Floor Statement of Senator Judd Gregg on the Bush Tax Cuts
Mr. President, first I thank the Senator from Texas for his elegant statement and accurate statement. I want to pick up where the Senator has left off.
The Senator talks about the facts--and this is a fact--that revenues to the Federal Government have jumped dramatically in the last 3 years. In fact, in the last 3 years we have seen more revenues flowing into the Federal Government than ever in history, and the percentage of increase in those revenues has also been historic. As this chart clearly shows, we are now seeing revenues to the Federal Government which actually exceed the historic revenues to this Government. Historically, the Federal Government has gotten about 18.2 percent of the gross national product in revenue. Today we are up around 18.5 percent. We are headed towards 18.7 percent. That is a significant increase in revenues to the Federal Government.
What effect does that have? As the Senator from Texas said, it has had a dramatic effect on the deficit. Because we have gotten all this additional revenue, it has caused the deficit to drop dramatically.
The other side of the aisle argues: So what. Taxes are still too low on Americans. We should raise the taxes on Americans. So they brought out a budget which is going to increase taxes on Americans by about $700 billion. It is the largest tax increase in the history of the country, should that budget actually come to fruition--and it looks like it is going to pass, and I assume they are going to follow up on it. They mean what they say, on the other side of the aisle.
What will that do to Federal revenues, that dramatic increase in taxes? What will that do to the economy? We are not sure, but we suspect it will slow the economy dramatically. Some of these great gains that we have seen in the economy, the 22 months of expansion, the 7.4 million new jobs, may be significantly impacted by that type of a tax increase.
We also know it will create a Tax Code that is taking a lot more money out of Americans who work hard. We happen to believe, on our side of the aisle, we should let Americans keep the money they earn as much as possible, have a fair tax system, and as a result generate a benefit to working Americans by saying: Listen, if you are going to work hard, we are going to give you more money. We are also going to get more revenues, which is the way this has worked out.
Why have we gotten more revenues even though we reduced the tax burden on the American people? The answer is pretty simple. It is called human nature. When you set tax levels at a fair level--which is what we have today--people are willing to go out and invest. They are willing to go out and take risks. They are willing to work harder because they know they are going to get to keep more of what they earn. What does that do? That creates a stronger economy which puts more people to work, and that is what we want, more jobs for people and, of course, the more jobs you have the more tax revenues you end up getting.
In addition, especially in the area of capital gains, if you have a fair capital gains rate, which is what we have today, it causes people to go out and sell an investment which they might otherwise hold on to. If a person has an asset, say, a home or small business or stock, they don't want to sell that asset when they are going to have to pay 30 percent or 25 percent in taxes on that sale because they don't want to have to pay all those taxes for that asset they spent their whole life building up, trying to make ends meet, trying to create a nest egg for themselves. When you put a fair capital gains rate on that sale, which is today 15 percent--which is the fair rate which was put into place by President Bush's proposals--then people are willing to go out and sell that asset.
When they sell that asset, what happens? Two things which are very good for the Federal Government happen. No. 1, capital gains occur so we get revenues; otherwise, we would not get those revenues because people would just sit on those assets; they are not going to sell them and pay the high tax rate. When you have a fair tax rate, they sell them, the Federal Government gets the revenues, and the second thing that happens is they take that new money they have from the sale of that asset and reinvest it. By human nature, they reinvest it in something that is more productive. So you have a more productive society, where capital assets are being used more effectively, and as a result you get this great job creation and this economic growth.
In fact, in the area of capital gains, we have seen a dramatic increase in revenues. Capital gains have increased over what the projection was by CBO, the Congressional Budget Office, by 47 percent. It is a huge jump in revenues we didn't expect--or at least the Congressional Budget Office didn't expect--but which we received because human nature kicked in and people were willing to sell assets, take that money and reinvest it in things that are productive, create jobs, and as a result we got those revenues. That is why today the Federal Government is actually getting more in revenues than it got under the old tax law where the rates were a lot higher. That is why we have gotten more economic expansion, more jobs. That is the good news.
From the other side of the aisle we hear this constant patter: The rich are not paying enough taxes, and these tax laws are disproportionate in their application. I think we need to talk about that a little bit because let's see what has happened as a result of reducing these tax rates. Basically, what has happened is that even with the lower tax rates today, wealthy people are paying more in revenues to the Federal Government than at any time in history. Today the top 20 percent of people in this country who have income are paying about 85 percent of the tax burden.
Let me restate that. The top 20 percent of people with income in this country are paying 85 percent of the Federal tax burden. Under the Clinton years, the top 20 percent of people with income paid 81 percent of the Federal tax burden. So even though we have cut rates, we have actually created more revenues from high-income individuals.
Again, you are going to say: How does that happen? Again, it is called human nature. If you have a high-income situation, individuals with a high income, they could either invest in opportunities which are going to produce taxable events or not produce taxable events. They have the position to do that. So if you have a fair tax rate they will take the risk. They will make the decision. They will be the entrepreneurs who create the job. As a result, they will make an investment which is taxable. But if you have a tax rate that is too high, which is what the other side of the aisle likes to have, then you basically create an atmosphere where these folks are going to go out and invest a fair amount of their money in things that are tax avoidance, legal tax avoidance but tax avoidance. They are going to invest in nontaxable events, stocks and bonds that do not generate income to them that is taxable.
What we have done is we have created a tax law where essentially high-income people are willing to go out and take risks and do it in a taxable way that generates revenue back to the United States. As a result, we have the top 20 percent of American income earners pay more in taxes today, significantly more than they did under the Clinton years.
The alternative is also fairly interesting. At the low end of the income scale, the bottom 40 percent of people who have income do not basically pay income taxes. Obviously, they pay withholding taxes, but as a practical matter that segment of our society pays virtually nothing in income taxes. They get money back, in fact, on the earned-income tax credit and other benefits the Federal Government puts in place.
Under the law today, under President Bush's law, those bottom 40 percent of income earners are now getting about twice as much back from the Federal Government as they did under the Clinton years. So what is the combined effect of these two facts, of these two things? The tax law--even though we are generating a lot more revenue for the Federal Government, even though we are well over that mean number of 18.2 percent of gross national product, even though we have had jumps in revenue of 11 percent, 9 percent, 15 percent--we actually have a tax law today that is generating more revenue but is also more progressive. High-income individuals are paying more of the tax burden. Low-income people are getting more money back from the Federal Government.
There is another factor that needs to be pointed out, and that is what is happening to senior citizens. Senior citizens disproportionately benefit from a low dividend tax rate. Why? It is logical, obviously. Most seniors are retired. If they have income, it is going to be Social Security, some pension program, or dividends, and most pension programs also involve dividends. So senior citizens are really the people who are benefitting the most from a low dividend tax rate. Yet the folks on the other side of the aisle have just passed a budget where they want to jump the tax rate on dividends by 100 percent. They want to go from a 15-percent tax rate to a 30-percent tax rate on dividends. Who are they going to hit? They are going to hit senior citizens, primarily. That is the people they are going to hit.
If you look at the proposals from the other side of the aisle, they come out of a 1930s philosophy of economics, which was pretty soundly rejected in the 1960s, the 1970s, the 1980s, and the 1990s, but they are still attracted to it.
It is a theory that says you just raise taxes. The Federal Government will get more money, and we will spend it for you. In other words, there is a theory that says we are smarter than you. We have been elected to the Senate. We are good members of the Democratic Party. We know more than you know. Therefore, we should take your money and we should spend it for you and we can spend it more effectively than you can spend it.
That is a philosophy that should and has been rejected as we move toward a much more market-oriented economy. It is also a philosophy that presumes the higher taxes always generate more revenue to the Federal Government, which is not true. Higher taxes, actually, in many instances reduce revenues to the Federal Government because they reduce economic activity. They certainly reduce expansion of the economy, and they reduce the creation of jobs.
Three Presidents have proved beyond any reasonable doubt when you lower income tax rates, you generate economic expansion because people are just people. They just have common sense. If they know they are going to be able to keep more of their money, they are willing to go out and work harder to get more money. But they also know if the Federal Government is going to take more of their money, and a disproportionate amount of their money, they are not going to work quite so hard. They are not going to take that risk. They are not going to create that restaurant or open that little small business, create those jobs, because they don't want to have to pay all of their money to the Federal Government.
President Kennedy knew that and that is why he cut income tax rates and was successful in generating revenue to the Federal Government. President Reagan knew that and he cut income tax rates. As a result, the revenue to the Federal Government jumped and the economy expanded. President Bush has shown it once again: Cut income tax rates, expand the economy, and as a result get a fair tax level and human nature kicks in and revenues flow into the Federal Treasury.
What is unique about President Bush's initiatives is that at the same time he has cut rates, he created this much more progressive system which I just outlined. The fact that high-income taxpayers are now paying so much more of the Federal share of income taxes than they did under the Clinton years, and lower income individuals are getting much more back than they did under the Clinton years, makes for a more progressive system. It also disproportionately benefits senior citizens, people on fixed incomes, because of the dividend rate.
Unfortunately, though, we now have the Democrats presenting to us a budget which wants to take us to the French path, which essentially is going to dramatically increase the cost to the Federal Government, to Americans, and as a result dramatically increase the tax level on Americans. We will go down that path that France has gone down.
I have to tell you, it doesn't work in France. Productivity is not up in France. Jobs are not being created in France. People don't want to go out and work harder in France. And they certainly do not have a more progressive or effective economic system than we have in the United States.
I think we should reject the Democratic approach under their budget of raising taxes and stay with this tax law that is raising so much new revenue and is so progressive and has such a strong benefit for senior citizens.
I yield the floor.