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[Congressional Record Volume 141, Number 72 (Wednesday, May 3, 1995)]
[Extensions of Remarks]
[Pages E941-E942]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                            DEFICIT REDUCTION

                                 ______

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                         Wednesday, May 3, 1995
  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, April 12, 1995 into the Congressional Record.
                    A Priority on Deficit Reduction

       The House recently considered two bills to reduce taxes, a 
     leadership bill and a minority party bill. I opposed both. My 
     view is that before Congress cuts taxes it should reduce the 
     deficit. The United States is currently $4.8 trillion dollars 
     in debt. It makes no sense to borrow even more money to pay 
     for a tax cut. We must reduce the deficit. I favor tax cuts, 
     and would like to vote for them, but I believe our top 
     priority should be cutting spending and balancing the budget.

                             the tax bills

       Without doubt, the tax cut bills are attractive. Over five 
     years the minority party bill would cut $32 billion in taxes 
     with, among other things, tax deductions for higher education 
     expenses and an expansion of Individual Retirement Accounts 
     (IRAs). It would attempt to offset these tax cuts with a 
     promise to save $25 billion in discretionary spending over 
     the next five years, with another $7 billion in savings from 
     other measures, including eliminating the tax break for 
     wealthy Americans who renounce their citizenship.
       The leadership bill would instead cut taxes by $189 billion 
     over five years, and another $452 billion in the following 
     five years. Tax reductions include a cut in capital gains 
     taxes, expanded IRAs, elimination of the minimum tax on 
     corporations and a tax refund of up to $500 per child for 
     families making up to $250,000. This bill also makes a 
     promise to cut discretionary spending--by $100 billion over 
     five years. Additional cuts assume $62 billion in savings 
     from welfare block grants, $10 billion from Medicare, and 
     other cuts for a total of $187 billion. This bill passed the 
     House.
                            no specific cuts

       The tax cuts in both of these bills are specific, but most 
     of the spending cuts are unspecified and little more than 
     promises to avoid increasing spending in the future. These 
     bills cut taxes now, and their proponents promise to cut 
     spending later. That is what they said in 1981 when the 
     national debt was less than $1 trillion. Today it is 
     approaching $5 trillion and steadily increasing at the rate 
     of $1 trillion per presidential term. Experience shows that 
     spending cuts should come first.

                              number games

       I am concerned about how the House-passed bill is designed 
     to reduce federal revenues by $189 billion in the first five 
     years and then $452 billion in the next five years. This 
     approach is used because House budget rules require 
     offsetting spending cuts only in the first five years. The 
     bill is 2\1/2\ times more costly in the second five years, 
     but it does not include even a promise to reduce spending in 
     those later years. These manipulative procedures are one 
     reason we need to put spending cut money in the bank before 
     we cut taxes.

                               tax burden

       I agree with my constituents who say that taxes are too 
     high. Federal, state, and local taxes consume a larger share 
     of the average family's expenses than housing, food, 
     clothing, and medical costs combined. High taxes discourage 
     economic growth and savings. However, the national debt is a 
     greater drag on the economy. One-seventh of every tax dollar 
     pays interest on the national debt. Government borrowing 
     drives up interest rates, increasing the cost of mortgage 
     payments, student loans, and car payments. Deficit reduction 
     is a huge tax cut for our children.
       I understand the popular appeal of tax cuts, but have been 
     pleased to note that a majority of Americans say they prefer 
     balancing the budget to cutting taxes. The American people 
     have their priorities exactly right. Proponents of tax cuts 
     say Congress can cut spending enough to provide both. They 
     argue that a tax cut leads to sufficient revenue growth to 
     balance the budget. Recent economic history should make us 
     extremely dubious of those arguments.
                              distribution

       While there is much debate over how much the tax bill 
     benefits the wealthy, and the statistics can be quite 
     confusing, all agree that the great bulk of tax benefits 
     would go to those who are better-off. The tax bill 
     accelerates the widening gap between the rich and everyone 
     else. When coupled with the recent spending cuts tilted 
     sharply against the working poor, the result is an unfair 
     transfer of resources from the needy to the rich. The U.S. 
     Treasury estimates that half of the tax breaks would go to 
     families making more than $100,000 per year--the top 10% of 
     all taxpayers, and just 5% of Ninth District residents. 
     Overall, the average family in the Ninth District would 
     receive less than $300 a year from this bill, while families 
     making over $100,000 a year would receive an average of 
     $4,300.

                            Economic Growth

       This bill also creates many new tax shelters that distort 
     investment decisions and make the economy less efficient. 
     Many provisions simply tell investors to put their money 
     where they could get the biggest tax break. Leading business 
     economists tell us that is a formula for economic stagnation. 
     Sensible tax policy would encourage investors to put their 
     money where it could produce valuable goods and services.
       I support capital gains cuts that are focused on increasing 
     long-term investment. But the structure of the capital gains 
     tax cuts in the bill makes no distinction between long-term 
     investment and short-term speculation, and the bill repeals 
     the current small business investment credit. The tax rate 
     for long-term small business investment increases under the 
     bill from 14% to 19.8% to pay for a bigger cut for large 
     corporations. This bill would reduce the national savings 
     rate.
       I also question the need for a short-term economic boost. 
     The country is in the middle of one of the most successful 
     periods of economic growth in its history. The economy has 
     grown so swiftly that the Federal Reserve has raised interest 
     rates 7 times to keep inflation in check. Surely stimulating 
     more rapid growth would result in either more interest rate 
     hikes or increased inflation. My view is that deficit 
     reduction will be more effective at increasing long-term 
     investment and economic growth.
                        [[Page E942]] Conclusion

       It is urgent that Congress act today to erase the deficit. 
     The tax bill passed by the House makes that goal much harder 
     to fulfill. A tax cut in such circumstances is self-
     indulgent. We should not shift to the next generation a 
     burden that this generation should bear.
     

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