Today, I voted against an $857 billion tax package that I believe will unnecessarily add to our nation's growing deficit. It does so by extending deep tax cuts to the wealthiest Americans.
My preference is to extend tax cuts to all Americans on the first $200,000 of income earned by a single wage earner, and $250,000 per couple. But in the spirit of compromise, I voted for a proposal that would have extended tax cuts on the first $1 million. I was disappointed when those proposals failed when they were put to a vote earlier this month.
In my view, borrowing hundreds of billions of dollars and adding to an already out of control deficit in order to pay for tax cuts to the wealthiest Americans is both unaffordable and irresponsible.
Below is a speech I delivered to the Senate outlining my concerns with this tax cut plan. If you prefer, you can watch the speech on my YouTube page.
Yesterday the Senate voted on proceeding to an $857 billion package that would: extend all personal income tax rates for two years; substantially reduce the estate tax; and establish or extend a host of tax incentives for American families and businesses. This package should be evaluated on how it deals with our two biggest economic problems: strengthening recovery from the deepest economic downturn since the Great Depression, and setting us on a long-term course to achieve fiscal stability.
On the first issue, economic recovery, there is much in this package that I strongly support. We should protect 98% of American households from any tax increase. We should extend benefits to our fellow Americans unable to find jobs in this period of stubbornly high unemployment. And we should continue key business incentives like the Section 1603 program, which has provided a critical lifeline to our renewable energy industries. If the only economic imperative were recovery from the downturn, I would have voted for this package.
But as I said at the outset, this is not our only economic imperative. Our dire fiscal condition requires us to adopt a strategy that will dramatically reduce deficits in the coming years. And frankly, I'm disappointed by the plan's shortsightedness on this dimension. And therefore, I opposed the cloture motion.
If we are serious about addressing the deficit, we must admit that we cannot afford this package.
In 2001, I came to the floor to explain my opposition to enacting the so-called "Bush tax cuts." At the time, CBO was actually projecting budget surpluses. But as I explained then, I viewed the 2001 tax cuts as carrying a higher price tag than we could afford. The 2001 cuts, which were accelerated in 2003, reduced the stream of revenue to the federal government by an amount that virtually guaranteed the elimination of our anticipated budget surplus, and ensured that substantial deficits would once again become the norm in our federal budget.
The results "a federal debt that today nears $14 trillion" could have been avoided under the Bush tax structure only if there had been major cuts in spending at the same time. But as we all know, no such cuts in spending were proposed by the President or adopted by the Congress. In fact, in the years following the Bush tax cuts, spending increased greatly. The Bush tax cuts were larger than we could afford when they were adopted. Including interest costs, those tax cuts account for nearly 55% of the deficit projected for the end of the next decade. And once again, we cannot afford to extend them.
The nation's debt now stands at 62% of GDP. CBO says that if we continue on our current course, the debt will reach 90% by 2020, and 185% of GDP by 2035. This concern is not merely academic. Our growing deficit has stark consequences for our government's ability to meet essential priorities. At current levels, government revenue in 2025 will be enough only to cover interest on debt, Medicare, Medicaid and Social Security. And the threat to American prosperity is severe: By 2035, rising debt could reduce per-capita GDP by as much as 15%.
In recent weeks, we've had several expert commissions tell us that we need to get the debt under control and they have offered thoughtful, practical proposals to do so. The National Commission on Fiscal Responsibility and Reform released a six-part plan that would achieve nearly $4 trillion in deficit reductions through 2020. Five of the six Senators on that Commission supported the plan. Two weeks earlier, a bipartisan commission headed by former CBO Director Alice Rivlin and my former colleague Pete Domenici issued their own report. Both bipartisan groups concluded that to be credible, any deficit reduction plan must impose limits on spending and increase revenue. For much of this Congress, the excuse for deferring serious action on deficits and debt has been "Let's wait and see what these commissions decide." Well, now these commissions have finished their tasks of issuing proposals. This bill is our first chance to begin considering their recommendations, and I see no evidence that we have done so.
I understand that we cannot tackle both tasks "stimulating the economy and reducing the deficit" with equal force at the same time. The decision, which I have supported, has been to focus first on stimulating the economy. But that focus does not excuse us from also taking the relatively easy first steps to reduce future deficits. I agree with the Committee for a Responsible Federal Budget, whose leaders argue that "the critical objective is to pair any stimulus for the short-term with a credible plan to reduce the debt in the medium- and long-term. We should be talking about what triggers to attach, how to pay for this new package over the decade, and what spending cuts and tax reforms to make." It is unfortunate that no such conversation has taken place.
And because the cost of this package is not offset, it has been larded up with wasteful provisions that will do little for the economy. Most problematic is the $129 billion this package would spend to extend tax cuts that benefit only the very highest-income American households and reduce the estate tax below 2009 rates. Proponents of this bill say because the economy is weak, now is not the time to allow the Bush tax cuts for the wealthiest households to expire. But a CBO report issued earlier this year tears down this argument. Examining 11 options to stimulate growth and job creation, CBO ranked extension of the 2001 and 2003 tax cuts dead last. CBO further found that extending the tax cuts for high-income households in particular would rate lower in effectiveness than extending all of the tax cuts because, and I quote, "higher-income households would probably save a larger fraction of their increase in after-tax income." We know that a recovering economy needs more spending. If government spending is to facilitate the transition to recovery, then we should put money into hands of those who will spend it. But the wealthiest among us are likely to save most of any additional income they receive. This is not effective stimulus.
There is one comparison that puts this sharply into perspective. Last month, the President announced that because of concerns about the deficit he will freeze all civilian federal salaries, at a savings of about $2.5 billion per year. I stated at the time that I supported his decisions. But we erase those savings nearly three times over with this package's reduction in the estate tax from the 2009 parameters. Is it not enough to reinstate the 2009 parameters, which exempt $7 million in assets per couple and tax amounts above that at 45%? Under this package, the exemption is dialed up to $10 million per couple and the rate reduced to 35%. So instead of reaching only 1 out of 400 Americans, this plan will subject only 1 out of 1000 estates to any tax whatsoever. So while a GS3 clerk at a USDA office in Albuquerque will have her salary frozen in the name of fiscal responsibility, the heirs of a $50 million estate save $5.35 million. This unwarranted generosity costs our Treasury an added $7 billion a year. Americans are right to question how we can possibly be serious about reducing the deficit when we are ready to give wealthy heirs a windfall, with no benefit whatsoever to the economic recovery. Do we really believe the question of "What's another $7 billion" is merely a rhetorical one?
Those who rate our debt do not view this rhetorically. In fact, after yesterday's vote, Moody's announced that the plan before us could endanger our vaunted Triple-A credit rating.