I
hope that this committee considers as it prepares the budget
that we need to leave room for this substantial tax cut.
This morning, along with a number of my colleagues, we
launched an initiative to actually have a bill much larger than
the President's tax cut. I think that the President's tax cut
is a great place to start, but that we shouldn't stop there. An
area that could use some relief is in the area of capital
gains. We learned in 1997 that when we cut capital gains rates
then the economy is spurred, and it doesn't have a negative
impact on revenue coming in for government.
I would just summarize by asking the committee to support
this kind of tax policy as it sets the spending limits for the
coming year, and I appreciate this opportunity. Thank you
again.
[The prepared statement of Congressman Flake follows:]
Prepared Statement of Hon. Jeff Flake, a Representative in Congress
From the State of Arizona
Mr Chairman, I am pleased to speak to you and the rest of the
committee as you consider the policies and priorities that will guide
the shaping of the Federal budget.
I believe this country is standing at the verge of a great
opportunity concerning fiscal policy. We have the opportunity as a
Congress to reverse and undo some of the most stifling policies in our
Nation's history.
I'm referring of course to our tax code. Mr. Chairman it is clear
to me that the American people are taxed far too much.
Federal tax revenues consume more than 20 percent of the economy's
output.
This is the highest percentage of taxation the country has ever had
in peacetime.
There will doubtless be objections to even the idea of cutting
taxes, with one of the cries heard in these halls being ``we can't
afford to cut taxes.''
Leaving aside the obvious fact that this is just another way of
saying ``We don't want to spend less money,'' as we move into what is
undoubtedly a period of economic slowdown, the clear answer to that cry
is
``We can't afford not to cut taxes.''
We need to empower employers to employ, investors to invest and
consumers to consume.
There is nothing about having more money in the Federal coffers
that helps the economy grow.
With a projected surplus of 5.6 trillion dollars over the next 10
years, it would be criminal not to enact a substantial, across-the-
board tax cut.
We must cut taxes because we can, and because we should. It truly
is, the right thing to do by our economy.
I wanted to make this presentation to the House Budget Committee
because of the crucial role you play in setting the tone for this
process.
Mr. Chairman, I respectfully encourage you to follow the lead of
the American people when they set their household budgets.
Our constituents don't determine how much money they want to spend,
and then go out and try to generate the income to match it. They look
at their income level and then determine how much they can spend.
Of course, the added rub of this is that the ``income'' we get is
taken straight from the labors of the American people, and the more we
take, the less they are able to do the things that drive our national
economic state.
I hope the committee will consider this as it prepares the budget,
and that the revenue allocations you allot will reflect the need for a
major tax cut.
Our national economy is crying out for a large, pro-growth tax cut.
This morning I have, along with a number of my colleagues,
announced the drafting of such a bill. It protects Social Security and
Medicare and is fair, comprehensive and substantial.
Most importantly, it is needed.
I ask that the committee support this kind of tax policy as it sets
spending levels for the coming fiscal year. Thank you.
Chairman Nussle. Thank you very much.
In addition to taxes, do you have any advice for us on
priorities when it comes to programmatic changes or priorities
for either additional spending or reforms that you would like
to point out from your testimony?
Mr. Flake. I certainly think that the area of defense and
the military needs to be strengthened. I think it has been
discussed in the Conference and in just about every forum I
have been in that we need to make that a priority, of
strengthening the military and making sure our men and women in
service are treated fairly. So I would certainly think that is
a priority.
In the area of education, I would hope that the priority
isn't so much to see where we can spend extra money, but
actually to see where we can increase flexibility for the
States as they carry out their own priorities in education. So
education is a major area.
I would also like to see, as we move forward with some of
the entitlement programs, that we leave room to get a start on
what President Bush talked about during the campaign; that we
actually move toward allowing Americans to invest some of their
own savings in personal retirement accounts. So to the extent
we need to set aside money to jump-start that process, I
certainly think that is a great place to start.
Chairman Nussle. Coming from Arizona, you have a lot of
folks from Iowa that went down there to retire. You have more
than we would like to send you, I might add. We would like to
keep a few of them in the State, but your weather is slightly
better than we have, during this time of year in particular.
Do you have any advice for us in the areas of Social
Security and Medicare? Clearly you have a constituency there
that I would suspect would be concerned about those two
programs as we move forward. Do you have any advice for us in
those areas?
Mr. Flake. Sure. I think the budget priorities that have
been outlined so far, that we protect the Social Security
surplus and use it only for Social Security, and the same with
Medicare, I think that is something that ought to be honored.
My constituents, a number of whom are your constituents
part of the year, and many other Members of Congress here,
certainly have voiced that to me throughout the campaign; and I
continue to hear that. So, yes, that is a priority.
Chairman Nussle. Thank you.
Are there any other members who have questions?
We appreciate your testimony and welcome to the Congress.
We look forward to working with you as we try to formulate our
priorities.
Mr. Flake. Thank you.
Chairman Nussle. Thank you very much.
Our next witness is a new member--not only a new Member of
Congress, but a new member of the committee from the State of
Florida, Adam Putnam.
And we not only welcome you to the Budget Committee as a
member, but we welcome you here as a witness to give us your
thoughts on budget priorities for the year. Your entire
testimony will be made part of the record, and you may proceed
during your 5 minutes as you would like. Welcome.
STATEMENT OF HON. ADAM H. PUTNAM A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF FLORIDA
Mr. Putnam. Thank you, Mr. Chairman, ranking member, and
fellow members of the committee. I really am old enough to be
here, I promise you.
Mr. Spratt. I just said, Mr. Putnam, to the chairman that
either we're getting older or they're getting younger; I'm not
sure which. But welcome.
Mr. Putnam. Well, the view from this witness table is no
different than it is from the freshman spot on the committee.
It is a long way up there.
I thank you for providing me this opportunity to share my
interests and priorities for this committee with you. Put
simply, my priority is not a request for any new program but a
request that we begin a process, the fruits of which may not be
seen for decades.
Just as we seek a bipartisan consensus on critical budget
issues, such as the use of the existing tax surplus to fund
national priorities, tax reform and reduction, and keeping
Social Security and Medicare solvent and relevant, so we should
also seek a generational consensus on these same issues.
We particularly need to seek this consensus on Medicare and
Social Security because together they consume 33 percent of the
Federal budget and constitute the largest and most
comprehensive public program in the United States. Social
Security is part of nearly every American's life and an
important source of income for most of today's older Americans.
It provides more than half of the total income of two-thirds of
today's retirees. Social Security provides nearly all of the
income of one-third of the elderly. The Social Security
Administration estimates that, without benefits, 47 percent of
individuals 65 and older would live in poverty, four times as
are in poverty today.
My concern for developing this new consensus on Social
Security and Medicare goes beyond the issue of a generational
wealth transfer and straight to the heart of a relationship
between a democratic government and the people. Pundits and
politicians alike wonder at the decline in political
participation and the rise in cynicism about government among
today's young people. Let me suggest that a significant factor
in this cynicism and lack of interest in political
participation among young people--and baby boomers, too, for
that matter--is a belief that government is incapable of
fulfilling its responsibilities to programs like Social
Security and Medicare because we in the Congress are incapable
of moving beyond the polarizing rhetoric of campaigns to
address the root of the problem: making Social Security and
Medicare solvent and relevant beyond the 10-year projection.
We can change that if together we seek and find a
bipartisan and cross-generational consensus on reforms to the
funding mechanisms for these programs. As a first step in that
process, allow me to outline a few points where I think we can
and should reach a consensus:
First, let us agree that the surest way to secure Social
Security and Medicare benefits for existing and future
beneficiaries is to boost economic growth. Surely there is
already a consensus among us that if the economy is larger, the
unavoidable burden of supporting benefits for ever-larger
numbers of retirees will be more feasible, economically and
politically.
Let us agree on the timing. I believe that we can reach a
bipartisan and cross-generational consensus on these issues if,
as we deliberate on the budget, we will commit ourselves to
look beyond the next fiscal year and consider the next 50 years
as well. We have an obligation to act now before the cash flow
into the system turns negative, to put the system on a more
economically and actuarially sound basis, to allay the fears of
those who are counting on its benefits.
Third, we must agree that we will review previously
authorized programs for efficiency, effectiveness and
relevance. Surely there can be a consensus among us that if
government is efficient and economical in discretionary
spending, it will free up resources for the nondiscretionary
spending required to provide benefits to the growing numbers of
retirees leaving the work force.
Fourth, let us agree that as we seek to allay the fears of
existing beneficiaries we will also act now to allay the fears
of those just entering the work force as well. We can do that
by seeking a bipartisan cross-generational consensus on reforms
that will provide opportunities for a fairer return on
contributions, while still preserving the traditional safety
net features of the present system for existing beneficiaries
and those who may prefer that system in the future.
And finally, let us agree to tone down the rhetoric and be
honest with each other and the American people. Honestly
spoken, the challenge of dealing with Social Security and
Medicare is a challenge too easily put off because it is a
challenge that most of the people in this room will never have
to face--present company excluded, of course.
We all know that although outlays will begin exceeding
receipts as early as 2013, depending on which projection you
accept, the present system can serve unchanged until at least
2030, long past the political and actuarial lifetime of most of
today's voters and beneficiaries, if not their children. Thus,
it is our challenge to act now to reach across the aisle and
the generations to ensure that 30 years from now the
government's commitment to future retirees is relevant and the
system for making good on that commitment is solvent.
If we work together, I am confident we can reach a
bipartisan and generational consensus that will restore the
faith of the American people that their tax dollars are wisely
invested for their future retirement and that their government
wisely anticipates and solves future problems on their behalf.
Thank you, gentlemen.
[The prepared statement of Congressman Putnam follows:]
Prepared Statement of Hon. Adam Putnam, a Representative in Congress
From the State of Florida
Mr. Chairman, Mr. Ranking Member and fellow members of the House
Committee on the Budget, thank you for providing me with this
opportunity to share my budget interests and priorities with you. Put
simply, my priority is not a request for a new program, but a request
that we begin a process, the fruits of which may not be seen
conclusively for decades. Just as we seek a bipartisan consensus on
critical budget issues, such as use of the existing tax surplus to fund
national priorities, tax reform and reduction, and keeping Social
Security and Medicare solvent and relevant, so we should also seek a
generational consensus on these same issues.
We particularly need to seek this generational consensus on
Medicare and Social Security because together they consume about 33
percent of the Federal budget and constitute the largest and most
comprehensive public program in the United States\1\. Social Security
is part of nearly every American's life and an important source of
income for most of today's older Americans. Social Security provides
more than half of the total income of two-thirds of today's retirees.
Social Security provides nearly all of the income of one-third of the
elderly. The Social Security Administration estimates that, without
Social Security benefits, 47 percent of individuals aged 65 and older
would live in poverty, four times as many as are in poverty today.\2\
Just as importantly we need to seek this generational consensus on
Social Security and Medicare because for the first time in the history
of these programs, significant populations from five generations of
Americans have a claim on program benefits.
CHART OF NOVEMBER 1, 2000, FIVE-YEAR AGE GROUPS
[Total population 276,059,000]\3\
------------------------------------------------------------------------
Age group Population
------------------------------------------------------------------------
Under 5 years........................................... 18,945,000
5 to 9 years............................................ 19,681,000
10 to 14 years.......................................... 20,017,000
15 to 19 years.......................................... 19,894,000
20 to 24 years.......................................... 18,693,000
25 to 29 years.......................................... 17,625,000
30 to 34 years.......................................... 19,564,000
35 to 39 years.......................................... 22,044,000
40 to 44 years.......................................... 22,769,000
45 to 49 years.......................................... 20,059,000
50 to 54 years.......................................... 17,626,000
55 to 59 years.......................................... 13,425,000
60 to 64 years.......................................... 10,757,000
65 to 69 years.......................................... 9,414,000
70 to 74 years.......................................... 8,758,000
75 to 79 years.......................................... 7,425,000
80 to 84 years.......................................... 4,968,000
85 to 89 years.......................................... 2,734,000
90 to 94 years.......................................... 1,196,000
95 to 99 years.......................................... 369,000
100 years and over...................................... 68,000
------------------------------------------------------------------------
Today, there are over 45.6 million Americans aged 60 and older, and
over 1.5 million Americans aged 90 and over--including my grandfather,
Dudley A. Putnam. Many Americans who are now retired, or who plan to
retire in the near future, fear that benefits will be reduced, or the
retirement age raised, because there are not enough young workers
entering the work force to fund Social Security and Medicare through a
``pay as you go'' payroll tax based system.
As one assesses the impact on the system as members of the ``Baby
Boom Generation'' stop paying payroll taxes and start claiming benefits
it is clear that their fears are not unjustified. Over 76.5 million
Americans belong to the Baby Boom Generation, that's almost one-third
of our present population of 270 million and the core of our work
force.\4\ Needless to say, as the Baby Boomers begin to retire the
impact on the economy and Social Security and Medicare will be
staggering. Without immediate action on our part, Social Security and
Medicare, as now funded, are not sustainable.
In 1945 the ratio of workers to beneficiaries was 41.9 to 1.
By 1950 it had decreased by more than half to 16.5 to 1.
By 1960 it had again decreased by more than two thirds to 5.1 to 1.
By 1975 the ratio had decreased down to 3.2 workers for each
beneficiary.
The ratio of workers to recipients has held fairly steady since the
mid-1970's. Currently the ratio stands at about 3.4 workers to each
recipient. As the Baby Boom Generation begins to retire this ratio will
continue to decrease, eventually reaching a level of two workers for
each recipient by approximately 2030.\5\
Just as many older Americans look upon the retirement of the Baby
Boomers and fear benefit reductions or an increase in the retirement
age, so many Americans of my generation look at the retirement of the
Baby Boomers and rightly doubt the future viability of a ``pay as you
go'' system. Many younger workers question the fairness of a retirement
system where three out of every four dollars that they and their
employers send in go to pay for their parents' and grandparents'
benefits.\6\ Workers aged 22 to 34 already pay the highest Social
Security tax rates, an effective rate of over 10 percent in some
cases,\7\ yet they do not receive a market-based return on their
contributions. Is there any wonder that they doubt the relevance of a
system that taxes them at 10 percent, yet produces a declining rate of
return on their cash contributions that is far lower than they could
earn through investing their contributions in a simple certificate of
deposit?
Indeed, young workers can expect future returns from Social
Security of from only 0.58 percent (for high-wage earners) to 2.93
percent (for low-wage workers) if the system somehow manages to pay all
future benefits without raising taxes\8\ and young workers rightly fear
that to fund a pay as you go system, payroll taxes will be raised to
ruinous levels as the ratio of workers to beneficiaries decreases. As
the following chart illustrates, their fears are not unjustified
because, as might be expected, as the ratio of workers to recipients
has fallen, the tax rates paid by workers have risen.
In 1945 the FICA tax rate was 1 percent.
By 1950 it had risen to 1.5 percent.
By 1960 it had doubled to 3 percent.
By 1975 it stood at 4.95 percent.
Since 1975 the tax rates paid by individuals for Social Security
have risen to 6.2 percent, plus an additional 6.2 percent paid by their
employers, making a total of 12.4 percent. Perhaps even more
importantly, the taxable earnings bases have also risen steadily since
the inception of Social Security, from a low of $3,000 to the current
high of $80,400.\9\
When the ratio of workers to beneficiaries was over 40 to 1, and
the tax rate was 1 percent on the first $3,000 of income, a pay as you
go system was a viable option. When the ratio of workers to recipients
approaches 2 to 1 and the effective tax rate is at 10 percent and
rising, the need for a new consensus is clear.
My concern for developing this new consensus on Social Security and
Medicare goes beyond the issue of a generational wealth transfer and
straight to the heart of the relationship between a democratic
government and the people. Pundits and politicians alike wonder at the
decline in political participation and the rise in cynicism about
government among today's young people. Let me suggest that a
significant factor in this cynicism and lack of interest in political
participation among young people--and Baby Boomers too for that
matter--is a belief that government is incapable of fulfilling its
responsibilities to programs like Social Security and Medicare because
we in the Congress are incapable of moving beyond the polarizing
rhetoric of campaigns to address the root of the problem--making Social
Security and Medicare solvent and relevant beyond the 10 year
projection. We can change that if together we seek, and find, a
bipartisan and cross-generational consensus on reforms to the funding
mechanism for Social Security and Medicare.
As a first step in the consensus building process, please allow me
to outline a few points where I believe we can and should reach
consensus.
First, let us agree that the surest way to preserve Social Security
and Medicare benefits for existing and future beneficiaries is to boost
economic growth. Surely there is already a consensus among us that if
the economy is larger, the unavoidable burden of supporting benefits
for ever larger numbers of retirees will be more feasible economically
and politically.\10\
Second, let us agree on the timing. I believe that we can reach a
bipartisan and cross-generational consensus on these important issues
if, as we deliberate on the budget, we will commit ourselves to look
beyond the next fiscal year and consider the next fifty years as well.
We have an obligation to act now--before the cash flow into the system
turns negative--to put the system on a more economically and
actuarially sound basis to allay the fears of those who are counting on
its benefits.
Third, we must review previously authorized programs for
efficiency, effectiveness and relevance. Surely there can be a
consensus among us that if government is efficient and economical in
discretionary spending it will free up resources for the non-
discretionary spending required to provide benefits to the growing
numbers of retirees leaving the work force.
Fourth, let us agree that as we seek to allay the fears of existing
beneficiaries we will also act now to allay the fears of those just
entering the work force, too. We can do that by seeking a bipartisan
and cross generational consensus on reforms that will provide
opportunities for a fairer return on contributions while still
preserving the traditional safety net features of the present system
for existing beneficiaries and those who may prefer that system in the
future.
Finally, let us agree to tone down the rhetoric and be honest with
each other and the American people; honestly spoken, the challenge of
dealing with Social Security and Medicare is a challenge too easily put
off, because it is a challenge that most of the people in this room
will never have to face.
We all know that, although outlays will begin exceeding receipts as
early as 2013, depending on which projection you accept, the present
system could serve unchanged until at least 2030, long past the
political and actuarial lifetime of most of today's voters and
beneficiaries--if not their children. Thus it is our challenge to act
now to reach across the aisle, and the generations, to ensure that 30
years from now the government's commitment to future retirees is
relevant and the system for making good on that commitment is solvent.
If we work together I am confident we can reach a bipartisan and
generational consensus on Social Security and Medicare that will
restore the faith of the American people that their tax dollars are
wisely invested for their future retirement, and that their government
wisely anticipates and solves future problems on their behalf.
Footnotes
1. CBO estimate for fiscal year 2000 (Social Security + Medicare =
$622 billion)
2. Thomas F. Siems, senior economist and policy advisor, Federal
Reserve Bank of Dallas, January 23, 2001 for the CATO Institute
3. Population Estimates Program, Population Division, U.S. Census
Bureau, Washington, D.C. 20233
4. US Census Bureau, Characteristics of Baby Boomers
5. Office of the Chief Actuary, Social Security Administration,
June 16, 1998 (historical data), April 9, 1999 (projected data)
6. Robert D. Reischauer (Director of CBO 1989 to 1995) in AARP
Bulletin Online, January 2000
7. The Heritage Foundation, Average Effective Social Security Tax
Rates, 1999: Note the average effective OASDI tax rate is total OASDI
taxes divided by total income. This differs from the OASDI statutory
tax rate of 12.4 percent on earned income below the taxable wage cap
($76,200 in 2000) because the share of earned income to total income
can differ from worker to worker. Likewise, not all workers are subject
to the OASDI tax, so the average effective Social Security tax rate can
vary significantly from worker to worker. Other sources of income,
besides wages and salaries, include public assistance, Social Security,
private pensions, alimony and child support, interest, rent and
dividends, all of which affect the average effective OASDI tax rate.
8. Thomas F. Siems, senior economist and policy advisor, Federal
Reserve Bank of Dallas, January 23, 2001 for the CATO Institute
9. Social Security Bulletin, Annual Statistical Supplement, 1999
10. Robert D. Reischauer (Director of CBO 1989 to 1995) in AARP
Bulletin Online, January 2000
Chairman Nussle. Thank you.
Are there questions for this witness?
Mr. Spratt. Mr. Putnam, we have a surplus according to CBO
of about $5.6 trillion; 2.5 of that is Social Security and
another $400 billion is Medicare. Do you think that the non-
Social Security, non-Medicare surplus ought to be apportioned
so maybe a third of it at least is set aside in some kind of
strategic reserve, in some kind of fund for the eventual use of
Social Security and Medicare's long-term solvency? Is that
unreasonable?
Mr. Putnam. Well, without assigning a specific number to
it, I think it is reasonable for us to set aside dollars to
ensure that those programs are solvent and relevant. But I
think that the past recent history of this body shows us that
it is also important that we contain spending, and the best way
to do that is to take the money out of Washington and put it
back in the hands of the consumers, families, the workers; and
I think that responsible tax cuts are a way to do that.
But, clearly, we also have an obligation to ensure that the
debt reduction scenarios continue to play out and we will
indeed be on course to eliminate that debt which is redeemable;
and that we will also continue to have reserves for Social
Security and Medicare in the sense that those will continue to
be solvent.
Mr. Spratt. OK.
Chairman Nussle. Mr. Sununu.
Mr. Sununu. Thank you, Mr. Chairman.
Congressman, as someone who has been campaigning recently
and sort of for the first time, I think there is no question
that in an initial congressional campaign you approach it
without any biases, I think in many respects, on issues; and
maybe your ear is a little more closely attuned to voters and
constituents.
I am curious to know what your impression was on taxes in
particular when you spoke to voters and potential constituents
during the campaign. What was highlighted as being a priority,
not just for tax relief, but also for tax reform or
simplification? In other words, what elements of the Tax Code
do you think engendered the most frustration from taxpayers
that you would highlight as a priority to try to address in a
broad tax relief proposal to eliminate some of the frustration
with the unfairness in the code?
Mr. Putnam. Thank you, Mr. Vice Chairman. There were a
number of issues that came up that--let me describe for you my
district to sort of set the stage.
I represent central Florida. I don't have any part of the
coast. It is an interior district, predominantly rural,
suburban, large agricultural holdings. The death tax, the
estate tax, probably engenders the most concern among small
farms, particularly as the older generation is approaching the
point at which they are incapable of managing the day-to-day
affairs of their business, their farm, their grove operation,
their ranch; that they are looking for ways to pass that on to
their heirs in a way that they will be able to continue in that
business. With the inflated land prices in Florida, the
combination of capital gains, and the death tax is the single
greatest killer of small agriculture in my State.
But you also raise an important point that I heard an awful
lot about on the campaign trail, that is tax simplification.
There is a tremendous frustration with government when you can
take 10 of the best CPAs money can buy that present the same
tax question to them that get 7, 8, 9 different answers from 10
different CPAs; or you can call the IRS hotlines several times
in a row and get a different answer to the same question.
The frustration is that when the code has become so complex
that the very agents who are employed to enforce it aren't in
agreement on how to enforce it, that when our professionals who
are paid to consult us on how to present our taxes are not in
agreement on it, then we have a major problem that undermines
people's faith in the system. It undermines people's belief in
the fairness of the law, that it forces ordinary, hard-working
law-abiding citizens to come afoul of the law--in other words,
to be criminals. That is a very, very frustrating predicament
that a lot of those folks find themselves in.
So the combination of the estate tax and a call for some
tax simplification were the two most frequent things I heard on
the trail.
Mr. Sununu. Thank you.
Chairman Nussle. Thank you very much for your testimony. We
appreciate your testimony here today and we look forward to
your service on the committee. We understand you also will be
serving on the Agriculture Committee.
Mr. Putnam. I will.
Chairman Nussle. And as you pointed out--and it is true for
my district; I know also for Ranking Member Spratt's district,
a number of others--agriculture is going to be a key priority
and issue we are going to have to discuss this year. So we
appreciate your service and look forward to your advice on that
as well.
Mr. Putnam. Thank you, Mr. Chairman and Mr. Ranking Member.
Chairman Nussle. Thank you.
The next witness we will hear from today is a colleague
from Indiana, a new member, Mike Pence. And we welcome you to
the Budget Committee. We would like to incorporate your
testimony in its entirety in the record, and during your 5
minutes we would invite you to summarize and give us your
advice on budget priorities for this fiscal year.
Mr. Pence. Thank you very much, Chairman Nussle, and senior
members of the committee. It is quite an honor for a small-town
boy and a member of the freshman class to be able to address
this committee.
Mr. Spratt. You are talking to someone from York, South
Carolina, so we come from the same background.
Mr. Pence. I want to indicate that I am part of the gray
hair caucus in the freshman class. My predecessor and colleague
is holding forth on the good looks and the youthfulness. But it
is an honor to be here before you to share my thoughts on the
budget for the coming fiscal year.
As hundreds of layoffs in my Indiana district attest, this
economy, in my judgment, Mr. Chairman, is listing badly under
the weight of 8 years of increased taxes and regulation. I come
to the committee today to urge the Republican Congress to
become the Congress of economic recovery by passing tax relief,
significant tax relief, quickly for the American people.
As President Bush has argued in his tax proposal and as
others and I have argued in the Economic Growth and Recovery
Act, a tax reduction will allow families, small businesses and
family farms to exercise the entrepreneurial spirit that is
imperative to restoring the economic vitality of east central
Indiana and the country as a whole. It is appropriate that the
revival of that spirit begin here in this committee where tax
relief will be reflected in the next budget.
If Congress is to repeal the death tax and the marriage
penalty and enact marginal rate reductions, the new budget must
reflect the fiscal discipline that is necessary for such cuts.
The $5.7 trillion surplus that CBO has projected must not be
the victim of Members of Congress eager to appease special
interest groups. Rather, Congress should follow the lead of
President Bush and begin the charge to trust the people with
their money. After saving Social Security, Congress should pass
a substantial--in my judgment, in excess of $2 trillion--tax
cut. A failure to cut taxes by Congress would not only be a
lost investment in the long-term economic success of the United
States, it would bequeath future generations a legacy of
irresponsibility. We must set a new precedent in a time of
unprecedented surpluses.
As I mentioned earlier, the zero growth economy has already
begun to disrupt the lives and businesses of east central
Indiana's businesses, Mr. Chairman. Cummins Engine Company in
my hometown of Columbus, Daimler Chrysler in Newcastle,
Indiana, have both, as major employers, announced layoffs that
not only affect the lives of the companies' workers but the
small businesses whose economic success hinges on the health of
the local economy. For that reason, I feel that any action
taken by Congress must foment economic recovery in our local
communities by enacting tax reductions quickly and completely.
Budget spending should in turn reflect this goal. Any
marginal tax rate reduction that Congress enacts should be
across the board and, in my judgment, retroactive to 2001,
January 1. Additionally, the marriage penalty and death tax
reduction should be more inclusive and phased in sooner than
even what our President has requested.
Such a tax cut may be attacked as too risky or
irresponsible, yet a $2 trillion tax cut would represent only
1.5 percent of GDP. Opponents of a significant tax cut do not
recognize that the current tax rate on work, savings and
investment penalizes productive behavior and impedes economic
growth. At the same time, the growing budget surplus represents
lost investment that would undoubtedly cause economic growth.
Anti-tax cut proponents, Mr. Chairman, argue that cutting
taxes will signal the return of deficits, a premise
contradicted by the Clinton administration's own budget
documents. In early 1995, nearly 18 months after enactment of
the 1993 tax increase, the Office of Management that Budget
projected budget deficits of more than $200 billion for the
next 10 years.
Critics also argue that a big tax cut would make it harder
to reform Medicare or modernize Social Security by allowing
younger workers to shift some of their payroll taxes into
personal retirement accounts. Given the magnitudes of the
projected budget surpluses, there is no conflict between those
goals. Moreover, entitlement reform would be desirable even
without a budget surplus because it would significantly reduce
the long-run unfounded liability of both programs. Large
projected surpluses simply make it easier for legislators to
implement the necessary policies.
Finally, Mr. Chairman, as I said today, with friends
gathered around the endorsement of the Economic Recovery and
Growth Act in the sunshine at the foot of the steps of the
House of Representatives, I simply believe that it is morally
wrong for the Federal Government to become wealthy while some
Americans are becoming poor.
In summary, I urge the committee to set revenue levels that
assume a substantial tax cut like the one offered by the
President and that is crafted in the Economic Recovery and
Growth Act from my friend, the distinguished gentleman from
Pennsylvania, Representative Pat Toomey. In addition, it is my
hope that the Budget Committee resolution will include a
reconciliation instruction for the Ways and Means Committee to
report out a bill that will keep our promise to significantly
cut taxes for all Americans.
[The prepared statement of Congressman Pence follows:]
Prepared Statement of Hon. Mike Pence, a Representative in Congress
From the State of Indiana
Thank you Chairman Nussle for inviting my freshman colleagues and
me here today to share our thoughts on the budget for the coming fiscal
year. As hundreds of layoffs in my Indiana district attest, this
economy is listing badly under the weight of eight years of increased
taxes and regulation. I come to the committee today to urge the
Republican Congress to become the Congress of economic recovery by
passing tax relief. As President Bush has argued in his tax proposal,
and as others and I have argued in the Economic Growth and Recovery
Act, a tax reduction will allow families, small businesses and family
farms to exercise the entrepreneurial spirit that is imperative to
restoring the economic vitality of east central Indiana and the
country. It is appropriate that the revival of that spirit will begin
here in this committee where tax relief will be reflected in the next
budget.
If Congress is to repeal the death tax and the marriage penalty and
enact marginal rate reductions the new budget must reflect the fiscal
discipline that is necessary for such cuts. The $5.7 trillion surplus
that the CBO has projected must not be the victim of members of
Congress eager to appease special interest groups. Rather, Congress
should follow the lead of President Bush and begin the charge to trust
the people with their money. After saving Social Security, Congress
should pass a substantial $2.2 trillion tax cut. A failure to cut taxes
by Congress would not only be a lost investment in the long term
economic success of the United States it would bequeath future
generations a legacy of irresponsibility. We must set a new precedent
in a time of unprecedented surpluses.
As I mentioned earlier, the zero growth economy has already begun
to disrupt the lives and businesses of East Central Indiana's
residents. Cummins Engine and Daimler Chrysler have already announced
layoffs that not only affect the lives of the company workers, but the
small businesses whose economic success hinges on the health of the
local economy. For that reason, I feel that any action taken by
Congress must foment economic recovery in our local communities by
enacting tax reductions quickly and completely. Budget spending should
in turn reflect this goal. Any marginal tax reduction Congress enacts
should be across the board and retroactive to January 1, 2001.
Additional, the marriage penalty and death tax reductions should be
more inclusive and phased in sooner than what President Bush has
requested.
Such a tax cut may be attacked as too risky or irresponsible, yet a
$2.2 trillion tax cut would represent only 1.5 percent of GDP.
Opponents of a significant tax cut do not recognize that the current
tax rate on work, savings, and investment penalizes productive behavior
and impedes economic growth. At the same time, the growing budget
surplus represents lost investment that would undoubtedly cause
economic growth.
Anti-tax cut proponents argue that cutting taxes will signal the
return of deficits, a premise contradicted by Clinton Administration
budget documents. In early 1995, nearly 18 months after enactment of
the 1993 tax increase, the Office of Management and Budget projected
budget deficits of more than $200 billion for the next 10 years.
Critics also argue that a big tax cut would make it harder to
reform Medicare or modernize Social Security by allowing younger
workers to shift some of their payroll taxes into personal retirement
accounts. Given the magnitude of the projected budget surpluses, there
is no conflict between these goals. Moreover, entitlement reform would
be desirable even without a budget surplus because it would
significantly reduce the long-run unfounded liability of both programs.
Large projected surpluses simply make it easier for legislators to
implement the necessary policies.
In summary, I urge the committee to set revenue levels that assume
a substantial tax cut like the one offered by the President and our
colleague Rep. Pat Toomey of Pennsylvania. In addition, it is my hope
that the Budget Committee resolution will include a reconciliation
instruction for the Ways and Means Committee to report out a bill that
will keep our promise to significantly cut taxes for all Americans.
Chairman Nussle. Thank you.
Are there questions for this witness?
If not, thank you very much for your testimony and we look
forward to working with you.
Mr. Pence. Thank you, Mr. Chairman.
Chairman Nussle. The next witness is also from this
committee, the gentleman from Texas, Mr. Culberson, who is a
new member of the Budget Committee and who I have had an
opportunity to already get to know and to work with in the
early transition of this committee.
We would invite you to the witness table and we will have
your testimony as part of the record, without objection, and
you may use your 5 minutes to summarize your testimony before
the committee.
Mr. Culberson. Thank you, Mr. Chairman it is an honor for
me to be here today, and I want to especially thank you, Mr.
Chairman, Ranking Member Spratt, for giving each member of the
freshman class of the 107th Congress this marvelous opportunity
to speak to you and to all the committee members, to share our
ideas with you based on our own personal experience in the
election campaigns we have all just come through.
I have provided the committee with copies of my testimony,
as well as some exhibits I would like you to look at as well to
support the testimony I will be giving here today, and I do
intend to be brief.
I am especially privileged to be here as only the third
Congressman from Texas's District Seven in Houston. The only
other Congressmen to ever represent this district have been
George Bush and Bill Archer. George Bush served two terms and
Chairman Archer served our district for 30 years before
retiring in the last election cycle. These two great men have
genuinely created a very special legacy of principled honorable
leadership in our district that I will do my very best to
uphold.
This special legacy, combined with the length of Bill
Archer's service and the large number of talented, motivated,
and well-educated citizens in our district, created a very
competitive election campaign and a field of eight candidates
last year, which made this campaign especially vivid and fresh
in my mind, as are the voices and opinions of our voters and my
predecessors.
My experience in this campaign and the advice that I have
obtained from my predecessors, and my own experience in the
legislature, has given me a lot of valuable insight into the
question Chairman Nussle has asked us to answer today: What
budget reforms would I and the voters of District Seven like to
see the Congress enact?
District Seven's highest budget priority is to preserve and
protect America's balanced Federal budget through ongoing
fiscal discipline, tax cuts to reduce the tax surplus and,
above all, by approving a balanced budget amendment to the
United States Constitution.
We know these principles work in Texas because we have
proven them and tested it repeatedly in our State government. I
have just completed 14 years of service to 150,000 of District
7's residents as their State representative. Over the last 6
years I served alongside Governor Bush and his staff in helping
them enact the key elements of his legislative program in
Texas, public education reform, criminal justice reform, tort
reform, and tax cuts to strengthen our economy and reduce
Texas's record tax surpluses.
We were successful on every count in Texas, and the voters
in Texas measured the legislature and the Governor against this
record to make Governor Bush the first Governor to be reelected
to a full 4-year term in 1998.
Therefore, Mr. Chairman, I can testify from personal
experience that statutory and constitutional balanced budget
requirements have a very healthy effect on every detail of the
appropriations process and impose fiscal discipline on
legislators, regulators, public employees, and public agencies.
Based on this experience, I also want to suggest that
Congress enact two other proven budget reforms. I am not sure
exactly what form this would take in the Federal Government,
but I could point you first for guidance to Article 8, Section
22 of the Texas Constitution and Chapter 316 of the Texas
Government Code, which are included in the exhibits I provided
to the committee. These are speed governors on spending, which
have had a very healthy effect on our State budget in Texas.
The core of both of these provisions essentially provides that,
quote, ``the rate of growth of appropriations from State
revenues not dedicated by the constitution shall not exceed the
estimated rate of growth of the State's economy,'' essentially
limiting spending increases to no more than is brought in by
natural growth in the State's economy.
I believe Florida has similar language in your
constitution, Congressman, by the way, and we visited about
that before, and I know has worked well in your State as well.
Again, I am not sure what form that would take in the
Federal law, but one that I hope we will all work on together
to implement after we get our budget resolution done.
Secondly, I would like to direct the committee's attention
to the performance-based budgeting process we have used in
Texas very successfully for a number of years. I have attached
several exhibits which give you some perspective on the opinion
of members of the legislature on the effectiveness of
performance-based budgeting, and these exhibits show that it is
the consensus of every member of the legislature overwhelmingly
that the adoption of performance-based budgeting has improved
the accountability and efficiency of State agencies and
employees, saved taxpayers a great deal of money, and made the
entire--all of State government more accountable to both the
legislature and to the taxpayers.
These are the most important budget reforms that I and the
people of the District 7 would suggest to you here today to
ensure that we preserve and protect our balanced budget,
balanced Federal budget, reduce the tax surplus and strengthen
our Nation's economy.
As I learn more about the Federal budget process, other
ideas based on my experiences in Texas will undoubtedly come to
mind. In the meantime, I look forward to working with you,
Chairman Nussle, and with the entire committee to complete our
budget resolution in a timely manner so we can then move on to
a detailed discussion of budget reform ideas that I and my
freshman colleagues have presented here today. I genuinely want
to thank you for allowing us who are on the freshman campaign
trail this opportunity to speak to the committee and offer our
best ideas. Thank you very much.
Mr. Sununu [presiding]. Thank you very much, John. Any
questions from your committee members? Thank you for your time
and your presentation.
[The prepared statement of Congressman Culberson follows:]
Prepared Statement of Hon. John Culberson, a Representative in Congress
From the State of Texas
Mr. Chairman, Ranking Member Spratt, thank you for giving us this
valuable opportunity to share our ideas with you and the Budget
Committee.
I am privileged to be here today as the third congressman from
Texas' District 7 in Houston. The only other congressmen to represent
our district were George Bush and Bill Archer. George Bush served two
terms, and Chairman Archer served our district for 30 years before
retiring. These two great men have created a special legacy of
principled, honorable leadership in our district that I will do my best
to uphold. This special legacy, combined with the length of Bill
Archer's service and the large number of talented, motivated and well
educated citizens in District 7 created an extremely competitive
election campaign among a field of eight candidates last year.
This campaign is very fresh and vivid in my mind, as are the voices
and opinions of our voters and my predecessors on the question that
Chairman Jim Nussle has graciously asked us to answer today: What
budget reforms would I and the people of District 7 like to see the
Congress enact?
District Seven's highest budget priority is to preserve and protect
America's balanced Federal budget through ongoing fiscal discipline,
tax cuts to reduce the tax surplus, and above all, by approving a
balanced budget amendment to the United States Constitution. We know
these principles work because we have proven them and tested them
repeatedly in our state government in Texas.
I have just completed 14 years of service to 150,000 of District
Seven's residents as their state representative. Over the last six
years, I served alongside Governor George W. Bush and worked hard to
help him enact the key elements of his legislative program: public
education reform, criminal justice reform, juvenile justice reform,
tort reform, and tax cuts to strengthen our economy and reduce Texas'
record tax surpluses. We were successful on every count, and voters
measured us against this record to re-elect George Bush as Governor in
1998.
Therefore, Mr. Chairman, I can testify from personal experience
that statutory and constitutional balanced budget requirements have a
very healthy effect on every detail of the appropriations process, and
impose fiscal discipline on legislators, regulators, public employees
and public agencies.
Based on this experience, I also want to suggest that Congress
enact two other proven budget reforms. The first is a ``speed
governor'' on spending similar to Article 8, Section 22 of the Texas
Constitution and Chapter 316 of the Texas Government Code which state:
``the rate of growth of appropriations from tax revenues not dedicated
by [the] constitution [shall not] exceed the estimated rate of growth
of the state's economy.''
Second, I hope the Congress will enact Performance Based Budgeting
as the foundation for our budget and appropriations process. As the
attached exhibits show, Performance Based Budgeting has improved the
accountability and efficiency of state agencies, according to an
overwhelming majority of Texas state leaders.
These are the most important budget reforms that I and the people I
represent would suggest that the Congress enact to ensure that we
preserve and protect our balanced Federal budget, reduce the tax
surplus and strengthen our nation's economy. As I learn more about the
Federal budget process, other ideas based on my experiences in Texas
will undoubtedly come to mind. In the meantime, I look forward to
working with you, Chairman Nussle, to complete our Budget Resolution in
a timely manner so we can then move on to a detailed discussion of the
budget reform ideas that I and my freshman colleagues have presented
today.
Again, thank you for the opportunity to testify before the
committee today.
Mr. Sununu. Our next witness is a new member, of course,
from New York, the Honorable Steve Israel.
Welcome, Congressman.
STATEMENT OF HON. STEVE ISRAEL, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW YORK
Mr. Israel. Thank you very much. Let me thank the chairman
and the ranking member and all members of this committee for
affording freshmen the opportunity to be heard. I especially
want to thank Chairman Nussle for using his first hearing as
budget Chairman to listen to new members.
Before coming to the House, I served as town councilman in
Huntington, Long Island. In my town I led the successful effort
to reduce and stabilize property taxes for 7 consecutive years,
slash our debt payments virtually in half, and meet the
critical needs of our time from child care, to senior care, to
the environment. And although Huntington's $145 million budget
is a minute fraction of the Federal Government's budget, the
same responsible fiscal philosophies have to apply: paying down
our debt, offering sustained and consistent tax relief, and
meeting the immediate needs of our citizens.
I have spoken to thousands of my constituents in New York's
Second Congressional District, and when I ask them how should
we budget, they tell you what you would expect to hear: Run it
like a business. Just as a small business owner would use
common sense in running a business, so, too, should we use
common sense in running our government. They say we have to
live within our means, pay our debts, and invest in our future.
Just as in a business if there is a surplus, a real surplus, it
should be returned to the shareholders, and in this case the
American people, returned to the American people by shoring up
Social Security and Medicare and providing common-sense tax
relief.
Here is how I believe we should do it: First, thousands of
working families in my district need relief from the marriage
tax penalty, a perverse effect of the Tax Code that makes a
married couple pay more in taxes than if they were two single
people. We need to repeal the marriage penalty.
Secondly, small business owners need relief from estate
taxes, taxes that make it virtually impossible to pass along a
lifetime of work to the next generation. Nationally
approximately 70 percent of family-owned business are not kept
in the family once a parent dies.
Third, we can and should reduce marginal tax rates
progressively and fairly. These reductions must provide maximum
relief to hard-working, middle-class families, who are the
backbone of our economy.
And fourth, we should continue to pare down our debt.
Overall I am encouraged by the Federal Reserve Chairman's
recent comments about the state of our economy. He indicated
that the current budget surpluses are large enough to
accommodate both the gradual elimination of the national debt
and a significant reduction in Federal taxes. Paying down our
debt means lower inflation and lower interest rates for
everyone. That is like a tax cut for everyone who has a
mortgage, a small business, a car loan or student loan.
In the words of my local newspaper, Newsday, we should
focus on those elements that have, quote, ``strong bipartisan
support, eliminating the marriage penalty and a cut in the
marginal rate for lower and middle-income tax brackets. The
result would be meaningful cuts for a broad swath of
taxpayers.'' .
Above all, Mr. Chairman and Ranking Member and all members,
Democrats and Republicans can agree on this: Discipline is
vital. I commend the President for understanding that we have
to assess the spending side of the ledger as part of any
comprehensive tax relief plan. At the end of the day, the
linchpin to any economic blueprint is a balanced budget. That
is how any household operates, how any business operates. That
is how my town operated. And that is why any bipartisan fiscal
plan must include vigilance: a rigorous annual assessment of
our ability to sustain tax cuts, provide adequate investments
and eliminate our debt.
We must continue the economic formula that created the long
boom of the 1990's: fiscal discipline and investment in the
knowledge and skills of the American people. Sensible use of
the surplus will ensure that our Nation reaps the economic
benefits of both national debt reduction and tax relief for
working families. And I thank you for your consideration.
Mr. Sununu. Thank you very much.
[The prepared statement of Congressman Israel follows:]
Prepared Statement of Hon. Steve Israel, a Representative in Congress
From the State of New York
Mr. Chairman, before coming to the House, I served as a town
councilman in Huntington, Long Island. In my town, I led the successful
effort to reduce and stabilize property taxes for 7 consecutive years,
slash our debt payments virtually in half, and meet critical needs from
child care to senior care to the environment. Although Huntington's
$145 million budget is a minute fraction of the Federal Government's
budget, the same responsible budgeting philosophies apply: paying down
the debt, offering sustained and consistent tax relief, and meeting the
immediate needs of our citizens.
Now we have an opportunity to apply those principles here in
Washington. In the words of Federal Reserve Chairman Alan Greenspan,
``The time has come, in my judgment, to consider a budgetary strategy
that is consistent with a preemptive smoothing of the glide path to
zero Federal debt or, more realistically, to the level of Federal debt
that is an effective irreducible minimum.''
We ought to be running the government like a business. Just as a
small business owner uses common sense in running a business, so too
should we use common sense in running the government. We have to live
within our means, pay our debts, and invest in our future. And just as
in a business, if there' is a surplus--a real surplus--it should be
returned to the shareholders, in this case the American people. It can
be returned to the American people by shoring up Social Security and
Medicare and providing common sense tax relief.
Here is how:
First, thousands of working families in my district need relief
from the marriage tax penalty a perverse effect of the tax code that
makes a married couple pay more in taxes than if they were two single
people. According to the Congressional Budget Office, more than 21
million married couples have fallen victim to the marriage penalty, at
an average of $1,400 per year.
Second, small business owners need relief from estate taxes--taxes
that make it impossible to pass along a lifetime of work to the next
generation. Nationwide, approximately 70 percent of family-owned
businesses are not kept in the family once a parent dies.
Third, we can and should reduce marginal tax rates progressively
and fairly. These reductions must provide maximum relief to hard
working middle class families who are the backbone of our economy.
Fourth, we must continue to pay down our debt. Overall, I am
encouraged by the Federal Reserve Chairman's recent comments about the
state of our economy. He indicated that the current budget surpluses
are large enough to accommodate both the gradual elimination of the
national debt and a significant reduction in Federal taxes. Paying down
the debt means lower inflation and lower interest rates for everyone.
That's a tax cut for anyone who has a mortgage, a small business, a car
loan, or a student loan--in effect, everyone.
In the words of my local paper Long Island Newsday, we should focus
on those elements that have ``strong bipartisan support * * *
eliminating the marriage penalty (and) a cut in the marginal rate for
lower and middle-income tax brackets * * * the result would be
meaningful cuts for a broad swath of taxpayers.''
Above all, Mr. Chairman, Democrats and Republicans can agree on
this: discipline is vital. I commend President Bush for understanding
that we have to assess the spending side of the ledger as part of any
comprehensive tax relief plan. At the end of the day, the linchpin to
any economic blueprint is a balanced budget. That is how any household
operates, how any business operates, and that is how my town operates.
And that is why any bipartisan fiscal plan must include vigilance: a
rigorous annual assessment of our ability to sustain tax cuts, provide
adequate investments, and eliminate our debt.
We must continue the economic formula that created the long boom of
the 1990's--fiscal discipline and investment in the knowledge and
skills of the American people. Sensible use of the surplus will ensure
our nation reaps the economic benefits of both national debt reduction
and tax relief for working families.
Mr. Sununu. Any questions?
I have a brief question. You talked about cutting marginal
rates, and the top marginal rate is 40 percent--a 40-percent
personal income tax rate. If we are going to cut marginal rates
in the various brackets--the President has proposed cutting the
28 percent bracket down to 25, the 15 percent bracket down to
10--why not provide some relief for the 40 percent marginal
rate bracket, which is obviously a pretty big disincentive to
productivity when your next dollar, not quite, but nearly half
of it is going to go to the Federal Government? Why not cut the
top--are you opposed to cutting the top marginal bracket? I
guess that is the question.
Mr. Israel. In my view nothing is off the table so long as
we have the ability to sustain those reductions and not return
to the days of roller coaster tax increases. So I would
consider virtually everything that is on the table including
reducing that level of taxation.
Mr. Sununu. Thank you. Thank you very much.
We go to the other side of the country for our next witness
from the great State of Washington, Rick Larsen. Welcome,
Congressman. We will include all of your written testimony into
the record. And if you feel free, take the 5 minutes to go over
the details or to summarize as appropriate.
STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON
Mr. Larsen. Thank you very much, Mr. Chairman. Thank you
for the opportunity to comment today before the House Budget
Committee. Thank you as well to Ranking Member Spratt.
My purpose today is to convey the comments that I have
heard from my district's constituents regarding the prospects
of tax cuts in the relation to Congress's work on the budget.
Just recently I met with a group of small business owners,
bankers and farmers in Mount Vernon, Washington, which is in
the heart of my district. The purpose of the meeting was to
hear how the slowing economy was affecting their businesses and
to tap into local thoughts and feelings about how best to
stimulate our economy. The results were, in fact, enlightening.
First, there seems to be general support for a tax cut, but
not support yet for any specific tax package of tax cuts, and
the larger the proposed tax cut package, the more skepticism
there is about the ability from their perspective of Congress
to put together a responsible budget. Why was this, I asked.
The reason for their skepticism was fairly simple.
Constituents in my district are skeptical about the real size
of the surplus. Their skepticism seems to be borne out by the
most recent Congressional Budget Office report which shows that
over the next 10 years the surplus could range anywhere from
2.6 trillion to minus $50 billion, that is depending upon
various assumptions. They don't seem to trust Congress to hold
the line, period, either on tax cuts or on spending.
As a result, the message from constituents that I received
is this: Treat the surplus conservatively and make a tax cut
affordable. How to do that? The answer is in the second message
from constituents, and that message is this: Show us the
budget. Families living in my district would not so much as buy
school clothes for their kids or order out for pizza without
looking at their budget. Similarly, talking tax cuts before
talking budget runs counter to how families in my district
would approach their own budgets. The best method, in my view
and their view, seems to be to gain support for tax cuts is to
show our constituents exactly how much we have to work with,
again by showing them the budget first.
Finally, I want to address unfinished business, the
unfinished business of the debt. In our meeting one local
banker said in relation to a tax cut package, the public
doesn't need another political bill. The public wants a
practical bill. Practicality suggests that Congress should
finish the unfinished business of paying down the debt, and
this year's budget should contain a real commitment to this
goal of fiscal responsibility.
How do we meet the goal of paying down the debt while
taking into account the varying ranges of surplus estimates and
the public skepticism about Congress's ability to be fiscally
prudent? Three steps. First, again, show the public the budget.
They need to know exactly how much is at stake and how much we
can realistically commit to a tax cut.
Next, keep tax cuts affordable. Americans, at least in my
district, don't want a tax cut necessarily if it means a sky-
high national debt. So keeping that in balance.
And third, I would suggest that we should be conservatives
and not liberals with estimates of this surplus. Let us not
spend money that we really do not have. Spending the surplus is
a one-shot deal, and then it is gone. So let us act
responsibly, keep tax cuts affordable and maintain the
commitment to paying down the debt. We owe that at the very
least to our constituents and to the country.
Thank you very much, Mr. Chairman.
Mr. Sununu. Thank you very much, Mr. Larsen.
[The prepared statement of Congressman Larsen follows:]
Prepared Statement of Hon. Rick Larsen, a Representative in Congress
From the State of Washington
Mr. Chairman, thank you for the opportunity to testify before the
House Budget Committee this morning. My purpose today is to convey the
comments I have heard from district constituents regarding the prospect
of tax cuts and their relation to Congress's work on the budget.
Just recently I met with a group of small business owners, bankers
and farmers in Everett, Washington, the heart of my district. The
purpose of the meeting was to hear how the slowing economy was
affecting their businesses and to tap into local thoughts and feelings
on how best to stimulate our economy.
The results were enlightening. First, there seems to be general
support for a tax cut, but not support of any specific package. And the
larger the proposed tax cut package, the more skepticism there is about
the ability to put together a responsible budget. Why?
The reason for this skepticism is simple: constituents in my
district are skeptical about the real size of the surplus. Their
skepticism is borne out by the most recent Congressional Budget Office
report, which shows that over the next ten years, the surplus could
range from $2.6 trillion to -$50 billion, depending upon various
assumptions. They don't trust Congress to hold the line. Period. On tax
cuts or on spending.
As a result, the message from constituents is this: Treat the
surplus conservatively and make a tax cut affordable.
How to do that? The answer is in the second message from
constituents. That message is this: Show us the budget.
Families living in my district would not so much as buy school
clothes for their kids or order out for pizza without looking at their
budget.
Similarly, talking tax cuts before talking budget runs counter to
how families in my district approach their own budgets. The best method
to gain support for tax cuts, it seems to me, is to show our
constituents exactly how much we have to work with: again, Show us the
Budget.
Finally, I want to address unfinished business--the unfinished
business of the debt. In our meeting, one local banker said in relation
to a tax cut package, ``The public doesn't need another political bill,
the public wants a practical bill.''
Practicality suggests that Congress should finish the unfinished
business of paying down the debt. This year's budget should contain a
real commitment to this goal of fiscal responsibility.
How do we meet the goal of paying down the debt, while taking into
account the varying ranges of surplus estimates and the public's
skepticism about Congress's ability to be fiscally prudent?
This involves three key steps.
First, show the public the budget. They need to know exactly how
much is at stake here and how much we can realistically commit to a tax
cut. Show us the budget.
Next, keep tax cuts affordable. Americans don't want a tax cut if
it means sky-high national debt.
And finally, be conservatives, not liberals with estimates of the
surplus. Let's not spend money that we don't really have.
Spending the surplus is a one shot deal and then it is gone. Let's
act responsibly. We owe it to our constituents and to our country.
Mr. Sununu. Any questions?
Thank you.
Our next witness is Congressman Adam Schiff of California.
Welcome, Mr. Schiff. We appreciate your taking the time.
Belated congratulations for all our new members in winning
your elections.
Please feel free to take the 5 minutes to summarize your
testimony or highlight any important points. The entire written
testimony will be included in the record.
STATEMENT OF HON. ADAM SCHIFF, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Schiff. Thank you, Mr. Chairman and ranking member. We
very much appreciate the invitation you have extended to all
the freshmen to have a chance to come and share our budget
priorities. We recognize how extraordinary it is for you to
invite us this way and very much appreciate it and hope it is
repeated frequently by other committees.
We are at an extraordinary juncture, having the surpluses
that we do, and I think my luck has been good. I entered the
State legislature 4 years ago at a time when we first began
surpluses in California, and I arrived here for record
surpluses as well. It is an incredible opportunity, and we have
been the beneficiaries of an extraordinary economy over the
last 8 years. But it is also an important responsibility that
we take actions now to foster the continued success of this
economy and that we don't squander the opportunities that have
presented.
When times are difficult, there is an incentive to spend to
stimulate the economy. It is difficult to continue attacking
the problem of national debt. When times are good, it is also a
time where there is a strong incentive to spend either in the
form of tax expenditures or enough spending and also put
pressure on our ability to attack the national debt. I think we
have to keep first and foremost in mind that I think probably
the most successful thing that we have done over the last year
in terms of government policy has been a vigorous attack on the
national debt.
We are limited in our ability to affect the economy. Small
business in particular is the engine of growth in the economy
and more determinative of our success or failure economically
probably than anything else. But to the degree the government
can influence the economic cycles, I think probably the single
most important thing we have done over the last 8 years is to
get our fiscal house in order, to continue to aggressively
paying down our debt, to keep interest rates low. I would hate
to see us in this time of surplus go back to policies that will
take us into deficit spending and increasing national debt all
over again. That would be a tragic mistake to make.
And so I think what we need to do, given that we simply
cannot rely on fiscal projections, budgetary projections 5 to
10 years from now, and that is when the strong majority of the
surplus is anticipated, it would be most prudent to look at the
near term and not rely on rosy economic assumptions about what
the economy is going to be doing 5 to 10 years from now, what
the surpluses are going to be 5 to 10 years from now.
When we hear figures bandied about about surpluses in the
neighborhood of $5 to $6 trillion, and we consider half of that
is Social Security and Medicare and should be off the table;
when we consider that those figures don't even take into
consideration tax cuts that are set to sunset, and that if we
assume that they will be extended, as is the likelihood they
will be, it further reduces the available surplus; when we
consider that even dedicating Social Security and Medicare
surpluses to Social Security, Medicare, we still have enormous
unfunded liabilities we haven't figured out how to wrestle
with, to talk about enormous surplus is really somewhat
illusory. I think we have to keep that in mind, otherwise we
are going to be headed back down the path of deficits.
I think we ought to take a very strong look at tax cuts
that are triggered to a sustained economic growth, to reaching
debt targets. This is a technique that we employed in
California where we had an enormous tax cut, predominantly in
the vehicle license fees. Those were targeted to growth in the
economy such that if the economy grew at a certain level,
subsequent tax cuts would automatically kick in. As luck would
have it, and it was very good luck indeed, the economy was
strong, and stronger, in fact, than we expected, and we were
able to pass successive legislation accelerating the tax cuts.
We didn't even need to wait for the triggers to apply. We were
able to accelerate further tax cuts. That was very easy to do.
If the projections turn out to be correct or they are even
better than we anticipate, it is very easy to accelerate the
timetable of further rounds of tax cuts.
On the other hand, if you do not estimate correctly, you
estimate much better projections than materialize, dealing with
that problem, as you can imagine, is incredibly difficult, and
I would urge us to give serious consideration, as difficult as
it is, to pegging subsequent rounds of tax cuts, the ultimate
size of the tax cut, to significant targets on debt reduction
and pick a mechanism that we can assure to the maximum degree
possible that those numbers will not be manipulated by whatever
agency is given responsibility for coming up with those debt
targets.
I would just in closing emphasize that we don't want to
find ourselves a few years from now back in deficits. We have
an extraordinary opportunity to meet our responsibilities on
prescription drug medication, on education, on military
defense, and to give a very large tax cut to the American
people, which we should do. But let's do it sensibly. Let's
keep our fiscal house in order.
I want to thank you for this time.
Mr. Sununu. Thank you very much, Congressman.
Mr. Spratt. Thank you very much.
[The prepared statement of Congressman Schiff follows:]
Prepared Statement of Hon. Adam Schiff, a Representative in Congress
From the State of California
Chairman Nussle, Ranking Member Spratt, and members of the
committee, I appreciate the opportunity to testify before your
committee today as a member of the freshman class of the 107th
Congress.
We are at a critical juncture in our nation's history. The last 8
years have brought enormous prosperity to this country. We have had
some of the lowest unemployment in decades, the highest rate of home
ownership, the longest period of uninterrupted growth--the list of
superlatives goes on and on.
The benefits of this economy did not reach everyone, but they
nearly did. More effective than any government program, the nation's
bustling growth meant the annual ``Misery Index'' of unemployment and
inflation combined was lower than at any point since the 1960's.
Not only did the prosperity mean a higher standard of living for
most Americans, it meant that our nation got its fiscal house in order.
We went from a period of spiraling deficits, poor market confidence and
crushing debt service to the unthinkable--surpluses.
Well-respected budget analysts who wrote books just a short time
ago with titles like ``Why We Will Never Balance the Budget'' suddenly
found themselves changing the titles of the reprints, not to mention
the text.
No one predicted the dramatic growth in our economy. No one foresaw
the size of our surplus. Even a year ago, the Congressional Budget
Office projected a 10-year surplus of $3.15 trillion. Now the figure is
$5.5 trillion.
And this is precisely the problem: Who can really say whether the
surpluses will continue for the next five or 10 years? And yet many in
Washington would have us bet the farm that they will.
Whether it is mammoth new spending, or mammoth new tax cuts, or a
combination of the two, any expenditure plan that presupposes a robust
economy and ever larger surpluses over the next decade is almost
certain to send us back to the days of deficit spending and fiscal
irresponsibility.
In the late 1980's and early 1990's, when deficits were high and
the debt service was enormous, it was difficult to muster the political
will to control spending and aggressively pay down the national debt.
Even with enormous discipline, government's ability to influence
economic cycles has its limitations--the private sector is the true
determinant of growth.
But if any change in governmental policy can be attributed to
hastening the end of the last recession and spurring our present
success, it was the decision of Congress and the last administration to
balance our books and pay our bills.
Now that we are in an era of surpluses--may they last forever--it
is no less difficult and no less important to maintain our fiscal
discipline and continue paying down our debt. We can and should return
a portion of our surplus to taxpayers through tax cuts that will
stimulate our economy and eliminate the inequities of the marriage
penalty and estate taxes. We can and should make a greater investment
in education and health care and strengthen our national defense. But
we must make these expenditures in a balanced and thoughtful way that
maintains our fiscal discipline, continues to pay down our debt and
does not rely on rosy and unrealistic long-term projections.
I am proud to have joined the Blue Dogs, a group that has never
lost sight of the importance of a strong fiscal policy. I support the
Blue Dog philosophy of advocating a hawkishness on the debt and a 50-
25-25 budget framework that allocates 50 percent of the surplus to
attacking the national debt and the remaining 50 percent to equal
division between tax cuts and new investment. This framework reassures
financial markets of the nation's resolve to maintain fiscal
discipline; preserves the resources to strengthen Social Security and
Medicare; and provides flexibility in the event of emergencies or
should projected surpluses prove illusory.
One method of further assuring that our expenditures do not put us
on the path back to deficit spending would involve phasing in a long-
term tax plan or spending measure, or pegging its growth to surplus or
debt targets. This approach, suggested by Federal Reserve Chairman Alan
Greenspan in recent testimony before the Senate Budget Committee, is
not unlike that adopted by California. Legislation I coauthored in
Sacramento last session enacted major cuts to the vehicle license fee
and pegged additional cuts to the growth in revenues. When revenues
grew even faster than contemplated by the bill, we passed subsequent
legislation to accelerate the tax cuts further.
I look forward to working with our new President on a budget that
meets the country's needs for investment and tax relief and one that
keeps the economy prospering with a sensible fiscal policy.
The Blue Dogs have reached out to the President in an effort to
work on these issues in a bipartisan way--and he has reached back. But
in the process we would be well-advised to keep Greenspan's caution in
mind and ``resist those policies that could readily resurrect the
deficits of the past and the fiscal imbalances that followed in their
wake.''
Mr. Chairman, once again, I appreciate the opportunity to testify
today, and I am happy to answer any questions the committee may have.
Mr. Spratt. Mr. Chairman, Dennis Moore was to testify, but
he had to be at a committee hearing. I would like to ask
unanimous consent to submit his statement for the record.
Mr. Sununu. Without objection.
[The prepared statement of Congressman Moore follows:]
Prepared Statement of Hon. Dennis Moore, a Representative in Congress
From the State of Kansas
Mr. Chairman, last week the Congressional Budget Office (CBO)
issued budget surplus projections that will play an important role in
the upcoming budget debate in this committee.
The facts remain, however, that budget projections are often
inaccurate, that spending caps are set to expire in fiscal year 2002,
and Social Security and Medicare trust funds continue to be counted as
general fund revenue--even though large majorities of both parties have
agreed to protect these funds.
We must be conservative in using the projected surplus for either
tax cuts or new spending. We should continue to make paying off the
debt our highest priority for the projected surplus. And, we need to
remember that these projected surpluses are exactly that--projections.
Federal Reserve Chairman Alan Greenspan recently warned the Senate
Budget Committee that ``* * * the risk of adverse movements in receipts
is still real, and the probability of dropping back into deficit as a
consequence of imprudent fiscal policies is not negligible.''
Even CBO acknowledges that there is tremendous uncertainty in their
baseline figures over long periods, and economic circumstances could
quickly change projections from surpluses to deficit. If we rush to
commit all of the projected surplus funds to tax cuts or new spending
measures and the surplus does not materialize, we will be forced to
abandon our balanced budget and fall back into deficit spending. We
cannot afford to let that happen.
Mr. Chairman, I would like to submit for the record a January 23,
2001, article from the Kansas City Kansan, a January 24, 2001, article
from the Salina Journal, and a February 3, 2001, article from the
Kansas City Star. Each highlights the dangers of relying on optimistic
economic budget forecasts to make long-term budget decisions. Indeed,
we do not need to rely on CBO projections, or Federal Reserve Board
proclamations, we need only to take a look at states across our nation
to see the empirical evidence that the decisions we make today could
have drastic economic effects tomorrow.
Mr. Chairman, before this committee begins to develop the annual
budget resolution we must agree on reasonable surplus figures that will
keep us on the track of fiscal discipline and to prevent the errors of
our states. When we craft the budget, we all need to work off of the
same page. The following principles are very basic assumptions, already
agreed to at various times by the leadership of both parties, on which
I hope this committee will follow in crafting the budget resolution:
1. Long-term economic forecasts are inherently uncertain;
2. The size of the available surplus must exclude the Social
Security and Medicare trust funds;
3. Realistic assumptions for the growth in discretionary spending
must be properly accounted;
4. Surplus projections should incorporate the costs of policies
that Congress historically reauthorizes;
5. The baby-boom retirement will place sizable future obligations
on the Federal budget, and we must recognize that the surplus totals
include funds generated by retirement trust funds (such as the military
retirement trust fund), which are already committed to future
obligations.
If this committee takes a balanced and prudent approach to managing
the surpluses now, our nation will have the economic benefits of tax
cuts, national debt reduction, and common sense investment priorities.
Mr. Sununu. Our next witness is Congressman Todd Akin, new
Member from Missouri. Welcome.
Mr. Spratt. Mr. Akin, I am sorry I can't stay to hear your
testimony, but I have to go to another meeting myself, but I
will take a copy of it with me. Thank you very much for
appearing.
STATEMENT OF HON. TODD AKIN, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF MISSOURI
Mr. Akin. Mr. Chairman and Ranking Member and members of
the committee, for the record my name is Todd Akin, Congressman
from Missouri, Second Congressional District. That is the St.
Louis area.
I know that the committee and this Congress must balance a
lot of competing priorities; however, there are two priorities
that I believe must receive our highest attention. The first
priority must be an immediate tax decrease. First of all,
America has a tax surplus. A surplus comes from a direct tax
rate on the average American family that is greater than the
cost of food and clothing and shelter and transportation all
combined. We have a tax surplus. It is time to give the money
back where it belongs, and that is to the people.
In addition, the American economy is in need of immediate
attention. Our economy reacts to a number of forces, including
the high taxes and nonexistent energy policy, a troubled stock
market. Now it is time to provide solutions to that slumping
economy.
In fact, Federal Reserve Chairman Alan Greenspan has
forcefully weighed on this question with two decreases in our
interest rates. He went further to support tax cut to jump-
start the economy.
The solution is straightforward. We must continue to
protect Social Security and Medicare and return the tax surplus
through cuts designed to stimulate critical sectors of our
economy. If we were to accelerate the President's package to $2
trillion, the overall cut would still be smaller than the tax
cuts that were passed during President Kennedy's and President
Reagan's administrations. In fact, the President Reagan package
in today's dollars would be a $5 trillion package. President
Bush's tax cut proposal is a modest approach, but I believe we
need to accelerate his plan.
We can't let politics get in the way of economics. A strong
economy is like sunshine. It is kind to all, and it brings hope
of a new day and a promise of yet more American dreams that can
become reality.
The second priority, Mr. Chairman, I would suggest is that
we must pay attention to our national defense. Through the
decades and centuries, in fact, America has a perfect track
record of not being prepared for military conflict, starting
with the War of Independence and then the War of 1812, World
War I, World War II. You take any of our major conflicts and we
have never historically been prepared. In an era of deadly
weaponry, a lack of preparedness can come at a tragic cost.
Specifically I believe we should pass a limited
supplemental defense appropriations bill for fiscal year 2001
at about the $9- to $10-billion level to meet funding
shortfalls this year.
Secondly, the defense budget for fiscal year 2002 must be
adequately funded and must adequately fund national defense.
The Congressional Budget Office has identified a $40- to $50-
billion-a-year shortfall. If these steps are not taken, I
believe we will see lack of combat preparedness. The ability to
shoot, move and communicate will continue to deteriorate. The
flying proficiency of our pilots will deteriorate. Our
stockpiles of precision-guided munitions, that are already at
half of their level, will continue to drop, and the highly
skilled midcareer officers and noncommissioned officers will
continue to depart the force. If we don't support defense, why
should they?
In summary, I believe we must accelerate the tax cut and
provide for adequate defense. I thank the committee for your
attention.
Mr. Sununu. Thank you very much, Mr. Akin.
[The prepared statement of Congressman Akin follows:]
Prepared Statement of Hon. Todd Akin, a Representative in Congress From
the State of Missouri
Mr. Chairman, ranking member, members of the committee. For the
record, my name is Todd Akin, Congressman for Missouri's second
congressional district in the St. Louis area.
I know that the committee and this Congress must balance many
competing priorities. However, there are two priorities that I believe
must receive our highest attention.
The first priority must be an immediate tax decrease.
America has a tax surplus. The tax surplus comes from a direct tax
rate on the average American family greater than the cost of food,
clothing, shelter, and transportation combined. We have a tax surplus;
it is time to give the money back where it belongs--to the people.
The American economy is in need of immediate attention. Our economy
reacts to a number of forces including high taxes, a non-existent
energy policy and a troubled stock market. Now is the time to provide
solutions to our slumping economy.
Federal Reserve Chairman Alan Greenspan has forcefully weighed in
on this question with two decreases in interest rates. He went further
in supporting a tax cut to jump-start the economy.
The solution is straightforward. We must continue to protect Social
Security and Medicare and return the tax surplus through cuts designed
to stimulate critical sectors of the economy.
If we were to accelerate the President's package to $2 trillion,
the overall cut would still be smaller than the tax cut during
President Kennedy's and President Reagan's administrations. In fact,
President Reagan's package in today's dollars would be $5 trillion.
President Bush's tax cut proposal is a modest approach, but I believe
we must accelerate his plan.
We must not let politics get in the way of economics. A strong
economy is like the sunshine. It is kind to all, and brings hope of a
new day--the promise of yet more dreams that become reality.
The second top priority that must receive attention is defense.
Through the decades and centuries America has a perfect track
record of not being prepared for military conflict--War of
Independence, War of 1812, World War I, World War II, Korea, etc. We
have been very poor at preparedness.
In an era of more deadly weaponry, a lack of preparedness can come
at a tragic cost.
Specifically, I believe we should pass a limited Supplemental
Defense Appropriations bill for fiscal year 2001 at about the $9 to 10
billion level to meet funding shortfalls this year.
Secondly, the defense budget for fiscal year 2002 must adequately
fund national defense. The Congressional Budget Office has identified a
$40 to 50 billion per year shortfall.
If these steps are not taken we will see:
1. Combat preparedness--the ability to shoot, move and
communicate--will continue to deteriorate;
2. The flying proficiency of our pilots will continue to decline;
3. Our stockpiles of precision-guided munitions, already at one-
half their required inventories, will drop lower;
4. Highly skilled mid-career officers and noncommissioned officers
will continue to depart the force. If we won't support national
defense, why should they?
In summary, I believe we must accelerate the tax cut and provide
for adequate defense.
I thank the committee for your attention.
Mr. Sununu. We have one more Member that wishes to present
testimony. We will recess briefly so that he has a chance to
arrive and then take his testimony.
[Recess.]
Mr. Sununu. The committee will come to order.
Good morning. Welcome, Congressman Langevin. We appreciate
your taking the time to be here. We have, as you well know,
taken testimony from a number of your colleagues, Democrats and
Republicans, new Members of Congress, to get their perspective
having come really fresh from the campaign trail and being in
the great position of coming to Congress without a lot of
preconceived notions about what is and isn't achievable, but
focusing more on what seems to make sense to your constituents
and the citizens that elected you.
Without objection, all of your written testimony will be
included in the record, and we would like to take your
testimony and allow you the opportunity to highlight important
points in your written testimony or to summarize. You have the
floor for 5 minutes. Thank you for being here.
STATEMENT OF HON. JAMES LANGEVIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF RHODE ISLAND
Mr. Langevin. Thank you, Mr. Chairman, Ranking Member
Spratt and members of the committee. Thank you for giving to me
and my fellow members of the freshman class, the opportunity to
testify before you today. I am honored to be here and to be
participating for the first time in the formation of the
Federal budget resolution.
As you know, the budget decisions we make this year will
have an enormous impact on the lives of Americans for years to
come, and I am grateful for the committee's efforts to solicit
input from the newest Members of the House during this critical
process.
Let me start by saying that what is most important to me is
that out of this process comes a disciplined approach to
spending, a strong focus on and commitment to paying down the
national debt, and a responsible approach to tax relief.
Imposing this type of fiscal discipline is not a new one to
me. When I entered the Rhode Island Legislature in 1989, our
State was spending 100 percent of its revenue and saving
nothing to guard against a possible downturn. Unfortunately,
Rhode Island, like many States, was thrown into a recession
where we faced annual deficits of 100- to $200 million annually
on an approximately $2 billion annual budget.
The State was forced to drastically cut spending on
critical programs and devote its energies and resources to
managing a fiscal crisis for much of a decade. Ultimately my
colleagues and I were obligated to reevaluate our fiscal policy
and adopt a more responsible budget strategy.
I was the chief architect of a plan which limited State
spending to 98 percent of estimated revenues and required that
2 percent of incoming tax dollars be placed into a budget
reserve and cash stabilization account, otherwise known as a
rainy day fund. Now Rhode Islanders can take comfort in knowing
that the State's budget will only grow as fast as the State's
economy, that they have protection against future recessions,
and that they boast a bond rating that is among the best in the
country.
Because of my experience in the legislature, I feel
particularly fortunate to have entered Congress at a time when
the tough choices made by my colleagues and predecessors who
balanced the budget in 1997 are yielding tangible results. I
now strongly believe that it is my duty to maintain the fiscal
responsibility that led us here and even to ensure that we do
not recreate massive deficits like those that we have just
escaped.
As rosy as the budget surplus projections look right now,
it is important to remember that they are, in fact, only that,
projections. We have no choice but to rely on them to a certain
extent in order to set priorities and make long-term fiscal
policy decisions; however, we must be wary of assuming that
these projections guarantee a decade of more windfall revenues.
If this proves not to be the case, we will all suffer as our
debt spirals further out of control, funding is scarce for some
of the basic Federal programs, and the solvency of Social
Security and Medicare becomes a goal that is no longer in
reach.
Let us not forget that it was only until very recently that
we struggled with annual budget deficits of $200 billion, a
national debt of $5.6 trillion, and interest only payments on
that debt of $300 billion annually. To put it into perspective,
those interest payments represented more than we were spending
on Medicare and almost as much as we were spending on the
entire national defense budget.
Therefore, I hope this Congress will not act hastily on
individual elements of the budget, but will instead wait until
we have agreed upon an overall budget framework within which to
make decisions. I intend to ensure that there is room for a
range of priorities in our budget picture before I decide to
support use of the surplus for any one major initiative.
Retiring the national debt is a paramount concern and
should inform every aspect of our budget policy. I want to be
secure in the knowledge that our debt will continue to be
reduced and that our children and grandchildren will not have
to shoulder the burden of recklessness. In addition, paying
down the debt will result in the one of the best tax cuts that
we can provide to American working families. Reduction and
elimination of the debt will ensure low-interest rates and a
sound long-term economic future for the Nation.
Furthermore, I believe that we should use or current
prosperity to enhance those Federal programs relied upon by
some of the most vulnerable members of our society. First and
foremost, of course, our senior citizens as well as younger
generations looking toward their eventual retirement deserve to
know that the Social Security System will be strong and viable
whether they need it now or in 20 years. Likewise, we must
reform and strengthen Medicare without slashing benefits or
increasing costs for seniors, and provide a prescription drug
component so that no one is forced to choose between medicine
and groceries or heat for their home.
We must also set aside a sufficient portion of the budget
for other critical needs, including reform of our elementary
and secondary education system, provision of the benefits and
care America's veterans have earned and deserve, and
maintenance of a strong national defense with soldiers who
receive a fair wage for their service to our country.
Mr. Chairman, would it be your preference that I finish?
Mr. Sununu. Without objection, feel free to take as much
time as you need.
Mr. Langevin. Thank you, Mr. Chairman.
Also as a former Rhode Island secretary of state who
presided over a wholesale reform and modernization of the
State's antiquated voting system, I am also very concerned
about election reform. Specifically I believe our budget must
reflect the importance of this issue by including sufficient
funding to ensure every precinct in this country is equipped
with modern voting equipment that is reliable and accessible to
all voters.
I will be working with many of my colleagues to make
progress on this issue well in advance of the next Federal
election. Knowing that there is a place in our budget framework
for meaningful action on electoral reform will make the road
ahead much smoother.
Finally, we all want to reward hard-working families by
returning some of their tax dollars, but this cannot come at
the expense of our Nation's future fiscal stability. Therefore,
I strongly recommend that any tax relief supported by this
Congress be phased in and contingent upon two important
conditions: First, the reality of our annual revenues must meet
expectations created by current projections. Second, we must
have a defined plan for paying down the national debt, and the
targets laid out in this plan must be met.
In other words, I support tax relief that is triggered only
when those two critical goals are met. I would also favor a tax
cut that is limited to a certain percentage of the Federal
surplus so that if surpluses are lower than projected, we will
not find ourselves trapped by promises it is no longer
responsible to keep.
These precautions will ensure that lower tax rates do not
come at the expense of fiscal discipline and will encourage
Members eager to give something back to their constituents to
channel their energies into a responsible course of debt
reduction and long-term fiscal responsibility.
Again, Mr. Chairman, thank you for allowing me to be part
of this important discussion. There are many tough challenges
ahead, but I believe that with cooperation and an eye toward
operating within a responsible framework, this Congress can
develop a budget that will ensure America's needs are met and
hard-working taxpayers are given the relief they deserve. I
thank you for your time.
Mr. Sununu. Thank you, Mr. Langevin. I appreciate your time
and your testimony.
[The prepared statement of Congressman Langevin follows:]
Prepared Statement of Hon. Jim Langevin, a Representative in Congress
From the State of Rhode Island
Mr. Chairman, Ranking Member Spratt and members of the committee,
thank you for giving me and my fellow Members of the freshman class the
opportunity to testify before you today. I am honored to be here and to
be participating for the first time in the formation of the Federal
budget resolution. As you know, the budget decisions we make this year
will have an enormous impact on the lives of Americans for years to
come, and I am grateful for the committee's efforts to solicit input
from the newest members of the House during this critical process.
Let me start by saying what is most important to me is that out of
this process comes a disciplined approach to spending, a strong focus
on and commitment to paying down the national debt, and a responsible
approach to tax relief.
Imposing this type of fiscal discipline is not a new concept to me.
When I entered the Rhode Island Legislature in 1989, the state was
spending 100 percent of its revenue and saving nothing to guard against
possible downturns. Unfortunately, Rhode Island, like many states, was
thrown into a recession where we faced annual deficits of $100 million
to $200 million on an approximately $2 billion annual budget. The state
was forced to drastically cut spending on critical programs and devote
its energies and resources to managing a fiscal crisis for close to a
decade.
Ultimately, my colleagues and I were obligated to re-evaluate our
fiscal policy and adopt a more responsible budget strategy. I was the
chief architect of a plan which limited state spending to 98 percent of
estimated revenues and required that 2 percent of incoming tax dollars
be placed in a rainy day fund. Now Rhode Islanders can take comfort in
knowing that the state's budget will only grow as fast as its economy,
that they have protection against future recessions, and that they
boast a bond rating that is among the best in the country.
Because of my experience in the Legislature, I feel particularly
fortunate to have entered Congress at a time when the tough choices
made by my colleagues and predecessors who balanced the budget in 1997
are yielding tangible results. I now strongly believe that it is my
duty to maintain the fiscal responsibility that led us here and ensure
that we do not recreate massive deficits like those we've just escaped.
As rosy as the budget surplus projections look right now, it is
important to remember that they are in fact only that: projections. We
have no choice but to rely on them to a certain extent in order to set
priorities and make long-term fiscal policy decisions. However, we must
be wary of assuming that these projections guarantee a decade or more
of windfall revenues. If this proves not to be the case, we will all
suffer as our debt spirals further out of control, funding is scarce
for some of the most basic Federal programs, and the solvency of Social
Security and Medicare becomes a goal that is no longer in reach.
Let us not forget it was only very recently that we struggled with
annual budget deficits up to $290 billion, a national debt of $5.6
trillion, and interest-only payments on that debt of $300 billion
annually. Put into perspective, those interest payments represented
more than we were spending on Medicare, and almost as much as our
entire national defense budget.
Therefore, I hope this Congress will not act hastily on individual
elements of the budget, but will instead wait until we have agreed upon
an overall budget framework within which to make decisions. I intend to
ensure that there is room for a range of priorities in our budget
picture before I decide to support the use of the surplus for any one
major initiative.
Retiring the national debt is a paramount concern that should
inform every aspect of our budget policy. I want to be secure in the
knowledge that our debt will continue to be reduced and that our
children and grandchildren will not have to shoulder the burden of our
recklessness. In addition, paying down the debt will result in one of
the best tax cuts we can provide to America's working families.
Reduction and elimination of the debt will ensure low interest rates
and a sound long-term economic future for the nation.
Furthermore, I believe we should use our current prosperity to
enhance those Federal programs relied upon by some of the most
vulnerable members of our society. First and foremost, of course, our
senior citizens, as well as younger generations looking toward their
eventual retirement, deserve to know that the Social Security system
will be strong and viable, whether they need it now or in 20 years.
Likewise, we must reform and strengthen Medicare, without slashing
benefits or increasing costs for seniors, and provide a prescription
drug component so that no one is forced to choose between medicine and
groceries or heat for their home.
We must also set aside a sufficient portion of the budget for other
critical needs, including reform of our elementary and secondary
education system, provision of the benefits and care America's veterans
have earned and deserve, and maintenance of a strong national defense
with soldiers who receive a fair wage for their service to our country.
As a former Rhode Island Secretary of State who presided over a
wholesale reform and modernization of the state's antiquated voting
system, I am also very concerned about electoral reform. Specifically,
I believe our budget must reflect the importance of this issue by
including sufficient funding to ensure every precinct in this country
is equipped with modern voting equipment that is reliable and
accessible to all voters. I will be working with many of my colleagues
to make progress on this issue well in advance of the next Federal
election. Knowing that there is a place in our budget framework for
meaningful action on electoral reform will make the road ahead much
smoother.
Finally, we all want to reward hard-working families by returning
some of their tax dollars, but this cannot come at the expense of our
nation's future fiscal stability. Therefore, I strongly recommend that
any tax relief supported by this Congress be phased in and be
contingent upon two important conditions. First, the reality of our
annual revenues must meet the expectations created by current
projections. Second, we must have a defined plan for paying down the
national debt, and the targets laid out in this plan must be met.
In other words, I support tax relief that is triggered only when
these two crucial goals are met. I would also favor a tax cut that is
limited to a certain percentage of the on-budget surplus, so that if
surpluses are lower than projected, we will not find ourselves trapped
by promises it is no longer responsible to keep.
These precautions will ensure that lower tax rates do not come at
the expense of fiscal discipline, and will encourage members eager to
give something back to their constituents to channel their energies
into a responsible course of debt reduction and long-term fiscal
responsibility.
Again, Mr. Chairman, thank you for allowing me to be a part of this
important discussion. There are many tough choices ahead, but I believe
that with cooperation and an eye toward operating within a responsible
framework, this Congress can develop a budget that will ensure
America's needs are met and hardworking taxpayers are given the relief
they deserve.
Mr. Sununu. With that, the committee is adjourned. Thank
you.
[The prepared statement of Congressman Simmons follows:]
Prepared Statement of Hon. Rob Simmons, a Representative in Congress
From the State of Connecticut
In addition to the priorities mentioned by freshman class president
Schrock, I would add the following items:
<bullet> A Federal prescription drug subsidy for State-based
programs.
<bullet> Getting military personnel off food stamps and improving
the quality of life.
<bullet> Prioritizing the disposal of our Nation's high-level
nuclear waste by allowing for its transport to a designated site at
Yucca Mountain.
In conclusion, I look forward to working with you and other members
of the committee on crafting a budget resolution that:
<bullet> provides tax relief for working families;
<bullet> strengthens our military and removes personnel from food
stamps;
<bullet> improves educational opportunities for all children;
<bullet> addresses the issue of nuclear waste;
<bullet> pays down the national debt; and
<bullet> protects Social Security and Medicare.
Thank you, Mr. Chairman for giving me the opportunity to address
the Budget Committee.
[Whereupon, at 12:40 p.m., the committee was adjourned.]
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