May 08,2003

Baucus Statement on Budget Reconciliation

Mr. Chairman, you have a difficult job. I know. But you have always conductedthe Committee’s business with courtesy and civility. As well, you approach the job withopenness and willingness to work across the aisle. You have tried to address theconcerns of all Members. I appreciate that.

The Finance Committee and the Senate work best when we work toward aproduct with broad support from both sides. This Committee has a long and deservedreputation for working together cooperatively. That tradition has served us well.

Even at this late date, I believe that it is not too late for us to work in thattradition. And I, for one, will look for opportunities to build consensus. That route willlead to a more enduring product. A better product. Let me take a few moments todiscuss why we are here today, the President’s proposal, and Congress’s response.

Why are we here today? In the first instance, we are here because the budgetresolution directs us. The budget tells us that no later than May 8, we must report areconciliation bill. So we are carrying out our duty under the budget process. But we arealso here because the times demand it. On a Montana ranch, when the grasses haveburned dry and there’s just dust in the air, the rancher has to take steps to feed and protectthe herd. When the drought hits, no Montana rancher would fail to act.

On a larger scale, we are here because the American economy demands it. Thereis a drought in the American economy. And we need to act. Friday, the governmentreported that the unemployment rate jumped to 6 percent. Since January 2001, theprivate sector has lost more than 2½ million jobs. The economy has lost more than half amillion jobs in the last 3 months alone. We now have the fewest number of jobs in 41months. Since January 2001, the economy has grown by an anemic average of 1½percent — far below the post-World War II average. Businesses are telling me they’renot investing because of uncertainty and too much overcapacity. And consumers, whodrive most of our economy, are not buying. They, too, are uncertain.

So we are here today because the economy demands that we work to create jobs.To increase consumer confidence. To rebuild our economy. To rebuild America. Andthat, in turn, should bring us to several specific goals. We should seek policies that helpthe economy grow. They should take effect as soon as possible. They should notundermine our long-term fiscal situation. We should not add needless debt – additionalburdens on our children and grandchildren. We must avoid raising mortgage interestrates now. And these policies should spread their benefits widely among all taxpayers.We are all Americans together. All should benefit. Not just a special elite.Now, let me turn to the President’s proposal and to Congress’s response. ThePresident proposes a budget. But under the Constitution, Congress legislates. We do notmerely rubber-stamp the President’s budget. This is the Finance Committee. And by ourcharter and the times, we have a job to do. There is a reason why the Constitution createdthe legislative branch in article I. It makes the laws. It is in article II that theConstitution speaks of executing the laws.

Yes, many of the President’s proposals command broad support. They may notbe the most efficient stimulative proposals possible. But they should increase consumerdemand. And I, for one, support them. Specifically, I support, and I believe Senatorsbroadly support:

• helping families meet their costs by increasing the child credit to $1,000,• speeding up relief from the marriage penalty,• expanding the 10 percent bracket to give relief to most taxpayers and help mosttaxpayers spend, and• ensuring that we do not worsen the difficulties created by the AMT.

I am pleased that the Chairman’s mark includes something on each of these items.But Congress has a role to temper and improve the President’s proposals. From myperspective, several areas are key.

First, the amount of the tax cut package is critical. The absence of fiscalresponsibility over the long-term affects long-term interest rates today. We have a dutyto be responsible. We must not worsen interest rates and dampen economic growth bypassing an irresponsibly large package.

In January 2001, the Congressional Budget Office projected surpluses of $5.6trillion for the decade to come. Now, CBO projects that the President’s budget wouldresult in deficits of $2.1 trillion for the same period — a swing of almost $8 trillion. Andrecent projections make those projections look overly optimistic.

And our balance of payments bill is closer to becoming due. The dollar isdeclining against the Euro. Could it be that investors are beginning to questionAmerica’s long-term economic policy? Clearly, our fiscal circumstances are much lessfavorable than when we considered the 2001 tax bill. We are in a different situation,from that of 2001.

Today, we must keep the of the tax bill within narrower limits. Today, wemust be more concerned about contributing to higher interest rates. I am pleased that theChairman’s mark keeps within a limit of $350 billion over the coming decade.

Second, the President’s proposal on dividends is troubling for many of us. Yes,the tax treatment of dividends might be a worthy subject — as part of a budget-neutralcorporate tax reform debate. But the President’s dividend proposal — at roughly $400billion — is simply too fiscally irresponsible, too complicated, and affects too fewtaxpayers to be appropriately included in this stimulus package. It borders onirresponsibility.

Only 3 out of 10 tax filers report dividend income on their tax returns. They arethe only ones who would benefit from the dividend proposal. Seven out of 10 Montananswould see no tax benefit at all from a dividend tax cut. The provisions in this bill shouldbenefit taxpayers more broadly across the income spectrum. That way, they can mosteffectively get money to taxpayers who would spend it and spur the economy.

Third, the President’s proposal to accelerate the tax cuts for those paying the verytop tax rate poses difficulties. This proposal alone costs some $35 billion. It wouldbenefit only that 1 percent of American elite with income greater that $311,000. In bettertimes, I might support a package that included benefits for those paying the top rate. Butwith the economy in the shape it is in, now is not the time to accelerate this ratereduction. Once again, this provision is just too costly and too narrow to effectively spurdemand and rebuild the economy.

Fourth, more needs to be done to infuse funds to cash-strapped states andlocalities. The economic downturn has cut state and local revenues dramatically. Butstate constitutions – as opposed to the U.S. Constitution – require states to balance theirbudgets. So state and local governments are forced to make widespread, often painfulspending cuts in education, in health, and in other vital programs. Even so, more thanhalf the states are still struggling to balance their budgets this fiscal year and next. Thesestate spending cuts are more than offsetting any theoretical gains that tax breaks for theelite might pass on to others.

For example, last year, the state of Montana cut benefits for severely mentally illyouth, in order to make ends meet. The state also made across-the-board cuts inMedicaid provider payments and increased cost sharing — both of which now threatenaccess to care for low-income Montanans.

If those cuts were not drastic enough, this year, the state legislature just cut morethan a quarter of a million dollars from meals on wheels for seniors. That will meanabout 67,000 meals lost over the next 2 years. And budget constraints have also forcedMontana to put 700 working families on a waiting list for child care.Translating Montana’s small population to a national level, those cuts are theequivalent of more than 2 million lost meals nationwide. It’s the equivalent of a 22,000

family waiting list nationwide. We can pass all the Federal tax cuts we want. But whatgood will they do if we force states and localities to raise taxes, cut jobs, and reducebenefits?

We can avoid these economically-damaging state and local actions by assistingthese governments with their budgets through the Federal Medicaid match and other,more broad-based methods.

Fifth, making tax cuts refundable will help spur economic growth. The childcredit includes a significant refundable component. We should accelerate an increase inrefundability so that the credit reaches more families. They will quickly get funds topeople who are likely to spend them rapidly, spur demand, and rebuild the economy.

Sixth, we should increase the bonus depreciation deduction for the year that abusiness purchases new equipment. In 2001, we saw a sharp drop in direct investment bybusiness. In 2002, we changed the law to give a larger first-year deduction. The drop indirect investment leveled, and even increased slightly. We need to provide more in thedepreciation deduction for 2003 to encourage even more direct investment.

Seventh, we need to extend unemployment benefits and help those who haveexhausted their benefits. The government reported Friday that nearly 2 million peoplehave been without work for 27 weeks or longer. The average time people have beenunemployed is almost 20 weeks — the longest since 1984.

The weak economy has hit everyone. Unfortunately, some more than others. Aswe rebuild the economy, we should not leave these unemployed workers and theirfamilies behind. Any bill to help rebuild the economy must help those most affected bythe bad economy. As well, putting funds in these hands will be an effective stimulus.The recipients of unemployment benefits and their families are likely to spend everydollar they get quickly. This spurs demand. Which, in turn, helps rebuild the economy.I make all of these points with the recognition that our differences are not as largeas what we have in common. We agree broadly that we need to help create jobs and getthe economy growing. We in this committee should take the steps needed to addressthose goals. The economic times that face us are a call to govern. We should avoidpolitical point-scoring. We must pass legislation to improve the lives of the people werepresent.

Each of us was sent here by the people of our states. They sent us here not tomake speeches, not to win debates. They sent us here to make life better. In thesedifficult times, they sent us here to help create jobs and rebuild the economy. We have aduty to respond to the times. Not the politics. We have a duty to do the people’s work.Thank you, Mr. Chairman.