Congressional Budget for the United States Government for Fiscal Year 2009

Floor Speech

CONGRESSIONAL BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL YEAR 2009 -- (Senate - March 10, 2008)

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, the chairman spoke about his budget. For Senator Gregg, the ranking member of the Budget Committee, I would like to start this debate on the Republican side. Since we are on the budget resolution, Senator Gregg would usually open debate for our side of the aisle. He wanted to take the lead today but has a necessary conflict in his schedule. He asked me to substitute, and I am pleased to do so. Senator Gregg will be here tomorrow to give what is normally the opening statement by the senior member of the Budget Committee on the Republican side.

I am going to first talk about the process and recent history of the Senate budget resolutions. Almost all of the revenue side of the budget is Finance Committee jurisdiction. Most of the spending side of the budget is also Finance Committee jurisdiction. For those of us who sit on the Finance Committee, we need to pay very careful attention to the budget. Chairman Conrad, along with Senator Wyden of Oregon and Senator Stabenow of Michigan, are all Finance Committee Democrats. This Senator, along with Senators BUNNING, CRAPO, and ENSIGN are all Finance Committee Republicans.

When I was Finance chairman for part of the year 2001 and all of the years 2003 through 2006, there was coordination regarding the fiscal resources and fiscal demands on the Finance Committee. That coordination occurred with respect to revenue levels, spending levels, and reconciliation instructions. Did we always agree over those years? The answer is no. Did we compromise when we had disagreements? The answer is most often yes. We did have some different priorities, but we worked through those differences during this committee's budget process. We came up with compromises that largely held together. I might add, those compromises and the levels regarding revenue spending and reconciliation instructions were in sync with the administration. My point is that we hashed out the fiscal differences in the Budget Committee and on the Senate floor. The committee and floor debate, amendment votes, both pro and con, made a very real difference. The product of that process, the budget resolution that we will vote on as the last vote probably this week, the product made a real difference.

Those budget resolutions, though not perfect, provided me, while I was chairman of the Finance Committee, with the budget resources to deal with the policy demands on the Finance Committee. Most often, I used these resources to guide the Finance Committee, usually in a bipartisan manner, to deal with short-term, midterm, and even long-term problems. Last year was different. After the people spoke in the November 2006 elections, control of the Senate changed from Republican to Democrat, and the budget resolution was basically a Democratic resolution.

This year we see some repetition of last year's dramatically different fiscal path. As with the rest of the Budget Committee Republicans, I learned about this resolution for the first time when the chairman of the Budget Committee put the markup document before the committee. Committee Democrats were consulted extensively, along with the Democratic caucus. Most of the Republicans' knowledge prior to markup was derived from what we read in the press. I don't say this to be critical of the Democratic leadership. It is unfortunate but perhaps necessary that budgets are usually partisan documents. So I would say, with all due respect to the chairman, the chairman's mark was developed exclusively by Democrats in a partisan fashion.

Republicans, during committee markup, used that markup to educate ourselves, others on the other side, and the public. We asked questions. I pursued questions about how this budget deals with the resources and demands that fall on Senator Baucus and me in our respective roles as chairman and ranking member of the Finance Committee. We offered a relatively small number of amendments. Most were defeated; some accepted.

On reforming farm program payment limits, I am pleased to say Senator Allard's amendment prevailed on a rollcall vote. That amendment improved this resolution, though not enough to gain the support of Senator Allard, this Senator, or any other Republicans.

Before I discuss the substance of the budget, I want to start off by complementing the chairman of the committee and his staff. They conducted the markup in a professional manner. The Democratic and Republican members have sharp, well-intentioned reasons for coming down in different places on the budget resolution. We were able to debate those differences in a full and fair manner.

I know if Senator Gregg were here speaking today, he would make these points as well. We are at the Senate floor stage of the budget on process. What I would like to do is step back and take a look at the budget from three vantage points. It is kind of like we farmers do before planting season. We look at the condition of the soil and prospects of various crops. The first vantage point will be looking at what the budget purports to do. From this angle, I am going to look at what the Democratic leadership says the budget is designed to do and whether those purposes make sense from a fiscal standpoint. The second vantage point will be looking at how well the budget carries out its stated purpose. The third vantage point will be looking at what the reconciliation would mean for the Senate. I will address the reconciliation in a separate speech later. I believe I will wait until tomorrow to do that.

Let's start off with the first question: What does the Democratic leadership say this budget is designed to do? Then, after stating what they say it does, we need to look at the fiscal consequences of that policy.

The budget's proponents claim it is all about fiscal responsibility. There are two basic parts to the Federal ledger: the revenue part and the spending part. If we spend more than we take in, then the Treasury sells more debt. This has been the pattern of much of the post-World War II period. If we spend less than we take in, then the Treasury buys back debt.

When we look at this budget over the short term, it contains a material increase in spending. Over the next fiscal year, the discretionary spending rises by 9 percent over last year's spending.

Now, how many Americans got a 9-percent raise? How many American families raised their discretionary household spending by 9 percent? On the spending side of the ledger, spending, then, goes up, and I say fairly dramatically. You would think proponents of fiscal responsibility would be looking at spending cuts, not 9 percent increases.

It is a different story on the other side of the ledger, the revenue side. Let me start off with one smidgeon of good news on the revenue side in this budget resolution. The alternative minimum tax patch expired the first day of this year. If that patch is not addressed, 25 million families, most of them middle-income families, would pay an average of at least $2,000 in AMT this year. The chairman reduced the revenue baseline by $62 billion, which is a revenue loss from extending that patch. All middle-income Americans ought to thank the chairman of the Budget Committee--and I thank him on the Senate floor right now--for that provision.

Unfortunately, for years beyond 2008, pay-go still applies, so there is a big Senate hurdle built into this budget to patching the alternative minimum tax in years beyond 2008.

The rest of current law expired or expiring tax relief provisions will need to be offset with other tax increases. There are also several bipartisan tax bills that would require offsetting tax increases under this budget. That is a very large tax increase over the next fiscal year. My staff calculates that tax increase to be roughly $150 billion.

The definition of ``fiscal responsibility'' under this budget, over the fiscal year, is higher spending of $22 billion and higher taxes of $150 billion. Is that a legitimate fiscal goal? Is that the notion of fiscal responsibility the American people were looking for when they turned congressional power over to the Democrats in November 2006? Did we in Congress misread those results? Did the people really want us to increase spending and to raise taxes?

Now, that is not what I am hearing from back home. What I heard from folks across Iowa was: Rein in spending. Live within your means.

It seems to me if you are going to assume the mantle of fiscal discipline, you ought to treat a dollar of new tax relief the same as a dollar of new spending.

What do I mean by ``new spending?'' I mean spending above the Congressional Budget Office baseline. And what do I mean by ``new tax relief?'' I mean new tax policy that loses revenue. I do not mean extension of existing tax policy.

We see the same pattern over the 5-year period of this budget. Over 5 years, the tax hike and the spending increases grow exponentially. On the spending side, discretionary spending grows by $211 billion. When you throw in the special reserve funds, you can add another $300 billion in new spending on top of that.

Over the 5 years, the budget assumes a dramatic tax increase--at least $1.2 trillion. In 2011, the bipartisan tax relief plans of 2001 and 2003 will expire. Some folks will call these provisions the Bush tax cuts. It is true President Bush signed both bills, but the bipartisan compromises occurred in the Finance Committee. In 2011, President Bush will have been gone from office by more than 2 years. He will probably be hanging around his ranch in Crawford, TX. You can call this package of tax relief for virtually every American the Bush tax cuts, but for the taxpayer, if we let them expire, it will be a big tax increase, and it will be a big tax increase that will happen without even a vote of Congress.

So I have a couple charts in the Chamber. The charts use the analogy of a brick wall to show the ugly tax increases Americans are going to face.

On this chart, you see a family of four. That is the average American family. Here is the husband, his wife, and two children. The family makes $50,000 a year in income. That is right about the national median household income today. For example, the Census Bureau stated, for 2006, the national median household income was $48,200.

Under the Democratic leadership's budget, this family will face a tax increase of $2,300 per year. You see the figure $2,300 for that family of four. That is a loss in their paycheck of about $200 per month. It is a hit on their yearly budget of $2,300. Where I am from, the Midwest--or anyplace in this country, I will bet--that is still a lot of money.

Now, I have another example. This next chart has the same brick wall but a different family: a single mom with two kids. Here we have a person earning about $30,000 a year. In 2011, under this budget, she and her family run straight into that brick wall--that brick tax wall. That is a brick wall of about $1,100 per year of taxes. That is almost $100 a month out of this family's budget.

So when you hear folks rail against the 2001 and 2003 bipartisan tax relief plans, you will hear a lot of talk about millionaires, you will hear a lot of talk about the death tax, but you will not hear the critics talk about these two families--a family of four: husband, wife, and two children; or a single mother with two children. You will not hear these critics--almost all of whom voted against these two tax bills--consider these two families.

Now, those on the other side will point to the Baucus amendment that will be upcoming--at least we have heard about the Baucus amendment--as the answer to the tax increases that I have pointed out. Isn't it ironic that my friend, our chairman, my partner from the 2001 tax relief bill, and several other tax relief bills, is the author of this key amendment?

The Senator from Montana, my friend, Mr. Baucus, took a lot of heat for working with me in a bipartisan fashion in 2001. He took a lot of heat from people in his caucus, quite frankly. Many on the other side who fought him and that bill were also denying tax increases in last year's budget. So they now turn to his amendment--this upcoming amendment--as they did last year, to try to deflect the tax increase charge because there is a real charge in what is in this budget. If something is not done to stop tax increases, they are going to happen automatically. And don't let anybody tell me something cannot be done about it.

At Budget markup, we were told the Baucus amendment would contain enough revenue room--$323 billion--to accommodate extension of several components of the bipartisan tax relief plans that go back to 2001. We were told the 10-percent bracket, the marriage penalty, the child tax credit, and some death tax relief would be covered.

There were provisions that were not intended to be covered. The excluded provisions were the lower rates for capital gains and dividends and other marginal rate reductions.

Now, some on the other side will describe this excluded group--excluded from the Baucus amendment--as top-rate taxpayers and other high-income people. Now, I hope you will not believe it. The facts are otherwise.

Low-income folks, including millions of seniors, pay no tax on their dividend or capital gains income. If this budget stands, even with Senator Baucus's amendment, millions of these low-income taxpayers, especially senior citizens, will pay a 10-percent rate on capital gains and could pay as high as a 15-percent rate on dividends.

I have a couple charts to show how wide the dividend and capital gains tax increases would be. The chart that is up now deals with just dividends. It shows the number of taxpayers claiming dividend income. Nationally, over 24 million families and individuals reported dividend income--24 million Americans. There are 24 million Americans, all of whom you are not going to call filthy rich. Very few of them you are going to call filthy rich.

In my State of Iowa, for instance, over 299,000 families and individuals claimed dividend income on their returns. Now, there are not 299,000 millionaire families or even 299,000 people in Iowa you can call filthy rich.

As to capital gains, you can see the numbers not only for my State of Iowa, but you can see the numbers for all the other States in the United States. You can see them for the entire United States up there on the chart. Nationally, we are talking about over 9 million families and individuals. In Iowa, we are talking about 127,000 families and individuals when it comes to capital gains.

I want to emphasize, I went from dividends to capital gains. The chart has changed to tell you what there is in each of the respective States on capital gains.

There are many marginal rates, other than the top rate, that would rise if this budget stands, even with the Baucus amendment. The 25-percent rate, which for 2007 starts at $31,850 for singles and $63,700 for married couples, would rise 3 percentage points to 28 percent. The 28-percent rate, which for 2007 starts at $77,100 for singles and $128,500 for married couples, would rise 3 percentage points to 31 percent. The 33-percent rate, which for 2007 starts at $160,850 for singles and $198,850 for married couples, would go up to 36 percent.

The top rate would rise from the current 35 percent level to 39.6 percent.

To sum up, even with the Baucus amendment--even with the Baucus amendment added to this budget, there would be marginal rate increases on millions of taxpayers, and not millions of millionaire taxpayers. Those marginal rate increases would go up, whether it is the 28 percent to 31 percent or the 33 percent to 36 percent or what have you. Those marginal rate increases would reach taxpayers with incomes as low as $31,850 for singles and $63,700 for married couples, and these people are not filthy rich.

Now, what I just described is accurate only if the Democratic leadership intends to follow the letter and spirit of the Baucus amendment. If you look at last year's track record, the House neutered the effect of the amendment in the conference agreement. They created a Rube Goldberg type of mechanism to impede the amendment. Of course, after the budget conference report was agreed to, all talk and action around the amendment ceased. So I wouldn't put much stock in the followthrough on the Baucus amendment, and things can only get worse for middle-income taxpayers beyond that point.

This budget asks a lot of the taxpaying population--about $1.2 trillion worth of a lot being asked of taxpayers. That is a big chunk on the revenues ledger. Compare that to what is going on on the spending side of the ledger. The answer is $211 billion more spending on the discretionary side. Nothing is proposed to rein in any entitlement spending. If the definition of fiscal responsibility is higher spending, no entitlement savings, and dramatically higher taxes, then this budget is fiscally responsible. Keep in mind that while ramping up $1.2 trillion on the taxpayers, the budget spends $775 billion of the Social Security surplus and grows the gross Federal debt by $2 trillion.

For those on our side, this budget is not fiscally responsible. We don't agree that the definition of fiscal responsibility is higher spending, no entitlement savings, and dramatically higher taxes. For those of us on the Republican side of the aisle, you can't solve all fiscal problems just on the tax side of the ledger.

Now I wish to go to the second part of my discussion and annualize the tax side of the budget. I am looking at how this budget will carry out its objectives.

Let's take a look at the short term. By the short term, I am referring to the fiscal year of the budget, and this chart here is for the fiscal year. This is the first fiscal year. That is the first fiscal year out of five fiscal years.

A lot of people from farm country get their water from wells. When the well water is low, you can either dig it deeper, cut back water use, or pay to have the water trucked in. This well shows the extra demands on the revenue side of the budget. That is the bucket: $152 billion. These demands reflect the extenders for this year and next year. The bucket contains next year's AMT patch because under this budget, that has to be offset. The bucket also covers pending bipartisan tax legislation, and that is bipartisan because it is generally agreed that we ought to do some of this tax legislation. All of these items are listed on the chart for my colleagues to add up.

The water in the well represents known, specified, and scored revenue-raising proposals supported by the Senate Democratic caucus. Included are $35 billion in Finance Committee-approved offsets and $29 billion that has been approved elsewhere. That total, then, is the $61 billion you see at the bottom of the well.

When you net the offsets against the demands, you find an offset shortfall of $91 billion. Somehow, you have to find a way to fill up that well if you are going to offset everything where there is a bipartisan agreement of what ought to be offset. The upshot of the analysis in this chart is that known offsets cover only about 40 percent of the revenue needed to carry out pending time-sensitive tax legislation that there is a great deal of bipartisan support for and bipartisan agreement that it ought to pass and some of it ought to be passing very shortly.

Now, some on the other side will probably respond with three counterpoints, so I want to anticipate that--not that I am going to stop them from responding. The first will be that the committee tax staffs will find the additional $91 billion that is needed to fill up the well. The second will be a claim that offshore shelter activity is a vast, easily tapped revenue source. The third counterpoint will be that closing the tax gap can yield the necessary revenue.

As far as those three points are concerned, in the preceding presentation by the chairman of the committee, my colleagues heard some of these points expressed already.

On the first point, I would refer everyone to the track record of the tax staffs to the period 2001 to 2006. During that period, I chaired for 4 1/2 years and Senator Baucus chaired for 1 1/2 years. During that period, we changed the tax shelter rules and closed numerous corporate loopholes. If you don't believe me, then just go down and ask the K Street crowd of highly paid lobbyists who defended or fought every one of those. During that 6-year period, an active Finance Committee tax staff was able to achieve $51 billion in enacted revenue raisers. That figure should give everyone some perspective of what is doable. It is very hard to find that revenue.

Now, some on the other side will argue for my second point that the offshore activities will produce up to $100 billion a year. The anecdote alluded to usually referred to fraudulent activities. Of course, tax fraud is a crime now. Perhaps we could continue to make progress on this front with more enforcement, but the figures bandied around have no Joint Tax or Treasury scoring that I am aware of.

I will expand on this point in a separate discussion later on in this week when we have some more debate on it. But it is tough to get the revenue that is alluded to in the speeches we are going to hear this week.

The third counterpoint is that the tax gap will yield a readily available, easily tapped revenue source. As a preliminary matter, let me say that the tax gap is a serious tax policy and a serious administration issue. I have devoted a lot of time and energy to closing the gap over the last few years, as the chairman of the committee, Senator Baucus, is doing in his recent chairmanship.

Unfortunately, as IRS officials have told us in several hearings, the tax gap number currently estimated to be $250 billion net annually is not the same thing as a revenue estimate. They have cautioned us to be careful about designing tax gap closure measures that are driven by unrealistic revenue targets in unrealistic timeframes.

When we went through the tax gap discussion last year, these points were disputed by some on the other side. With a Senate Democratic majority in place for over a year, we may have a bit of a yardstick to use to see just how much revenue can come in. Let's take a look at the claims on tax gap revenue and how we have done.

We have three charts that I hope will help us understand. The first chart is the tax gap reality check. My colleagues can see it here. We see some big numbers. This chart takes the form of an inverted pyramid, as my colleagues can see. At the top of the chart is gross tax gap. That is what appeared in the budget resolution markup document, the last year that the IRS testified that the improvements in collections have brought the tax gap down by $55 billion to a net tax gap of $290 billion.

As we work our way down the inverted pyramid, we go to the tax gap proposals. There are two categories. The first is the Treasury tax gap strategy set of proposals. On an annualized basis, these proposals raised $3.6 billion per year.

Some of these proposals have proved controversial on both sides of the aisle. Many are complicated and wide-ranging and may need further work. It is not by accident that they are still a work in progress.

The second set of proposals comes from the Joint Tax Committee's white book. This pamphlet, requested by Senator Baucus and me--and we requested this a few years ago--was published in late January 2005. A note of caution is in order about the chart's figures. The $44 billion annualized figure includes many tax expenditure reform proposals. Some tax gap proponents have strongly opposed the mixing of these proposals with pure tax gap proposals. I will speak in more detail about these proposals as we go on in this week's debate. If one were to delete the tax expenditure reform proposals from this figure, it would drop considerably.

For purposes of this exercise, I am going to use the full set of Joint Tax proposals. If we do that and add them to the Treasury proposal, we come away with roughly $44 billion per year in tax gap-related proposals.

As a side note, a couple of recently enacted tax gap proposals have run into rough sledding with the new majority. The first proposal is from the 2005 Joint Tax book. It deals with withholding on contractor payments enacted in 2006. Ways and Means Democrats are seeking to delay it. In addition, many House and Senate Democrats are insisting on repealing another tax gap measure, this one dating from 2004, providing supplementary private debt collectors. If enacted, the Joint Tax scores that proposal as actually losing revenue.

As we work our way further down the inverted pyramid that I call the tax gap reality check, we total up enacted tax gap provisions. During the fiscal year of the new majority, we find $572 million of enacted tax gap provisions. The enacted provisions represent two-tenths of 1 percent of that great big, gigantic figure that we call tax gaps--just two-tenths of 1 percent. Now, that ought to give anybody pause when you are putting this year's budget together and you are anticipating a lot of money coming in from this source.

What experience we have had hasn't produced a lot of revenue.

Let's look at the demands on the tax gap revenue in this budget. We have another chart. It totals up the proposed uses of the tax gap revenue. This chart is in the shape of a pyramid--the way a pyramid ought to be, not upside down.

Listed in the first category is annualized tax relief and spending demands in the budget that are assumed to be offset by, and among other things, this tax gap revenue. You can see that they total $314 billion per year. I have accounted for the Baucus amendment's annualized impact of $65 billion. So the net demand on the annual tax gap is about $249 billion. If you have been following the charts and the arithmetic, you can see that the budget uses almost all of the tax gap revenue, up to about 85 percent.

Keep in mind that the track record is that only $572 million of tax gap raisers were enacted last year. To give you perspective, you can look at the ratio of demands on tax gap revenue to the revenue raised from enacted provisions. That is what this chart does. The ratio is 435 to 1. There are $435 of proposed tax gap uses in the budget for every $1 of enacted tax gap revenue.

When you look over these numbers, it should lead to a healthy skepticism of using tax gap revenue as some sort of instant revenue source to accommodate all the spending this budget proposes to do. We ought to listen to the career statistics of income folks over at the Internal Revenue Service. When they tell us not to treat the tax gap number like a revenue estimate, they are on pretty solid ground. It doesn't mean we should not be aggressive about the tax gap. We should. But the thirst for quick-and-dirty revenue raisers should not drive the strategy for dealing with this important problem.

I wish to step back and summarize the last two major points.

The first point is that this budget does represent the priorities of the Democratic leadership. It is put forward with the stated objective of achieving fiscal responsibility. The budget dramatically raises taxes, increases spending considerably above the already generous baseline, and does nothing about entitlements. Most experts agree that entitlement spending, left unchecked, will cannibalize the rest of the budget. From the perspective of the Republican caucus, this fiscal blueprint is not fiscal responsibility.

The second point is that an examination of the budget, even from the perspective of its own proponents, shows that it doesn't work. There is too much pressure on the revenue raising. We have raised revenue from closing corporate loopholes. We have raised revenue from anti-tax shelter measures. I am proud of the Finance Committee's track record in that regard. We have enacted $51 billion in loophole closers and antishelter measures for the period of 2001 to 2006. There are not, however, enough loophole closers to offset the time-sensitive tax legislation we face in the first fiscal year of this budget. We have, likewise, found revenue in policing offshore shelters and other activities, but it fits under the umbrella of loophole closers and other tax shelter oversight.

Finally, the tax gap is an important problem that needs to be tackled, but targeting revenue from closing the tax gap needs to be more realistic than it is in this document. This budget anticipates revenue that is incredibly out of line with our track record of bringing in money from the tax gap, as worthy as closing the tax gap is. There has to be a reality check between what is out there and what people at the IRS say we can collect, and they are much more aggressive at that because of the leadership of Senator Baucus. But will it bring in the revenue? We have shown that it will not, based upon the practice we have had.

When you step back from the differences across the aisle on this budget, you probably won't be surprised to find similar differences among the Presidential candidates of the two parties.

Generally, the candidates on the other side have proposed to take heavily from the taxpayer under the guise of fiscal responsibility. This is true when they are talking about ending the bipartisan tax relief plans of 2001 and 2003. It is true when they are talking about the same loophole closers for a myriad number of expansions of existing entitlements or creating new ones. Nowhere is there discussion of reining in spending. So the tax side of the Federal ledger is the only route to fiscal responsibility from the perspective of the candidates on the other side.

I want to give one telling example. I have a chart here that shows the revenue from the key revenue raisers from one of our colleagues on the other side. That proposal would repeal the bipartisan tax relief plans for taxpayers earning above $250,000 a year. This proposal raises $226 billion over 5 years and 10 years. A key fact is that the source of that revenue peters out over the next few years because under current law the tax relief sunsets at the end of 2010.

You can see it right there. Let the tax laws work the way they want them to work, and the revenue doesn't come in.

Like the Democratic leadership's budget, the candidates on the other side oversubscribe the revenue sources from proposals that are popular with the Democratic base. The deficiency can only be made up in three ways: One, the undefined sources of revenue would need to be tapped. Taxpayers should rightly be worried about that revenue. Secondly, the proposed spending plan would need to be abandoned or curtailed. There is not much history on that side for doing that, taking that avenue. Third, add to the deficit for the cost of the new programs. Unfortunately, this avenue has been taken far too many times--by both political parties, I am sorry to say.

We will hear a lot of criticism of our candidate, Senator McCain, from those on the other side. They will argue, like the President's budget, that a continuation of current-law levels of taxation ``costs'' the Federal Government too much revenue. They will argue that the spending increases they propose are more important than the restrained levels of the President's budget. They will argue that, despite the record tax hikes in their budget, entitlement reform is a matter for another day.

I have a chart that I believe helps set the basis of this larger debate. It shows the glidepath for revenue under current law. It shows that trend in the post-World War II context. You will see revenues average about 18.3 percent of the economy. That is the dotted line across there, so for those years since 1968 until now. And what we propose would be a continuation of that policy; we have averaged, with what the Federal Government is taking in from all sorts of taxes and Federal Government levies, about 18.3 percent of gross national product. That means that 535 Members of Congress are going to decide how to spend 18.3 percent of the total economy of our country and that the taxpayers are going to spend the other 81.7 percent. You will also see that the state of the economy affects revenues more than anything else. There are dips when we have been in recession and peaks when growth was high.

Our side cares about keeping the revenue line at a reasonable level. We don't see the merits of an imperative behind a growing role for Government in the economy. I say that because a 40-year history of about 18 to 19 percent of the total economy being used by the Federal Government has been a level that has not been so high that the public has revolted against it. They might revolt at times, when it gets way high and we have tax decreases to bring it back down. Also, I think you can say that at that level of taxation, it hasn't been harmful to the economy. As you have seen each generation during this period of time, they have lived better than the generation before. Our economy has done well.

When you argue about 18.3 percent being the right figure, often the other side disagrees. If they don't disagree directly, their policies help us draw a different conclusion about whether they agree or disagree. They impliedly or explicitly reject our premise that the size of Government needs to be kept in check.

We have another chart. It is a copy of an editorial, dated October 22, 2007, from the New York Times. I suppose that is pretty small print for the public to read. The lead-off paragraph says it best:

President Bush considers himself a champion tax cutter, but all the leading Republican Presidential candidates are eager to outdo him. Their zeal is misguided. This country's meager tax take puts its economic prospects at risk and leaves the Government ill equipped to face the challenges from globalization.

The bottom line of the editorial directly states the view behind this budget and the position of the Democratic candidates for President. From this perspective, the historical level of taxation is not appropriate as a measure.

The New York Times implies that the Federal Government must grow as a percentage of our economy by at least 5 to 8 percentage points. If we were to follow the path suggested by the New York Times, the Government's share of our economy would grow by one-third. The Democratic leadership's budget takes some big steps down that path. So do the campaign proposals of the Democratic Presidential candidates.

Our Republican conference takes a different view. America is a leading market economy. American prosperity and economic strength, in our view, is derived from a vigorous private sector that provides all Americans the opportunity to work hard, save, and invest more of their money. A growing economy is the best policy objective. It makes fiscal sense as well.

I have one more chart to back up the point that it makes fiscal sense. My last chart shows that despite criticisms to the contrary, the bipartisan tax relief plan drove revenue back up after the economic shocks we suffered in the early part of this decade because of a recession and because of 9/11.

I am referring to the stock market bubble, corporate scandals, and 9/11 terror attacks--all those events that were detrimental to this economy of ours and yet it bounced back. The revenue outperformed Congressional Budget projections by a significant margin, and all one has to do is look at what CBO said would happen, the blue line, and look at the red line of what actually happened.

People on our side, including our Presidential candidate, do not take this significant data lightly. We believe the bias ought to be against growing Government, not the other way around; another way of saying--disabusing people who say that the way to bring more money in is to raise tax rates and if you lower tax rates, you bring a decline to revenue in the Federal Treasury. Not so. This chart shows that we can reduce tax rates, we can enhance the entrepreneurship of the average American, particularly the small businesspeople in this country who create at least 70 percent of the jobs that are created, and we can expand revenue coming into the Federal Treasury. That is what, on this side of the aisle, we propose to do. Are we equipped to do it? The history of 2001 through 2006 is enough evidence for me and most Americans that it can be done and that we did it.

I yield the floor.

The PRESIDING OFFICER. Who yields time? The Senator from North Dakota.

Mr. CONRAD. Mr. President, first of all, I wish to say, while I disagree with some of the observations of the Senator from Iowa, I have enormous respect for him. He has earned that respect by the way he conducts himself as a Senator. While we have policy disagreements, I have absolutely no disagreement or question about his motive because he has proved to me repeatedly that he is trying to do the very best for this country, as am I.

I want to go back to some basic facts. We heard the Senator talk about a 9-percent increase in spending that is in this budget. I don't know how they came up with that calculation, but there is no 9 percent increase in spending in this budget. If you look at the spending that is in this resolution over 5 years and compare it to the President's budget, it is 2.1 percent more. That is total spending. That is over 5 years. If we look at just the next year, 2009, the Bush budget calls for $3.04 trillion of spending. We call for $3.08 trillion. That is a difference of 1 percent. That is total spending.

I think what the Senator's staff has done is to look at one small part of Federal spending, just nondefense domestic discretionary spending, which is about one-sixth or one-seventh of the budget. But if we look at total spending, there is a 1-percent difference total spending for 2009. OK? The difference between our President's budget and our budget is 1 percent--1 percent. That is a fact.

On the comparison of revenues, the President's revenue line we see is the red line, ours is the green line. What is the difference? The difference is over 5 years, the President calls for $15.2 trillion of revenue; we call for $15.4 trillion. That is a difference of 2.6 percent.

I believe this revenue can be achieved without any tax increase. I believe that. Why do I believe that? Because of the three things I mentioned before. The tax gap--the Senator put up a chart that shows what the tax gap was in 2001. The net tax gap in 2001 was $290 billion.

The Senator correctly says very little has been done in the last year to do anything about it. In fact, very little has been done over the last 10 years to do anything about it. My belief is the tax gap has done nothing but grow from 2001. So it is not $290 billion a year anymore. I believe over 5 years the tax gap is probably in the range of $2 trillion. I say this as a former tax administrator of my State, a former chairman of the Multistate Tax Commission. I believe the tax gap over 5 years is likely to be $2 trillion. But it doesn't stop there.

I put up what the Permanent Subcommittee on Investigations says is the loss to the tax havens. They say $100 billion a year without any growth over 5 years, that would be $500 billion. So with the tax gap and the tax havens, that is $2.5 trillion over 5 years. Then abusive tax shelters over the 5 years, I believe, based on the Permanent Subcommittee on Investigations' work, is another $200 billion. That is a total of $2.7 trillion of leakage over 5 years in the revenue system--$2.7 trillion. If we got 15 percent of it, 1-5--15 percent of it, $1 in every $7 in the tax gap, the tax havens, the abusive tax shelters, $1 in every $7--we can't do that? If we can't do that, then the Revenue Commissioner ought to be replaced and all the rest of us ought to be replaced if we have designed a tax system that has that much leakage in it, in which the vast majority of us pay what we owe but we are letting a bunch of scoundrels escape? Shame on us. That is exactly what our own Permanent Subcommittee on Investigations has told us.

All this talk about, well, we are going to have a trillion dollars of tax increases--let's look at the record. Let's go to the record. What has this Congress, controlled by Democrats, done? It has cut taxes $194 billion so far, with $7 billion of revenue raisers and loophole closers enacted for that period.

I say to my colleagues, these are just the facts. What is most of this? Most of this is the stimulus package we just passed. Most of it was bipartisan. The reference was to Democratic control of the House and the Senate, $194 billion of tax cuts and $7 billion of revenue raisers. That has been the record of this Democratic Congress: $194 billion of tax cuts and $7 billion of revenue raisers. That is not a projection, that is not sitting around conjuring up how we can make the other side look as bad as we can make it, that is a fact of what has been done.

The other side talks about the miracle of the tax cuts producing more revenue. We don't need to look at a projection there either. Let's just look at the record.

In 2000, the tax base of the United States was $2.03 trillion. Now, adjusted for inflation, it is $2.05 trillion. The revenue base of the country has basically been static for 8 years. The spending, most of it controlled by our colleagues on the other side because they were in charge until last year, has gone up 50 percent. Again, we don't have to look at some projection or some guess or some economists' estimates. Let's just look at what happened on the record: revenue flat, spending up substantially when our colleagues controlled everything, the House, the Senate, the White House. What happened to the debt? The debt exploded. This is not a projection, this is not guessing ahead, this is what is happening. And my friends across the aisle controlled everything--they controlled the Senate, they controlled the House, they controlled the White House--and here is their record. The debt exploded, not some projection, not some guesstimate of the future. That is what has happened. The revenue was flat, the spending went up dramatically, went up about 50 percent, and the debt exploded as a result. That is not a projection, that is not a claim, that is a fact.

I yield the floor.

Mr. GRASSLEY. Mr. President, I would like to respond to the distinguished chairman. The Senator from North Dakota disputed the 9 percent increase I cited with respect to the discretionary spending.

Here's how the Republican staff of the Senate Budget Committee reached that figure:

1. Take the increase in the President's budget--6.5 percent over last year.

2. Add the amount of $22 billion the budget assumes over that request.

3. These additions in discretionary are not offset.

4. Add the two together and you arrive at a 9 percent increase in discretionary.

5. I said a 9 percent increase in discretionary and I reconfirmed the figure with our Budget Committee staff.

As to the tax gap figure of $290 billion, I say to the chairman, that is the figure that is derived from career statisticians at the IRS statistics of income--``SOI''--Division. I will reiterate that these statisticians have cautioned us to not treat that figure like a revenue estimate.

I reiterate my recognition of the tax gap problem. I am pleased that Chairman Baucus has made this a top priority. I have been his teammate in that regard and will continue to be. All I would say is be careful about realism about the revenue we can raise and its timeframe. My inverted pyramid chart is a yardstick of that realism.

We should close the gap, but the revenue raised is what it is.

I am pleased that the distinguished chairman agreed that 15 percent is the knowable tax gap-related offsets in terms of scored proposals. I would caution everyone that the $44 billion annualized figures is the celing on the tax-gap related offsets. I will discuss this data in more detail as the debate proceeds.

The distinguished chairman's final point was that revenues have been flat since 2001. In fact, 2000 was an anomaly. The stock market had not burst and the chairman knows capital gains and other nonwithheld revenue pushed that number up.

We had a triple whammy hit to the economy in the next year, 2001. The stock market bubble burst, the corporate scandals rocked Wall Street and whacked main street businesses, and the terrorist attacks occurred.

Because the economny was rocked, revenues dropped for 2001 and 2002. Revenues steadily came back after the economic growth plan of 2003 was put in place. Any review of the revenue baseline data would confirm what I have said.

I yield the floor.

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