State of the American Economy

Mr. REED. Mr. President, the American economy is in serious distress and thousands of families across America are suffering. When President Bush took office in January 2001, the unemployment rate was 4.2 percent. In November of 2002, the unemployment rate was 6.0 percent; 2.2 million more Americans were out of work than when President Bush took office in January of 2001.

The economy is not growing fast enough to generate the jobs that continue to employ millions of Americans. Labor market conditions are not improving. In fact, tomorrow the Bureau of Labor Statistics will report on employment statistics in December, and they are likely to be unchanged from November, roughly 6 percent unemployment in the United States.

This is an extremely disappointing economic record, and the Bush administration is refusing to take prompt and responsible action to put Americans back to work.

Increasingly, we hear the Republicans trying to deflect this situation by claiming this is the Clinton recession, but the National Bureau of Economic Research, which is recognized as the authority on these matters, indicated that the recession began in March 2001, months after President Clinton left office, several months after President Bush assumed responsibility for economic policy.

Indeed, in the last full month of the Clinton administration, the unemployment rate was 4.0 percent. In the last full quarter of the Clinton administration, the economy was still growing. More to the point, rather than assessing responsibility, a President of the United States, regardless of responsibility, has to act on behalf of the American people, and we are still waiting for prompt and effective action from President Bush to remedy the ills of this economy.

What has the President proposed to get us moving again? He is proposing, as the centerpiece of his plan, a massive elimination of taxation on dividends, which has several problems.

First, it would have no immediate stimulative effect on the economy.

Second, it is grossly unfair. It will accrue to taxpayers with very high incomes and provide little or no benefit to the majority of taxpayers, including most seniors, and it significantly erodes long-term budget discipline, which has been the foundation of economic growth in this country since the Clinton administration.

When we began debating a stimulus package over a year ago—because even then we recognized the economy was foundering—the four leaders of the House and Senate Budget Committees on a bipartisan basis established principles for any effective stimulus package. The Congressional Budget Office used similar principles in a report in January of 2002 evaluating proposed changes in tax policy aimed at providing stimulus.

The President's dividend proposal, when measured by these bipartisan principles, fails dramatically.

First, a tax cut is most effective as stimulus when it puts money into the hands of the people who will spend that money almost immediately, but based on the administration's own theories, only $20 billion of the projected direct cost of $364 billion over 10 years will be spent in the first year. A small fraction of the ultimate cost of this tax plan will be available to be spent in the near term. That is when we need stimulus. That is what a stimulus package is all about.

Second, the dividend proposal is particularly poorly targeted as stimulus. Most families have little or no direct ownership in stock. They have pension plans, they have Keogh plans, they have retirement accounts, but the majority of direct ownership of stock is concentrated in the hands of very wealthy individuals, higher income households that are more likely to save the money than to immediately engage in consumption, to increase demand, to get the economy moving.

As I mentioned before, a stimulus by its very nature should provide immediate effects, but even the $20 billion in projected stimulus for 2003 is not really stimulus because taxpayers will have to wait until they file their returns next year until they actually see this money in their hands.

Stimulus should not undermine long-term economic discipline. We found out through the policies of the Clinton administration that sound fiscal policy in Washington, leading ultimately to a surplus, was the foundation for economic expansion, the longest running economic expansion in the history of this country. We are in grave danger of losing that economic discipline, of seeing interest rates begin to climb and choke off growth.

For all these reasons, the President's proposal, particularly his centerpiece, the dividend proposal, is bad economic policy.
Some have said these criticisms are just an exercise in class warfare. Let me tell my colleagues the facts. Under the President's proposal, the 226,000 tax filers with more than $1 million of income—about .2 percent of tax filers—will receive an average tax cut of almost $90,000. A third to a half of that will come simply from this dividend proposal.

In contrast, the 109 million taxpayers with incomes under $75,000—the middle and working class Americans, 82 percent of taxpayers—will receive an average tax cut of $273. Let me once again suggest the dimensions here: 226,000 upper-income tax filers versus 109 million middle-class and working-class tax filers. The 226,000 receive $90,000 on average; the 109 million—the rest of us—receive about $273. Now, nearly a quarter of elderly taxpayers will be left out of this bounty. Nearly half the heads of households with children will be left out of the benefit.

I have concentrated on the bad economic policy associated with this proposal. But it is also terrible budgetary policy. Even without the President's new proposal, we have seen a stunning decline in our fiscal situation. In January of 2001, we were looking at a projected surplus over 10 years of $5.6 trillion. In fact, we were shopping around—not really "we," the Republicans—were shopping around for tax cuts because they said we will have too much surplus and we will not be able to conduct debt operations of the United States. We will have too much surplus, and we will not be able to find investments for all this money. In a little over 2 years, we have seen those surpluses disappear.

Still, we have educational issues we have to fund and health care issues. Ask the average American what they are most concerned about, the first concern is health care. Can I get it? If I am a business man or woman, can I afford to give it to my employees. Second issue, can we maintain education? That is not just an issue for families but for States and localities. They are suffering under tremendous budget pressure. Their two biggest items of expense are health care and education.

And we have the challenges of international affairs and of homeland defense. All of these proposals require expenditures that cannot be ignored or deferred. And the President proposes further to weaken our fiscal balance, our fiscal foundation.

And there is another issue. We are within a decade of the baby boom generation reaching retirement age, a huge demographic tidal wave. Will we be prepared for it? Will we have the resources to take care of Medicare and Social Security? Not if we cut taxes as dramatically and as inefficiently and inappropriately as the President has asked.

Now, there is an alternative to the President's proposal. That is a proposal that Democrats in both the Senate and House have advocated. The plans differ but they are consistent in many respects. They want to give tax benefits to middle and working class Americans. They want to make sure these benefits are immediate. They can be spent now to stimulate the economy and get them going forward. And they are crafted in such a way we do not jeopardize any further our fiscal discipline here in the United States. These are the proposals we should enact. I hope we do.

Let me conclude by summarizing a major concern I have. We will, in the weeks ahead, debate this issue of stimulus and
growth. We will take votes on stimulus and growth. We will try to adopt economic policy. But for me, the real issue is not whether we reduce taxes, the real issue for me is whether we are going to have a Social Security system for Americans of this generation, of my generation, and of future generations.

This chart is illustrative. Where is all the money coming from in the President's proposal, $933 billion? That is not just a direct tax benefit, that is all the interest over 10 years that we will have to pay because of this deficit. Where does it come from? It comes from the Social Security system. I fear that if we enact the President's proposal, within months the President will simply say we can no longer afford Social Security. We have such a large deficit now we have to abandon the system.

I hope all my colleagues and the American people pay attention to the votes in the next several weeks. They are not about growth and stimulus but about whether we will have a Social Security system, whether we will have an adequate Medicare system, whether we will keep our promise over 60 more years to the people of America.

These are daunting times. We need policies that will work, that will be fair, and that will leave us stronger rather than weaker. I hope we adopt these policies.

I yield the floor.