February 09,2000

Roth Urges Treasury to Provide Clarification of Clinton's FY 2001 Budget

WASHINGTON -- Due to time constraints at yesterday's Finance Committee hearing on Clinton's FY 2001 Budget, Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today requested, in a letter, that Treasury Secretary Lawrence H. Summers provide written responses to questions on trade, debt, taxes, Medicaid and S-CHIP, customs, education and installment sales.

A copy of the letter and Chairman Roth's questions are attached.

February 8, 2000
The Honorable Lawrence H. Summers
United States Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dear Secretary Summers:

Thank you for your testimony before the Senate Finance Committee Tuesday, February 8, 2000. Due to our time constraints, Members of the Finance Committee, including myself, were unable to obtain your views on various aspects of the President's fiscal year 2001 budget and tax proposals. Consequently, I would appreciate your written responses to the attached questions

I look forward to working with you and others in the Administration to enact legislation to advance our trade agenda, reform Medicare, and provide meaningful tax relief while paying down our public debt.


William V. Roth, Jr.

Finance Committee Chairman Roth's
Written Questions
Submitted to Treasury Secretary Summers
February 9, 2000

1. Trade:

Congress will have to take up legislation this year on granting China permanent normal trade relations status as a part of that country's accession to the WTO. This legislation is extremely important, but will face a very difficult time in Congress. In my view, it is vital that this legislation be evaluated on its own merits, without any amendments. Will the Administration work to defeat all amendments as the legislation moves through Congress even amendments on labor or the environment which, in other contexts, the Administration might favor?

2. Public Debt:

Mr. Secretary, the Administration proposes to completely eliminate the public debt. As you know, there are many other important uses for U.S. Treasury securities than financing Federal deficits. Two questions. First, in your view, what are the most important uses of Treasury securities, and if debt was eliminated how would these other functions be met? Second, the Treasury's debt buy-back program as well as debt reduction has apparently sparked volatility in the government bond markets. Should we expect this to continue?

3. Debt Reduction and Tax Cuts

Secretary Summers, in your testimony before the Committee, you made the point that reducing the public debt leads to lower interest rates, and that lower interest rates are effectively a tax cut -- because Americans pay less for credit. Yet, over the past year we have seen both significant public debt reduction and higher interest rates. For example, according to the Federal Reserve since January 1999 new car loan rates have risen from 6.2 percent to 7.3 percent -- an increase of 110 basis points. Moreover, a Wall Street Journal op-ed ("Debt Reduction Is No Tax Cut," by James Grant, February 9, 2000) contends there is little correlation between interest rates and public debt. How then can you contend that reduced public debt -- however meritorious -- is effectively a tax cut?

4. Taxes:

There is a misperception in many reports that the President's budget's tax cuts are bigger than they in fact are. It is important that we establish an oranges-to-oranges and an apples-to-apples debate when it comes to taxes and spending. What is the amount of the spending component of the tax cut total you claim? How much money will be issued in checks versus a real reduction in tax liability?

5. Medicaid and S-CHIP:

Six months ago, President Clinton declared that he found the states 'implementation of the new children's health insurance program to be disappointing. I disagree. I think new programs take time to reach capacity and I'm encouraged that 2 million children are now covered by CHIP. However, isn't it premature to dramatically expand the scope of a program until it has proven that it is successful in meeting its original goals. Rather than more than doubling the and scope of the program, shouldn't we instead focus on making sure CHIP helps children eligible but not yet enrolled in the program?

6. Customs: Automated Commercial Environment (ACE)

Customs' current automated systems (ACS) are overworked and reports of "brownouts" indicate the system is in danger of failing. Yet the administration has once again proposed a $210,000,000 user fee to fund the development of the new ACE system. This fee, which is clearly a proposed access tax on the trade community, was uniformly criticized last year by both the Finance Committee and private industry.

What is the administration's reasoning in proposing another access fee to fund ACE?

Does the administration have an alternative method of funding the ACE system in the likely event that this proposed access tax is not enacted?

Has the administration studied the potential consequences for the U.S. economy if trade is disrupted due to the failure to fund this critical modernization effort? If yes, what would these consequences be?

Assuming that the administration identifies an alternative source for funding ACE development, please explain how the proposed amount is adequate to meet Customs' computer modernization needs?

7. Customs: Funding Levels

The Customs Service performs a unique role in the facilitation of trade and the protection of our nation's borders. The Finance Committee's oversight hearings last year reflected the challenges facing the Customs Service, as its workload increases to keep pace with the surge in international trade. The president's budget proposal lacks any increase, even in nominal terms, in the Customs Service' budget that would keep pace with the increase in Customs' workload.. What does the Treasury Department plan do to ensure that Customs has the necessary resources to carry out its essential dual mission of both trade facilitation and law enforcement?

8. Education:

Mr. Secretary, the very first set of tax proposals in the President's budget this year revolves around education. At least that shows that we all agree on the importance of education in America today. I recall you said education was one of the Administration's top 3 priorities.

But in looking through the education proposals, I was struck by the absence of something very important. In trying to help Americans afford the increasing costs of higher education, I have always tried to give families the tools to plan ahead and save for themselves.

We have created Education IRAs and College Savings Plans, but both of those programs need changes to make them more attractive. For the Education IRA, the current $500 contribution limit is simply too low. For the college savings plans, we should make sure that families do not have to pay any tax at all when the money is used for higher education. Congress has tried to make both of those changes, but the President has vetoed legislation that included those adjustments.

In the President's education package, there is not one proposal -- not one dollar -- devoted to helping families save for education. Mr. Secretary, I know that you generally share my concerns about savings -- and are a strong proponent of savings in other areas. So why is there no savings piece in the education area? Shouldn't we do more to help families save for education?

9. Installment Sales

The recently enacted Ticket to Work and Work Incentives Improvement Act of 1999 included an Administration proposal to prohibit the use of the installment method of accounting for accrual basis taxpayers. Numerous small business organizations are concerned that the installment sale provision has a significant negative impact on sales of small enterprises. Congress never intended this provision to impact the sale of small businesses. I urge you to issue guidance as soon as possible on this provision keeping in mind the Congressional intent not to impact the sale of small businesses. When will you issue guidance on the installment sale provision? Did the Administration intend for its installment sale proposal included in the recently enacted legislation to affect the sale of small businesses?