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| <title> - DEPARTMENT OF THE TREASURY BUDGET PRIORITIES FOR FISCAL YEAR 2002</title> | |
| <body><pre> | |
| [House Hearing, 107 Congress] | |
| [From the U.S. Government Publishing Office] | |
| DEPARTMENT OF THE TREASURY BUDGET PRIORITIES FOR FISCAL YEAR 2002 | |
| ======================================================================= | |
| HEARING | |
| before the | |
| COMMITTEE ON THE BUDGET | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SEVENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD IN WASHINGTON, DC, MARCH 1, 2001 | |
| __________ | |
| Serial No. 107-3 | |
| __________ | |
| Printed for the use of the Committee on the Budget | |
| Available on the Internet: http://www.access.gpo.gov/congress/house/ | |
| house04.html | |
| ----------- | |
| U.S. GOVERNMENT PRINTING OFFICE | |
| 70-618 WASHINGTON : 2001 | |
| _______________________________________________________________________ | |
| For sale by the Superintendent of Documents, U.S. Government Printing | |
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| 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 GERALD D. KLECZKA, Wisconsin | |
| GARY G. MILLER, California BOB CLEMENT, Tennessee | |
| PAT TOOMEY, Pennsylvania JAMES P. MORAN, Virginia | |
| WES WATKINS, Oklahoma DARLENE HOOLEY, Oregon | |
| DOC HASTINGS, Washington TAMMY BALDWIN, Wisconsin | |
| JOHN T. DOOLITTLE, California CAROLYN McCARTHY, New York | |
| ROB PORTMAN, Ohio DENNIS MOORE, Kansas | |
| RAY LaHOOD, Illinois JOSEPH M. HOEFFEL III, | |
| KAY GRANGER, Texas Pennsylvania | |
| EDWARD SCHROCK, Virginia RUSH D. HOLT, New Jersey | |
| JOHN CULBERSON, Texas JIM MATHESON, Utah | |
| HENRY E. BROWN, Jr., South Carolina | |
| ANDER CRENSHAW, Florida | |
| ADAM PUTNAM, Florida | |
| MARK KIRK, Illinois | |
| 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, March 1, 2001.................... 1 | |
| Statement of Hon. Paul H. O'Neill, Secretary, U.S. Department of | |
| the Treasury................................................... 1 | |
| Prepared statement of: | |
| Secretary O'Neill............................................ 2 | |
| DEPARTMENT OF THE TREASURY BUDGET PRIORITIES FOR FISCAL YEAR 2002 | |
| ---------- | |
| THURSDAY, MARCH 1, 2001 | |
| House of Representatives, | |
| Committee on the Budget, | |
| Washington, DC. | |
| The committee met, pursuant to call, at 3:05 p.m., in room | |
| 210, Cannon House Office Building, Hon. Jim Nussle (chairman of | |
| the committee) presiding. | |
| Members present: Representatives Nussle, Sununu, Bass, | |
| Gutknecht, Hilleary, Thornberry, Miller, Watkins, Culberson, | |
| Brown, Putnam, Spratt, Bentsen, Davis, Clayton, Price, Clement, | |
| Moran, Hooley, McCarthy, and Moore. | |
| Chairman Nussle. I call the committee back to order. This | |
| is the second half of hearings for today, full committee | |
| hearings on a blueprint for now beginning the President's | |
| budget for fiscal year 2002 through 2011. This morning, as we | |
| know, we heard from the President's Director of Office of | |
| Management and Budget, and this afternoon we have the | |
| opportunity to hear from the Secretary of the Treasury, the | |
| honorable Paul O'Neill. We welcome you, Mr. Secretary, to the | |
| committee. Your entire testimony will be part of the record and | |
| so you may summarize your testimony. | |
| I have no further opening that I would like to make. I | |
| would invite Mr. Spratt if he would like to make an opening. | |
| Mr. Spratt. Just quickly in order to say welcome to | |
| Secretary O'Neill and welcome to Washington as well. You come | |
| here from a very distinguished background in business and also | |
| from some distinguished experience in government. We are glad | |
| to see the Bush administration attracting people of your | |
| caliber and talents. I am sure in the next few years we will | |
| disagree on some things, but--probably in the next few minutes | |
| we will disagree on some things. Nevertheless, we are delighted | |
| to have you and glad to you see at your post. | |
| Chairman Nussle. Mr. Secretary, you may proceed. | |
| STATEMENT OF HON. PAUL H. O'NEILL, SECRETARY, UNITED STATES | |
| DEPARTMENT OF THE TREASURY | |
| Secretary O'Neill. Thank you, Mr. Chairman, Mr. Ranking | |
| Member, and distinguished Members of the Congress. It is a | |
| great pleasure to be here. I know you had a very long session | |
| this morning and my colleague Mr. Daniels, I am sure, told you | |
| everything that you wanted to know and responded fully to your | |
| questions. And I would be willing to bet you that he started | |
| with a quick summary of what it is the President has proposed, | |
| and rather than spend your time repeating again what I hope you | |
| all now know well from the President's remarks the other night, | |
| then your testimony from Mr. Daniels this morning, I am going | |
| to, with the Chair's permission, submit my prepared statement | |
| for the record and answer the questions that you have for me. | |
| [The prepared statement of Paul O'Neill follows:] | |
| PREPARED STATEMENT OF HON. PAUL H. O'NEILL, SECRETARY, U.S. DEPARTMENT | |
| OF THE TREASURY | |
| Good afternoon Chairman Nussle, Congressman Spratt, and members of | |
| the Committee. It's a pleasure to be here with you today. | |
| President Bush unveiled his budget this morning, and it is full of | |
| good news for the American people. First, it funds America's | |
| priorities, especially in education. Second, it walls off every dollar | |
| of the Social Security surplus and proposes Medicare reform to | |
| strengthen retirement security for every generation. And finally it | |
| reduces individual income taxes, to eliminate the structural | |
| overtaxation that has created a tax surplus today. | |
| There's no question that the numbers in the Federal budget are | |
| enormous. We are proposing $1.9 trillion in government spending for | |
| next year alone. For the next 10 years, total spending will be over $22 | |
| trillion. These are changes of an entire order of magnitude since the | |
| last time I served in Washington. In fact, this year's projected budget | |
| surplus of $281 billion is almost as large as the total on-budget | |
| government spending in my last year of service in Washington. That's | |
| evidence of how much our economy has grown, and how much Washington has | |
| grown. | |
| The Federal budget surplus is projected to be $5.6 trillion over | |
| the next 10 years. And this is a fairly conservative estimate, given | |
| that we've underestimated the surplus several years in a row now. Even | |
| after setting aside the Social Security surplus, there is plenty of | |
| room for a $1.6 trillion tax cut. The numbers are big, but the math is | |
| fairly simple: Start with the $5.6 trillion surplus, take away $2.6 | |
| trillion in Social Security surplus and $1.6 trillion for tax relief, | |
| and we are left with a $1.4 trillion cushion to address our | |
| priorities--beginning with Medicare reform, to service the debt, and to | |
| be prepared for unexpected needs. | |
| This is a fiscally prudent budget. Under this plan, we will pay off | |
| a large portion of the publicly held debt over the next 6 years. | |
| Washington ran deficits instead of surpluses for so long that no one | |
| gave much serious thought to the prospect of retiring our debt | |
| instruments before they mature. Only now, as we face the reality of | |
| rapidly mounting surpluses, are we confronted with serious questions | |
| about the potential impact of buying back the publicly held debt from a | |
| public that may not be willing to sell it all back early. | |
| The debt held by the public will amount to $3.2 trillion at the end | |
| of this year. Retirement funds, state and local governments and foreign | |
| investors all have come to rely on the security of U.S. Treasuries. It | |
| could be very costly--if not impossible--to retire all of those | |
| holdings prematurely. Moreover, there needs to be a replacement | |
| opportunity for them. Experts are already thinking about alternatives | |
| to Treasury Securities for use by the Federal Reserve and others, but | |
| these are novel concepts that will take time to put in place. | |
| In addition to systemic adjustment questions, there are cost | |
| questions related to paying off the entire publicly held debt. In | |
| testimony before the Senate Budget Committee, Fed Chairman Alan | |
| Greenspan explained it this way: ``some holders of long-term Treasury | |
| securities may be reluctant to give them up, especially those who | |
| highly value the risk-free status of those issues. Inducing such | |
| holders, including foreign holders, to willingly offer to sell their | |
| securities prior to maturing could require paying premiums that far | |
| exceed any realistic value of retiring the debt before maturity.'' | |
| Under the assumptions supporting the President's plan, we pay off | |
| all but this ``non-retireable'' debt by 2008. While we are paying off | |
| the retireable debt, the plan also increases spending on education next | |
| year by 11 percent, increases defense spending next year by $14 | |
| billion, and provides $661 billion in overall discretionary spending | |
| next year. Discretionary spending will increase by 4 percent, more than | |
| enough to account for inflation and address real needs. | |
| Some want to increase spending even further. We disagree. Instead | |
| of simply piling on new spending, we must be better stewards of the | |
| taxpayers' dollars. We have overlapping programs throughout the | |
| government with little or no information on how well they deliver | |
| services to the taxpayers. We need to find out where we are getting | |
| results and where we aren't, and adjust Federal spending accordingly. | |
| Once we've paid down the debt that can be retired, walled off | |
| Social Security funds where they can't be drained for other government | |
| spending, and increased spending for America's priorities, we face the | |
| question of how to use any additional surplus dollars. If they aren't | |
| returned to the taxpayers, they can only be spent in Washington, | |
| creating new government programs or buying up private assets. | |
| Government is big enough, and it has no business owning private | |
| companies. | |
| People make better decisions than government about how to spend | |
| their money. That's why we must eliminate structural overtaxation and | |
| let people keep more of what they earn. | |
| Today the Federal individual income tax burden is higher than at | |
| any other time in our nation's history. We have no business taking from | |
| taxpayers more than it costs to pay for agreed public purposes. | |
| The President has proposed tax relief that reinforces the values | |
| that make America great--opportunity, entrepreneurship, strong families | |
| and individual success. | |
| First, the President has proposed reducing income taxes for every | |
| American who pays income taxes. The current five rate system will be | |
| simplified to four rates, and the tax rate on the first $6,000 of | |
| taxable income earned by every American will fall from 15 to 10 | |
| percent. | |
| High income tax rates block access to the middle class for working | |
| Americans struggling to get ahead. And high income tax rates punish | |
| success. We must have a tax code that keeps the American Dream in | |
| everyone's reach and helps people move up the economic ladder of | |
| success. We must have a tax code that fosters entrepreneurship and does | |
| not penalize hard work. | |
| Cutting income tax rates is the most effective fiscal policy action | |
| we can take to put our economy back on the path of long-term economic | |
| growth. The best minds in this nation contain incredible knowledge and | |
| creativity. If we work together to unleash that potential, we can | |
| achieve permanent high rates of growth that will make all our other | |
| goals more achievable. | |
| The President's tax relief plan also strengthens the ties that hold | |
| families together. | |
| <bullet> It doubles the child tax credit to $1,000 per child. | |
| Parents everywhere have one goal above all others: to give their | |
| children the best possible opportunity for success and happiness in | |
| life. The increased child tax credit will give parents more resources | |
| to save for college tuition, pay for braces or hire a tutor. | |
| <bullet> This plan also reduces the unfair marriage penalty. We as | |
| a society celebrate when two people decide to spend their lives | |
| together. Why would our tax code punish them? | |
| <bullet> And this plan eliminates the unfair death tax. Government | |
| has no business confiscating the legacy parents work their entire lives | |
| to build for their children. | |
| This package is a pay raise for working Americans. Four-person | |
| families earning $35,000 a year will no longer bear any Federal income | |
| tax burden. Four-person families earning $45,000 will see their income | |
| taxes cut in half. And four-person families earning $75,000 will see | |
| their income tax burden reduced by 22 percent. | |
| The President's tax relief plan maintains the progressivity of our | |
| tax code--and, in fact, increases the share of Federal income taxes | |
| paid by upper-income taxpayers. In 1998, the top 10 percent of income | |
| earners paid 65 percent of Federal income taxes, while the bottom half | |
| of income earners paid 4.2 percent of the total Federal income tax | |
| burden. After implementing the President's tax relief plan, the top 10 | |
| percent of income earners will pay 66 percent of all Federal income | |
| taxes. The average family will keep $1,600 a year that they would | |
| otherwise have sent to Washington. That's enough for 2 monthly mortgage | |
| payments or for a year of junior college tuition. | |
| Taxpayers in the higher tax brackets are likely to invest their tax | |
| relief in the economy, creating jobs for all Americans. Small | |
| businesses are the engine of growth in our economy, and a majority of | |
| small businesses pay taxes under the individual income tax system. A | |
| small businessman receiving tax relief will plow that back into the | |
| firm, either to increase productivity, which results in higher wages, | |
| or to hire more workers. A farmer will be able to use his tax savings | |
| to trade in his old tractor and purchase the newest technology to | |
| improve his crop yield. America's economy will grow as these | |
| investments go forward. | |
| This tax relief package is sound fiscal and economic policy. It | |
| fits easily within our budget framework, leaving a $1.4 trillion | |
| cushion over the next 10 years to service the debt, to address | |
| priorities--beginning with Medicare reform, and to handle unexpected | |
| needs. I like to refer to it as the Goldilocks tax relief plan--not too | |
| big, not too small, just right. | |
| This budget strengthens the three platforms that make success and | |
| prosperity possible for all generations of Americans--improved | |
| education, fiscal responsibility, and tax fairness. I look forward to | |
| working with the members of this committee to implement these common | |
| sense budget priorities, so that America continues to lead the world | |
| toward greater freedom and opportunity. | |
| Thank you. | |
| Mr. Gutknecht [presiding]. Well, many of the taxpayers draw | |
| the reasonable conclusion that you have additional money on | |
| hand, or, if you have additional money on hand, you should | |
| first pay down debt. Could you talk a little bit about debt | |
| repayment? And all of a sudden we have a new item in our | |
| vernacular called ``recoverable debt.'' Could you explain that | |
| a little better for some of us? | |
| Secretary O'Neill. Yes, I would be very happy to. And you | |
| know, I know that we are going to have people in and out, and | |
| so I hope you will forgive me if what I do now I will do | |
| repeatedly to make sure that everyone understands a very | |
| important point about the answer to these questions. | |
| In the President's budget document, we have suggested to | |
| you that over the next 10 years we will repurchase $2 trillion | |
| worth of debt held by the public. And there are a set of | |
| assumptions included behind that $2 trillion recovery. And one | |
| of those assumptions is that there is a certain level of so- | |
| called unrecoverable debt. And what that number is, what that | |
| concept is, whatever the number may turn out to be, it | |
| represents debt that is held by the public that people do not | |
| want you to take back from them; and if you insist on retiring | |
| it early, they will charge you a very large premium to let you | |
| have it back. In addition to that, there is a savings bond | |
| program which we have assumed that, because it has served us so | |
| well as a learning device for children and many people use | |
| savings bond programs as a way to give birthday gifts and | |
| Christmas gifts to their children and grandchildren, that the | |
| savings bond program will stay in place. | |
| And the combination of those things one would not want to | |
| buy back because of the premium necessary to pay, and the | |
| savings program and debt held by some State and local | |
| governments. In the foreign governments, there is a so-called | |
| irreducible minimum of debt out there on the books. | |
| Now, the distinction I want to make is this: that what we | |
| do in fact at the Treasury on a day-to-day basis in managing | |
| the outstanding maturities across a 30-year time period is a | |
| very technically precise piece of business. And by giving you | |
| this document and this assumption that we are going to buy, the | |
| determination that we are going to buy back $2 trillion worth | |
| of debt, I am not telling you and I don't want you to think | |
| that we have therefore made a set of decisions about exactly | |
| how we are going to manage the cash and debt balances of the | |
| United States Government. | |
| The reason--you may not understand why I am doing this for | |
| you, but I learned yesterday, frankly to my surprise, that if I | |
| don't make that distinction, the financial markets think I am | |
| telling them something important and bond markets go into | |
| gyrations out there in the world where they spend all their | |
| time looking at CNBC. | |
| So I want you to understand in everything I am saying to | |
| you now and have said to you in the last 5 minutes, I have no | |
| intent of changing the policy of the United States Treasury | |
| about how we manage cash balances and lengths of maturities and | |
| the debt structure of the United States. | |
| Now, having said that and maybe coming to the follow-up | |
| question, over this period of time we will buy back all of the | |
| debt that it is possible and reasonable to do, funded by the | |
| $2.6 trillion worth of income that is going to come from Social | |
| Security contributions over this 10-year period. | |
| Mr. Gutknecht. But to get to the point that we were told | |
| early on by Mr. Greenspan, who is going to be here tomorrow, | |
| that there is a benefit for us buying down publicly held debt | |
| and that we should see relative--and then that is a term | |
| economists like to use a lot, relatively lower interest rates-- | |
| do you share that view? And ultimately what is the benefit to | |
| the average family living in my district or anybody's district | |
| here? | |
| Secretary O'Neill. I think it is true that as the Federal | |
| Government reduces debt held by the public, it means there is | |
| more money out there in the capital world that can be used by | |
| the private sector or even by State and local governments for | |
| investments to continue to improve productivity in the | |
| accumulation of income and wealth in our society. So by | |
| reducing the pressure on capital markets, by eliminating | |
| publicly held debt, arguably one would expect to see at any | |
| particular time, in a relative sense, a lower level of interest | |
| than what would otherwise exist. | |
| Mr. Gutknecht. Could you just briefly talk about what some | |
| people have suggested that eventually we may start looking at | |
| buying corporate instruments of one kind or another? Can you | |
| share with us your view on that? | |
| Secretary O'Neill. I think that it is a terrible idea. I | |
| know I share that view with Chairman Greenspan. And I have been | |
| asking in the few weeks that I have been here now with the | |
| President this, and that I guarantee you without any | |
| reservation that if any legislation ever passed that said we | |
| were going to use public money to purchase private enterprise, | |
| the President would veto it a hundred times. | |
| Mr. Gutknecht. You have a reputation as being a pretty | |
| conservative individual; and I don't mean that politically, but | |
| career conservative in your views. You have every confidence | |
| that there is room within the budget framework that the | |
| President has submitted to meet the legitimate needs of the | |
| Federal Government, to actually pay down or recover all of the | |
| recoverable debt in the next 10 years and make more than enough | |
| room for a $1.6 trillion worth of tax relief, do you not? | |
| Secretary O'Neill. I have absolutely no doubt. | |
| Mr. Gutknecht. Well, listen I will yield to Mr. Spratt. | |
| Thank you. | |
| Mr. Spratt. Thank you very much. Mr. Secretary, let me show | |
| you a chart this morning that we used with Mitchell Daniels and | |
| show you what our concern is, bona fide concern and a point of | |
| disagreement with the administration about the budget. All of | |
| the numbers on this chart are taken from the budget booklet | |
| that has been sent to us by OMB, and Mr. Cohen just gave you a | |
| copy of the chart itself. We start with the total unified | |
| surplus which is 5 trillion 644 billion dollars. That is 34 | |
| billion more than CBO estimated a few weeks ago. | |
| We deduct from that both the Social Security Trust Fund, | |
| which I think you would agree with, and the Medicare HI Trust | |
| Fund, and we do that for a particular reason. Both houses, both | |
| parties, over the last 2 years have basically come to the | |
| understanding that we will set these two accounts aside and | |
| allow the surpluses building up in these accounts to be used | |
| solely for the purchase of outstanding debt, not to buy new | |
| Treasury specials and fund new spending, but to buy up old | |
| debt. And that is the engine that drives the whole debt buyback | |
| plan. I understand that down the road we have got a problem | |
| when we run out of debt that can be bought and redeemed, but | |
| nevertheless, our idea was to set both of these aside. And we | |
| felt that that was the single best way to build down the debt. | |
| And Greenspan last year heartily endorsed it, saying in the | |
| long run if we do that we probably should get some kind of | |
| reduction in the long bond rate. That would be one of the | |
| rewards we would reap if we religiously pursued this. That | |
| gives you an available surplus, if you back up those two trust | |
| funds, of 2 trillion 52 billion dollars available for tax cuts, | |
| available for spending increases. Your tax cut comes to a total | |
| of 1 trillion 620 million dollars, your estimate. We are adding | |
| to that the cost of extenders and the cost of a minimal fix to | |
| the alternative minimum tax. | |
| Now, this could be a proxy for any tax exchanges that might | |
| be made in the next 10 years. I dare say this doesn't begin to | |
| exhaust the likely realm of tax proposals that would be passed. | |
| For example, Portman-Cardin is not included in your bill. Most | |
| of the people in this room, most of the people in the House, | |
| voted for it when it came up last year. If it were offered | |
| again, that would pass again. That would be $68 billion in lost | |
| revenues over 10 years. | |
| In any event, we think the fix on the AMT is not only | |
| politically very, very likely, but we have estimated it at a | |
| very low cost. We have also given you credit for the fact that | |
| you are extending permanently the R&D tax credit. That is about | |
| 40 percent of the expiring tax provisions, but we think there | |
| is at least another 50 or $60 billion of likely extenders | |
| amongst the expiring tax provision. So that is $300 billion. | |
| Finally the Bush budget itself acknowledges that if you use | |
| 1 trillion 620 billion dollars for tax reduction instead of | |
| debt reduction, that there is an associated debt service cost | |
| of $400 billion. When we subtract those three things, we come | |
| down to a residual of $207 billion to be spread over 10 years. | |
| Now, we also ask--do you agree with those numbers? | |
| Secretary O'Neill. No, I don't, but go ahead. | |
| Mr. Spratt. Well, let's start with where you disagree. You | |
| don't disagree with the numbers as such, I take it. | |
| Secretary O'Neill. I don't disagree with the numbers on the | |
| right-hand side. But I think this is a confusion of concepts. | |
| Because, maybe I can explain this by--let's focus on the | |
| Medicare HI Trust Fund surplus. What that means is an amount of | |
| money, given the way the current Medicare program is structured | |
| into A and B with the changes that were made a few years ago to | |
| create the illusion of a surplus, we have got an estimate that | |
| we are going to have $526 billion, over this 10-year period of | |
| Medicare buildup, surplus; right? Now, what is it that we are | |
| going to do with this money? | |
| Mr. Spratt. We are going to leave it in that trust fund. | |
| Secretary O'Neill. No, we are not really. What we are going | |
| to do with it is--now I am moving from program identification | |
| to how we actually manage the country's cash. And it is to the | |
| point that was raised earlier about how much debt are we going | |
| to buy back in the next few years. We are going to buy back $2 | |
| trillion. | |
| And we are going to buy back less than the 2.6 trillion of | |
| the Social Security fund surplus by itself for the reason that | |
| I was giving technically before. And the same is true of the | |
| Medicare HI Trust Fund. So we are going to have all this money | |
| flowing at us. And we are going to use it, to the degree we | |
| can, to buy back debt held by the public. But what we are going | |
| to do with the rest of it is, we are going to create an | |
| obligation going forward to Medicare Trust Fund beneficiaries | |
| and to Social Security Trust Fund beneficiaries. | |
| So the way you have got your numbers constructed, you are | |
| really kind of in between an income sheet, the balance sheet, | |
| to use a private sector metaphor for how to talk about these | |
| numbers. So the reason we have got a difference of opinion with | |
| you and with your friends in the Senate as well--I saw this | |
| same kind of rough chart this morning in the Senate--is because | |
| of the mixture of concepts. | |
| And what I would say to you is we can stipulate and we both | |
| agree the top line budget surplus number over 10 years is 5.6 | |
| trillion, no problem with that. The amount that is going to be | |
| spent, with no doubt, for Social Security, is going to be | |
| reserved for Social Security, is 2.6. And of that, as much of | |
| it as possible is going to be used to pay down the debt. 1.6 | |
| trillion, we are proposing give it back to the people or not | |
| ever collect it from the people. And in our mathematics, that | |
| leaves 1.4 trillion. | |
| And out of that $1.4 trillion, I would stipulate what you | |
| have got there for additional interest payments on the debt of | |
| $400 billion, leaving us with a contingency reserve of $1 | |
| trillion. I think these numbers, our numbers, do not confuse | |
| cash management and trust fund concepts. And I think they are | |
| the appropriate way to look at what it is we propose to you. | |
| Mr. Spratt. If you want to convert these books to the way | |
| that Alcoa kept its books, they would look radically different. | |
| We would have accrual accounting. | |
| Secretary O'Neill. We would have a $10 trillion unfunded | |
| obligation, which we are going to solve--as soon as we get done | |
| with this, we are going to come back and work with you to get | |
| Social Security finally fixed. | |
| Mr. Spratt. Well, my problem is, then, if that is true, | |
| then obviously the amount that is accumulating in the Social | |
| Security Trust Fund is not adequate either. | |
| Secretary O'Neill. No, we know that. | |
| Mr. Spratt. You are a trustee of the Social Security Trust | |
| Fund. What we are doing here is not just some convention we | |
| have arrived at in the Congress. We have not just colloquially | |
| given this names. This is black letter law. We call it a trust | |
| fund. We tell people if you pay your payroll taxes it will go | |
| into a, quote, trust fund. We have got trustees, the highest | |
| officers of the Cabinet, who sit in trust. Do you think you are | |
| free as a trustee to spend that money on other purposes? | |
| Secretary O'Neill. No, we are not going to spend it on | |
| other purposes. We are always going to have that obligation | |
| that is associated with that. But in effect what we are doing | |
| is we are defeasing the Federal debt so that when these | |
| obligations come due we will either have fixed the program, | |
| which is my preference, or we will have the debt capacity. In | |
| the context now of how a private sector company works, it is | |
| not unusual to have a balance sheet with 30 or 40 percent debt. | |
| Over this period of time, what the President has | |
| recommended is we drive the debt down to zero effectively, so | |
| that when the bills come due, and they will come due, either we | |
| will have fixed the program or we will have the debt capacity | |
| to borrow the money to effectively discharge the obligations | |
| that we promised to the American people. | |
| Mr. Spratt. So when the trustees for the Social Security | |
| Administration come to the window at the Treasury, you are | |
| better able to pay them than ever before. | |
| Secretary O'Neill. Absolutely. | |
| Mr. Spratt. That is something that we want to do and sought | |
| to do by this very device. That is, dedicating the trust fund | |
| solely to that purpose. I know you hit the wall somewhere. We | |
| can argue about how much debt you can buy back and how much | |
| cash, somewhat judgmental. But we would like to set a target of | |
| 2008--that is the year the baby boomers first begin to retire-- | |
| and hope that we would use this money for Social Security | |
| reform and long-term solvency, and the same with Medicare. In | |
| that event you really wouldn't--you wouldn't have excess funds | |
| before 2008. You probably would have enough debt that you could | |
| buy up that would occupy these two programs. | |
| Secretary O'Neill. We will see. I don't know. Now you are | |
| back into cash management. I don't know. But I think the last | |
| part of what you said, I agree with you. That is what we need | |
| to try to do. | |
| Mr. Spratt. What happens to the---- | |
| Secretary O'Neill. Excuse me. I am sorry. I didn't quite | |
| finish my answer. The alternative to doing what I am saying to | |
| you I think we should do is for the Federal Government to start | |
| buying Alcoa and IBM and becoming, in effect, an owner of the | |
| private sector, which we really think is a terrible idea. | |
| Mr. Spratt. I understand your concerns about that. You know | |
| Mr. Greenspan's pension plan at the Federal Reserve is two | |
| thirds invested in equity. So we are already into that to some | |
| extent, and the Thrift Savings Plan owns about $100 billion in | |
| equities, too. | |
| But in any event we looked at that and said, where does the | |
| trillion dollars come from, the contingency fund? The only | |
| providence we could find for the so-called contingency fund of | |
| the $527 billion--the $591 billion in Social Security that | |
| can't be used for debt reduction or the $526 billion in the | |
| Medicare Trust Fund which is not going to be treated as a trust | |
| fund, or, of course, the $207 billion; where do you get $1 | |
| trillion? | |
| Secretary O'Neill. If you would like, I could go through it | |
| again. I will stipulate to 5.6. I will stipulate that 2.6 for | |
| Social Security. And then I will say again, $1.6 trillion for | |
| tax relief. And if I give you the $400 billion, that is easy to | |
| give these big numbers away, $400 billion for debt relief, I | |
| have got a trillion left. | |
| Mr. Spratt. You are taking out the $300 million for the AMT | |
| fix and extenders? | |
| Secretary O'Neill. No. No. No. I am leaving that for you, | |
| if that is something you want. I have not provided for things | |
| that you may want to do. And I don't deny that. You certainly | |
| have a right to do other things than what we have recommended. | |
| But that doesn't affect my number. I mean, you may end up | |
| affecting the numbers we are proposing as policy, but it | |
| doesn't affect the way we put the numbers together. So that if | |
| you would like to spend $300 billion on extenders and fixing a | |
| problem that has been in the Tax Code for I don't know how many | |
| years, 20 years, in addition to what we proposed, that is | |
| certainly something you can do. It is not what we propose to | |
| do. | |
| Mr. Spratt. Well, so you are not going to spot us the $300 | |
| billion, that would be our optional money to use it for that | |
| purpose. | |
| Secretary O'Neill. Well, if you are saying you want to | |
| spend 300 of my trillion that way, that is your right. | |
| Mr. Spratt. I am trying to understand how you start from | |
| 207 and get to a trillion. | |
| Secretary O'Neill. I never get to 207. I never get to 207. | |
| Mr. Spratt. I am stipulating the 207, that is the residual. | |
| What else--is the Medicare Trust Fund added into the | |
| contingency? | |
| Secretary O'Neill. No. No. | |
| Mr. Spratt. How do you get to $1 trillion? Would you tell | |
| us the components again? | |
| Secretary O'Neill. I will indeed. 5.6 is a number we both | |
| agree with. Everyone agrees 5.6; the CBO, the blue chip | |
| economists, everybody downtown. 2.6 for Social Security. 1.6 | |
| for tax relief or tax refund, as the President characterized it | |
| the other night, and that leaves a residual of 1.4. And I am | |
| willing to say to you, fine, we have included in our 1.4, in | |
| fact we have labeled it for debt and other contingencies, so we | |
| have got $1 trillion left out of $5.6 trillion. | |
| Mr. Spratt. But it includes Medicare. | |
| Secretary O'Neill. Again, we are confusing concepts and | |
| what we are going to do. Every dollar that comes in for | |
| Medicare and for Social Security will ultimately be spent only | |
| for those purposes. Only for those purposes. But by the best | |
| estimates that exist, this says that the Medicare Trust Fund, I | |
| must say to you only because of the way it is structured, not | |
| because of the way real life is, because real life Medicare is | |
| A and B--this is, you know, excuse me for saying so, but this | |
| is another fiction. You know, the SEC would have assaulted me | |
| if I had done this in my Alcoa books. | |
| Mr. Spratt. As these dollars come into both those trust | |
| accounts, they are surplus to the immediate needs of the | |
| program so they have to be invested in something. | |
| Secretary O'Neill. They either have to be invested or they | |
| have to be used, but with a use that doesn't endanger their | |
| availability as an obligation of the United States Government | |
| when the flow of funds is required. | |
| Mr. Spratt. Right. So if they were used for something else, | |
| we would still stand liable for the benefit. | |
| Secretary O'Neill. We would still have the liability, there | |
| is no doubt about that. And the limit on how far we can go in | |
| using surplus funds is, in a theoretical sense, zero. I think | |
| we have agreed that it is some number higher than zero. But the | |
| obligations don't go away. | |
| Mr. Spratt. I understand that. That is why I am concerned | |
| about securing the obligations, why we advance-funded | |
| particularly the Social Security fund beginning with the | |
| Greenspan Commission's recommendations in 1983. | |
| Let me turn to a different subject before I yield to other | |
| witnesses, and ask you about the estimates of the revenue | |
| consequences of your proposed tax reduction bill. In the budget | |
| that was presented just yesterday, the estimated cost for | |
| creating the 10 percent bracket, the new 10 percent bracket, is | |
| $275 billion for the years--first 5 years, 2002 through 2006. | |
| Last year when the Joint Committee on Taxation scored the | |
| bill, the proposal, the same recut was included and they | |
| assigned a cost, a revenue cost to it of $358 billion. What is | |
| the difference between this estimate and the JCT estimate? | |
| Secretary O'Neill. I have no idea. I have not seen the | |
| reconciliation of those numbers. Although when these things | |
| were done a year ago, we were in very different circumstances | |
| in terms of where our economy was and the rest of it. I just | |
| don't know. | |
| Mr. Spratt. That is this year's estimate. | |
| Secretary O'Neill. You know, I would happy to get you a | |
| reconciliation. I don't have those numbers in front of me, but | |
| we should be able to cross off the numbers so there is no | |
| difference of opinion. | |
| [The information referred to follows:] | |
| RESPONSE TO TAX RATE QUESTION SUBMITTED BY MR. SPRATT CONCERNING THE | |
| DEPARTMENT OF TREASURY ESTIMATE AND THE JOINT COMMITTEE ON TAXATION | |
| ESTIMATE | |
| I am not familiar with the estimates cited. However, for the FY | |
| 2002-FY 2006 period in question, the Department of the Treasury and the | |
| JCT estimate the revenue loss associated with the proposed creation of | |
| the new 10 percent marginal tax rate bracket at $108.7 billion and | |
| $108.4 billion, respectively. | |
| Mr. Spratt. The estimate for the cost of repealing the | |
| estate tax is also smaller than the JCT. If you could also | |
| provide us answers for the records. | |
| [The information referred to follows:] | |
| RESPONSE TO ESTATE TAX QUESTION SUBMITTED BY MR. SPRATT CONCERNING THE | |
| DEPARTMENT OF TREASURY ESTIMATE AND THE JOINT COMMITTEE ON TAXATION | |
| ESTIMATE | |
| The Department of the Treasury and the JCT estimate the revenue | |
| loss associated with the phase-out and repeal of the estate and gift | |
| tax at $271.5 billion and $305.9 billion, respectively. Given the | |
| technical complexity of preparing this estimate, and the many issues | |
| and interactions that must be considered, the estimates are | |
| surprisingly close. Factors that may contribute to the estimating | |
| difference include: 1) differences in the baseline forecasts of estate | |
| and gift tax revenue, 2) differences in estimates of taxpayer behavior | |
| with respect to charitable giving and the realizing of capital gains | |
| and 3) differences in estimates of possible increased tax avoidance | |
| activity. | |
| Secretary O'Neill. I would be glad to do that, sir. | |
| Mr. Gutknecht. The gentleman from Tennessee, Mr. Hilleary. | |
| Mr. Hilleary. Thank you, Mr. Chairman. Thank you, Mr. | |
| Secretary, for coming and testifying today. I just had a quick | |
| question. I am from Tennessee and that is one of the few, | |
| handful of States, maybe seven or eight in the country, that | |
| don't have a State income tax. And State income taxes, local | |
| taxes, income taxes, are deductible off of Federal taxes. Sales | |
| taxes are not, which is where we get most of our revenue in | |
| Tennessee. It seems like a bit of an inequitable situation for | |
| those folks who live in those eight States. I was just curious | |
| if there was anything on the horizon from the Bush | |
| administration's standpoint to correct that inequity. | |
| Secretary O'Neill. Well, I will probably get in trouble for | |
| telling you my answer to your question, but I will tell you | |
| anyway. I think it is essential that we move ahead with what | |
| the President has recommended with his first tax bill, and I | |
| understand even today there is action going on here in the | |
| House. As soon as we are done with that, the President has | |
| determined that I am going to do everything I can to help him | |
| to come back with Social Security reform that will finally fix | |
| a problem that we have known about for 25 years and have not | |
| solved. And then I hope we will be back here with a full- | |
| fledged recommendation as to how we completely reform the U.S. | |
| Tax Code so that we get rid of all the awful things that we | |
| have cobbled together over the last 225 years, because it is a | |
| monstrosity. | |
| When I left, the Tax Code was maybe 4,000 pages. Today it | |
| is 9,500 pages. It is just unbelievable what we have done to | |
| ourselves. You know, I have to say to you, some of the things, | |
| including some of the things that we have got recommendations | |
| here, are more Tax Code things. I would hope we could see our | |
| way in the not-too-distant future to work with you all to do | |
| what every citizen I have ever met in the United States that is | |
| interested in talking about the Tax Code, they all think it is | |
| an abomination, you could all get reelected, 100 percent votes, | |
| if we could really fix the U.S. Tax Code. | |
| So I hope we are going back here not just to fix this issue | |
| of what is deductible and what is not deductible, to really | |
| clean it up. | |
| Mr. Hilleary. So what you are saying is this year you are | |
| going to concentrate on the big items the President talked | |
| about in the campaign, that he is talking about now. There is | |
| probably not enough room there with what you all are doing | |
| right now to consider something like that change. But possibly | |
| in the future it would be among other proposals to help improve | |
| the Tax Code. | |
| Secretary O'Neill. I sure hope so. You know, if you all | |
| could do--if the Senate could do this tax cut, as apparently | |
| you all are going to do this, we could get it all done real | |
| quickly. We could do Social Security by the 4th of July and | |
| have the rest of the year to work on other things. | |
| Mr. Hilleary. Thank you Mr. Secretary. | |
| Mr. Gutknecht. I think if you can guarantee 100 percent | |
| reelection, you will get strong support from us. | |
| Gentleman from Texas, Mr. Bentsen. | |
| Mr. Bentsen. Thank you, Mr. Chairman. Mr. Secretary, I | |
| guess I have a few questions for you. I want to go back to your | |
| comparison to income statements and balance sheets. Obviously | |
| you have a distinguished career in business. But on your last | |
| comment it does strike me as a little surprising given that I | |
| wouldn't expect Alcoa or any other Fortune 500 company to | |
| necessarily declare a dividend prior to finalizing their income | |
| statement or their balance sheet or their 10K or 10Q and pay | |
| out that dividend until they knew what their real future | |
| expenditures were going to be. | |
| But the House, quite frankly, is on the path to do so, and | |
| you seem to endorse that concept. The previous speaker said it | |
| was beyond your control, you being the administration. And you | |
| are arguing that the House ought to do it and the Senate ought | |
| to do it. That doesn't seem to be prudent planning in my | |
| opinion. | |
| I also want to talk about this concept of the trust funds. | |
| I think first of all what you all have put forth in your budget | |
| blueprint with respect to the Medicare Trust Fund is quite | |
| crafty, but it does not track current law, and it would require | |
| a substantial change in the law. Virtually every Member of the | |
| House is on record for voting to set aside that half trillion | |
| dollar Part A Hospital Insurance Trust Fund. And those funds | |
| are obligated. | |
| To take obligated funds out and spend them on other | |
| programs, or an expansion or change of the Medicare program, | |
| without conforming changes in benefit cuts or payroll tax | |
| increases or more debt, would only exacerbate that unfunded | |
| liability. I don't see how you can get around that, because | |
| those funds are already committed under the law to future | |
| retirees. Now, the only way to correct that is get around it. | |
| The same is true in your budget blueprint. You talk about | |
| using some of the projected Social Security Trust--I assume | |
| that which is not used to pay down debt--for reform of the | |
| system. Now, as I said before, everybody who has come before | |
| this committee to testify on Social Security reform, from the | |
| right to the left, has said whether you go to private accounts | |
| or not, including Martin Feldstein who has advised the | |
| President on his proposal to go to individual accounts, has | |
| said it takes an outside capital infusion. | |
| You cannot count that $600 billion or any of the projected | |
| surplus against outside capital. Those are already encumbered | |
| funds. But it would appear that is what the administration is | |
| proposing; or if not, it needs to be clarified, because you | |
| cannot double-count those funds. I would like you to comment on | |
| that. | |
| I would also like you to comment on your assumptions, | |
| because what I am concerned about, in your statement you talk | |
| about the era of deficits and how we finally got out of it. One | |
| of the ways that we got into the era of deficits was the fact | |
| that the Reagan administration sent a budget up that had all | |
| its goodies up front in terms of the tax cuts and had its new | |
| spending commitments that it wanted to make. This new | |
| administration has its spending commitments as well, in defense | |
| and education and some to come later. And it has assumptions | |
| that we will have a budget that stays flat, with only an | |
| adjustment for inflation on the discretionary side. In fact, a | |
| real decrease on the nondefense discretionary side, and has | |
| reductions in programs like the Export-Import bank, while I | |
| don't know whether Alcoa ever used Ex-Im Bank for it, but | |
| others certainly--Halliburton did down in Texas, and GE and | |
| others--and maybe we will cut that, although I am skeptical of | |
| that--has reductions that I am not sure Congress, Republicans | |
| or Democrats will go along with. That is what happened back in | |
| part in 1981. | |
| And for the record, I would remind my colleagues, in 1981-- | |
| and I was in college at the time--but in 1981 the Republicans | |
| controlled the Senate and they controlled the White House. So | |
| it wasn't the Democrats in Congress who made this happen. The | |
| Republicans had two-thirds of the lever. | |
| But I would like you to address those two points. Where are | |
| you not double-counting? | |
| And the third thing I would say is, you have in your budget | |
| $1.2 trillion in unexpended balances. Where are those monies | |
| going or what are your plans for those monies? And, finally, | |
| why not, if you have excess dollars and you can't retire $1 | |
| trillion worth of debt, why not decrease the debt? Rather than | |
| sit on cash, why not buy securities and decrease the debt? | |
| Secretary O'Neill. OK. There are a whole lot of questions | |
| in there. Let me begin with the issue of whether or not it is | |
| prudent to make an investment in our economy with the tax | |
| reduction the President has proposed. I would say to you, if it | |
| was a close call, that we should wait and deliberate and have | |
| even less conversations. But with a prospect of a 10-year | |
| unified surplus estimate of $5.6 trillion, it doesn't seem to | |
| me imprudent to say that we are--take $1.6 trillion of it and, | |
| with some comfort and assurance, say that is going to be OK. | |
| I have been asked as I have been testifying, well, I bet | |
| you never made a 10-year commitment when you were in the | |
| private sector. You know, the truth of the matter is in the | |
| business I was in before I came back here, the decisions I | |
| made, often multibillion decisions, were for 50 years. Believe | |
| me, when you decide you are going to build an aluminum smelter | |
| or a refinery in the U.S. or Australia or Brazil, you don't get | |
| to take it back after 12 months because it is somehow | |
| inconvenient or you decide you made a bum decision. You have | |
| got to make a decision that is based on an assessment of what | |
| your competitive potential is and long-term capital rates and | |
| Federal spending and all the rest of that. | |
| So it does not seem to me a unique idea that we need to | |
| make decisions that have long-term consequences. I would say in | |
| some ways this is not a long-term decision, because if you | |
| decide you hate the tax reductions in a couple of years, there | |
| has been some demonstration in the last 20 years that it is | |
| possible for Congress to raise taxes. I hope that is not the | |
| case. But in any event, I don't think you should be troubled by | |
| the idea of making an important decision that has lasting | |
| consequences. | |
| I don't think it is probably worth while to spend a lot of | |
| time on history. As I think was mentioned, I was here for 15 | |
| years before I went into the private sector. And when I left, I | |
| was a deputy director of OMB, and I cared a lot about what the | |
| status of our fiscal affairs were, and I didn't stop paying | |
| attention after I left; because in 1969, I helped to write the | |
| last budget that was in balance until those of the last few | |
| years, and then we went down the drain. We went down the drain | |
| unbelievably. And I was watching what was going on in 1981. | |
| As a matter of fact, I think my memory is probably right, | |
| on page 27 of the March--I forget what date--March 1981 budget | |
| document that was sent to the Hill, there were recommendations | |
| for tax cuts, and there were also recommendations for $42 | |
| billion worth of unidentified spending cuts. There were no big | |
| spending increasing in the Reagan budget. | |
| The reason we went in the dumper is because we passed the | |
| tax cuts and we never ever did anything about spending cuts. In | |
| fact, during the period of the eighties, we had revenue go up | |
| double and spending tripled. So just to make sure, I think you | |
| will find, if you examine the history, that my version is | |
| correct. | |
| Mr. Bentsen. There were no defense increases in the 1981 | |
| Reagan budget? | |
| Secretary O'Neill. I don't think so. The numbers that were | |
| suggested that were going to be attained were not budget- | |
| busting numbers, because there was an assumption that spending | |
| cuts would be identified, and they were never identified. And I | |
| don't think we are in that condition now. As a matter of fact, | |
| the budget that we have in front of you would provide for over | |
| the next 10-year period, over a 10-year annualization from | |
| 2001, $5.2 trillion worth of cumulative new spending. Again, | |
| you know much to my amazement, it has been a long time since I | |
| was here, we don't down the stuff that is associated with an | |
| assumption of a 3 or 4 percent increase year to year. As | |
| spending increases, we say that is inflation adjusted. I have | |
| got to tell you, that isn't the way we do it in the private | |
| sector or we would all be dead in the water. | |
| And so, you know, I don't think the $5.2 trillion worth of | |
| additional spending ought to just be blue smoke and then we | |
| start spending on top what we are going to give ourselves a | |
| free ride for, as though somehow inflation is an excuse to have | |
| a lot more absolute spending. | |
| Mr. Bentsen. The point is that you run a flat-line | |
| discretionary budget with inflation adjustments. But at the | |
| same time, as best I can tell from your numbers you are | |
| proposing, at least initially, dramatic increases in education | |
| and defense, probably very popular. Then you have other ideas | |
| behind that, that you haven't laid out yet in your budget over | |
| the 10-year period. | |
| The only way you can do that within the cap that you set is | |
| to propose decreases in other parts of the budget to stay | |
| within that band. But the fact is, you lay out certain | |
| decreases that I think you know and the administration knows | |
| that Congress probably isn't going to accept. So how do you | |
| make up for that? | |
| Mr. Gutknecht. Mr. Bentsen, let me just interrupt. The | |
| gentleman's time has expired. I don't know if it is fair to | |
| sort of presume what the administration may do in next year's | |
| budget or the subsequent budgets. I think we have to deal with | |
| the numbers in the budget that is before us now. | |
| We will have time if possible for another round. I would | |
| yield to the gentleman from New Hampshire, Mr. Sununu. | |
| Mr. Sununu. Thank you very much. Thank you for being here, | |
| Mr. Secretary. When you were working for Alcoa, they paid | |
| dividends to their shareholders. | |
| Secretary O'Neill. Yes, indeed. | |
| Mr. Sununu. Did they ever pay dividends when they had long- | |
| term debt on the books? | |
| Secretary O'Neill. Of course. | |
| Mr. Sununu. No one thought it was fiscally irresponsible? | |
| Secretary O'Neill. No, they loved it. They drove the stock | |
| up 800 percent in the time I was there. | |
| Mr. Sununu. Does it jeopardize the overall health of the | |
| company? | |
| Secretary O'Neill. No. | |
| Mr. Sununu. I just make that point because I think it | |
| stands to reason that, you know, within the bounds of good | |
| fiscal management, we can make decisions not on either end of | |
| the extreme, but that retains the appropriate level of | |
| reserves, the appropriate level of debt even in the long term, | |
| meets all of our commitments, even reduces the level of that | |
| debt steadily over time, but still returns something back to | |
| shareholders in that particular case, or taxpayers. | |
| I would also offer for your edification comments made by | |
| Director Daniels today which I think bear repeating. And that | |
| is, too often we get into a situation where the taxpayers come | |
| last, where it is every program, every spending increase that | |
| is desired, every other opportunity to use the revenues that | |
| are coming into the Federal Treasury, and then maybe at the end | |
| of that process, last in line, we might think about taxpayers. | |
| And I think this is an opportunity with this budget that has | |
| been put together to maybe think about the taxpayers, not even | |
| necessarily first, but certainly not put them at the end of the | |
| line. | |
| It was also mentioned earlier that it seemed abnormal, or | |
| maybe to be an analogy for some of the discussion on Social | |
| Security reform, that the Federal Reserve had a pension that | |
| bought equities. And I would just remind everyone that the | |
| Federal Reserve is a private organization and they are managing | |
| a pension which is a defined contribution system, not a pay-as- | |
| you-go system certainly, and not even a defined benefit system. | |
| And that is very much in essence in keeping with some of the | |
| proposals that have been put out there, some of the ideas put | |
| forth by President Bush and others, to allow Americans to take | |
| a portion of what they pay in Social Security taxes every week | |
| out of their paycheck. | |
| It was pointed out by Ms. Clayton earlier on, I think, that | |
| there is an enormous burden for lower-income workers. Why not | |
| allow those people to control a portion of that in something | |
| more akin to a defined contribution system, where they control | |
| it, they earn a higher return, it represents real wealth that | |
| they are building and can pass it on to their family and can | |
| draw on that wealth when they retire. | |
| Third, let me make a point in response to some of the ideas | |
| that were put out, and then I would like to hear your comments | |
| about this in particular. There has been a lot of accounting | |
| and different numbers, but at the end of the day, assuming that | |
| Mr. Spratt doesn't advocate too forcefully for a reconciliation | |
| figure of $1.9 trillion and is willing to agree to the | |
| President's level of $1.6 trillion, adding to that the | |
| additional funds that have been set aside, the reserve that the | |
| President has created is about $1 trillion. I think we can at | |
| least agree on that number. And it has been put forward, | |
| advanced, that that is somehow fiscally irresponsible to be | |
| creating that reserve, one. Two, that there is something very | |
| problematic that we are not--the administration isn't trying to | |
| spend that reserve, that they are claiming that it is set | |
| aside, and most recently mentioned that you are not trying to | |
| pay down debt or buy back Treasury securities that haven't | |
| matured yet. Now the reason for not doing that is because the | |
| premiums are estimated to be about $125 billion, an additional | |
| cost to the taxpayer if we try to do that. | |
| I think it is fiscally responsible to create a reserve. No | |
| one tried to do it in the previous administration, no one tried | |
| to do it in the Bush administration, no one tried to do it in | |
| the Reagan administration. It is a wonderful opportunity to | |
| build in a natural buffer against unforeseen events. | |
| Could you talk a little bit about the thinking that went | |
| into creating that buffer and also talk a little bit about the | |
| size of this tax relief package in comparison to those that | |
| were advanced, quite successfully, under the Kennedy | |
| administration and under the Reagan administration in 1960 and | |
| 1981? | |
| Secretary O'Neill. To the point of your last question, what | |
| is recommended by President Bush is much smaller than what | |
| either Presidents Kennedy or Reagan recommended and ultimately | |
| got enacted in their times. And, you know, I think there is no | |
| doubt this is prudent. And one of the things that we tried to | |
| do, to make sure that everyone can see that it is prudent, is | |
| to establish this so-called debt service and contingency fund, | |
| so that it is not as though we are spending the last dollar | |
| that is going to come into the Federal Government right up to | |
| the wall so that we don't have an ability to deal with the down | |
| side of an economy that is possibly weaker than what everyone | |
| expects it to be. | |
| In fact, one of the things, if you look back at the last | |
| few years, it is true--and my friend Alan Greenspan said he | |
| thinks that because we still don't fully understand the | |
| importance and the driving force associated with productivity | |
| growth that is taking place in our economy--that for the last 3 | |
| or 4 years we have been systematically underestimating the | |
| amount of revenue that is going to be produced by our tax | |
| system. | |
| In fact in the first 4 months of this year, the Treasury | |
| has collected a surplus of $74 billion, which is $30 billion | |
| more than we collected last year when the economy was running | |
| at a 5 percent growth rate. And so we are still taking up | |
| enormous surpluses of funds. And, frankly, it does make sense | |
| to give that money back or not take it in while we are in this | |
| lull in the economy. | |
| Mr. Sununu. There has been a lot of frustration expressed | |
| about some of these time horizons we have in the budget, that | |
| it is at 10 years. And my preference would be not for looking | |
| out 10 or 20 years, or at least talking in the budget in those | |
| terms because these numbers are so enormous, to focus instead, | |
| if you will, on the next 5 years, a little bit more | |
| predictable. In particular, talk about the debt retirement that | |
| is projected just for the next 5 years, with a quick decision | |
| of the budget presentation here that the total debt retirement | |
| over the next 5 years will be between $1.2 and $1.4 trillion. | |
| Now, that seems to me to mean that we will have to retire | |
| every Treasury note that has a maturity between 1 and 5 years, | |
| and it would certainly put a lot of pressure on even the | |
| shortest term securities, the 3- and 6-month bills that you | |
| might need for cash management purposes. Is that in fact the | |
| case? Will all of those Treasuries come out of circulation, at | |
| least the medium-term maturities? And if not, what are some of | |
| the long-term issues that you are worrying about as we enter | |
| what are truly uncharted waters? | |
| Secretary O'Neill. If you will forgive me, I don't want to | |
| do cash management with you in this forum, because if I told | |
| you yes to your question, if we went back in the back room and | |
| turned on CNBC, we would see the markets would go crazy. And so | |
| it is frankly not appropriate for us to talk about what the | |
| maturity structure of Federal debt looks like either now or | |
| tomorrow or 5 years from now, because they will not forgive us | |
| out there, believe me. We will have more trouble than any of us | |
| want if we start doing cash management and debt maturity | |
| restructuring here. | |
| But your general point is right. We are going to be buying | |
| and retiring lots of Federal debt over the next 5-year period. | |
| And, you know, we have said an estimate of $2 trillion. It | |
| could be we could buy back and retire more than that over the | |
| next 10 years. But what we are going to do is we are going to | |
| use the money that is coming in to retire debt as a first | |
| priority--as an important priority. And we are not going to | |
| sacrifice that debt retirement to higher spending or to the | |
| President's proposed tax reduction. These things are in balance | |
| with each other, starting with funding the highest priorities, | |
| taking care of debt reduction, and only then dealing with the | |
| prospect of tax reduction and leaving $1 trillion worth of | |
| contingency funds. So that people out there in greater America | |
| can look at what we are doing together and say, this is a | |
| sensible way to proceed. | |
| Mr. Sununu. Thank you. | |
| Mr. Gutknecht. The gentlelady from North Carolina, Mrs. | |
| Clayton. | |
| Mrs. Clayton. I thank the Secretary for coming. Mr. | |
| O'Neill, on your last comment I heard from Mr. Gary Gensler who | |
| was formerly with the Treasury Department. You seem to suggest | |
| that you could pay more than $2 trillion in debt, is that what | |
| you were saying? | |
| Secretary O'Neill. You know, what he actually said on | |
| January the 19th, because he was---- | |
| Mrs. Clayton. This is February 27. I have a letter. | |
| [The letter referred to follows:] | |
| Chevy Chase, MD, February 27, 2001. | |
| Hon. John Spratt, | |
| House of Representatives, Washington, DC. | |
| Dear Mr. Spratt: I am writing in response to your request for a | |
| brief analysis of the Treasury Department debt held by the public and | |
| in particular how much of that debt is available to be paid off over | |
| the next 10 years. | |
| Based upon my recent experience as a Treasury Undersecretary for | |
| Domestic Finance responsible for Treasury's debt management, and my | |
| prior experience as a partner of Goldman, Sachs, I believe that close | |
| to $3.0 trillion of the currently outstanding $3.4 trillion in publicly | |
| held debt could be paid off, leaving outstanding between $410 and $500 | |
| billion in debt at the end of 10 years. I believe that the Treasury can | |
| achieve this in the future by: (1) allowing the vast majority of this | |
| debt to mature as it comes due; (2) making various changes to debt | |
| management policies over time; and (3) smoothly repurchasing over time | |
| the majority of the Treasury's long term debt at market level prices. | |
| This estimate of potential remaining debt is somewhat lower than | |
| that of others, including the Congressional Budget Office at $818 | |
| billion or that of the Federal Reserve Chairman in recent testimony of | |
| somewhat more than $750 billion. The following analysis may help to put | |
| this lower estimate in perspective and show how there are a variety of | |
| policy steps that may be taken to achieve potential remaining debt over | |
| 10 years of between $410 and $500 billion. | |
| There are two main components of publicly held debt. By far the | |
| largest component is that which is traded freely in the market place, | |
| the marketplace debt of $3.0 trillion as of January. Of this amount, | |
| approximately $2.5 trillion matures (or is callable) by 2010. | |
| Therefore, nearly $2.5 trillion in marketable debt is available to be | |
| repaid by allowing it to mature. Treasury would over time make | |
| decisions, as it has in the past, as to the discontinuance of its | |
| various debt offerings. | |
| There is currently outstanding just over $500 billion in debt that | |
| is scheduled to mature after 2010. Excluding holdings of the Federal | |
| Reserve, the privately held portion of this long maturity debt is just | |
| $460 billion. Treasury has available to it a number of policy | |
| alternatives to assure that this longer maturity debt declines | |
| significantly and smoothly over the next 10 years. First, Treasury can | |
| determine to discontinue issuance of any new longer-term debt. A group | |
| outside financial experts advising the Treasury, The Borrowing Advisory | |
| Committee, voted as a majority in January to advise the Treasury to do | |
| just that later this year. | |
| There are also a number of ways to reduce the amount of longer | |
| maturity debt outstanding. Over the last year, Treasury successfully | |
| and efficiently repurchased approximately $35 billion in long maturity | |
| debt. Debt buybacks have been used for many years as a successful | |
| financial tool both by the private sector and the public sector. | |
| Buybacks have been used throughout our nation's history during periods | |
| of sustained budget surpluses, most recently 70 years ago. Treasury | |
| Secretary Alexander Hamilton, in fact, was the first to recommend them | |
| in his report to Congress in 1795. The financial markets anticipate the | |
| Treasury will repurchase between $35 and $40 billion in longer-term | |
| debt this year and continue the program into the future, even though | |
| plans for future buybacks have not yet been incorporated into Federal | |
| Budget estimates. I believe that Treasury can continue this program | |
| well into the future, smoothly repurchasing substantial amounts of | |
| long-term debt at market level prices. | |
| Lastly, the Borrowing Advisory Committee has recommended that | |
| Treasury consider conducting debt exchanges. Treasury last used debt | |
| exchanges in the 1960's and could use them again to exchange short | |
| maturity debt for long maturity debt. | |
| Using a combination of these methods over the next 10 years, I | |
| believe that Treasury could smoothly retire one half and possibly up to | |
| two thirds of its current long-term marketable debt, adding between | |
| $260 and $340 billion to debt available to be repaid. | |
| The second main component of publicly held debt is non-marketable | |
| debt of $426 billion. Depending upon decisions, which the Treasury has | |
| the authority to make, approximately half of this debt is available to | |
| be repaid over the next 10 years. | |
| State and local governments hold approximately $148 billion in non- | |
| marketable debt. Approximately 90 percent of this debt matures within | |
| the next 5 years. The Treasury has the authority to discontinue | |
| issuance of these securities just as it has in the past discontinued | |
| issuance of other securities. Municipalities would then choose to | |
| invest in alternative debt instruments in the market while still | |
| abiding by anti-arbitrage rules related to the tax code. | |
| The Thrift Savings Plan holds $33 billion in Treasury debt to back | |
| Federal Government employees' selections of investing in the bond | |
| market. While the TSP invests directly in private sector equity | |
| securities, the arrangement with Treasury regarding bond investments | |
| was set up during the mid 1980's in a period of significant and growing | |
| fiscal deficits. In this new environment, the TSP could initiate a new | |
| bond fund, which would actually earn a higher return for Government | |
| employees by investing in private sector debt securities. | |
| The remaining non-marketable debt includes $185 billion in savings | |
| bonds and $55 billion in long maturity zero-coupon bonds issued to | |
| foreign governments to back the Brady program and to the REF Corp. to | |
| back the resolution of the thrift crisis. These Savings Bond programs, | |
| while not growing in many years, still have broad public appeal and are | |
| thought by many to be an important vehicle to promote savings among | |
| small savers. | |
| Lastly, Treasury will continue to have seasonal cash management | |
| needs and will periodically wish to address those needs by issuing and | |
| redeeming short-term cash management bills. | |
| In summary, there is currently $3.4 trillion in Publicly Held | |
| Treasury debt outstanding, of which close to $3.0 trillion is available | |
| to be redeemed over the next 10 years. Letting it mature under its | |
| terms could pay off the vast majority of this debt. No doubt, Treasury | |
| will have many policy decisions to make over this time, but it is | |
| within their authorities and ability to smoothly repurchase significant | |
| long-term debt at market prices and to redeem significant non- | |
| marketable debt. This would leave only between $410 and 500 billion in | |
| debt over the next 10 years. | |
| Very truly yours, | |
| Gary Gensler. | |
| Secretary O'Neill. Well, let me give you a reference point | |
| for January 19 first, then maybe you would like to put the | |
| February statement on the record. On January 19 when the | |
| Clinton administration sent you all of their last budget | |
| document, what it showed was that Treasury was estimating that | |
| we would not be able to retire any more debt, then leaving us | |
| with a residual of $1.2 trillion, actually a little bit larger | |
| than the number we have now used. And it was only in the last | |
| few days after President Bush's documents hit the street that | |
| my friend Gary decided to convert and somehow figure out a way | |
| to--what he said when he was an official of an administration | |
| that was wrong by $700 billion. | |
| Mrs. Clayton. My understanding is that that might have been | |
| an OMB estimate rather than a Treasury estimate. | |
| Secretary O'Neill. He signed up for it. Please believe me, | |
| when you get a document, when I am the Treasury Secretary, that | |
| reflects a Treasury number, I will own it. Maybe he is now | |
| disavowing ownership. I will not do that to you in or outside | |
| the government. | |
| Mrs. Clayton. Mr. Secretary, let me raise the issue I | |
| raised with your colleague, Mr. Daniels. The issue is the whole | |
| fairness of the tax bill. He kind of said that his expertise | |
| was in the amount. Now, the President in his State of the Union | |
| did raise questions about the amount, whether it was too big or | |
| too little. He asserted that it was just right. He did not | |
| raise questions about fairness. | |
| I wish to raise that question. But I will give him credit | |
| and I think he probably assumes that it is fair because he | |
| makes statements to the effect that this plan will move low- | |
| income people to middle income. He makes that claim. | |
| I want to answer that question from my perspective, and | |
| give you the basis on which I made the answer and get your | |
| response to it. When I reviewed the President's plan, I see it | |
| being skewed to the upper income level. In fact, 1 percent will | |
| receive from 36 to 43 percent. When I look at 80 percent of the | |
| taxpayers, I see they receive something roughly around 29 | |
| percent by one analysis. However, the 1 percent pays less than | |
| they are receiving in tax cuts, and the 80 percent of people | |
| who get less of a cut in the package actually have a greater | |
| liability in that. | |
| In fact, the Treasurer last year, reported that the top 1 | |
| percent paid 20 percent of all Federal taxes under the current | |
| law. | |
| Now, the President has made the claim that those in effect | |
| working families, lower income and moderate income, will | |
| receive a larger percentage of a cut. That claim can be made if | |
| you only focus on--and I am glad Mr. Sununu recognized it--the | |
| limited liability burden that low- and moderate-income people | |
| have, and that is the income tax. Their greater Federal tax | |
| liability is the payroll tax. They pay far more money in | |
| payroll taxes than they will ever pay in income taxes. | |
| So if you took a family of four making around $27,000 and | |
| had two children, their income tax liability would indeed under | |
| this plan be completely eliminated, 100 percent. But their | |
| cost, their liability in actual dollars, would be something | |
| like $25 or $30, if that much. | |
| So you could do that, but if you actually looked at their | |
| payroll taxes and deducted the income tax income credit, they | |
| still will owe over $2,000. So when I make the claim that I | |
| don't see this tax being a fair tax to the working poor and | |
| low-income people, that is the basis on which I make it. | |
| Further, if I also make an analysis of the current census | |
| population, one-third of the families with children under 18 | |
| will not receive any help. Now, the standard rationale is, | |
| well, they are not paying taxes, but they receive no assistance | |
| on that. If I look at that one-third carefully, I again find | |
| minorities represent more than one-half of that one-third, | |
| receiving no help from this tax plan, 55 percent for African | |
| Americans, 55 percent for Hispanics. I cannot understand how I | |
| can look at that and be objective and think that this tax plan | |
| is being fair to all taxpayers, working families, who are lower | |
| income as well as moderate. | |
| Would you respond to that? | |
| Secretary O'Neill. Yes, indeed. Let me first say everywhere | |
| I go, I run into my old friend Bob Greenstein's numbers. Bob is | |
| obviously a very bright guy, and he is really good at creating | |
| advocacy statistics. | |
| I am sure you all recognize what he has done with the 1 | |
| percent. You know, that is a constant thing. Then he does, | |
| well, they pay 20. What do they pay 20 percent of? They pay 20 | |
| percent of all the taxes. What is the 43 percent? That is not | |
| related to the 20 percent, that is related to a different issue | |
| of what is going to happen with this income tax restructuring | |
| that is being proposed. | |
| So you did not do it to me here, but this morning I got | |
| treated to a bar chart that showed 20 percent of one number and | |
| 43 percent of another number, and you get the visual impact and | |
| say, oh, my God, that can't possibly be fair. | |
| Well, let me tell you what the facts are. With what the | |
| President has proposed, the higher-income taxpayers are going | |
| to pay a larger relative share of total Federal income taxes | |
| than they do now. Why is that so? Because we are taking a lot | |
| of people off the tax rolls completely, and for lower-income | |
| taxpayers, say, for a four-person family with $35,000 worth of | |
| income, their tax bill under the President's proposal is going | |
| to be zero. They are going to get a 100 percent reduction in | |
| their taxes. You can't go lower than zero unless you want to go | |
| negative, which is in effect what we have done with the earned | |
| income tax credit. | |
| But, again, I would say to you, you know, if you want to | |
| look at the world in this way of combining all of the taxes, | |
| then we should look at the same side of what we are doing with | |
| the money that comes in here. So if you want to look at what | |
| are the total individual impacts of taxes and spending, which | |
| we are not proposing to do, we are proposing to fix the income | |
| tax right now, but if you were to take this broader approach, | |
| first of all, you would put down earned income tax credit, and | |
| then you would put down food stamps, and then you would put | |
| down housing subsidies, and then you would put down Medicaid, | |
| and then you would put down---- | |
| Mrs. Clayton. Mr. Secretary, with all respect, I would put | |
| down corporate deductions. | |
| Secretary O'Neill. I am not disputing that. What I am | |
| saying is what you are trying to do---- | |
| Mrs. Clayton. Sir, what you are doing to me is you are | |
| suggesting that I am playing the income tax card. I am simply | |
| trying to show you that--and we can disagree, but the tax | |
| system gives as many breaks to those with income as it ever | |
| considered, giving the low-income. The earned income tax credit | |
| does not eliminate fully all the tax burdens on those who are | |
| poor, because they still have to pay an excise tax, they pay | |
| other taxes, and they pay payroll taxes. When you eliminate | |
| that, they still come out with tax liability. | |
| You are correct, perhaps that $35,000 would be eliminated, | |
| but I don't know what that liability would be. You have a | |
| limited liability. | |
| Chairman Nussle. The gentlewoman's time has expired. | |
| Mrs. Clayton. Thank you, I will honor that. Can I have | |
| another round? | |
| Chairman Nussle. I will be glad to let him answer your | |
| question. Why don't we let the Secretary do that. | |
| Secretary O'Neill. Let my give you a few more numbers. Let | |
| me give the numbers for a four-person family with $45,000. They | |
| are going to get a 50 percent reduction in their taxes, which | |
| means $2,000. They are going to get reduced from $4,000 to | |
| $2,000. For a four-person family with around $70,000, $75,000, | |
| they are going to have a 25 percent reduction in their taxes. | |
| As I said to you, the President's proposals make the | |
| Federal income tax system more progressive than it is today. I | |
| want to be sure my intent is clear. I am not gainsaying for a | |
| moment. All the things that we do to help low-income people, | |
| disadvantaged people, people with disabilities, people who | |
| can't make it on their own, I am just calling attention to the | |
| idea that if we are going to sweep all the taxes together, then | |
| we need to sweep all the benefits together, because, as I am | |
| sure you know, if you look at Social Security, for example, if | |
| you look only at the tax side, you would say this is very | |
| regressive. If you look at taxes and benefits together, it is | |
| really quite a progressive system. And I am just making a plea, | |
| you know, maybe it is the plea of an outlander who has been | |
| away from here too long, that as we talk about these things, | |
| how important it is to think about them in a way that doesn't | |
| divide us, but hopefully unites us around ideas that are truly | |
| related to each other. | |
| Chairman Nussle. Mr. Secretary, I apologize for having to | |
| be away for a little bit. I have got some good news to deliver | |
| to you, however. The reason that I was absent is I was over at | |
| the Ways and Means Committee, and the President in his speech | |
| said he wanted tax relief in an urgent manner, he wanted us to | |
| pass it quickly, and just moments ago the Ways and Means | |
| Committee passed the first tranche of the tax bill. So I wanted | |
| to deliver that news to you. That was the reason for my | |
| absence. I apologize for that. I thought it would be some news | |
| you would be interested in. | |
| Secretary O'Neill. Thank you, Mr. Chairman. If it wasn't | |
| unseemly for a Treasury Secretary to do it, I would jump up on | |
| top of the table and shout hooray. | |
| Chairman Nussle. The cameras are all now very disappointed | |
| they weren't here for that. | |
| Mr. Thornberry. | |
| Mr. Thornberry. Thank you, Mr. Chairman. | |
| Mr. Secretary, I want to go back to one of the issues that | |
| you stipulated really with Mr. Spratt and is in the President's | |
| budget submission, and that is the additional interest payments | |
| because of not putting the money that is used for the taxes | |
| onto the debt. It seems to me that is dependent upon a couple | |
| of assumptions. One of them is, of course, as we have been | |
| talking, is you could use that money to pay down debt, and you | |
| have been talking about the fact that you have to start paying | |
| a premium, and it doesn't make sense to do so after a certain | |
| point. So that raises questions in my mind whether that is | |
| really an expenditure. If you can't pay the debt anyway, are | |
| you really saving the interest? | |
| The second one assumes that all of that money would | |
| actually be used to pay down debt and not spent on bigger | |
| government. I have been here long enough to have some doubt | |
| about that. | |
| Now, I am not quite sure why it is that the budget--and | |
| today in your discussions you are stipulating that, because it | |
| seems to me there are two very iffy propositions that cause | |
| that to be there at all in that chart. | |
| Secretary O'Neill. Well, you know, if I could rewrite the | |
| way we do business, I would sure take it out in a minute, | |
| because I don't think it makes very much sense, but it is a | |
| convention that you among yourselves have agreed to as the way | |
| we must do these things, so we have done what you require. I do | |
| believe, as Dr. Martin Felstein, one of the most preeminent | |
| economists in the world, says, that in all likelihood, the | |
| President's tax proposal when it is all said and done is going | |
| to cost $600 billion less than what we have attributed to it | |
| because the impact as it flows through the economy is going to | |
| be to generate higher levels of revenue and business activity, | |
| and therefore higher levels of tax take for the Federal | |
| Government. But we don't permit ourselves to do what is called | |
| dynamic scoring. So in effect what we do is we have scissors | |
| with one blade, and it is the blade that says if you do | |
| something like a reduction in taxes, then you have got to | |
| charge yourself interest for it, and you can't pay attention to | |
| or anticipate what the next set of effects are in the economy. | |
| So I don't like it a whole lot, but it is a convention you all | |
| agreed to, and we have to play by your rules. | |
| Mr. Thornberry. Let me ask you one other thing. You have | |
| heard reference a few moments ago to the fact that various | |
| government retirement funds have investments in securities and | |
| various places. | |
| Coming from where you have recently come from, can you | |
| discuss with us a little bit what we have to be mindful of if | |
| we get to the point that we have significant cash in the | |
| government that we start to put into private markets in some | |
| way? How does that affect private markets? Tell us what we need | |
| to be thinking about if that were to come to pass. | |
| Secretary O'Neill. You know, I have been thinking about | |
| this, because there has been so much in the news, and people | |
| have talked about it a lot. | |
| One of the things that creates the spirit of enterprise and | |
| productivity growth is, frankly, a fear of failure, and if you | |
| can endlessly fail and there is somebody still there pumping | |
| money into you--I don't think there is a single place in the | |
| world where you can find entrepreneurial spirit and | |
| fantastically good productivity where the fear of failure is | |
| not present. | |
| I give to you as an example from my experience in going to | |
| Russia in the last 10 years and spending a lot of time looking | |
| at their facilities and looking at how they operate. It is just | |
| unbelievable how awful an enterprise can be and how awful it | |
| can be for the human beings in it if there is an underlying | |
| assumption that there is no way of failure. I take you in your | |
| mind to Siberia, to a Russian aluminum plant which is one of | |
| the biggest aluminum plants in the world. The life expectancy | |
| in this town called Krasnoyarsk, 1 million people, is 47 years. | |
| The reason it is 47 years is because they have contaminated | |
| their own water supply with nuclear poisoning, and so they are | |
| killing off the people. | |
| If you go into this plant, you would not believe the | |
| interior environment of this plant. You can't see. I would not | |
| be able to see the Chairman if I was this far away from a | |
| person in this plant because of the unbelievable pollution that | |
| exists in the building. And they have been going on like this | |
| for decades. Why did they do this, how did they get away with | |
| this? Because there were no fear of failure, no standards that | |
| human beings are important. | |
| I think when you see--if you travel around the world and | |
| see the conditions that people live in, where capitalism and | |
| the fear of failure doesn't exist, you rush back to the United | |
| States with a happiness that you have been permitted to live | |
| your life in these circumstances. And I think we don't even | |
| want to approach the outskirts of governmental ownership of | |
| enterprise in this country of the kind that would be involved | |
| in our beginning to buy enterprises where we effectively take | |
| away their fear of failure, because if they fail, we pump in | |
| more money. It is a route to doom. | |
| Mr. Thornberry. What would our other alternatives be if we | |
| had these cash money surpluses and we don't let people keep | |
| more of their money; what is the alternative? | |
| Secretary O'Neill. Well, you all could certainly spend it. | |
| There is not too much doubt about that. That is not, frankly, | |
| an appealing option for me as well. It is better, though, than | |
| having you own the private enterprise. | |
| Chairman Nussle. Thank you. | |
| Mr. Price. | |
| Mr. Price. Thank you, Mr. Chairman. | |
| Mr. Secretary, I thank you for being with us here today. | |
| Let me, apropos of Mrs. Clayton's line of questioning, ask you | |
| for the record to respond to some distribution figures that | |
| come from William Gail at the Brookings Institution. You made a | |
| disparaging remark about advocacy statistics, and, of course, | |
| we are in a climate where anyone who dares refer to a | |
| distribution table is accused of class warfare. But I think we | |
| need to look at the distribution tables. The figures I have, | |
| this is from Mr. Gail, the top 1 percent income group in this | |
| country pays 21 percent of Federal taxes, gets 36 percent of | |
| the Bush tax cut; the top 5 percent, 37 percent of Federal | |
| taxes, 49 percent share of the Bush tax cut. | |
| I would just appreciate your deconstructing those numbers | |
| for me. If those are faulty advocacy statistics, I would like | |
| to know it. | |
| Let me move into some other questions for our oral exchange | |
| here, if you don't mind, because we have limited time. We have | |
| the chart back up here. There seems to be an ongoing question | |
| today about whether we are putting the taxpayers first or last | |
| or somewhere in between. I would like to reassure you that I | |
| think virtually every Member of Congress is ready to vote for | |
| tax relief and believes that tax relief ought to be part of | |
| this budget, but we do have some honest questions about whether | |
| we ought to be shoving through a tax cut in advance of a | |
| budget, how large that tax cut can responsibly be, and also | |
| what a fair distribution of the tax benefits would be. Those | |
| are legitimate issues which we must debate. | |
| How much is available for a tax cut? Now, we had an earlier | |
| discussion here about the treatment of these trust funds, and | |
| you seem to be suggesting that somehow the Social Security | |
| Trust Fund and the Medicare Trust Fund ought to be treated | |
| differently, but I am not sure I understand the basis for that. | |
| You yourself have argued for reserving the proceeds from | |
| the Social Security surplus, and you have treated that as a | |
| principle of some importance. You have then said that it really | |
| is not important to do that with Medicare. In fact, it is | |
| somewhat misleading to suggest it even with respect to the | |
| Medicare Trust Fund. | |
| Why would the arguments you have made against reserving | |
| funds borrowed from Medicare Trust Fund, why wouldn't they also | |
| apply to the Social Security Trust Fund; and vice versa, why | |
| wouldn't the arguments you have made for reserving the Social | |
| Security Trust Fund not then argue for the same treatment of | |
| the Medicare Trust Fund? I don't understand the basis on which | |
| you are differentiating between the two. | |
| Then, secondly, as Mr. Spratt was asking, this $1 trillion | |
| in reserve funds, I think the way we get there from these | |
| figures to yours is by not reserving the Medicare surplus, and, | |
| of course, by picking up the $207 billion that we have on this | |
| chart, and then as you have said, not accounting for extenders | |
| and fixing the AMT. So that is how we get to the $1 trillion | |
| contingency fund. | |
| You said one possible claim against that fund would, in | |
| fact, be the extenders and the AMT, and I am not sure if you | |
| think that would be a good idea or not, but you are | |
| acknowledging that that may be something that there is a lot of | |
| support for. | |
| This spending program, we have beyond-inflationary | |
| increases proposed for defense, for education, for medical | |
| research, presumably for adding prescription drugs to Medicare. | |
| If the overall increase is around 4 percent, then that surely | |
| implies below-baseline decreases for a number of other items. | |
| One estimate has said about 7 percent decrease in everything | |
| else. Is that really sustainable? Presumably that might be a | |
| claim against this contingency fund. Of course, calling it a | |
| contingency fund suggests that you are acknowledging that these | |
| surplus projections may be a little shaky. After all, two- | |
| thirds of the surplus projections are more than 5 years out. So | |
| the whole idea of a contingency fund is to have some cushion in | |
| case the surpluses don't materialize. So what is the range of | |
| claims on this contingency fund, and is it going to, in fact, | |
| reliably function as a cushion? | |
| Secretary O'Neill. Well, let me start back with your | |
| reference to Mr. Gail. Let me say apparently I am not that | |
| clear in what I say, so let me try again. | |
| Mr. Price. If you don't mind, I did ask you to respond for | |
| the record to that, because I am much more eager to have an | |
| exchange on these other items. | |
| Secretary O'Neill. If I may, let me make sure I understand | |
| the question, and then I will respond for the record. As I | |
| understand the question, Mr. Gail asserts that right now the | |
| top 1 percent pay 21 percent, I want to make sure I wrote these | |
| down right, and I didn't get what he said they are going to be | |
| paying after the President's tax reduction. What percent will | |
| they pay afterwards? | |
| Mr. Price. I will be happy to give you his full | |
| distribution chart. I was just taking those two numbers from | |
| it. He is saying 21 percent share of Federal taxes, 36 percent | |
| share of the Bush tax cut. | |
| Secretary O'Neill. He doesn't give you how much the top | |
| payers are going to be paying after the tax relief is put in | |
| place. I think you will find it is 22 percent. | |
| Mr. Price. This is the share of the tax cut which they are | |
| receiving. | |
| Secretary O'Neill. I am trying to get at how progressive | |
| the tax is going to be. It seems to me that is the appropriate | |
| comparison. The President's tax proposal would make the Tax | |
| Code more progressive. What I am suggesting to you is what I | |
| suggested to your earlier line of questioning on this, that the | |
| way these statistics are put together, both by Mr. Greenstein | |
| and by Mr. Gail, is to confuse on the one hand what is | |
| happening with the flow of funds, and, on the other, what is | |
| ending up to be the responsibility of a particular group of | |
| people to pay for public goods and services. The President's | |
| proposal would shift the incidence of tax burden to higher- | |
| income people in a relative sense compared to where it is | |
| today. | |
| Mr. Price. I must say that if these figures are correct as | |
| to where the preponderance of the breaks from the Bush | |
| proposals go, then that would be an incompatible outcome. I | |
| would appreciate, as I said, your deconstructing these figures | |
| for us. If there is something wrong with these figures, letting | |
| us know what the problem is. | |
| Secretary O'Neill. I would be very happy to do that. | |
| [The information referred to follows:] | |
| RESPONSE TO QUESTION SUBMITTED BY MR. PRICE CONCERNING DISTRUBITIONAL | |
| FIGURES | |
| The distributional figures cited by Mr. Price were prepared by | |
| William Gale of the Brookings Institution. It is not possible to | |
| deconstruct the figures without a detailed explanation of how the | |
| figures were derived, and the assumptions made in their derivation. | |
| However, the basic issue is how large a share of the tax burden will be | |
| borne by upper-income taxpayers once the President's tax proposal is | |
| enacted. The figures cited by Mr. Price do not include this basic | |
| information. However, the Treasury Department has prepared a | |
| distributional analysis of the major individual income tax provisions | |
| in the President's tax proposal that does include this information. | |
| The Treasury table is attached. It shows that the share of income | |
| tax relief provided to families with incomes under $100,000 is larger | |
| than their share of current income taxes paid (compare the first and | |
| second columns). As a result, these families will pay a smaller share | |
| of the total income tax burden under the President's proposal than they | |
| do under current law. Conversely, the share of the income tax relief | |
| provided to families with incomes of $100,000 or more is smaller than | |
| their share of current income taxes paid. As a result, these families | |
| will pay a larger share of the total income tax burden under the | |
| President's proposal than they do under current law. | |
| MAJOR INDIVIDUAL INCOME TAX PROVISIONS OF THE PRESIDENT'S TAX PROPOSAL\1\ | |
| [2000 Income Levels] | |
| ---------------------------------------------------------------------------------------------------------------- | |
| Distribution of total individual Average | |
| Distribution of income taxes\3\ individual | |
| Cash income proposed changes -------------------------------------- income taxes Percent change | |
| class\2\ in individual With proposed with proposed in individual | |
| income taxes Current law changes\4\ changes income taxes | |
| (percentage) (percentage) (percentage) (dollars) | |
| ---------------------------------------------------------------------------------------------------------------- | |
| 0-30 9.3 -1.0 -2.8 -457 -136.2 | |
| 30-40 6.5 2.5 1.8 993 -38.3 | |
| 40-50 7.8 4.1 3.4 2,210 -28.0 | |
| 50-75 17.2 12.2 11.3 4,279 -20.8 | |
| 75-100 13.6 12.2 12.0 7,848 -16.3 | |
| 100-200 19.8 27.1 28.3 16,625 -10.7 | |
| 200 and over 25.4 42.9 45.9 103,931 -8.7 | |
| --------------------------------------------------------------------------------------------- | |
| Total \5\ 100.0 100.0 100.0 6,322 -14.6 | |
| ---------------------------------------------------------------------------------------------------------------- | |
| Source: Department of the Treasury, Office of Tax Analysis, March 8, 2001. | |
| \1\ The major individual income tax provisions are: i) lower individual income tax rates (lower 39.6 and 36 | |
| percent rates to 33 percent, lower 31 and 28 percent rates to 25 percent, and introduce a new 10-percent rate | |
| bracket for taxable income (in 2006) under $6,000 for single filers, $10,000 for head of household filers, and | |
| $12,000 for joint filers); ii) increase the child credit to $1,000, raise the income level at which it phases | |
| out, and allow the child credit against the AMT; iii) allow a 10 percent deduction for the earnings of the | |
| lower earning spouse (up to $30,000) in two-earner families; iv) allow taxpayers who do not itemize to deduct | |
| charitable contributions up to the amount of the taxpayer's standard deduction; and v) provide a refundable | |
| tax credit for individually-purchased health insurance. | |
| \2\ Cash income consists of wages and salaries, net income from a business or farm, taxable and tax-exempt | |
| interest, dividends, rental income, realized capital gains, cash transfers from the government, and retirement | |
| benefits. Employer contributions for payroll taxes and the federal corporate income tax are added to place | |
| cash on a pre-tax basis. Cash income is shown on a family rather than on a tax return basis. The cash incomes | |
| of all members of a family are added to arrive at a family's cash income used in the distributions. | |
| \3\ The refundable portions of the earned income tax credit (EITC) and the child credit are included in the | |
| individual income tax. Individual income taxes are estimated at 2000 income levels but assuming fully phased | |
| in law and, therefore, exclude provisions that expire prior to the end of the budget period and are adjusted | |
| for the effects of unindexed parameters. | |
| \4\ The change in individual income taxes is estimated at 2000 income levels assuming fully phased in law. | |
| \5\ Families with negative incomes are excluded from the lowest income class but included in the total line. | |
| Secretary O'Neill. If I can remember the thread of the | |
| other pieces, one that occurred to me, and I wrote down a | |
| number of $3 trillion, was a question of what are the other | |
| things that are competing for the $1 trillion contingency that | |
| the President has identified? | |
| Mr. Price. I asked you why the differential treatment of | |
| the two trust funds, and I asked you what is the range of | |
| claims on the $1 trillion. | |
| Secretary O'Neill. OK. Let me deal with the range of claims | |
| first. As I have been testifying and talking with Members over | |
| the last 5 weeks, I don't say this in a facetious way, I would | |
| say to you the range of claims are $3 trillion or $4 trillion. | |
| There seems to be no end to the individual appetite which add | |
| up to numbers that would not only eat all of the increases | |
| proposed by the President for priority things, but in truth the | |
| whole $5.6 trillion, I think, could be consumed by the appetite | |
| of Congress if it was on the table. I honestly believe that to | |
| be the case, as I have wandered around and listened to people | |
| and what they think we should be doing. | |
| Mr. Price. Mr. Secretary, with due respect, you yourself | |
| portrayed a few moments ago the $300 billion for the tax | |
| extenders and the AMT as a legitimate possible claim against | |
| the $1 trillion contingency fund, did you not? | |
| Secretary O'Neill. I meant by that there are people who | |
| would like to do that. There are people who would---- | |
| Mr. Price. I would daresay 99 percent of the Congress would | |
| like to do that. These extenders passed unanimously. Who is | |
| going to let 26 million taxpayers bump up against the AMT? | |
| Secretary O'Neill. I don't know how long the AMT has been | |
| in the Code, but it is a heck of a lot longer than 1 year. It | |
| has been a burgeoning problem for 20 years or so, and now you | |
| are saying that we should accept the burden for fixing the | |
| whole thing immediately on the first year of our watch? What we | |
| have said is we have got this position, so in combination with | |
| the child credit, as a generalization almost no family with | |
| income under $100,000 is going to get hit in the near term by | |
| the AMT, and, in fact, everyone--no one will be worse off | |
| because of the AMT after the tax reduction. But if some of you | |
| believe that you want to take money away from the contingency | |
| fund or away from the phase-in schedule of the President's tax | |
| proposal in order to fix AMT, that is certainly a discussable | |
| item if that is what your preference is. | |
| Mr. Price. Thank you. | |
| I think the estimate on the AMT fix is actually a very | |
| conservative estimate as to what it would take to fix it over a | |
| 10-year period. It doesn't anticipate doing it all at once. May | |
| I ask, Mr. Chairman, since our time has expired, I would | |
| appreciate for the record your indicating to me exactly on what | |
| principled basis you are distinguishing between the Social | |
| Security Trust Fund and the Medicare Trust Fund in terms of | |
| their treatment in this budget. | |
| [The information referred to follows:] | |
| RESPONSE TO QUESTION SUBMITTED BY MR. PRICE CONCERNING THE SOCIAL | |
| SECURITY TRUST FUND AND THE MEDICARE TRUST FUND | |
| The Administration has the same policy toward Social Security and | |
| Medicare. All funds collected for each program should be dedicated to | |
| that program. In the case of Social Security, more funds are collected | |
| than are needed to pay current benefits--thus, the Administration has | |
| pledged to wall off and reserve this surplus for Social Security. In | |
| contrast, all Medicare funds are used for current expenditures--thus, | |
| there are no excess taxes/premiums to wall off. | |
| Medicare has two trust funds--the HI, or Part A, trust fund and the | |
| Supplementary Medical Insurance (SMI), or part B, trust fund. The SMI | |
| trust fund receives substantial transfers from the general fund since | |
| premiums collected cover only 25 percent of program costs--thus, from | |
| the perspective of the overall Federal budget, it is running a large | |
| deficit. The SMI deficit is far larger than the HI ``surplus'', meaning | |
| that Medicare as a whole faces an overall shortfall of $50 billion in | |
| 2002 and $643 billion from 2002-2011. Thus, there is no Medicare | |
| ``surplus.'' | |
| It is also important to note that roughly one-third of the HI | |
| ``surplus'' is the result of an accounting gimmick from the 1997 Budget | |
| Agreement. The prior Administration and Congress opted to improve the | |
| apparent solvency of the HI Trust Fund by moving a large portion of one | |
| of its fastest-growing programs at the time--home health care--out of | |
| the HI Trust Fund and into the SMI trust fund. This had no effect on | |
| Medicare's total spending, but gave the illusion that HI solvency was | |
| extended and its ``surplus'' increased. Accounting gimmicks, such as | |
| this one, increase complacency over Medicare's future and undermine the | |
| prospects for needed reform. This shows the risk with focusing on just | |
| one part of Medicare instead of viewing it as a whole. | |
| Chairman Nussle. Actually at this point, Mr. Price, what I | |
| would suggest it is that I ask unanimous consent that all | |
| Members have 7 legislative days in which to submit written | |
| questions, and that for the record, so that all Members that | |
| may have a question, whether it is similar to that or | |
| otherwise, may do so. Is there objection to that? | |
| Without objection, so ordered. Thank you. | |
| Responses to Additional Questions Submitted By Mr. Price | |
| 1. The Administration has the same policy toward Social Security | |
| and Medicare. All funds collected for each program should be dedicated | |
| to that program. In the case of Social Security, more funds are | |
| collected than are needed to pay current benefits--thus, the | |
| Administration has pledged to wall off and reserve this surplus for | |
| Social Security. In contrast, all Medicare funds are used for current | |
| expenditures--thus, there are no excess taxes/premiums to wall off. | |
| Medicare has two trust funds--the HI, or Part A, trust fund and the | |
| Supplementary Medical Insurance (SMI), or part B, trust fund. The SMI | |
| trust fund receives substantial transfers from the general fund since | |
| premiums collected cover only 25 percent of program costs--thus, from | |
| the perspective of the overall Federal budget, it is running a large | |
| deficit. The SMI deficit is far larger than the HI ``surplus'', meaning | |
| that Medicare as a whole faces an overall shortfall of $50 billion in | |
| 2002 and $643 billion from 2002-2011. Thus, there is no Medicare | |
| ``surplus.'' | |
| It is also important to note that roughly one-third of the HI | |
| ``surplus'' is the result of an accounting gimmick from the 1997 Budget | |
| Agreement. The prior Administration and Congress opted to improve the | |
| apparent solvency of the HI Trust Fund by moving a large portion of one | |
| of its fastest-growing programs at the time--home health care--out of | |
| the HI Trust Fund and into the SMI trust fund. This had no effect on | |
| Medicare's total spending, but gave the illusion that HI solvency was | |
| extended and its ``surplus'' increased. Accounting gimmicks, such as | |
| this one, increase complacency over Medicare's future and undermine the | |
| prospects for needed reform. This shows the risk with focusing on just | |
| one part of Medicare instead of viewing it as a whole. | |
| 2. It is not possible to evaluate the accuracy of the figures | |
| without a detailed explanation of how the figures were derived, and the | |
| assumptions made in their derivation. However, the basic issue is how | |
| large a share of the tax burden will be borne by upper-income taxpayers | |
| once the President's tax proposal are enacted. The figures cited by Mr. | |
| Price do not include this basic information. However, the Treasury | |
| Department has prepared a distributional analysis of the major | |
| individual income tax provisions in the President's tax proposal that | |
| does include this information. | |
| The Treasury table is attached. It shows that the share of income | |
| tax relief provided to families with incomes under $100,000 is larger | |
| than their share of current income taxes paid (compare the first and | |
| second columns). As a result, these families will pay a smaller share | |
| of the total income tax burden under the President's proposal than they | |
| do under current law. Conversely, the share of the income tax relief | |
| provided to families with incomes of $100,000 or more is smaller than | |
| their share of current income taxes paid. As a result, these families | |
| will pay a larger share of the total income tax burden under the | |
| President's proposal than they do under current law. | |
| 3. The $1,600 figure is the income tax cut a middle-income family | |
| of four would receive from two provisions of the President's proposal | |
| when the income tax provisions are fully phased (in 2006): the new 10 | |
| percent bracket and the $500 increase in the child tax credit. The tax | |
| cut from the new 10 percent tax bracket for this family would be the | |
| reduction in the tax rate (5 percent, from 15 percent to 10 percent) | |
| times the size of the bracket ($12,000 for joint filers), a tax cut of | |
| $600. This family would receive a tax cut of $1,000 ($500 per child) | |
| from the increase in the child tax credit. The family's total tax cut | |
| is therefore $1,600. | |
| For all joint filers with dependents who receive an income tax cut, | |
| the median tax cut in 2006 will be $1,856. This is more than the $1,600 | |
| figure because the President's proposal includes other income tax | |
| provisions that will benefit many of these families. In particular, | |
| many of these families will benefit from marriage penalty relief | |
| provided by the two-earner deduction, and from the new deduction for | |
| charitable contributions for non-itemizers. Approximately 60 percent of | |
| all joint filers with dependents who receive an income tax cut will | |
| receive a tax cut of $1,600 or more in 2006. | |
| For all taxpayers, with or without dependents, who receive an | |
| income tax cut, the median tax cut in 2006 will be $692. Approximately | |
| 25 percent of all taxpayers who receive an income tax cut will receive | |
| a tax cut of $1,600 or more in 2006. | |
| Mr. Culberson. | |
| Mr. Culberson. Thank you, Mr. Chairman. | |
| Mr. Secretary, thank you so much for being with us today | |
| and for your concise and very clear explanation of what | |
| President Bush has laid out. It has been my experience in 14 | |
| years of serving in the Texas House under Governor Bush that he | |
| and you are both correct, that if we do not refund this tax | |
| surplus to the people that pay it, that the government will | |
| consume it and spend it, and you will have a bureaucracy that | |
| will continue to grow ad infinitum into the future. | |
| I wanted to ask you about the tax cuts that President | |
| Kennedy and President Reagan proposed. I am succeeding Chairman | |
| Bill Archer, and Chairman Archer calculates that the Reagan tax | |
| cut, if placed in today's dollars, would be approximately $5.5 | |
| trillion. Have you heard that number? | |
| Secretary O'Neill. Yes, indeed, that is correct. | |
| Mr. Culberson. And the Kennedy tax cuts, I have not heard | |
| that number in today's dollars. | |
| Secretary O'Neill. It would be even larger. It is an even | |
| larger number. | |
| Mr. Culberson. That may be one that I will submit in | |
| writing, because it would be interesting to know that in terms | |
| of comparison. Those who oppose President Bush's tax cuts are | |
| attempting to make that comparison, and I think that quickly | |
| exposes to the American public that comparison is not valid. | |
| [The information referred to follows:] | |
| RESPONSE TO REQUEST SUBMITTED BY MR. CULBERSON CONCERNING THE KENNEDY | |
| AND REAGAN TAX CUTS | |
| Mr. Culberson stated that he will submit a question in writing | |
| regarding the relative sizes of the Kennedy and Reagan tax cuts. We are | |
| not aware of any question that has been submitted. | |
| Mr. Culberson. One other point that I think also | |
| illustrates the fact that you cannot compare the very modest | |
| tax cut that President Bush is proposing with the Reagan tax | |
| cut, I wanted to confirm with you, is that there is, from my | |
| understanding--that after the Reagan tax cuts of 1981, that | |
| Federal revenues increased, doubled essentially, but that the | |
| Congress increased spending by a factor of three times. | |
| Secretary O'Neill. Precisely right. | |
| Mr. Culberson. Which anyone out there listening can | |
| immediately understand that if the tax cut doubled revenues, | |
| but Congress tripled spending, that is where the deficit came | |
| from. | |
| Secretary O'Neill. Exactly right. | |
| Mr. Culberson. So that illustrates very clearly why that | |
| argument does not hold water. | |
| One final point that was a surprise to me as a new Member | |
| of Congress and sitting in on the Budget Committee discussions | |
| of the President's budget and the unchartered waters, as Mr. | |
| Sununu says we have now entered, is the fact we can only pay | |
| down so much of the debt so quickly without incurring | |
| significant penalties. I was surprised to learn that, as were | |
| my constituents when I returned to Houston this past week and | |
| meeting with large numbers of constituents who were really | |
| quite surprised to learn that information. That is something | |
| none of us really thought about before. | |
| I wanted to ask you if you could please for the record, | |
| reiterate for the listening public and everyone, the | |
| President's budget proposal proposes to pay down as much of the | |
| public debt as can be paid down without incurring penalty. | |
| Secretary O'Neill. That is exactly right. Exactly right. | |
| Mr. Culberson. Finally, if I could, I wanted to ask you | |
| about the earned income tax credit that was enacted long before | |
| my time here. It is my understanding the purpose of the earned | |
| income tax credit was to offset the cost of Social Security or | |
| payroll taxes for those individuals who were not paying taxes, | |
| and that earned income tax credit has increased over the years. | |
| Secretary O'Neill. It is running right now about $32 | |
| billion at an annual rate. | |
| Mr. Culberson. Thank you, Secretary O'Neill, for your | |
| testimony and for the approach you are taking. I can testify | |
| from personal experience in Texas to the benefits of the tax | |
| cuts that Governor Bush enacted in Texas. They had a dramatic | |
| impact on our economy. It kept the size and cost of the State | |
| government in line. I am looking forward to seeing that same | |
| benefit occur at the national level and supporting the | |
| President in any way I can. Thank you, sir. | |
| Chairman Nussle. Mr. Clement. | |
| Mr. Clement. Thank you, Mr. Chairman. | |
| Mr. Secretary, congratulations to you on your new position. | |
| Secretary O'Neill. Thank you. | |
| Mr. Clement. I know you were with a very fine company as | |
| Chairman and CEO of Alcoa. You have a major presence in the | |
| State of Tennessee. | |
| I also want you to know that myself, as well as Congressman | |
| Brian Baird from the State of Washington, introduced | |
| legislation on the Sales Tax Deduction Act of 2001. The reason | |
| we did it, we have States such as Florida, Texas, Tennessee, | |
| Nevada, South Dakota, Washington and Wyoming, that do not have | |
| a State income tax, and we don't feel like our people should be | |
| forced to move to a State income tax if they don't want to, but | |
| we cannot deduct our State sales tax from our Federal income | |
| tax return. But if you live in a State that has a State income | |
| tax, you can deduct that from your Federal income tax return. | |
| As you know, that was taken away from us in 1986, in the 1986 | |
| tax reform. That is why it is critically important that we must | |
| correct this problem, because we really are serious about tax | |
| fairness and tax simplicity. I know you mentioned a while ago | |
| about the Tax Code and about how much it has grown over the | |
| years, and I sure agree with you there. But we feel like, you | |
| know, if we want to bring about some tax fairness and tax | |
| simplicity, and if we do want a tax cut, there are a lot of | |
| people that want to help and support and move in that | |
| direction, but we want an overall package that makes common | |
| sense and is fair to the American people and to all States, and | |
| not just some States. | |
| I also want to ask you about the trigger. I know the Bush | |
| administration seems to be on record opposing the trigger. What | |
| I mean by the trigger simply, for all concerned, is what if | |
| these forecasts are not correct? What about something that | |
| happens overseas, an international incident? What about if the | |
| economy deteriorates much more than it is deteriorating now? | |
| Because we do have some softness, and even Chairman Greenspan | |
| said even yesterday he doesn't really know the state of the | |
| economy today. | |
| Why shouldn't we have a trigger just to protect ourselves | |
| if we really had a downturn and these surpluses really don't | |
| materialize after all? | |
| Secretary O'Neill. All right, good. There is kind of a | |
| siren song with the idea of a trigger, because it sounds so | |
| logical, and as I spent a lot of time thinking about it, how | |
| would one actually construct a trigger? Let me use the idea of | |
| marginal rate reductions as a way to think this through with | |
| you. | |
| With what is moving through the House today, the Ways and | |
| Means Committee today, is marginal rate reductions, and they | |
| are phased in over time. They don't become fully effective, and | |
| I am not sure, because I have been busy all day testifying, but | |
| I think they are phased in over a 4- or 5-year period. So it | |
| all sounds pretty slick. | |
| Let's say you put a trigger on and say you don't actually | |
| let the next phase go in in 2003 if for some reason you don't | |
| like what the circumstances are. | |
| Let me tell you what I think the world looks like from a | |
| regular family person out there in America. If you all pass a | |
| tax bill with marginal rate reductions in it that, say, to a | |
| low-income family gives them, let's say, $500 worth of money | |
| that they get to keep that they thought they were going to send | |
| to Washington, and they are thinking about buying a house. That | |
| $500 gives them the ability to buy a house if the interest rate | |
| is 10 percent. That is $5,000 more house than they could buy | |
| before you gave them a $500 tax deduction on an annual rate | |
| basis. So the leveraging effects of giving people back money | |
| for buying homes or buying cars is very substantial. | |
| Now, if you say to them, well, we are going to give it to | |
| you, but we are not sure we are going to give it to you, then | |
| they are not going to be able to make that kind of a long-run | |
| decision about housing purchases and automotive purchases and | |
| longer-run decisions that families need to make, or about | |
| decisions about how much money they should be putting away for | |
| college education. | |
| So if your intent is to help people, then you are going to | |
| have to vote to help people. If your intent is to suggest to | |
| them that maybe sometime in the future, if the sun keeps coming | |
| up, you are going to help them somehow, you are not going to | |
| get much of a value from an economic point of view by dribbling | |
| out the amounts and leaving huge uncertainty in people's minds | |
| about when they are ever going to get it. | |
| If you wanted to argue, on the other hand, you wanted to | |
| put a trigger into estate taxes or death taxes, I suppose you | |
| could do that, but I can't imagine the wrestling match you | |
| would have with your constituents when you got home and said to | |
| them, well, you know, we decided we are going to eliminate | |
| death taxes, but you better make sure you hold out until the | |
| trigger lets you do it. | |
| I just don't know how to make sense out of what is an | |
| appealing idea of a trigger except in this way. I told you a | |
| trigger I would like. I would like a trigger that said after we | |
| do the structural changes to the Tax Code, from now on, | |
| whenever we run a tax surplus at the end of a fiscal year, at | |
| the end of September 30th, of more than $25 billion, that we | |
| have a proposition which says we will send 65 or 75 percent of | |
| all the extra money we collected back to the people who sent it | |
| in, no ifs, no ands, and no buts. | |
| Secretary O'Neill. Not but, but here comes your money, and | |
| you get it, wouldn't it be great if they got it on December | |
| 1st? I would love that kind of a trigger. | |
| Mr. Clement. Thank you, Mr. Secretary. | |
| Chairman Nussle. We actually had a vote on trigger locks | |
| not too long ago. Maybe that is what we should do. | |
| Mr. Hastings. | |
| Mr. Hastings. Thank you, Mr. Chairman, and congratulations, | |
| Mr. Secretary. | |
| I think your last remark regarding the triggers is a very | |
| sound idea. I find it interesting that when people talk about | |
| triggers on anything, it is generally on the revenue stream, | |
| and never on the appropriations stream. It seems to me if you | |
| want to be fair and honest and approach it in that way, you | |
| ought to be at least consistent on both sides. | |
| Mr. Secretary, I come from a rural district, a farm | |
| district, very diversified district, in central Washington. We | |
| grow a variety of crops, and virtually none of them are doing | |
| very well right now. Some of the prospects for the future with | |
| a low water year, which is critical in eastern Washington from | |
| a hydropower standpoint, and rising energy costs, and, of | |
| course, the prospect, at least today, of farm prices not | |
| increasing, I would like to know how the President's plan could | |
| potentially help farmers. | |
| One idea, as I understand it, he is contemplating is an | |
| idea of what we call farm income management accounts or | |
| something to that extent, where a farmer can put money aside | |
| from the good years for the bad years. Would you elaborate on | |
| that, please, for me? | |
| Secretary O'Neill. Well, you know, I don't think I can help | |
| very much, because I don't know a lot more about it than what | |
| you have said. It is not an area that I, frankly, have had time | |
| in the last 5 weeks to really specialize in. But my impression | |
| and understanding of what it is the President is thinking about | |
| is exactly that, in effect a device that would allow farmers to | |
| create what you might characterize as a rainy day fund to get | |
| them over the ups and downs of the notorious cycles agriculture | |
| people have to deal with. | |
| Mr. Hastings. That is correct. I would be willing to | |
| certainly work with you on that, because that has a great deal | |
| of interest, and I know my constituents would, too. | |
| One final comment I would like to make after listening to | |
| the testimony here and remarks from members of this committee | |
| and then outside this committee about focusing on how we deal | |
| with the surplus, whether we should have a tax relief or not, I | |
| think it is just worth reminding you and my colleagues here | |
| that when we passed the Balanced Budget Act in 1997, we | |
| contemplated balancing the budget next year. So when we look at | |
| it, I recognize how tough it is to anticipate revenues way off | |
| into the future. There is no question it is an inexact science, | |
| because we missed this one here by 3 years out of the 5-year | |
| projection. So I think that is the best evidence. You are | |
| dealing with the best evidence that we have today, but, more | |
| importantly, and I mentioned this to Mr. Daniels when he was | |
| here earlier today, it is very refreshing to me to have the | |
| opportunity to debate in this committee and this Congress what | |
| we are going to do with surpluses, and also to debate in this | |
| committee and this Congress, and it has already passed the Ways | |
| and Means Committee, that we are going to have tax relief. I | |
| suspect your time in the private sector and your time here, 30 | |
| or 40 years ago, whenever it was, that that has got to be | |
| refreshing for you, too. | |
| Secretary O'Neill. I don't remember ever having an | |
| experience like this. It is a much better one than the other. | |
| Mr. Hastings. Let's enjoy it together. Thank you very much. | |
| Chairman Nussle. Mr. Moran. | |
| Mr. Moran. Thank you. I have a series of questions. | |
| Chairman Nussle. You have to turn your microphone on, right | |
| at the bottom there. | |
| Mr. Moran. Thank you very much, Mr. Chairman. That is very | |
| helpful. Boy, this technology. | |
| Chairman Nussle. The bipartisanship we are trying to show. | |
| Mr. Moran. You have to think twice. | |
| Are you a supply-sider, Mr. Secretary? Do you consider | |
| yourself a supply-sider? | |
| Secretary O'Neill. No, I don't. | |
| Mr. Moran. You don't? | |
| Secretary O'Neill. I don't consider myself much of anything | |
| that people can put a label on. I am one who believes--I forgot | |
| who it was that said, I believe, and therefore I think; | |
| therefore I am. That is what I am. | |
| Mr. Moran. I am not sure I want to get into the | |
| etymological theory, but metaphysics, this is a little more | |
| pragmatic, the questioning I want to ask of you. | |
| You buy into the theory that we need a tax cut in order to | |
| stimulate the economy as it exists today? | |
| Secretary O'Neill. I buy into the idea that we are in a | |
| very slow period in our economy, and if we can reflow some of | |
| the taxpayer money to them, it will be helpful to avoid a | |
| deeper downturn and perhaps make the downturn more shallow and | |
| speed us into the next upside improvement. | |
| Mr. Moran. What I would like to get into, Mr. Secretary, is | |
| the specifics of what you mean and some of the timing. | |
| It has been suggested that the Congress would have to act | |
| at warp speed to get a tax cut to the President's desk by the | |
| August recess, for example. Are you planning on us getting it | |
| to the President's desk and enacted before the August recess? | |
| Secretary O'Neill. I would hope before the April recess. | |
| Mr. Moran. Before the April recess. All right. Well, boy. | |
| OK. | |
| Secretary O'Neill. But you have to---- | |
| Mr. Moran. Are you thinking we are going to get this before | |
| the April recess? Holy smokes. | |
| Secretary O'Neill. If I may say one more thing on this, you | |
| know, again, I have only been here for a little while, and I | |
| just got out of the private sector. If I had decided that I was | |
| going to give my employees a raise, believe me, it wouldn't | |
| take me 9 months to get it done. | |
| Mr. Moran. This could be a very disillusioning experience | |
| for you, Mr. Treasury Secretary, I am afraid. Anyway, you want | |
| to get it done. | |
| Let's just say the experts in the budget and appropriation | |
| and legislative process are right, and it takes us until August | |
| to get a bill. Do you think there would be as compelling a need | |
| to stimulate the economy if it took, for example, 6 months, | |
| maybe even 9 months, before it could get enacted? Would it then | |
| be as needed? | |
| Secretary O'Neill. I don't know, and I don't mean to be | |
| presumptuous, but I sure wouldn't want to go home and explain | |
| to my constituencies, if the need looks like it did now, why it | |
| took me 9 months and I didn't do anything. | |
| Mr. Moran. I think it is probably going to get through the | |
| House. The Senate may be another story. What I am trying to | |
| figure out is how much of the rationale behind this tax cut is | |
| due to the need for economic stimulus. | |
| Secretary O'Neill. I would say none. | |
| Mr. Moran. None? | |
| Secretary O'Neill. The President articulated these | |
| principles and ideas beginning 2 years ago. The principles and | |
| ideas you have in front of you are exactly what he talked about | |
| when he announced his candidacy in Iowa over 2 years ago. So | |
| this is not a bill of convenience, but the idea of taking | |
| especially the rate reductions and the child credit and using | |
| them to flow money back to people right now, I think, is | |
| strongly suggested by the economic circumstances we have, and | |
| in addition to that, the structural ideas are timelessly | |
| important and valuable. | |
| Mr. Moran. So from the standpoint of trying to get this tax | |
| bill enacted, it is actually fortuitous that we have an | |
| economic downturn. But I am putting those words in your mouth. | |
| Those are not your words. | |
| Secretary O'Neill. I would tell you when I look at what we | |
| can do more for us to be a better society, not just here, but | |
| around the world, believe me, I don't welcome a downturn ever. | |
| Mr. Moran. I understand. | |
| Mr. Secretary, do you think that this could make the | |
| difference between a slow landing and a recession perhaps? On a | |
| scale of 1 to 10, what do you think are the chances that this | |
| country could go into a recessionary period? | |
| Secretary O'Neill. I don't know. Mr. Greenspan and I are | |
| good friends, and we talk to each other all the time. I talked | |
| to him a couple times this morning. I think I see the data as | |
| he does. We are running in a bandwidth now, someplace between | |
| minus .5 and plus .5 in real growth, which is to say kind of | |
| bouncing along at zero. Most of the bettors think we are not | |
| going to go into a recession. I don't know. I haven't seen | |
| enough data to draw a conclusion yet. Alan will probably draw | |
| it before I do, but I think, when you get into this kind of | |
| stage in the economic cycle, the thing that he has called a lot | |
| of attention to, and I agree it is very, very important, and | |
| those are the expectations people have and the confidence | |
| people have going forward which causes them to make that | |
| decision to buy a new house or a new car or new washing machine | |
| or to take a vacation or the rest. | |
| So economics is very important, especially in these levels | |
| of expectations and the confidence business. | |
| Mr. Moran. Let me ask you, Mr. Secretary, in a period like | |
| we have today, do you think that monetary policy is more | |
| effective than fiscal policy, particularly given the time frame | |
| for fiscal policy to be implemented? And if that is the | |
| concern, the ability to buy durable household goods, for | |
| example, and homes and so on, reducing interest rates would be | |
| more effective than fiscal policy or tax policy; would it not? | |
| Secretary O'Neill. I don't know. You know, it is not clear | |
| to me that it is really smart to do this on an either/or basis | |
| since there is general agreement. At least I have not found yet | |
| in all the testimony I have done a single Member who says to me | |
| we should have a zero tax cut, which suggests to me everyone | |
| agrees we should have a tax cut. | |
| Then the question is if we are going to do it, why don't we | |
| do it quickly, because it can be useful to a degree, and it is | |
| what I call the belts-and-suspenders approach; if you can have | |
| both, why not wear them both? | |
| Mr. Moran. Well, I appreciate your responses to these | |
| questions. I am also cognizant of David Stockman's book. I | |
| suspect you read it. So much of selling the tax cut was spin, | |
| and much of it was expedient type of spin, you know, all of a | |
| sudden they found the supply side theory, and at one point he | |
| says that supply side was really trickle down theory under a | |
| different cloak. | |
| I want to ask you specifically a couple other questions | |
| quickly. First of all, if we passed it, how long is it going to | |
| take for your IRS to change the Tax Code and to get it in shape | |
| so it will be reflected immediately in tax returns? | |
| Secretary O'Neill. Probably 5 or 6 weeks. We began--we have | |
| looked at the history. I have had a meeting with Charles | |
| Rossotti and his technical people at the IRS to look at not | |
| only the question of how quickly can we change the withholding | |
| tax, but I asked him to entertain a question, is it at all | |
| feasible to think about sending people refund checks? I think | |
| the answer to that is no. But I do think that in a 5- or 6-week | |
| period we can get the withholding tables fixed so that they | |
| will not come back to bite us. | |
| This is an important technical question of how we do this | |
| correctly so that we don't create a situation where people have | |
| more withholding. That then makes them feel like they got a tax | |
| increase next year. So we are working on these things. | |
| If I may say one more thing, you know, Stockman found it | |
| necessary to write a confession book after he left here. I must | |
| tell you, I don't ever expect to write a confession book, | |
| because what I am going to say to you all every day when I say | |
| here is exactly what I believe, and not with some duplicitous | |
| purpose and intent to mislead. | |
| Mr. Moore. We are confident that is the case, Mr. | |
| Secretary, but that is important to get down. You figure that | |
| even if we went at warp speed and got this bill enacted, it | |
| would be about 5 or 6 weeks before it could possibly be | |
| reflected in withholding, and you also said that---- | |
| Secretary O'Neill. Maybe May 1st. | |
| Mr. Moran. The idea of it really affecting calendar year | |
| 2000 tax returns is somewhat remote. Is that a fair statement? | |
| Secretary O'Neill. You know, no one I know has suggested | |
| that we should try to do a calculation based on the year 2000 | |
| tax year. No. | |
| Mr. Moran. 2001. | |
| Secretary O'Neill. Oh, yes, we could have a big effect on | |
| 2001. If you would give us the luxury of passing a tax bill, | |
| let's say by the first of April, I will figure out some way | |
| that we can--I don't know exactly how, but I will figure out a | |
| way that by May 1st the withholding tables are fixed, and your | |
| constituents will begin seeing a difference in their | |
| withholding. | |
| Mr. Moran. Wow, that is a pretty strong promise, Mr. | |
| Treasury Secretary. Good luck. I think it is probably a moot | |
| scenario, to be honest with you. | |
| Secretary O'Neill. I would love to have the challenge. | |
| Chairman Nussle. The gentleman's time has expired. | |
| There is one rule of thumb around here: You don't pass | |
| anything on April 1st. | |
| Secretary O'Neill. I would say March the 31st would be | |
| terrific. | |
| Chairman Nussle. The gentleman from New Hampshire Mr. Bass. | |
| Mr. Bass. Thank you very much, Mr. Chairman. | |
| I would admonish my colleagues not to dampen the | |
| Secretary's enthusiasm so early in his career. We sound like a | |
| bunch of hardened cynics. | |
| I must admit, having been on this committee now for 6 | |
| years, it amazes me how the debate has changed since we arrived | |
| here. The talk of deficit elimination was stuff of cocktail | |
| party jokes. As recently as 2 years ago, we never even | |
| considered the concept of making a commitment to take the | |
| entire Social Security surplus off budget. In fact, I sat in | |
| this room and was lectured about why it didn't really matter. | |
| But we moved forward substantially. I would point out to my | |
| dear friend from Virginia that this conference tried to cut | |
| taxes twice, once in 1999, $745 billion tax relief package, | |
| which was ridiculed, and secondly, last year, with the marriage | |
| tax penalty elimination, which was vetoed, and perhaps if those | |
| tax relief packages had passed, maybe the economy wouldn't be | |
| in as threatening a situation as it is today. | |
| The other observation I have to make, Mr. Chairman, is it | |
| is extraordinary to me how the debate has changed, and it | |
| should be a delightful debate, but only in Washington and in | |
| Congress can you turn a subject as good as discussing the | |
| disposition of the surplus into a disagreeable debate. | |
| I would also like to extend, if I could, for a second, the | |
| President's Goldilocks quote, as I think it is going to come to | |
| be known, to a rather somewhat broader range. You come from a | |
| business background, and so do I, and when you have what can | |
| only be called a workout situation with the U.S. Government, | |
| which we have experienced here, what do you do when you | |
| suddenly develop or discover that you have unanticipated | |
| revenues and profits? You do three things: You might make some | |
| investments in new equipment, which is what we are talking | |
| about with defense spending and education and so forth; you | |
| also might give the owners a little dividend so that they | |
| continue to invest and have faith in your endeavors; and you | |
| pay down some debt, because the banks force you to do so. | |
| The President's budget is not only correct on the tax cuts | |
| area, but it is also just right in seeking to achieve the | |
| balance in reducing debt, making investments as they are now | |
| known, or increased spending, and also cutting taxes. | |
| I would only say, Mr. Secretary, that I hope that although | |
| we won't talk about money management at this point, that we can | |
| pay down as much debt as we possibly can, and that we endeavor | |
| not to become overly invested in the long-term securities, | |
| because that would further limit our ability to pay down the | |
| debt 8, 10, 12, 15 years from now. | |
| I yield back to the Chairman. | |
| Chairman Nussle. Thank you, Mr. Bass. | |
| Mr. Moore. | |
| Mr. Moore. Thank you, Mr. Chairman. | |
| Welcome, Secretary O'Neill. I am new to the Congress, just | |
| 2 years here at least, so I am learning along with you. But I | |
| appreciate your testimony. | |
| I wanted to just ask you a few questions, make some | |
| observations, I guess. You have indicated that Chairman | |
| Greenspan is a good friend of yours, and you know from talking | |
| to him, I am sure on a daily basis, and hearing his testimony | |
| before the Senate Budget Committee and the Financial Services | |
| Committee more recently that his first priority still is paying | |
| down national debt before tax cuts even. You understand that? | |
| Secretary O'Neill. Right. | |
| Mr. Moore. Do you agree with him on that? | |
| Secretary O'Neill. Yes, and I think we are doing that. | |
| Mr. Moore. OK. Well, I heard, and I am talking about just | |
| weeks ago, Democrats and Republicans saying in unison, we | |
| should take Social Security and Medicare off the table before | |
| we do anything else. So when you look up at the chart up here, | |
| you see $5.6 trillion. I am rounding it off to the tenth, $5.6 | |
| trillion. If you took Social Security and Medicare off, you | |
| would have about $3.1 trillion off, which would leave about | |
| $2.5 trillion. We can have a discussion about how you take it | |
| off the table and how you, in fact, lock it up or where you put | |
| it to be sure, but if my math is right, we end up with about | |
| $2.5 trillion if you take Social Security and the Medicare | |
| figure off. | |
| My feeling is, and I think a lot of the people, I feel, | |
| there--I am not going to speak for the Democrats--I feel we | |
| should do that before we start talking about how we allocate up | |
| the surplus that is left, and that would be about $2.5 | |
| trillion. And what I would like to see, frankly, is that we use | |
| some of that for the initiatives the President has identified, | |
| and I agree with him on several of those, such as education, | |
| such as strengthening national defense, and such as the | |
| prescription drug benefit. Then I would like to see us also | |
| commit a significant portion to debt reduction beyond the money | |
| that we have taken off the table for Social Security and | |
| Medicare. | |
| That is where I think we differ from my friends across the | |
| aisle here, because as I at least understand what is happening | |
| here, the President basically is taking $2 trillion out of | |
| Social Security and using that to pay down debt and says, | |
| there, we have paid down debt. | |
| Well, in fact, we may have, and we have put ourselves and | |
| the country in a better position in the future because of that | |
| debt reduction, but what I am talking about is taking all that | |
| off the table before we pay down the debt, and the President is | |
| using parts of that money of Social Security to pay down the | |
| debt. Do I misunderstand? | |
| Secretary O'Neill. Yes. | |
| Mr. Moore. Please correct me. | |
| Secretary O'Neill. I am trying to think about how I can | |
| explain the difference between program flows and cash flows in | |
| a way that gets to what I think is a very sincere question on | |
| your part. | |
| Mr. Moore. It is. | |
| Secretary O'Neill. The Social Security money and the | |
| Medicare money that is coming in in a definitional sense that | |
| goes into a trust fund, everyone has agreed these dollars will | |
| only be spent for these purposes. But if you can think about | |
| when the cash is coming in, those represent funds in excess of | |
| current needs to pay benefits to people who are entitled. So | |
| now, look at me, I am your friendly banker, and I have got all | |
| this money coming in. What do I do with this money? If I don't | |
| invest it, then it is losing value. So what am I going to do | |
| with it? I am going to invest it, and in a Federal context that | |
| means I am going to reduce debt held by the public down to the | |
| point that I can't go any further. | |
| Mr. Moore. I do understand that; and I have only been here | |
| 2 years, but I do understand that. Let me stop you 1 minute. I | |
| appreciate your straightening me out, but I do understand that. | |
| I guess what I am saying is we are--and most people in the | |
| country might not agree with this, but we in Congress, both | |
| sides of the aisle, are intelligent people who want to do the | |
| right thing by our country. I would think that you and the | |
| Congress working together could figure out some way to actually | |
| take that money figuratively off the table and put it in a | |
| lockbox, and I don't mean in a mattress, I am not talking about | |
| that; and we can have a debate whether it should be in an index | |
| fund or whatever, because a lot of States and municipalities do | |
| that without any dire consequences, I think. You are shaking | |
| your head, and I understand you don't agree with that, but I am | |
| saying, that is one option. I am certain we could come up with | |
| other options. No? Well,---- | |
| Secretary O'Neill. Well, you know, I suppose certainly | |
| there are people who have your views who don't think it is | |
| corrosive of our society for the Federal Government to begin | |
| controlling private assets. As I have already said to you, I | |
| think it is the most corrosive of ideas, because I have a | |
| really great fear that it will erode the entrepreneurial spirit | |
| with what it means to be at risk of failure. If you are not at | |
| risk of failure, it makes an enormous difference in how well | |
| you are able to concentrate your mind to produce value for the | |
| society. | |
| Mr. Moore. OK. I do, and I voted last time, to support | |
| relief in estate tax and marriage penalty tax, and I still | |
| believe those ideals. But I have a very great fear that we have | |
| placed a $5.7 trillion mortgage on our kids and grand kids' | |
| future, and that is absolutely not fair. | |
| I think if Alan Greenspan were sitting right here, he would | |
| say, there are several benefits of debt reduction, first. One | |
| is eliminating, or at least getting rid of a substantial | |
| portion of that $200 billion plus interest figure we pay each | |
| year; secondly, is keeping interest rates lower; and thirdly, | |
| is just equity and fairness to future generations in this | |
| country. | |
| Secretary O'Neill. We are going to do every one of the | |
| things you just said. With what the President has proposed, we | |
| are going to do every single one of the things you said. | |
| Mr. Moore. I understand, but it seems to me, and I say this | |
| with total respect and I mean this, it seems to me like when | |
| you are taking the $2 trillion out of Social Security, you are | |
| really kind of double-counting the money. | |
| Secretary O'Neill. No, we are not. Not at all. Not at all. | |
| Mr. Moore. It seems to me that, but I respect your opinion. | |
| Thank you. | |
| Chairman Nussle. Mr. Brown. | |
| Ms. Brown. Thank you, Mr. Chairman. | |
| Mr. Secretary, you gave a figure earlier about the amount | |
| of money that is being refunded to the lower income tax--lower | |
| income earners, I guess. What was that amount? | |
| Secretary O'Neill. My recollection is $32 billion on the | |
| earned income tax credit this year. | |
| Ms. Brown. So this is people that don't pay any taxes, but | |
| get a check back? | |
| Secretary O'Neill. That is right. | |
| Ms. Brown. I was reading your remarks and I notice that you | |
| said in 1988 that 10 percent of the income earners pay 65 | |
| percent of the tax. | |
| Secretary O'Neill. That is right. | |
| Ms. Brown. And the bottom half paid 4.2 percent. That was | |
| in 1998. And after, in effect, the President's tax plan, then | |
| 10 percent of the income earners would pay 66 percent---- | |
| Secretary O'Neill. That is right. | |
| Ms. Brown [continuing]. Of the tax. What percent would the | |
| bottom half pay? | |
| Secretary O'Neill. It is fractionally lower. It is 3\1/2\ | |
| or something like that, but it is lower. It is the point I have | |
| been trying to make all afternoon, that the President's tax | |
| proposal is more progressive than the tax system as it exists | |
| today. | |
| Ms. Brown. That is where I am leading, and I hope I can ask | |
| the proper questions in order to clarify my point. | |
| If we are, in effect, getting $32 billion worth of tax | |
| credits back, what of what percent then would the wage earner | |
| be credited to the limit of what he pays in for Social Security | |
| and Medicare; primarily Social Security, because Medicare-- | |
| well, both Social Security and Medicare are both special | |
| reserve funds for a special purpose. | |
| Secretary O'Neill. Well, let me do the numbers in my head. | |
| I am not sure it is quite right, but let us say this year we | |
| are going to take in--I am rounding out $2 trillion, and 4 | |
| percent of that is $80 billion, and if $32 billion is | |
| subtracted from that $80 billion, then you have reduced the | |
| amount to $50 billion coming from that low income group. So in | |
| relative terms, you are reducing the burden on the lowest part | |
| of the population by something like 50 percent. | |
| Ms. Brown. OK. So what we--I guess in reference to Mrs. | |
| Clayton's question then, we have made concessions to that low | |
| income group. | |
| Secretary O'Neill. Absolutely. | |
| Ms. Brown. OK. Thank you very much. | |
| Chairman Nussle. Thank you. | |
| Mr. Davis. | |
| Mr. Davis. Thanks, Mr. Chairman. | |
| Mr. Secretary, I really appreciate your plain speaking | |
| style here. | |
| Could you briefly tell me why you all decided to set up | |
| what you are referring to as this contingency fund? | |
| Secretary O'Neill. Well, it just seemed to be a way to | |
| communicate to the American people that we are not going to the | |
| limit of what one might consider in spending the whole surplus | |
| or giving back in tax relief all of the surplus, and | |
| recognizing the reality of what I have heard even here today, | |
| that there are lots of members, and I think lots of committees, | |
| and probably each House of the Congress will have things that | |
| they are going to want to continue doing where they don't agree | |
| with us about things that should be stopped, or new initiatives | |
| that they would like to add in. I heard it this morning. | |
| Mr. Davis. Mr. Secretary, I am very distressed that at the | |
| time we are beginning our discussions as to this blueprint, we | |
| have already passed a tax cut in the House Ways and Means | |
| Committee that may approximate $950 billion. | |
| My question to you is, if you would accept my assumption | |
| that we may deplete this entire contingency fund through these | |
| spending proposals up here, does that not distress you about | |
| the impact the tax cut might ultimately have on our ability to | |
| pay down the debt in this session of Congress? | |
| Secretary O'Neill. I tell you what, I would be--forget | |
| about whether I am Secretary of the Treasury or not. I would be | |
| horrified if I thought that the prospect was that we were going | |
| to continue to grow Federal spending at 2 or 3 times the real | |
| productivity increase in our society. It seems to me that the | |
| way to kill our society is to have the rate of increase in the | |
| public sector growing at 2 or 3 times what the private sector | |
| is able to produce, because what the private sector is able to | |
| produce as a residual fraction will go down and down and down. | |
| If you think about an 8 percent rate of growth, which is what | |
| we had last year in Federal spending, at that level, it takes 9 | |
| years for the Federal budget to double, which means we go from | |
| $2 trillion to $4 trillion a year in 9 years is a frightening | |
| prospect. | |
| Mr. Davis. But Mr. Secretary, would you also agree that if | |
| we are going to be responsible in our spending habits, we ought | |
| to take into account population growth as relates to those | |
| programs that are based on population? | |
| Secretary O'Neill. Our population growth, believe me, is | |
| not growing at anything like an 8 percent rate. The incremental | |
| growth in our population for the last 25 years or so has been | |
| between 3\1/2\ and 4 million people a year. So there is no way | |
| too justify 8 percent growth rates on the back of a population | |
| growth. | |
| Mr. Davis. Can you give us any numbers that we can | |
| associate with the various proposals, many of which are | |
| supported by Democrats and Republicans that the President has | |
| advocated, starting with defense? | |
| Secretary O'Neill. Well, we don't have a proposal to | |
| increase defense any more than the $14 billion, which is still | |
| a staggering sum to me; $14 billion year-to-year increase for | |
| defense. The President has asked the Secretary of Defense to do | |
| a complete strategic review, and to come back with | |
| recommendations as to how we can create the international | |
| military force and capability that we need for the future, | |
| without an assumption that we must maintain everything that we | |
| have had in the past because it doesn't seem to wash very well | |
| that, in fact, the way we are organized and the deployment of | |
| weapons we have makes any sense when you look at the future | |
| instead of at the past. | |
| So I think it is very likely that the Secretary of Defense | |
| will come back with a convincing case that we do need to spend | |
| some more money, but I am also very optimistic he will come | |
| back, because I know him well and I know his intellectual | |
| capability and experience in being Secretary of Defense before, | |
| he will not come back with an add-so program, he will come back | |
| with a program that is a combination of new money and the | |
| redirection of monies that are currently being spent. | |
| So I think what you will see for defense will be | |
| responsible, but it will not be adding on to what we have | |
| already done. | |
| Mr. Davis. Mr. Secretary, as we get closer to dealing | |
| seriously with this tax cut, if it appears there is a risk that | |
| defense spending will increase substantially, wouldn't it be | |
| wise for us to determine what those figures are before we had a | |
| full debate on the magnitude of the tax cut? | |
| Secretary O'Neill. Well, you know, I can't imagine it | |
| impinging on this issue. Right now, if I understood you, the | |
| bill that is moving through the House process right now is $900 | |
| billion, still an amazing amount of money to me; $900 billion, | |
| nevertheless is less than a fifth of what I think we have all | |
| agreed is a likely surplus of $5.6 trillion. So if I were you, | |
| I would not be too fearful of $900 billion being given back to | |
| the American people in a way that creates a more progressive | |
| tax system with emphasis on low- and moderate-income taxpayers | |
| that leaves a higher portion of the population paying more. | |
| Yes, you may want to do a whole lot more for subsequent tax | |
| bills, but I would certainly not have any fear for doing the | |
| right thing about the most important priority and doing it in a | |
| timely way right now. I would have no fear at all. | |
| Mr. Davis. Mr. Secretary, what should be our top priority, | |
| tax cuts or paying down the debt, if you had to choose between | |
| the two? | |
| Secretary O'Neill. I don't think we have to make a choice | |
| at all. I think we can do both, and I think we have | |
| demonstrated how to do it and we are ready to do it. | |
| Mr. Davis. But if the surplus projections should change; if | |
| Congress should not do an appropriate job in its spending | |
| habits which, by the way, it has failed to do in the last 3 | |
| years, even when the Republicans control the House and Senate, | |
| and they generally tend to do a better job than Democrats, if | |
| those do occur and we do have to choose, what should be our top | |
| priority, paying down the debt or a large tax cut? | |
| Secretary O'Neill. Well, again, let me say, if you take the | |
| tax number that you have given me of $900 and you add to it the | |
| amount of debt that we are rationally going to be able to defer | |
| over the next 10 years, it is about 50 percent of what everyone | |
| would stipulate is a likely flow of surpluses, I don't think | |
| you have to make a choice when you have a 50 percent free ride | |
| or free board to take care of contingencies and appetite for | |
| spending and all the rest of that, so I don't think there is a | |
| choice to make. | |
| Mr. Davis. Thank you. | |
| Thank you, Mr. Chairman. | |
| Chairman Nussle. Mr. Watkins. | |
| Mr. Watkins. Thank you, Mr. Chairman, and members of the | |
| committee. | |
| Mr. Secretary, it is good to see you again. | |
| Secretary O'Neill. Thank you. | |
| Mr. Watkins. Mr. Secretary, I come to Congress from the | |
| private sector, having met payrolls and trying to invest back | |
| into the community and trying to create private sector jobs. So | |
| I come to this Congress with a mission. I don't look at | |
| politics as being the end of itself, I look at politics as | |
| being the vehicle of trying to do some things, and my overall | |
| purpose is to try to build private sector jobs in the economic | |
| depressed rural areas of this Nation. I think our answer is the | |
| private sector. | |
| I was listening to some questions a while ago, and one of | |
| the things we can be thankful for, I think in relationship to | |
| the overall growth in our GDP, the growth of government, is a | |
| little less, and I think that has put it in the perspective of | |
| what we need to keep our eye on compared to what the overall | |
| growth of our GDP may be. | |
| Mr. Secretary, I think you are a policymaker, a problem- | |
| solver in seeking as a policymaker to solve a lot of problems | |
| we might have. And I agree we have some uncharted courses out | |
| there and some of them I think are really great and others of | |
| them I am kind of wondering where that uncharted direction may | |
| be going. | |
| First, uncharted surpluses, that is a wonderful problem to | |
| have. That is a great one. We can buy down our debt all we can | |
| without having to pay a penalty, and I understand that it is | |
| just like trying to pay off a home. You don't want to pay off a | |
| home if you have to pay too huge a debt or a penalty to pay the | |
| last part of that mortgage off. So I think we can handle that | |
| one. We should be able to not screw that one up, hopefully. | |
| Then too I have a concern, and I noticed that Mr. Greenspan | |
| didn't know exactly also the uncharted waters of the huge trade | |
| deficits we have. I know when I became very interested in trade | |
| 20 years ago, we had about a 65- to $70 billion trade | |
| imbalance, and today it is a $375 billion trade imbalance, and | |
| the way that money is being utilized in those areas with the | |
| trading balances can definitely affect the future of this area. | |
| Another area, though, I think of great concern I have, is | |
| we are in a recession in rural America, in the small town, | |
| rural America, and it seems like we have no one who is willing | |
| to champion the cause of saying that it would be best for | |
| America for us to sustain and maintain a strong economic base | |
| in that area. When I talk about rural America, rural America is | |
| agriculture, but it is more than agriculture. I have two | |
| degrees in agriculture. I have a love for agriculture. I am an | |
| old former State president of the Future Farmers of America and | |
| president in agriculture school, so I don't back up to anyone | |
| about agriculture. | |
| But we cannot save rural America with just agriculture | |
| jobs. We have to have off-farm jobs because things have | |
| changed, and we have not only a recession, but we have a | |
| revolution that is taking place out there and the sustaining or | |
| being able to have a strong common rural America is in | |
| question, whether we can pull that together. | |
| Now, where am I going with that? In my area, I had to leave | |
| it as a youngster 3 times before I was 10 years of age with my | |
| parents to go to large cities to find a job. It made a burning | |
| imprint on my life. That is why I am devoted totally in my | |
| public life to try to change those economic conditions. | |
| In my district, most of my district is less than 40 percent | |
| of the national average, per capita income; not from the top, | |
| the national average, and when you get into the native | |
| Americans and others, it is even worse. But it seems like | |
| nowhere are we willing to address that. Nowhere. I keep | |
| sounding, it seems like a lonely voice that doesn't ever get | |
| heard, and I feel like it is totally ignored. | |
| That is why I am kind of--I believe in you. I believe you | |
| are a policymaker that can solve problems and we need too | |
| concentrate on how we can let some of this great economic | |
| growth over the years, the high-tech industry, be directed | |
| toward the rural areas of this country. I have talked to a lot | |
| of those companies. I don't have a fortune 500 headquarters in | |
| my district. I have 22 counties throughout over one-third of | |
| the State of Oklahoma, and I don't have a Fortune 500 | |
| headquartered there. I have some warehouses that have some | |
| timber in my area, but it is way out in Oregon, as you know. I | |
| don't have an Alcoa Aluminum, but I would love to have one in | |
| my area. | |
| I heard all of these companies that talk about layoffs. I | |
| don't have any major companies that can lay off. Because our | |
| out-migration over the last 20 to 40 years has been tremendous. | |
| When I was State FFA President back a number of years ago, | |
| about 35 years ago, 16 percent of us were in the production of | |
| agriculture. Today there is only 1\1/2\ percent of us in the | |
| production of agriculture, and that has not been addressed. In | |
| fact, I want to ask you to look at that with me, because we | |
| have to try to say, how do we resolve that problem in small | |
| town rural America and also, how do we solve the trade problem, | |
| which is a major problem also. | |
| Farmers who 70 years of age, 65, 70 years, they find | |
| themselves with their backs to the wall, they are locked in | |
| because they have had to farm with the inflationary value of | |
| their land they owe there. At the same time they cannot sell | |
| because they have capital gains and they cannot pay off their | |
| note, so they are locked, and many of them are having some real | |
| stressful situations develop because of that, and many of the | |
| situations are with native Americans. | |
| I guess what I want to ask you is what are you willing to | |
| do about trying to help us solve these and not leave that a | |
| void in that overall budget for the economic growth of the | |
| small towns and rural areas, and also the trade situation on | |
| how we are going to be able to--I know those are two broad kind | |
| of statements, but I think I might as well pitch it out to you | |
| and let you worry about it with me. I need somebody to worry | |
| about it with me. | |
| Secretary O'Neill. I look forward to working with you on | |
| this development problem. In the time I have spent wandering | |
| around the world, including where my family came from and where | |
| my wife's family came from, I know about rural America and | |
| about what it is like to be a farmer. There is a saying that | |
| you know well: farmers live poor and die rich, and it is not a | |
| bad characterization of what it is really like out there. | |
| It is amazing to me what is going on. I was out not too | |
| long ago and spent a morning riding on the newest of modern | |
| combines and watched the computer up in the corner of the cab | |
| telling my relative, the owner, what the moisture content was | |
| and making a computer map so that when the mapping happened in | |
| the spring, the computer would know where to put down extra | |
| fertilizer in order to get a higher yield. It is just | |
| staggering on the one hand to see that, and then to see people | |
| in the part of the rural world you are talking about and living | |
| there who just are--just scratching out an existence in little | |
| towns. | |
| I would give you a piece of advice. You mentioned you don't | |
| have any Fortune 500 headquarters. You don't really want one of | |
| those. The troublemakers are all in headquarters and they get | |
| fired all the time. What you really want is a plant that makes | |
| things for people that other people want to buy. | |
| Mr. Watkins. If you will just send me one of those, I will | |
| gladly make sure that--let me share with you, and I think my | |
| Chairman here agrees with this statement, 100 percent because | |
| he has a rural background. You know, we know how to produce. I | |
| spoke the other day and gave a talk, they wanted me to name a | |
| topic and I called it American agriculture, changing from the | |
| PTO to the WTO. PTO, being a pilot takeoff on a tractor, is | |
| likely to get bigger and bigger and all the modern things. The | |
| WTO--we have to be able to sell it. | |
| Secretary O'Neill. I agree with you. | |
| Mr. Watkins. That is what we have to talk about, because | |
| our trade people have sold us down the drain. I talked to Bob | |
| Zellick about this for an hour and a half. We locked in with a | |
| peace clause in the Uruguay Rounds, $7 billion of export trade | |
| assistance for the European Union. We have less than $200 | |
| million and what we don't use, they will. We sold our farmers | |
| out. We did. You know? And we have to try to be stronger about | |
| that along the way. | |
| Secretary O'Neill. We are going to work with you on these | |
| trade issues. | |
| Chairman Nussle. The gentleman's time has expired. I | |
| hesitate to interrupt you when you are making the kind of | |
| passioned plea for farmers that you are making, but I need to | |
| interrupt you because we need to move. | |
| Mr. Watkins. I appreciate you letting me get it off my | |
| chest. Thank you. | |
| Chairman Nussle. Thank you. Mrs. McCarthy. | |
| Mrs. McCarthy. Thank you, Mr. Chairman. | |
| Now, Secretary O'Neill, you know why this will not be done | |
| by the end of May. | |
| Secretary O'Neill. I believe in working into the night. You | |
| are very patient, by the way. | |
| Mrs. McCarthy. But, I mean, here is where we all come | |
| together on this. Number one, I think everybody should know, | |
| there is going to be a tax cut and there will be a tax cut, | |
| because I think both sides of the aisle agree there should be a | |
| tax cut given back. The problem is as we go through all of our | |
| appropriations, what Mr. Watkins was saying for his farmers is | |
| absolutely true. We also know that we are going to have many | |
| laborers laid off in the garment industry, that will even go | |
| down more, so retraining has to come, and of course, money is | |
| well spent when we can put people to work, even though it is | |
| probably going to be in a different field, so we have to think | |
| about that. | |
| But I am going somewhere else. I have spent my life as a | |
| nurse, so what I am concerned about, when you see all of this | |
| surplus and paying down the debt, I am looking 10 years down | |
| when my baby boomers are going to retire. I am looking at my | |
| senior citizens that live in the New York area, it would look | |
| like they have a good income. Unfortunately, because of State | |
| taxes, local taxes and everything else, they are hurting a | |
| little bit. They can't pay for their prescription drugs. And I | |
| guess if we go into different parts of this country, we are | |
| going to see that people would rather have those services given | |
| to them than having their amount of taxes returned to them. | |
| I have to think that here on the Federal level, especially | |
| the last several years, they have done a good job on cutting | |
| back waste and fraud. Can we do better? Absolutely, and we can. | |
| But when we talk about saving, which I am saving rapidly now | |
| for my retirement, because I always worked as a nurse part- | |
| time, we never got a great salary, so now I am working like | |
| crazy and trying to put away as much money as possible, so | |
| whatever I have as a pension will also supplement my Social | |
| Security, and I encourage my staff to do that. | |
| Here we have, paying down the debt, where are we going to | |
| go when our baby boomers retire? Our veterans are getting | |
| older, and we know the last 3 months of their life is the most | |
| expensive of their care, and we have promised to take care of | |
| them, and that is why when we talk about encouraging our young | |
| people to save, that is why I think here in the government, we | |
| should be taking a pretty good part of that surplus and saving | |
| it, because we are going to have a rainy day. Seven months ago | |
| we would not have even been talking about a slowdown. We don't | |
| know. | |
| I would be more comfortable giving a heck of a lot of tax | |
| cuts now and having them come out in the first 5 years and then | |
| say hey, if we are doing a great job here, the next 5 years, | |
| let us give another tax cut, but we have to prepare for the | |
| future. We tell our kids, everyone here tells us, we have to | |
| save, we have to save for that rainy day, and that is what we | |
| are doing here. But really, Medicare is in trouble now, and it | |
| is. Our hospitals are on bare bones, and when our hospitals on | |
| our bare bones, are nurses are laid off. When our nurses are | |
| laid off, everyone down the whole line is, and no one even | |
| wants to go into the health care field any more. | |
| So here we have our farmers that are hurting across this | |
| country, and they are; here we have elderly people that can't | |
| afford to take their drugs, and they can't; and we have to | |
| prepare for the future, baby boomers, our veterans; we have a | |
| lot to do here. | |
| So the monies that we do spend here--and like I said, I am | |
| all for cutting back as much as we can, but we as a Nation work | |
| together. You know, I live on Long Island and people say to me, | |
| what do I care about agriculture? Well, you know why? I got | |
| some farmers out on the east end and I got farmers up in | |
| upstate New York that are hurting really bad, and we have to | |
| take care of our farmers. | |
| Mr. Watkins. If the gentlewoman will yield, every one of us | |
| eats about 3 meals a day, so we are involved in agriculture. We | |
| are eating, you know? | |
| Mrs. McCarthy. I know, but we have to prepare for the | |
| future too. So this is where we are saying, we are going to | |
| have a tax cut, and we will, before this Congress is over, we | |
| are going to have a tax cut. Now, whether it is $1.6 billion, | |
| or Democrats are saying what, $900 billion? I know if you had | |
| asked me to say this 4\1/2\ years ago, I would go, we are not | |
| talking a heck of a lot in-between here for the programs that | |
| we want to help for the rest of the people. It is going to get | |
| done. It will. This is the beginning. This is a blueprint. It | |
| is a blueprint, and I am hoping that by the time we finish up, | |
| we will all be on the same page. Thank you, Mr. Secretary. | |
| If you have any comments on that, I would love to hear it. | |
| Secretary O'Neill. I would just make one comment to you, | |
| and I look forward to working with you on your specialty area | |
| of health and medical care. | |
| This is an area that I have spent 30 years working on, and | |
| in the last 5 years of leading a group in Southwestern | |
| Pennsylvania to demonstrate what I believe to be true, which is | |
| this: that if we properly organize the way we deliver health | |
| and medical care in our society, that we can reduce the cost by | |
| 50 percent, and I don't mean by cost-cutting, I don't mean by | |
| cost-cutting, I mean by doing things correctly the first time, | |
| which necessitates using some technology that is widely used in | |
| other businesses. | |
| I will give you an example. I don't want to take too much | |
| time, but if I go to Rome and I get this card out of my wallet | |
| and I stick it into the ATM machine, you know what? They know | |
| who I am. They know how much money I have. They give me what I | |
| want and they make a deduction in my U.S. bank account with | |
| American dollars. | |
| If you have a card like this and you go into a medical | |
| provider, a card that is supposed to be your medical access, | |
| almost inevitably, there may be some exceptions, but almost | |
| inevitably, after you give them your card, they give you a | |
| clipboard with 3 pages on it for you to fill out like they | |
| never saw you before, even if your sister works there, all | |
| right? I mean, at the very front end of medical care, we are | |
| still working as though we were in the 17th century. | |
| I think I can demonstrate to you that we can improve the | |
| value equation for medical care 50 percent, and we need to get | |
| on with it, because if we would only do that, we would stop | |
| destroying the morale of the people in the medical sector who | |
| believe, because of what goes on here in Washington, that they | |
| are the targeted enemy of the people, because of what is going | |
| on and the way that they are thought about here in Washington, | |
| as a bunch of ne'er-do-wells. You don't think this about your | |
| own doctor or nurse, but the general impression that comes from | |
| Washington down to the provider community is, you think we are | |
| all out to gouge you, that we don't like people, we don't like | |
| patients, and we are going to do every trick we can to get more | |
| money out of the Federal Government. | |
| I am sure you know this. Go talk to your doctors and nurses | |
| about what they feel about what the attitude is of the American | |
| government toward them as a professional class. It is a | |
| disaster. And it is part of the reason we are not getting the | |
| productivity improvements that we should. | |
| Mrs. McCarthy. Well, I mean everything is on a computer. I | |
| mean any of us that have gone in for a checkup or an emergency | |
| treatment, everything is by computer. | |
| Secretary O'Neill. Do you own the records | |
| Mrs. McCarthy. Do I own the records? I can get the records, | |
| yes. | |
| Secretary O'Neill. I know, but that is not the same as | |
| ownership. In a system that is designed around human beings | |
| with rights and responsibilities, you would own the record and | |
| you would have on that little card I showed you information | |
| that would hook you up to the Internet so that if you went to | |
| London for a conference and you got sick, you could put it into | |
| the machine and you could download for the provider in London | |
| all of your medical history, including drug allergies and a | |
| combination of things that you shouldn't have. You know, all of | |
| this stuff is available out there in the technological world, | |
| and none of it exists for the benefit of today of human beings | |
| as we live our lives. It is just an illustration of how much we | |
| can do. | |
| I am sure you all must have seen the Institute of Medicine | |
| report. Accidentally, we are killing 100,000 people a year | |
| because of medication errors, and nosocomial infections, just | |
| to name a couple of obvious ones. This is all about how we can | |
| improve productivity in our society at a rate that we haven't | |
| even dreamed about in this important area of our life. | |
| Mrs. McCarthy. I am sure everybody here would agree then, | |
| let us take the difference in our tax cut and just do it. | |
| Secretary O'Neill. Listen to me. Today we are spending $1.3 | |
| trillion on this important subject in our society. If we | |
| implemented what we know how to do, we could reduce the cost | |
| $650 billion a year, and if you look at the 10-year run-out of | |
| numbers for Medicare and Medicaid, a huge portion of the money | |
| that is going to come into Washington, with the assumption that | |
| we don't have any productivity improvements in health and | |
| medical care, it is going to go right there. We should not let | |
| that happen. | |
| Mrs. McCarthy. Could we have a hearing on this in the | |
| future? | |
| Chairman Nussle. It sounds like a good suggestion. | |
| Mrs. McCarthy. Thank you, Mr. Chairman. | |
| Chairman Nussle. I appreciate your time too. | |
| Mr. Putnam. | |
| Mr. Putnam. Thank you, Mr. Chairman. | |
| I appreciate my colleague from the Ways and Means | |
| Committee's remarks about the FFA. I think I am still eligible | |
| to be a member. | |
| Mr. Secretary, I appreciate you being here and I appreciate | |
| your endurance. I was fascinated by my colleague from Florida's | |
| remarks about the contingency funds, and coming from a State | |
| that does have rainy day funds that work very effectively, but | |
| it is a State that allows some of those funds to be deposited | |
| in private securities, and that is a different issue because it | |
| is a State and it is a drop in the bucket. | |
| What vehicle would you anticipate the Federal Government | |
| using to hold the $1 trillion in rainy day reserve funds that | |
| the budget blueprint anticipates? | |
| Secretary O'Neill. Well, this is, in fact, an accumulation | |
| of funds over this 10-year period and, you know, with the debt | |
| buy-downs that we are doing, it really represents additional | |
| debt capacity that we have rather than funds that are in a | |
| mattress some place. So, you know, of the $5.6 trillion, when | |
| you look at the breakdowns of the pieces, you need to | |
| distinguish between debt capacity availability and money | |
| available. It is a complicated intersection, because these | |
| funds are going to flow in over the next 10-year period. But in | |
| effect, it represents buying capacity for things that we decide | |
| we want to do, including--you know, if we got to the other end | |
| of this tunnel in 10 years and we haven't spent any of those | |
| funds, it becomes the subject of another tax reduction, or more | |
| program spending if that is what you want to do with it. | |
| Mr. Putnam. So you are saying that at no point will the | |
| revenues outpace our ability to buy back debt? | |
| Secretary O'Neill. Absolutely. | |
| Mr. Putnam. OK. That clears a lot of it up. | |
| What percent of Americans pay no Federal income tax? | |
| Secretary O'Neill. You mean legally or illegally? | |
| Mr. Putnam. I just left the Marc Rich pardon hearing. Let | |
| us stick with the legal ones. | |
| Secretary O'Neill. Let me see. Do I have a number in my | |
| head? I honestly don't have a number in my head, but I would | |
| guess, let us see, 8 million to 10 million who are attached to | |
| the work force. | |
| Mr. Putnam. And then what would that be assuming that there | |
| is this restructuring of the Tax Code? | |
| Secretary O'Neill. It is going to go up another 3 million | |
| or 4 million people with the restructuring that is proposed. | |
| Mr. Putnam. What are the social implications of having a | |
| population of Americans that large who do not have a direct | |
| nexus to their civic responsibility as Americans? The | |
| assumption being that roads, bridges, tanks, schools are free, | |
| or that they come from something--some nebulous body called | |
| government, from a social perspective. | |
| Secretary O'Neill. You know, I am glad you followed this | |
| line of questioning, because it lets me now be on the other | |
| side and say, I think it is really imperative that people that | |
| are attached to the work force pay something, and that is what | |
| Social Security taxes are all about. It is an obligation as an | |
| adult member of the community to provide something for your own | |
| future, and I think it would be a disaster for us to turn | |
| Social Security into a ``welfare program'' and, in effect, | |
| relieve people of the responsibility as adults not to at least | |
| in part provide for their own future well-being with retirement | |
| funds. | |
| Frankly, I would like to see us do it for medical insurance | |
| as well and insist that, you know, if you are an adult, able- | |
| bodied citizen of the United States, it seems to me if you have | |
| a job, this is important, if you have a job, you have an | |
| obligation not to become a ward of other people because you | |
| have decided to consume monies that legitimately should be put | |
| aside for your own future responsibility. It seems to me a | |
| fundamental notion of a successful democracy that people have | |
| responsibilities for themselves and to others. | |
| So I think it makes perfectly good sense to expect people | |
| to pay Social Security taxes. It is quite OK with me if, on the | |
| other hand, we say, until you get to a certain level of income, | |
| you shouldn't have to pay income tax. And, to the degree we | |
| want to and can afford it to say to people, we are even going | |
| to give you a negative--earned income tax credit in a way is a | |
| negative income tax, and we are prepared to give you some | |
| additional resources because it costs hard money to live in our | |
| society. | |
| That is all OK with me, but I don't think we should get | |
| confused about what are the responsibilities of adult | |
| citizenship in the United States. So I would maintain we must | |
| keep Social Security as a requirement that all adults pay into | |
| it, and to the degree that we want to counterbalance it with | |
| other social policies, that is OK. | |
| Mr. Putnam. Thank you. I would just follow that up by | |
| saying that we all know that there is this perception out there | |
| that everybody has their own Social Security account already, | |
| that what they have paid in has their name on it, it is waiting | |
| on them when they retire. So I think that, you know, just to | |
| add to what you said, the impact of paying income taxes above | |
| and beyond Social Security is that it imposes that civic | |
| obligation that there is a greater need out there beyond | |
| yourself for national defense, for the common good, for the | |
| general welfare. And it is a little bit--I understand, of | |
| course, we have a progressive tax, and those people who are | |
| least able to afford it should pay the least, but I think that | |
| there is a potential destabilizing effect on society to have a | |
| burgeoning class of people who lose that nexus. | |
| I see the yellow light and I will just stop right there. | |
| But thank you, Mr. Secretary, for coming. | |
| Secretary O'Neill. Thank you very much. | |
| Chairman Nussle. Mr. Collins, you are going to get the last | |
| word here today, I think, or at least the last session of | |
| questioning. | |
| Mr. Collins. Mr. Chairman, that is no different than it is | |
| at home. | |
| Chairman Nussle. I doubt that. | |
| Mr. Collins. I have the last word at my house, too. It is | |
| ``yes, ma'am.'' | |
| Mr. Secretary, you don't know how refreshing it is as a | |
| member who has been here 8 years, now into the 9th year, to | |
| hear someone say very candidly, I don't have the answer to that | |
| today, but I will get it. And also to say, you know, people | |
| have responsibilities. Very straightforward. I like that, and | |
| it is well needed. | |
| It reminds me of what a friend of mine said to me about 3 | |
| weeks ago on one of my trips to Columbus, Georgia, and he is | |
| kind of in the circle of some of the movers and shakers in | |
| Columbus. He said, Mac, you know what people around here are | |
| saying about President Bush and his appointments to the | |
| cabinet? I said, well, I don't suppose I do. And he says, they | |
| are telling me that it is good to see the adults back in | |
| charge. I agree, it is, sir. | |
| I like your answer on the trigger mechanism. I think it | |
| would be great to have a mechanism that would automatically | |
| give tax relief when you have a positive cash flow. I think our | |
| constituents would do more of what I saw in 1993 and that is to | |
| encourage the Congress not to spend. I know when I was speaking | |
| to a Rotary Club in Columbus as we were debating the 1993 tax | |
| bill, a gentleman walked up and he had a postcard, he walked up | |
| to the podium and handed it to me and three simple words on it, | |
| because I had been speaking about the tax bill. Those three | |
| simple words were: cut spending first. | |
| We haven't been able to do that. We have had some success | |
| of slowing the growth down, but not much. We haven't had in the | |
| last 8 years a President who says, this is the number, this is | |
| the top number. Now, we can work the numbers below there, but | |
| this is the top number. If we would pass a number here, it | |
| would always come back and they would say, you are going to | |
| raise your number, that is not enough. So it is good to hear | |
| that the adults are back in charge. | |
| But one of the reasons that you hear so much talk about a | |
| trigger, a trigger that would cease the tax relief some time in | |
| the future, depending on the cash flow, is that they are | |
| concerned about the cash flow of the government, the Treasury. | |
| Today it is positive. Even taking the entitlement, the trust | |
| funds and setting them aside, we have a positive cash flow. | |
| Sir, I don't like to use the word ``surplus.'' It is a positive | |
| cash flow. | |
| Secretary O'Neill. Right. | |
| Mr. Collins. Mr. Secretary, I am worried about the cash | |
| flow of the individual. | |
| A report we were looking at earlier this morning in Ways | |
| and Means, for the month of January, we saw a 300,000 increase | |
| in the unemployed. What happened to their cash flow when they | |
| became unemployed? I would think it was probably disrupted | |
| considerably. They still have their obligations out there. I | |
| wonder what they are thinking? I would imagine that many of | |
| them are hoping that even though this first year, it will be | |
| minute tax relief, but it is that much. Someone broke it down | |
| today that for a single it would be a dollar a day. Well, in | |
| the economy, a dollar a day times 100 million is $100 million, | |
| and if you carry that out for 365 days, better than $30 some | |
| billion. That will be a stimulant to this economy. | |
| When it comes to Social Security and Medicare, when I talk | |
| to the seniors in my district, and I tell them that--you know, | |
| Mr. Greenspan says the arithmetic won't work for these | |
| programs, and he is right, because when they were established, | |
| there were a number of workers for every beneficiary, and today | |
| it is 3.3 to every beneficiary. In thirty years it will be 2 to | |
| 1. Those numbers won't work. | |
| We need to be very cognizant of the economy and the cash | |
| flow of people, particularly those people that say that we need | |
| a fair tax relief bill. You know, it is only fair if it helps | |
| those on the bottom end of the ladder. But those who are in the | |
| middle to upper middle and higher incomes, they are the ones | |
| that create the jobs that provide the cash flow of the economy. | |
| So it is fair to make sure that we treat all our taxpayers with | |
| fairness and with tax relief. | |
| Sir, it is good to have you. It is refreshing to hear you | |
| answer questions and make comments and go beyond even the | |
| question with some of your own ideas. Keep it up, sir. It is | |
| welcomed. | |
| Thank you, Mr. Chairman. | |
| Chairman Nussle. Mr. Spratt. | |
| Mr. Spratt. Mr. Secretary, I am not going to try your | |
| patience, but I just need to get a few things clear for the | |
| Record. | |
| Secretary O'Neill. All right. | |
| Mr. Spratt. First there is an item in the budget blueprint, | |
| additional tax incentives, $123,000, and there is no | |
| description--$123 billion, but there is no description of what | |
| that is for. Could you identify that line? | |
| Secretary O'Neill. It is a long list of things which I | |
| would be happy to submit for the record. | |
| Mr. Spratt. I would appreciate that, sir. | |
| Secretary O'Neill. I am sorry, I am getting a little foggy. | |
| Mr. Spratt. I don't doubt it. I looked in the book and I | |
| don't find it. | |
| Secretary O'Neill. I will give you a list. It is a | |
| specific, discrete list of things. | |
| Mr. Spratt. Secondly, if you could get us the differences | |
| in the estimates between Treasury and Joint Tax Commission, | |
| that would be appreciated. And thirdly, it is my understanding | |
| that the revenue losses assigned to what the Ways and Means | |
| Committee passed today was $958 billion, and your estimate, or | |
| at least your revenue cost for that same--those same tax | |
| reductions was about $115 billion less than that, I am told. | |
| Secretary O'Neill. My--you know, I was in the Senate all | |
| morning and I have spent all afternoon here, as you know. My | |
| sense is what they have done in Ways and Means is that they | |
| provided for retroactivity and some acceleration, and I will | |
| get those numbers reconciled for you. | |
| Mr. Spratt. All right, thank you, for the record, if you | |
| would. Thank you very much. | |
| Chairman Nussle. Mr. Secretary, thank you so much for being | |
| here today. We appreciate your answers, your candor, and we | |
| would love to have you back some time possibly to talk about | |
| health care or other subjects in the future. | |
| One other thing. I would ask unanimous consent that all | |
| members have the opportunity to submit statements for the | |
| record for both of the hearings today and, without objection, | |
| so ordered. | |
| With that, we are adjourned. | |
| Secretary O'Neill. Thank you all very much. | |
| [Whereupon, at 5:45 p.m., the committee was adjourned.] | |
| <all> | |
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