Daniel Moynihan

Mr. MOYNIHAN

Mr. MOYNIHAN. Mr. President, as chairman of the Finance Committee, I stood on this floor for 10 long hours 6 years ago and I thank the Senator from North Dakota for recreating what we did that day and what the consequences have been. It had been our idea that the Senator from Montana would go next, but we can alternate.

Mr. MOYNIHAN. Another 5 minutes for my friend from Nevada.

Mr. MOYNIHAN. The Senator from Montana is yielded the remaining time we have.

Mr. MOYNIHAN. Would the Senator like another 5 minutes?

Mr. MOYNIHAN. Mr. President, it is our view that the roughly $900 billion in projected surpluses for the coming decade can prudently be allocated in thirds: the first to be reserved for Medicare. We are going to have to get to Medicare. If we do not do it in this session, we may do it in the next or the next Congress, but that time is coming. It will require money. It will require general revenues, there is no mistaking that any longer. We think that keeping a third of a billion dollars for that purpose is prudent. In the meantime, it will retire some debt and there will be some interest savings and we will have that money generally understood to be available. We think another third has to be used to restore what we have come to call discretionary spending. I wish I knew for sure from where that word came. I think Senator Roth would not have produced so devious a term. Is the Marine Corps discretionary? Is the Coast Guard? Do we regard the Bureau of the Census as something we can do without? We did for a while, letting the States do it, but since 1860 we have had one. This is our general Government, and it is not discretionary, save on the margins. Most of these functions have been with us a long time, and we need them. The present arrangement is for drastic reductions in real dollars for these programs over the next decade. It cannot go on. We have just seen the painful scene of the House of Representatives providing an emergency appropriations for the year 2000 census, as if the census came up like a hurricane or a flood. We have had one every 10 years since 1790. It is not an emergency. It is just that it cannot be met under these caps. So we think a third should be preserved for that purpose. Finally, a third for tax relief, targeted to generally accepted principles that are widely based. We would have $189 billion in broad- based tax relief. That would, most importantly, increase the standard deduction by 60 percent. This would remove more than 3 million taxpayers from the tax rolls and would provide an estimated 9 million more to simply take the standard deduction. It is good tax policy. We believe it certainly is simplification. We would like to have $27 billion for health care initiatives, including a $1,000 long-term care credit and a 50-percent deduction for long-term health insurance to make health insurance affordable. We look forward to $17 billion in education initiatives. That would include a large bond program for public school modernization and permanently extending employer-provided tuition assistance for higher education. If the Senate would indulge me, this latter provision is so important. I have now 23 years in the Finance Committee, and it seems every other year we recommend extending it instead of making it permanent. But if ever there was a palpable, demonstrably useful program, it is when employers send employees to receive education at various levels, commonly graduate levels, because they want to acquire new skills for which they will be put to work at higher wages, and for which they will pay more taxes, and that virtuous cycle I was talking about this morning will continue. It is unreal we continue to keep it on a short lifespan. But this gives it a much longer period. Finally, $31 billion in technological and economic development incentives, including an extension of the research credit. These seem, to us, to be widely based. They are equitable, and I hope they will amend themselves to the Senate. I see my friend from North Dakota is on the floor, is ready, and I yield him 15 minutes. Mr. CONRAD addressed the Chair.

Mr. MOYNIHAN. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. MOYNIHAN. Mr. President, I yield the Senator from North Dakota such time as he requires to express himself fully on the matter of the committee substitute.

Mr. MOYNIHAN. Sir, I do not envy your position, but you seem to have had some success. I yield 20 minutes for a general statement by my associate on the Finance Committee, the distinguished Senator from Louisiana, the senior Senator from Louisiana.

Mr. MOYNIHAN. Mr. President, just in passing, I note page 440 of our substitute provides that all provisions of and amendments made by this act which are in effect on September 30, 2009, shall cease to apply as of the close of September 30, 2009. Before I discuss the amendment, I yield 20 minutes to my colleague. Mr. President, we must have order.

Mr. MOYNIHAN. By all means. I will take the opportunity to make a brief description of the committee substitute.

Mr. MOYNIHAN. Plus interest.

Mr. MOYNIHAN. May I observe in passing, the cost of government is not greater than it ever has been. The revenues are. That is why we have a surplus. To my good friend, the Senator from North Dakota, I yield 4 minutes to respond; and then the remaining 5 minutes I yield to the Senator from Montana.

Mr. MOYNIHAN. Mr. President, I send to the desk the Democratic alternative to the measure before us. This is an amendment in the nature of a substitute. It is proposed by myself, Mr. Baucus, Mr. Rockefeller, Mr. Breaux, Mr. Conrad, Mr. Graham, Mr. Bryan, Mr. Kerrey, and Mr. Robb.

Mr. MOYNIHAN. Mr. President, might we have order?

Mr. MOYNIHAN. Mr. President, I could not more agree with my friend from Minnesota, who has taught political science superbly well. Earlier today, in opening remarks, I commented on a theory that developed on the conservative side of politics in the 1970s which held that the way to control the size of the Federal Government was to starve it of revenue--``starve the beast'' was the rather graphic term. It was indeed. That was the effort in the early 1980s until they realized it was not working. Just yesterday, E.J. Dionne wrote: The long-time goal about which Republican leaders are candid, is to put Government in a fiscal straitjacket for years to come. This is an idea with which we are dealing, not a bunch of numbers, a grand strategy, and it will work if, in the second decade, we see a cost of this measure. The Treasury estimate is $3 trillion, an incalculable sum, which will paralyze, which will put the Government in a straitjacket. We have no right to do that to another generation of Americans. If they wish to do it, that is their right, but it is not surely our option.

Mr. MOYNIHAN. Mr. President, I yield 5 minutes off the bill to the Senator from West Virginia.

Mr. MOYNIHAN. Of course.

Mr. MOYNIHAN. First, I congratulate our revered chairman, Senator Roth, for the manner in which he has presented the Taxpayer Refund Act of 1999, for the manner in which he brought our committee together in consultation and deliberation, and who, indeed, produced a measure which was bipartisan. It has many elements which would commend our support across the aisle--certainly mine. But it is not to that issue that I will speak today, but to the question of the doctrine. I would like to put this debate in a doctrinal perspective, which is to say, the development in the 1960s which holds that the only way to restrain the growth of Government is to deliberately create a protracted fiscal crisis. This begins, of course, with a view of Government that is so very different from what traditional conservatism would hold. It is a new and radical idea. I will discuss how it emerged. But first I will cite an article from this morning's New York Times op-ed page by Gertrude Himmelfarb, one of our preeminent historians and an avowed conservative. She writes so much of what goes on. She says: In their eagerness to do away with the nanny state, some conservatives risk belittling, even delegitimizing, the state itself. A delicate balancing act is required: to dismantle or diminish the welfare state while retaining a healthy respect for the state itself. For good government is the precondition of civil society, providing a safe space within which individuals, families, communities, churches and voluntary associations can effectively function. But, as I say, the debate on this tax bill is not just a debate about tax policy; for it is far less a debate on taxes than a debate on economic and budget policy and the large understanding of the role of Government in our society, the role of Government in an advanced market economy. At the outset of this debate, we should be mindful of some painful mistakes we have made in the not too distant past and which we evidently mean to repeat. In August of 1993, just 6 years ago, we began to correct a colossal budget mistake. The President signed into law a deficit reduction act without precedent in size that dramatically changed the budget outlook--turning deficits of $290 billion a year, as far as the eye could see--to anticipate my friend David Stockman--into the surpluses we now project of $200 billion and more--surpluses on budget--leaving aside the Social Security revenue stream. At the time of its passage, it was estimated that the 1993 legislation, the Omnibus Budget Reconciliation Act of 1993, would reduce the deficit by $505 billion over the 5 years, 1994 through 1998. The Office of Management and Budget, in its fiscal year 2000 edition of ``Analytical Perspectives,'' estimated that the total deficit reduction has been more than twice this. I quote: ``The total deficit reduction has been more than twice this--$1.2 trillion.'' That suggests the extraordinary quality of that moment when we stood on this floor and waited for the final vote that would allow the Vice President to cast the determining vote, 51-50. The act was passed without one Member of the Republican Party of either House of the Congress. In 1997, we had a more bipartisan effort in the Balanced Budget Act of 1997. Again, we see larger revenue benefits than were originally anticipated. As for the fiscal year that ends this September, the OMB projects a budget surplus of $99 billion and the Congressional Budget Office projects a surplus of $120 billion. With the end of the fiscal year just 2 months away, we can expect, with great confidence, a budget surplus for the second consecutive year. What explains this huge gap, this pleasant surprise between budget expectations and outcomes in recent years? As is often the case in economic analysis, there are interrelated factors which cannot always easily be disentangled but which provide clues. To begin with, we appear to be in what has been described by our now- Secretary of the Treasury, Lawrence Summers, at his confirmation hearing as a ``virtuous cycle.'' I put a question to him, and he responded: Senator, I think it very important that, as you suggest, we do reduce the national debt by the full amount of the Social Security surpluses, which would continue this virtuous cycle by reducing interest rates, which makes possible more growth, which makes more tax collections, which makes larger surpluses, which makes lower debt, which reduces interest rates, which starts the cycle going again. That is an enormously important process. The Honorable Robert Rubin, who was Mr. Summers' distinguished predecessor, often spoke of a term which is not in ordinary usage, but it is a term known by Secretaries of State and by persons who deal in securities, in markets. Mr. Rubin would use the term the ``risk premium on interest rates.'' That is to say, the extra charge if a person is lending money, if they are not certain of the fiscal stability of the Federal Government, in this case, and, thence, of the economy at large. It was, first of all, this risk premium that we broke in 1993, the fear that down the line, if these deficits of $290 billion in the previous year went on and on--the debt had quadrupled over the previous twelve years--that the day would come, again, to use an economist's term, when we would ``monetize'' the debt through inflation. We would get rid of it by wiping out the value of the dollar. That is that premium, that risk premium on interest rates. We began to see this effect. I was here on the Senate floor on February 10, 1995. I remarked: . . . the economy performed better than expected, in part, because Congress adopted a credible deficit reduction plan. In part, also, because, as Secretary of the Treasury Rubin remarked to the Finance Committee this Wednesday [that is, Wednesday, February 8, 1995], the deficit reduction program squeezed the risk premium on interest rates out of real long- term interest rates. If financial markets do not believe the deficit is under control, they will levy a risk premium on capital lending. In 1993 and 1994, we clearly persuaded the markets that we were finally serious. From a slightly different perspective, the Congressional Budget Office also took note of the importance of reducing interest costs. For most of the post-World War II period, interest costs have been the second or third largest item in the budget, behind Social Security and national defense. In commenting on this, the CBO said, of the effects of that 1993 legislation: Remarkably, the biggest single change lies in . . . interest--now projected at 3.3 percent of GDP in 2003 compared with 4.5 in the earlier report, a testimonial to the efforts to rein-in the debt's growth [which had taken place]. For the record, CBO, in its latest budget update issued earlier this month, now projects interest costs at just 1.7 percent of GDP in the year 2003, a reduction by half from its September 1993 projection when we had just passed that legislation of that year. Outlays for net interest peaked at $251 billion 2 fiscal years ago. They are now projected to decrease to $222 billion, and if we can just keep from squandering the surplus, we will repay the debt incurred in those years and that interest cost will again go down, almost to disappear. Now, I do not mean to suggest that the budget outlook is solely due to changes in budget policies. Factors other than deficit reduction are at work, making for a strong, sustained economic expansion. The economy brings higher receipts and lower outlays for unemployment and other such programs that automatically expand in a recession. Last week, in testimony before the House Committee on Banking and Financial Services, Alan Greenspan, our world-renowned Chairman of the Board of Governors at the Federal Reserve, provided some insights into what is sustaining this period of remarkable growth. Observing the absence of production bottlenecks, shortages, and price pressures that inevitably occur in an expanding economy, he noted a number of the possible explanations for the good fortunes involved; notably, just-in- time inventories and such like; but they have come about fortuitously at a time when the deficit was under control, deficits were declining, and the prospects were much better all around. The question is, Can we not keep this? Can we not sustain the extraordinary economic expansion on which we have embarked? Unemployment is now at 4.3 percent. May I say, as someone who in the Kennedy administration was Assistant Secretary of Labor for Policy Planning, we would have said, sir, that a 4.3-percent unemployment rate was unsustainable. It would lead to an outbreak of inflation. Yet here we have it, 4.3 percent, real economic growth at 4 percent. We are in the ninth year of an expansion, and we have no inflation. This is something that is going to require that the economic textbooks be rewritten. But we have done it, and a lot of it comes about from what we did on the Senate floor in August of 1993 and which our great hope on this side of the aisle is that we not undo in this short time that has passed. Alan Greenspan, in that testimony, was very clear. He said tax cuts are to be reserved for recessions. That will be the most effective means we can have to regenerate the economy and keep the long-term growth path moving high. The New York Times editorialized this past Sunday, on the Oracle of the Fed: Mr. Greenspan is treated reverently on Capitol Hill, but it appears that the Republicans do not want to heed his advice to run a surplus and pay down the national debt, while saving a tax cut for when it is needed. How come this sudden resurgence just now, when it would seem so clear that a quite opposite policy has had such very desirable effects? Well, sir, I go back, as I said I would earlier, to matters of political doctrine. We don't talk much of doctrine on the Senate floor, but there are times for it. In 1995, for example, we debated a constitutional amendment requiring a balanced budget. I presented a series of papers in which I tried to describe the idea of ``starving the beast,'' as the term was; that is to say, depriving the Federal Government of the revenues needed, putting it simply, to govern. The argument is quite simple. It goes back to the 1970s when a number of theorists on the conservative wing of the Republican Party determined that it was not going to be possible for the Federal Government ever to be controlled in its size as long as it had the revenues to sustain, or even to increase, that size. And so it came about that a policy doctrine developed which argued that deficits, if sizable enough, had acquired a new utility--deficits that had presumably been the horror of conservative financial thought now became something attractive because they could be used to reduce the size of Government itself. E.J. Dionne, Jr., in an op-ed article in yesterday's Washington Post, clearly recognizes this idea is still afoot. He writes: The long-term goal, about which Republican leaders are candid, is to put Government in a fiscal straitjacket for years to come. In fairness, I think this is more to be encountered on the House side than in this body, but it still would be the cumulative effect, in fact, of the tax cuts that have been proposed in both bodies. I can remember the onset of this. In the late 1970s, it was clear. One could write about it, and one did. Then came the administration of President Reagan in which, in effect, the policies were carried out--or they began to be carried out. In a television address, 16 days before his inauguration, President Reagan said: There will always be those who tell us that taxes could not be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice or breath, or we can cut their extravagance by simply reducing their allowance. There you have President Reagan in his most agreeable and heart- warming quality. He thought this could be done because he thought there would, in fact, be reductions in Government. There were none. Moreover, very shortly, his economic advisers realized the economic analysis they had used to project revenue increases from tax reductions weren't going to work, and they faced a prospect of deficits of, as David Stockman once said, ``$200 billion as far as the eye can see.'' Haynes Johnson, in his superb book, ``Sleepwalking Through History: America Through the Reagan Years,'' writes: The Reagan team [not the President] saw the implicit failure of supply side theory as an opportunity, not a problem. Now, this we have to absorb. They saw the failure of supply side theory--which said that the more you cut taxes, the higher the revenues will be--as an opportunity, not a problem. The secret solution was to let the Federal budget deficits rise, thus leaving Congress no alternative but to cut domestic programs. But in the end, they were not cut. Some grew. There was a view, and certainly a respectable one, that defense had to be increased. We now, incidentally, suggest there be a 20-percent reduction in defense spending over the next 10 years. The Reagan administration increased defense spending, and they had a perfectly good argument for doing that-- but not simultaneously with huge tax cuts. There, very shortly thereafter, had to be tax increases. But the course was set for the 1980s and the deficit doubled, from under a trillion dollars to about $3.7 trillion now in publicly held debt. So I rise again to say, as I have done before, that what we did in 1981 with that tax cut--for which I voted because the Office of Management and Budget, seeing our huge inflation continuing, projected surpluses in the future--was so ruinously wrong. We now have a debt that will level off at about $6 trillion, while the debt held by the public will fall by $2 trillion, or more, depending on the size of this tax cut. The other important reason, which I will close on, is that the 1997 balanced budget amendment left us with what the Washington Post this morning calls an ``accounting illusion,'' that we can reduce the spending on domestic programs by 20 percent in real terms over the next 10 years. The illusion is coming apart already. Just the other day, the House of Representatives determined that the money to pay for the decennial census in the year 2000 required an emergency appropriation outside of those limits. We have had that census for many years. That census is provided in the Constitution. It has taken place every decade since 1790. All of a sudden, we have made it into an emergency. In this morning's Washington Post, our former majority leader, our beloved colleague, Robert C. Byrd, has an article called ``Time for Truth In Spending.'' He said: What we need to jettison is the political rhetoric. What we need to impose is truth in spending. And he set down a few principles. He said: First, watch our investments carefully and manage them prudently. We should continue our best efforts to manage the economy and watch out for inflation. Second, do not spend our money before we make it. Before the surplus is spent, whether on tax cuts or continuing important priority programs, wait for the money to be in the bank. We are proposing to spend a surplus, sir, that does not exist. Third, pay our debts. The United States should take advantage of this opportunity to retire the national debt. Fourth, cover the necessities. Congress should not shortchange the Nation's core programs, such as education, health care, veterans, and the like. Fifth, put aside what we need for a rainy day. Congress should take steps to reserve the Social Security and Medicare surpluses exclusively for future costs of those programs. Sixth, don't go on a spending spree. Resist the temptation to create costly new government programs. Finally, take prosperity in measured doses. Congress should reduce taxes without pulling the rug out from under projected surpluses. I can think of no wiser counsel. In that regard, and with great respect for the chairman of the committee, I would suggest that the budget reconciliation process was devised to expedite consideration of deficit reduction measures. The bill before us uses those same expedited procedures to secure enactment of a deficit-increasing measure. Section 313(b)(E) of the Byrd rule provides that any provision in any reconciliation bill which would decrease revenues used beyond the budget window--in this case beyond the year 2009--may be automatically stricken from the bill upon a point of order being raised. Section 1502 of the bill before us provides for permanent continuation of tax cuts in the years beyond 2009, causing revenue losses of hundreds of billions of dollars. Accordingly, sir, at the appropriate time, I intend to raise the Byrd rule point of order against section 1502 of the bill. I thank the Chair for his cordial consideration of my remarks. I see my friend, the chairman of the Budget Committee, is on the floor. I yield the floor.

Mr. MOYNIHAN. Will the Senator yield?

Daniel Moynihan

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