Bill Thomas

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, I yield 1 minute to the gentleman from Florida (Mr. Foley), a member of the Committee on Ways and Means.

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, pursuant to clause 3 (h)(2)(A)(iii) of rule XIII, I submitted the following macroeconomic impact analysis: In accordance with House Rule XIII.3(h)(2), this document, prepared by the staff of the Joint Committee on Taxation (``Joint Committee staff''), provides a macroeconomic analysis of H.R. 2, the ``Jobs and Growth Reconciliation Tax Act of 2003.'' The analysis presents the results of simulating the changes contained in H.R. 2 under three economic models of the economy. The models employ a variety of assumptions regarding Federal fiscal policy, monetary policy, and behavioral responses to the proposed changes in law. 1. Description of Models and Results Format (a) models The Macroeconomic Equilibrium Growth (``MEG'') model.--This model, developed by the Joint Committee staff, is based on the standard, neoclassical assumption that the amount of output is determined by the availability of labor and capital, and in the long run, prices adjust so that demand equals supply. This feature of MEG is comparable to a Solow growth model, described as the ``textbook growth model'' by the Congressional Budget Office (An Analysis of the President's Budgetary Proposals for Fiscal Year 2004, March 2003, pp. 28-29) (``CBO''). Individuals are assumed to make decisions based on observed characteristics of the economy, including current period wages, prices, interest rates, tax rates, and government spending levels. Because individuals do not anticipate changes in the economy or government finances, this type of behavior is referred to as ``myopic behavior.'' Consumption in MEG is determined according to the life-cycle theory, which implies that individuals attempt to even out their consumption patterns during their lifetimes. MEG differs from a simple neoclassical growth model in that prices in MEG adjust to equilibrate supply and demand with a delay or lag, rather than instantaneously. This feature allows the model to simulate a disequilibrium adjustment path, in which resources may be underemployed or over- employed (used at an unsustainable rate) in response to policies that stimulate or depress economic activity. It also allows an analysis of the effects of differing intervention policies by the Federal Reserve Board. In this respect, the MEG model resembles econometric models such as the Macroeconomic Advisers model and the Global Insight model. In the MEG simulations in each of the tables below, it is assumed that the Federal Reserve Board either acts aggressively by raising interest rates to counteract almost completely any demand stimulus provided by H.R. 2 (``MEG aggressive Fed response''), or remains neutral with respect to any changes in fiscal policy, allowing temporary changes in demand to affect levels of employment and output (``MEG neutral Fed response''). The Global Insight (``GI'') econometric model.--Like the MEG model, this commercially available model is capable of simulating disequilibrium adjustments to changes in demand. The model is made up of a set of equations that estimate from historical data the behavioral coefficients that determine the timing and strength of economic relationships within the model. Comparable parameters in the MEG and OLG models are derived from economic research. In many cases this research is also based on econometric analysis of historical data. Individuals and firms behave myopically in the GI model. For this analysis, the Joint Committee staff uses an estimated monetary reaction function designed to moderate gradually, but not completely offset, deviations from full employment by lowering or increasing interest rates. Thus, if the economy is operating near capacity, proposals that increase employment and accelerate the economy will result in increasing interest rates. The overlapping generations life cycle model (``OLG'').--In this model, individuals are assumed to make consumption and labor supply decisions with perfect foresight of economic conditions, such as wages, prices, interest rates, tax rates, and government spending, over their lifetimes. The OLG model is similar to the type of model described as a ``life cycle model'' by the CBO, ibid. One result of the perfect foresight assumption is that if a policy results in an economically unstable outcome, such as increasing government deficits indefinitely into the future, the model will not solve. Therefore, to run simulations in this model, it is necessary to assume that an offsetting budget balancing fiscal policy will be enacted. In the tables below, it is assumed that either government spending will be reduced after 2013 to offset the tax cut (``OLG future government spending offset'') or individual income tax rates will be increased after 2013 (``OLG future tax rate increase''). The cut in government spending to offset the costs of a tax cut can be modeled either as a cut in transfer payments, as is presented here, or as a cut in ``non-productive government spending.'' The latter assumption is used in CBO, ibid. The difference between the two approaches is that consumers are assumed to value transfer payments, and thus work and save more within the budget window in anticipation of losing them; but they are assumed not to value non-productive spending, and therefore do not increase work or savings in anticipation of this cut. Thus, the anticipation of valued spending cuts results in more growth in the early years than the anticipation of non-valued spending cuts. (b) results format Because the exact time path of the economy's adjustment to changes such as a new tax policy is highly uncertain, the Joint Committee staff presents results as percent changes during the Congressional budgeting time frame. In addition, for the MEG and OLG models, which have been designed to provide long-run equilibrium results, information is provided about the long run. While it is impossible to incorporate unknowable intervening circumstances, such as major resource or technological discoveries or shortages, these models are designed to predict the long-run effects of policy changes, assuming other, unpredictable influences are held constant. Because the MED model is myopic, if the policy simulated is ultimately a fiscally unstable policy, such as a net decrease in taxes that produces deficits that grow faster than the rate of growth of the economy, ``long-run'' is defined as the last period before the model fails to solve because of this unstable situation. For the OLG simulations, which incorporate a stabilizing fiscal policy offset, ``long-run'' is defined as the eventual steady-state solution. 2. Estimated Macroeconomic Effects of H.R. 2 The magnitude of the macroeconomic effects generated by these simulations depends upon a number of assumptions, some of which are described above, that are inherent in the models used. Several additional assumptions detailed below. (a) assumptions Effect of tax rate reductions on investment.--Reductions in marginal tax rates (tax rates on the last dollar of income earned) on interest, dividend, or capital gains income create incentives for individuals to save and invest a larger share of their income, as each additional dollar of investment yields more after-tax income. Conversely, reductions in the average tax rate on income from capital provide taxpayers with more after-tax income for the same amount of investment, reducing their incentive to save and invest. Changes in the statutory tax rate affect both marginal and average rates of tax on these sources of income, providing potentially offsetting incentives. Consistent with existing research, the model simulations assume that on net, the marginal rate effect is slightly larger than the average rate effect, and thus decreases in tax rates on capital income increase savings. Effect of reductions in the dividend tax rate.--There is general agreement that dividend taxation reduces the return on investments financed with new share issues. However, there are two alternative views regarding the effect of dividend taxation on corporate investment returns financed with retained earnings. The ``traditional view'' holds that reductions in dividend taxes would lower the cost of corporate investment financed with either new share issues or retained earnings, and thus would provide an incentive for corporations to increase investment. Alternatively, the ``new view,'' holds that a reduction in the dividend tax rate would not lower the cost of corporate investment financed with retained earnings. Under this view, a decrease in the dividend tax rate would result in an immediate increase in the value of outstanding stock reflecting the reduction in dividend tax payments, thus increasing the wealth of the stockholders, and providing an incentive for additional consumption. The model simulations assume that half of the corporate sector is in accordance with the traditional view and half with the new view. Foreign investment flows.--Increased Federal government budget deficits increase the amount of borrowing by the Federal government. Unless individuals increase their savings enough to finance completely the increased deficit, the increase in government borrowing will reduce the amount of domestic capital available to finance private investment. This effect is often referred to as the ``crowding out'' of private business activity by Federal government activity. A reduction in national saving may lead to a reduction in domestic investment, and domestic capital formation, depending on the mobility of international capital flows. The government and private firms would compete for the supply of available funds and interest rates would rise to equate the demand and supply of funds. Returns on foreign investments would accure mainly to foreigners and would only increase the resources available to Americans to the extent that higher domestic investment resulted in higher wages in the United States. The MEG and GI simulations incorporate an assumption that there would be some in-flow of foreign capital to the extent that the rate of return on capital is increased by the tax policy. However, the inflow in foreign capital is not enough to offset completely the increased Federal borrowing. The OLG simulations assume there is no inflow of foreign capital. Effect of tax rate reductions on labor supply.--As in the case of savings responses, tax rate reductions provide offsetting labor supply incentives. Reductions in the marginal tax rate on earnings create an incentive to work more because taxpayers get to keep more of each dollar earned, making each additional hour of work more valuable; while reductions in the average tax rate create an incentive to work less, because they result in taxpayers having more after-tax income at their disposal for a given amount of work. Consistent with existing research, the simulations assume that taxpayers in different financial positions respond differently to these incentives. Typically, the largest response comes from secondary workers (individuals whose wages make a smaller contribution to household income than the primary earner in the household) and other underemployed individuals entering the labor market. As described above, labor supply responses are modeled separately for four different groups in MEG: low income primary earners, other primary earners, low income secondary earners, and other secondary earners. Effects of reductions in tax liability on demand.-- Generally, any net reduction in taxes results in taxpayers making more purchases because they have more take-home income at their disposal. Policies that increase incentives for taxpayers to spend their income rather than save it provide a bigger market for the output of businesses. The amount of economic stimulus resulting from demand side incentives depends on whether the economy has excess capacity at the time of enactment of the policy, and on how the Federal Reserve Board reacts to the policy. If the economy is already producing near capacity, demand-side policies may, instead, result in inflation, as consumers bid up prices to compete for a fixed amount of output. If the Federal Reserve Board believes there is a risk that the policy will result in inflation, it may raise interest rates to discourage consumption. In this case, depending on how strongly the Federal Reserve Board reacts, little, if any increase in spending will occur as a result of would-be stimulative tax policy. The MEG aggressive Fed response simulation assumes the Federal Reserve Board completely counteracts demand stimulus; the MEG neutral Fed response simulation assumes the Federal Reserve Board ignores the stimulus; and the GI simulation assumes the Federal Reserve Board partially counteracts demand stimulus. The OLG simulations have no monetary sector because they assume demand automatically adjusts to supply through market forces. (b) Simulation results Economic Growth.--

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, I thank the gentleman for yielding me time. We are the committee that will deal with the issue. And the gentleman from Ohio (Mr. Boehner), the chairman of the Committee on Education and the Workforce, is correct, this motion to recommit says promptly, not forthwith. That means that everything they said means absolutely nothing, or perhaps that is too drastic a statement. When they said that they are going to have spending for 26 weeks, that is a bubble; and if you touch it, it bursts. When they said they are going to provide an additional 18 weeks of income support, that is a bubble; and if you touch it, it bursts, because the underlying structure of this motion to recommit kills the bill. That is what this motion to recommit does. No one will lose their unemployment payment, currently unemployed, all the way through August. The gentleman from Maryland was correct, there are sufficient funds. The Committee on Ways and Means will act. The problem is they want to create a phony issue at a phony time so that they can act like they are going to do something. What they propose to do is blow bubbles. We propose to act and solve the problem. Vote ``yes'' on the motion to recommit, you kill the bill. Vote ``no'' and you will get an addressing of this problem in an appropriate time frame.

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, I ask unanimous consent to take from the Speaker's table the bill (H.R. 1584) to implement effective measures to stop trade in conflict diamonds, and for other purposes, with a Senate amendment thereto, and concur in the Senate amendment.

Mr. THOMAS

Mr. THOMAS. Mr. Chairman, will the gentleman yield?

Mr. THOMAS. Mr. Chairman, if the gentleman will continue to yield.

Mr. THOMAS. Mr. Chairman, I thank the chairman of the Subcommittee on Select Revenue Measures for yielding. He has played a major role in putting together, with the members of the Committee on Ways and Means, the tax portion of the energy bill. Mr. Chairman, one of the more enjoyable things about this job, when we know we are going to conference with the other body, is trying to anticipate the concerns of those who are trying to look at what the product of a conference committee is going to be prior to the opportunity of actually having the conference and putting the product together. So one of the things that I think is important for us to do is to engage in a discussion at this point of what we anticipate the conference report will look like. As a first step, the gentleman from Kentucky (Mr. Lewis), as a member of the committee, certainly has some concerns, and that is not so surprising when we recognize the fact that he is from the State of Kentucky.

Mr. THOMAS. I thank the gentleman for yielding, and the question of the gentleman from Kentucky is obviously important not only to the gentleman from Kentucky, but the gentlewoman from West Virginia (Mrs. Capito) and, I am sure, a number of other Members on both sides of the aisle. When we examine the Senate tax portion generated by the Committee on Finance of this energy bill, we find there are other credits that are not contained, for example, in the Ways and Means product, ethanol, biodiesel, coal and others. Similarly, the Ways and Means product has positions in it that are not in the Senate's. The goal would be to produce a product which picks up some of the more innovative approaches in the Senate bill, and we would hope, during the discussion, that the Senate would do the same. The particular provision that the gentleman mentioned, the 4.3 excise tax removal, happens to be one of the few items that is exactly identical in both bills. That is an important decision. It means that decision has already been made. I can assure the gentleman that, as we sit down with the Senate, a number of those items, such as those that the gentleman has suggested, will be part of the melding of the Senate and the House packages. Of course, it has to yet happen, and I know the gentleman will rely on me to provide a package from the House side that takes the important provisions of the House package and that the Senate will maintain the important provisions of its package. We will meld the two and bring it to the floor, and I am sure the gentleman will be very much in support of the conference report when we bring it to the floor.

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, I move to suspend the rules and agree to the concurrent resolution (H. Con. Res. 141) expressing the sense of the Congress that the Internal Revenue Code of 1986 should be fundamentally reformed to be fairer, simpler, and less costly and to encourage economic growth, individual liberty, and investment in American jobs.

Mr. THOMAS. Mr. Speaker, I yield my time to the gentleman from Georgia (Mr. Kingston), sponsor of the concurrent resolution, and ask unanimous consent that the gentleman from Georgia control the balance of the time.

Mr. THOMAS

Mr. THOMAS. I yield to the gentleman from Maryland.

Mr. THOMAS. Mr. Speaker, will the gentleman yield?

Mr. THOMAS. If the Senate bill were not flawed in several different ways, the suggestion the gentleman makes would be acceptable. I think it is evidence that even the Senate recognizes some fundamental problems when they are willing to accept a bill that we are going to send over, rather than going to a conference.

Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I am a firm believer that no bill should pass this House until it is ready. I am prepared to tell the House this bill is more than ready. It passed twice last year, and the Senate failed to act. As recently as March 20 of this year, the bill, in its current form save a technical correction, passed as H.R. 1307. That vote was 422-0. H.R. 1664 is in its current form virtually, as I said, except for technical correction, in the same form as H.R. 1307. There are two modifications that we are adding to this bill based upon discussions with the Senate so that the good and worthy purposes contained in this bill which no one has challenged can go to the President for his long- overdue signature. The two provisions which the Chair believes, if added to this bill, will initiate a process in the Senate which will move the bill immediately to the floor of the Senate; and this version which passes the House, when it passes, will move through the Senate without the need for a conference. The two provisions that we are adding is that in the special rule provided for military personnel to determine if they have met the 24 months out of 5-year residency to trigger the capital gain exclusion on a home sale, would be extended to members of the foreign service. Secondly, the underlying benefits of the bill, the income and estate tax relief provisions that were provided, for example, for the victims of terrorism in the Tax Relief Act of 2002, would be extended to astronauts who lose their lives during a space mission; and, of course, that would apply to those astronauts who unfortunately lost their lives during the recent Columbia Shuttle disaster. Adding those two provisions, which I do not believe are controversial, to the underlying bill means we can finally, and long overdue, provide these benefits. It means that the history of this bill will be that the House and the Senate agree, and the President is prepared to sign. Mr. Speaker, I reserve the balance of my time.

Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I have to tell Members I think we have come full circle. One of the reasons there was so much, I assume, angst on the other side of the aisle was that at one time the bill contained extraneous material. Now the gentleman is complaining that I am not accepting the Senate version of the bill which contains, oh, my goodness, extraneous material. The gentleman knows well that the, quote/unquote, extraneous material has been contained in another bill which is moving on the Senate side and which will become law is a far more appropriate vehicle than this particular measure. In addition to that, the extraneous material that the gentlemen insists that we agree to, coming from the Senate, is not the solution on the individual expatriation that our own Joint Committee on Taxation recommends is the most appropriate solution.

Mr. THOMAS. Mr. Speaker, I must tell the gentleman that offsetting costs with extraneous material is one thing; accepting a solution which our committee that we utilize to recommend appropriate changes does not believe is the appropriate exchange is another. The gentleman also pointed out two differences between the House and the Senate bill, and it is true. I understand the gentleman and where his party is coming from. They do not see a problem with absolute, open-ended, unlimited ability to write off expenses. That is just very, very typical. What we have accepted, by the Senate, are reasonable and appropriate limits. Whenever the phrase ``reasonable and appropriate'' is used, the counterargument always seems to be unlimited. The Senate thinks it is appropriate to accept a reasonable and appropriate, and so do we. Mr. Speaker, I ask unanimous consent to yield the balance of my time to the gentleman from Texas (Mr. Sam Johnson) and that he may control that time.

Mr. THOMAS. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 1664) to amend the Internal Revenue Code of 1986 to provide a special rule for members of the uniformed services in determining the exclusion of gain from the sale of a principal residence and to restore the tax exempt status of death gratuity payments to members of the uniformed services, and for other purposes.

Mr. THOMAS

Mr. THOMAS. Mr. Speaker, I thank the gentleman for yielding to me so that I might inform my friend, the gentleman from Texas (Mr. Green), that I am doing everything I can to fix the loopholes in the Tax Code. He is well aware that his party was in the majority for 40 years and they punched an awful lot of holes in that Tax Code. We are trying to plug it up just as rapidly as we can, but it will take a few more years to clean up 40 years of a mess

Mr. THOMAS. Mr. Speaker, will the gentleman yield?

Mr. THOMAS. Mr. Speaker, I rise in opposition to the motion to recommit.

Mr. THOMAS. Mr. Speaker, the gentleman from California who is interested in dealing with the teachers' issues is named Buck McKeon. We have talked about him as a good $1 bill, the gentleman from California (Mr. McKeon). I want Members to know this motion to recommit is a $3 bill. If Members have never seen a $3 bill, all Members have to do is look at this motion to recommit. As we all know, there is no such thing as legal tender that is a $3 bill. What this motion to recommit does is it kills the bill. I ask the freshmen to listen carefully. If this motion to recommit said ``report the same back to the House forthwith,'' a little word, ``forthwith'', what the gentleman from Texas (Mr. Green) was talking about could possibly occur. But he used the word ``promptly'' knowingly, because they know that a motion to recommit with the word ``promptly'' in it kills the bill. Let me tell the Members what this motion to recommit really does: it says that the Social Security Administration cannot withhold tax refunds of people who cheat other taxpayers. It says that the Social Security Administration cannot impose monetary penalties on those who mismanage benefits. If says that we cannot create new civil monetary penalties for Social Security fraud. In other words, if people are for the good stuff that is in the bill, they are against this motion to recommit. The motion to recommit cannot add what they said it does because of the way it is written, it is very simple. There was not a lot of honest debate on the amendment, and this motion to recommit is not an honest amendment to recommit. It is a motion to kill. Let us vote ``no'' on this so we can get on to the basic business of passing a very important and helpful bill. Vote ``no'' on this $3 bill, the motion to recommit. parliamentary inquiry

Mr. THOMAS. Mr. Speaker, I thank the gentleman for yielding me this time. Prior to being elected to Congress, some of us were actually in the profession of teaching. I was, for a number of years, and I paid into the California State Teachers Retirement System. I can tell my colleagues right now that in California, no serious and responsible professional teacher would think that their 20 or 25 years devoted to the classroom should be capped off by scurrying to another school district where there is clear collusion between the districts to allow for 1 day, 1 week, or 1 month of employment so that they can scam the system. Now, that is basically what the Green amendment asks us to continue to allow; fortunately not in California, but unfortunately in Texas and perhaps in Georgia. Let me get my colleagues to really understand what is going on here. Is there a problem with the offset? Of course there is. We just had a colloquy on the floor with the chairman of the Subcommittee on Social Security and the ranking member of the Subcommittee on Social Security and there was agreement that we will seriously address the pension offset. I have friends of mine who are still in teaching who have implored me to address that. We are in the process of addressing it. The whole point of the Green amendment is do we allow something to continue which goes something like this: Let us take a teacher in Texas, Mrs. Brown or a Mrs. Green, and say she is employed in Dallas or Houston. And let us say she has worked for a number of years and has successfully put a significant amount of money in the Texas State Teachers Retirement System. She is now ready to retire. She finds another district. And it is true that the local district officials choose whether their employees are in the Social Security System or in the State teachers system. That is a local choice. But what happens is those board members are in collusion with other districts when they allow a 20-plus year career teacher to work, perhaps in areas not directly to their certificate of teaching credential but simply a job. And let us say they work there for as much as, oh, a month. They may have paid into Social Security, oh, maybe $100. And according to the Social Security actuaries, that 1 month, after those distinguished years of teaching, could produce as much as $93,000 of taxpayers' money going to this person who put a blemish on their professional teaching career to play an angle. The Green amendment says let us allow these folks to continue to play this little game of collusion to raid the Social Security System under the guise that we should take care of these people. If we vote for the Green amendment what we are doing is relieving pressure to address the real problem. I would urge all my colleagues to understand a ``yes'' vote on the Green amendment slows down the addressing of the pension offset. A ``no'' vote on the Green amendment puts all Americans in the same position, pressuring us to do something about the pension offset. Please, do not remove the pressure by voting ``yes'' on the Green amendment. Vote ``no'' on the Green amendment and all Americans will feel the pressure, rather than just a few who distinguish themselves at the end of their teaching career to go clip lawns, sweep up paper, or maybe even latch on to a substitute position to scam the system.

Mr. THOMAS

Mr. THOMAS. I yield to the gentleman from South Carolina.

Mr. THOMAS. That is 1 percent across the board.

Mr. THOMAS. Mr. Speaker, I thank the gentleman for yielding me this time, and I rise in part because I have just now read the motion to instruct conferees. The ranking member on the Committee on the Budget had indicated that perhaps there were some misrepresentations by a description of what some of the black letter language was. If the gentleman would be willing to respond to some questions that I have, it might assist us in understanding, or at least it will assist this gentleman from California in understanding. When, for example, on page 5 the gentleman indicates that we be instructed to eliminate the reconciliation instruction, that means to remove the 1 percent across-the-board cut; is that correct?