Free Flow of Information Act of 2007 - Motion to Proceed - Resumed

Floor Speech

FREE FLOW OF INFORMATION ACT OF 2007--MOTION TO PROCEED--Resumed -- (Senate - July 29, 2008)

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TAX POLICY

Mr. GRASSLEY. Madam President, 2 days ago, I came to the floor to talk about tax policy and the history of tax policy. I have come to follow up on that speech of 2 days ago to talk about the recent history of speeches that were made in past Presidential elections and the tax policy that was associated with those speeches and in another day or two, come to the floor to speak about the different tax policies between Senator Obama on the one hand and Senator McCain on the other hand.

History is very important. Elections have consequences. Policy coming out of an election has consequences and eventually affects real people. The impact upon the voter of past elections, what people said in those elections, what happened after the election in policy, ought to be things people are taking into consideration for the upcoming Presidential election. As to that speech I gave 2 days ago, I want to go back and remind my colleagues of a couple of comments I made at that particular time.

At various times during the past 25 years, we have had times when Democrats have controlled both the Presidency and the Congress. There have been times when the Democrats have controlled Congress and we had a Republican President. And there have been times when we have had both a Republican President and a Republican Congress. Tax cuts or tax increases have resulted from that.

And you find a pretty good pattern of when you have both a Democratic Congress and a Democratic President that you have big tax increases, as is the case in 1993--if you remember the big tax increase of 1993.

Then there are periods of time when we have had a Republican President and a Republican Congress and you can see tax decreases--very deep decreases in taxes. Then you have a period of time in here where there was a little flurry--some tax cuts, some tax increases--when we had a Republican President and a Democratic Congress.

So elections do have consequences. Another chart that would show it a little better and more specifically would be this thermometer chart, where we have it very clear that when you have times when you have a Democratic President and a Democratic Congress, you have some of the biggest tax increases in history. And that would be this figure. There are times we have had a Republican President and a Democratic Congress with some tax increases but a little bit less. There are times we have had a Democratic President and a Republican Congress with slight tax decreases.

When you have a Republican President, a Republican Senate, and a Democratic House, you have some tax decreases but not very much. Then you have times when you have a Republican President, a Democratic Senate, and a Republican House, and you have tax decreases but not by very much. Then you have times when you have a Republican President and a Republican Congress and you have deep tax cuts.

So what this chart shows--this thermometer--over the last 25 years, is that if you have Republican Presidents and Republican Congresses you have deep tax cuts. When you have Democrats controlling both the Presidency and the Congress, you have very rapid tax increases. So elections do have consequences.

I want to go now to a period of time of a specific election and the tax consequences that came as a result of that election. But I think you have to realize that the relationship is clear from the past 25 years: the more relative power Democrats have, the higher the probability of a tax increase. So Americans will need to think long and hard about campaign promises of tax relief as they consider their choices in this Presidential election. The reason is that history shows very clearly, if Democrats obtain the White House and control of Congress, taxes are certain to go up. And not just go up on the wealthy but across the board.

Today, I would like to follow up last week's discussion. This week, I want to focus on a campaign season most like this one and take a look at how the victors in that campaign used their taxing power once sworn in. The period I am thinking about is 16 years ago. Well, in 16 years you can learn a lot from history, and I think people ought to be reminded of it.

But before I get into details, I would like to say that I hope this election doesn't go the same way that it did 16 years ago because President Bill Clinton was elected. I want people to be clear that I am pulling for a Republican colleague, Senator McCain, to defeat another one of our Senate colleagues, Senator Obama.

So let's turn the clock back to this time 16 years ago, and I have another chart. This chart considers the story of Rip Van Winkle, which I think is very appropriate during this period of time. You know the story about Rip Van Winkle. He was a person who slept for 20 years. Here is the chart showing Rip Van Winkle.

If you round up just a little bit, it is almost 20 years since that 1992 campaign, and you will see from this chart those events from a while ago might have led to a form of tax hike amnesia.

If we go back to the 1992 campaign--and I will show you eventually how this is pretty appropriate to the campaign coming up--in 1992, you find a very charismatic, a very likable, a very articulate young Governor from Arkansas barnstorming across the country. Bill Clinton was 46 years old, facing a 47th birthday in mid-August. He was widely acknowledged as the most talented public speaker on the Presidential scene since Ronald Reagan.

America had been in a recession at that time. Although it was not reported until after the election, which is something you might expect from our liberal media, the American economy had recovered in the latter half of 1992, but it was not officially announced until the day after the 1992 election, when all of a sudden the recession was over, just because of the election. But all during that election, reading the media, you would always be reminded about the recession we were in. But magically, election day 1992, 1 day later, and the recession was over.

The charismatic Democratic Presidential candidate promised to focus, in his words, ``like a laser beam'' on the economic ills that Americans worried about. In a key speech on June 21, 1992, this ``different kind of a Democrat'' laid out his economic plan. He called the plan ``Putting People First.'' I am going to focus in a laser-like way on then-Governor Clinton's tax agenda that he announced for that 1992 campaign.

In that speech, candidate Clinton was very critical of the marginal tax rate relief that President Reagan had put into effect. To quote candidate Clinton:

For more than a decade, this country has been rigged in favor of the rich and the special interests.

And we still hear that today.

While the very wealthiest Americans get richer, middle-class Americans pay more to their government and get less in return. For 12 years, the driving idea behind American economic policy has been cutting taxes on the richest individuals and corporations and hoping their new wealth would ``trickle down'' to the rest of us.

That is a quote from his speech of June 21, 1992.

As a relief from this version of the middle-class squeeze, candidate Clinton proposed middle-income tax relief, and here is what he said:

Middle class tax fairness. Virtually every industrialized nation recognizes the importance of strong families in its Tax Code. We should too. We will lower the tax burden on middle class Americans by forcing the rich to pay their fair share. Middle class taxpayers will have a choice between a children's tax credit and a significant reduction in income tax rate.

Now, doesn't all of this sound very familiar to speeches that are going on this year? I have quoted from a June 21, 1992, speech given by candidate Clinton, but you would think that you are hearing exactly the same thing this year.

Now, let's get down to basic facts. The definitions of rich and middle class are always open. They probably vary from candidate to candidate and everything with intellectual honesty and where you might set rich and where you might set middle class. A person who is rich in Mason City, IA, might be middle class in New York City.

An irony I continue to notice around here relates to this point. It seems as if the politicians from the highest income, highest cost of living, highest taxed States seem to be the most obsessed with raising taxes on their Presidential candidate's definition of the rich. In this case, I am referring to a single person who makes $125,000, or double it for a married couple to $250,000. That seems to be the dividing line between the rich and other people, according to the 2008 Democratic Presidential candidate.

Now, is $250,000 a rich family in Manhattan? Is $250,000 a rich family in San Francisco? Is $250,000 a rich family in Chicago? Is $250,000 a rich family in Boston? By the definition of Senators from those areas, I guess I would have to say it is. Do those families in those cities know they are rich and that their Senators think they pay too little tax?

But I digress. In candidate Clinton's economic plan that was announced on June 21, 1992, the rich were--put another way--the top 2 percent income earners in the United States. On September 8, 1992, candidate Bill Clinton said:

The only people who will pay more income taxes are the wealthiest 2 percent, those living in households making more than $200,000 per year.

By definition, you would think under candidate Clinton's plan that everybody below that level of 2 percent, or $200,000, is either middle class or low income. Now, remember what I said that he said--the only people who will pay more income taxes are the wealthiest 2 percent--because I am going to show you, after being sworn in, how that turned out to be a heck of a lot more people than the wealthiest 2 percent.

On January 20, 1993, President Clinton was inaugurated. Democrats retained their solid majority, 56 to 44, in this body. Although losing 9 seats in the U.S. House, the Democrats retained a heavy majority of 258 to 176. Once elected, the Democratic White House and the Democratic Congress converted the campaign economic plan, as you would expect them to, into a legislative blueprint. A key feature of the program, the middle-class tax cut, was thrown to the side.

On January 14, 2003, at a press conference, President-elect Clinton stated:

From New Hampshire forward, for reasons that absolutely mystify me, the press thought the most important issue in the race was a middle-class tax cut. I never did meet any voter who thought that.

Now, how do you reconcile the contents of the economic plan and the shift in position after the election? Pulitzer Prize winning author Bob Woodward--who I think has a great deal of respect among most people of the Senate--wrote a comprehensive book about the first part of the Clinton administration. It was titled ``The Agenda.'' Mr. Woodward, of the Washington Post, described it this way:

While Clinton continued to defend his middle-class tax cut publicly, he privately expressed the view to his advisers that it was intellectually dishonest.

That is Woodward saying that, not Chuck Grassley. The late journalist, Michael Kelly, in an article in the New York Times, explained how the newly elected President planned to ``escape'' from his middle-class tax cut campaign promise. Here is what Mr. Kelly wrote, in part:

[T]he President built himself an escape hatch a little less than a month before Election Day. Every time Clinton said ``I'm not going to raise taxes on the middle class,'' he always added the phrase ``to pay for my programs,'' said a chief political adviser to the President, who spoke on condition of anonymity. He never, never, said just, ``I will not raise taxes on the middle class.'' He always said ``I will not raise middle-class taxes to pay for my programs.''

Madam President, I want to have Mr. Kelly's article printed in the Record. I ask unanimous consent to do that.

There being no objection, the material was ordered to be printed in the Record, as follows:
[From the New York Times, Jan. 26, 1993]

Political Memo; Re-examining the Fine Print On Clinton's Tax Promises
(By Michael Kelly)

At a time when the public has repeatedly shown its distaste for the maneuvers and machinations of politics, President Clinton's White House is banking on a five-word loophole to save it from voter outrage should Mr. Clinton propose a broad-based energy tax.

During the campaign, Mr. Clinton promised tax cuts for the middle class. Now Mr. Clinton and his chief economic advisers are backing away from the tax cut and strongly hinting that an energy tax will hit the middle class the hardest.

``They campaigned on a middle-class tax cut and then four days into a new Administration the chief economic spokesman is talking about a middle-class tax increase,'' said Robert S. McIntyre, director of Citizens for Tax Justice, a liberal research group. ``That's a flip-flop.''

Although Vice President Al Gore and Treasury Secretary Lloyd Bentsen have mentioned the possibility of an energy tax in recent interviews, the President and his advisers insisted today that their economic plan was still under discussion and that no decision had been made.

Still some Clinton advisers say they are not worried about public outrage. They say the President built himself an escape hatch a little less than a month before Election Day.

``Every time Clinton said `I'm not going to raise taxes on the middle class,' he always added the phrase ``to pay for my programs,'' said a chief political adviser to the President, who spoke on the condition of anonymity. ``He never, never, said just, 'I will not raise taxes on the middle class.' He always said `I will not raise middle-class taxes to pay for my programs.' ''

By this logic, the adviser said, Mr. Clinton's legalistic construct was a ``distinction with a difference'' that allows him ``the opportunity he now has'' to raise taxes without incurring voter wrath.

But of late that sort of politics-by-loophole has not been playing well.

In 1990, President George Bush signed an agreement with Congress that obliged him to break his ``read my lips'' campaign promise of 1988 not to raise taxes. Mr. Bush and his advisers reasoned that voters had never taken his promise seriously in the first place and would forgive its being breached. The voters reacted with far more anger than understanding, and Mr. Bush never regained their trust when the economy turned sour.

In recent weeks, the gulf between Washington's view of what constituted acceptable behavior and that of many voters was again demonstrated in the matter of Zoe Baird. Mr. Clinton pressed forward with his choice of Ms. Baird as Attorney General despite the disclosure that she had once hired illegal aliens. Mr. Clinton and his advisers figured voters would forgive Ms. Baird what they considered a small transgression in an otherwise impressive career.

The voters, recalling Mr. Clinton's emotional promises to run a Government for the ``people who pay their taxes and play by the rules,'' saw him as trying to give a break to a rich woman who had done neither and forced Ms. Baird's withdrawal. Some See a Liability.

Mr. Clinton's aides know full well that Mr. Bush's mistake helped cost him his job. But they still contend that Mr. Clinton is protected by his escape clause. ``People won't get away with saying Clinton promised that he was not going to raise taxes and then did,'' the adviser said. ``He had many opportunities to make a `read my lips' statement, and he did not.''

Some outside the Clinton camp disagree strongly with that logic, however.

Kevin Phillips, a Republican political analyst who charted the rise of middle-class anger in the late 1980's and spared no criticism of Mr. Bush's broken promises, said: ``At the most recent count, only 800,000 Americans were lawyers, and I don't think the 248 million or so who are not lawyers are going to buy a caveat stuck on in the middle of a passionate plea to the middle-class voters that they should vote for him because he was going to save them. Talk about reading his lips.''

Mr. Clinton introduced the escape clause on taxes for the middle class before a national audience in an Oct. 19 Presidential debate in Richmond. ``I will not raise taxes on the middle class to pay for these programs,'' he said. `Very Conscious Decision'

Listeners without the benefit of law-school training might have taken that as a pledge to not raise taxes on the middle class. But the President's adviser said Mr. Clinton had purposefully used, and reiterated, the phrase ``for these programs'' to allow himself a way out of what careless voters might have thought they had been promised.

``It was a very conscious decision on his part,'' the adviser said. ``I can tell you this from strategy sessions and debate prep sessions. The idea of a flat-out promise of `I will not raise taxes on the middle class, period,' was rejected by the President. He refused to allow himself to be boxed in that way.''

The matter of the escape clause illustrates a larger point about Mr. Clinton that has become increasingly Obvious: It is always wise to read the fine print. The fine print of Mr. Clinton's promise on the tax cut for the middle class was quite different from the broad thrust of his oratory on the subject.

For a year, the Democrat campaigned on a platform of economic renewal in which the Federal deficit could be halved in four years rather painlessly by raising taxes on rich people and foreign corporations and by improving the way Government programs are managed.

In ``Putting People First,'' Mr. Clinton's often-touted plan for American renewal, the candidate promised: ``We will lower the tax burden on middle-class Americans by asking the very wealthy to pay their fair share. Middle-class taxpayers will have a choice between a children's tax credit or a significant reduction in their income-tax rate.''

On July 13, speaking to reporters in New York, Mr. Clinton said flatly, ``I'm not going to raise taxes on the middle class,'' according to reports by The Chicago Tribune and the Reuters news service. On the same day, in an interview shown by Cable News Network, he said, ``I don't think we should raise middle-class individuals' taxes, because their income went down and their tax rates were raised'' in the 1980's.

But in the fall campaign, when his words were scrupulously followed by a larger audience, Mr. Clinton took more care. After the Richmond debate, he regularly re-stated the position that his promise to the middle class was only that he would not raise their taxes ``to pay for these programs.''

Mr. GRASSLEY. While the middle-class tax cut was discarded, the definition of the group subject to a tax increase, ``the rich,'' expanded. According to a distribution analysis by the nonpartisan Joint Committee on Taxation, the taxpayers above $20,000 in income received a tax increase. So no longer was it just taxing the top 2 percent richest people in America. That was when you were campaigning for President. When you get to be President, it is $20,000.

It was true that taxpayers above $200,000 go up far more than other groups. But generally taxpayers above $20,000 saw their taxes rise.

Madam President, I ask unanimous consent to have printed in the Record a copy of the joint tax distribution analysis of the 1993 tax bill.

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Mr. GRASSLEY. That comprehensive tax increase went into effect on the strength of Democratic votes only. I was here and I remember that. You could look at it as the consequences of the confidence in the large Democratic majorities in Congress, and a newly elected Democratic President. Basically, however, there was no check on one political party's agenda. If that agenda is to raise taxes and increase spending, then it is not a surprise.

Mr. Kelly's article notes the adverse reaction of a prominent player of the leftwing in this town. This is a Mr. Robert S. McIntyre, who was very active in causes that you consider liberal. Quoting from Mr. Kelly's article, this is what Robert S. McIntyre, director of Citizens for Tax Justice, a liberal research group, had to say.

They campaigned on a middle-class tax cut and then four days into a new Administration the chief economic spokesman is talking about a middle-class tax increase. That's a flip-flop.

That is the end of the quote of Mr. McIntyre, quoting from Mr. Kelly's article.

Most folks are unhappy about flip-flopping politicians. Fishermen may like a flip-flopping fish that they brought into the boat. This photo is the best fish I could find to demonstrate that. That is about the only kind of flip-flopper that would be received positively. If a politician flips from a tax cut promise to a tax hike, you can bet most folks will consider that move a flop in more ways than one.

All of this happened almost 16 years ago, but it is relevant for this year as we go into a debate on taxes for this campaign. During almost 14 years since Republicans have held either the White House or the Congress or both--and this chart shows, as I pointed out once before, Congress and the President have generally reduced the tax burden. That is during this period of time, when Republicans controlled both the House and the Senate.

It has been a long time, almost 15 years since the American people have seen a large tax increase, going back to the period of time when the Democrats controlled both the Presidency and the Congress.

Then I remember right here on the floor, because I was here when he said it, the then-Finance Committee chairman Pat Moynihan termed the 1993 tax bill:

..... the largest tax increase in the history of public finance in the United States or anywhere else in the world.

Philosopher George Santayana said words to the effect that history repeats itself, and if you do not learn from history, you are bound to repeat the mistakes of the past. A risk Americans face, if we hand over all the reins of power to the Democratic Party, is to repeat the history of 15 years ago.

I am a Republican. I know what polls show. They show right now that the electorate trusts Democrats more than Republicans on tax policy. But the 1992 campaign shows that if you listen too much to what is said in the campaign, it doesn't necessarily come out that way in the election. So I raise the question, during the debate of 2008, in the Presidential campaign, are we headed in the same direction? Are we going to hear all the talk about taxing nobody but the rich but end up doing as we did in 1993, taxing the middle class?

Our tax increase amnesia may lead us in that direction. We could find ourselves then being like Rip van Winkle. We will hear dreamy rhetoric about hope and about change. It will be clothed in a slumber of middle-class tax relief and tax increases on only the rich, as it was in the campaign of 1992. We could awaken from that slumber, our tax increase amnesia would probably fade, we could wake up to another world record tax increase.

I know what the folks who put in place that world record tax increase will say. They will defend it by arguing that it cut the deficit. They will argue that by cutting the deficit and moving to a surplus, that interest rates dropped. While it is true the fiscal situation went from deficit in 1992 to surplus in 1999, there were many other factors involved and a tax increase was not the biggest reason for it.

First, supporters of the 1993 bill touted it as a dollar of spending cuts matched by a dollar of tax increase. If you were a taxpayer, wouldn't you buy that? Pay one more dollar and get a dollar decrease in expenditures? But, you know, it doesn't work out that way. A close look at the numbers shows the bill contained $4 of tax increase to every $1 of spending cuts.

I ask unanimous consent to have a summary of the Senate Finance Committee Republican staff analysis dated June 28, 1993, printed in the Record.

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Mr. GRASSLEY. I have another chart to back up what I say, that the tax increase was not responsible for the deficit going down. The chart shows the source of deficit reduction from 1990 through the year 2000. The tax increase represented only 13 percent, just 13 percent of the deficit reduction during that period. Other revenue, mainly from economic growth and defense spending cuts, made the deficit decline.

Even with the 1993 bill in effect, 2 years later the Congressional Budget Office projected President Clinton's budget as producing significant deficits as far as the eye could see.

But several events not related at all to the 1993 tax increase pushed the budget toward surplus until 1999. First, Republicans attained control of Congress in 1994 and made a deficit reduction a priority. Year after year, Republican Congresses resisted Democratic efforts to spend over tight budget caps placed in the Republican budget. Most often, President Clinton would extract additional spending in the end deal. Republican resistance, however, to popular Democratic spending proposals often had political consequences for Republican Members.

Second, revenues, especially capital gains revenues, grew after the bipartisan Tax Relief Act of 1997. The centerpiece of that bill was, ironically, a middle-class tax cut in the form of a $500-per-child tax credit. The child tax credit was a fundamental part of the Republican Contract With America.

Another key component of that bill was a reduction in the top capital gains rate from 28 percent down to 20 percent. It is down to 15 percent now, as a result of the 2003 tax bill, but then it went from 28 down to 20 in 1997.

As I said, there was a widely documented significant growth in capital gains revenue after that rate reduction in 1997, as there was with the rate reduction in 2003. Indeed, even the Clinton Treasury scored the reduction as a revenue raiser and was more than vindicated.

Finally, external factors aside from tax policy led to revenue growth. Free trade opened more markets to American goods and services. The Internet bubble started to form. It was burst in 2000 with the collapse of the NASDAQ and the business cycle yielded an economic expansion after the 1991 recession ended.

Economist J.D. Foster has documented this data. I commend to my colleagues WebMemo dated March 5, 2008, available on the Internet at www.heritage.org/Research/Taxes/wm1835.cfm.

At the end of the day, the justification for the tax flip-flop in 1993 mattered not one whit. Supporters of the 1993 tax hike can offer whatever reason they want for the record tax increase. A flip-flop of that size is, in fact, a flip-flop.

What they cannot dispute is their Presidential candidate promised a middle-class tax cut. Once they had the White House and congressional control, the other side abandoned the tax cut promise, raised taxes on Americans--not just above $200,000 a year but from $20,000 up.

That is not a tax cut. That is a middle-class tax increase. So, once again, like Rip Van Winkle, taxpayers do not want to wake up to that tax increase.

As a minimum, as the Presidential campaign unfolds, Americans need to keep this very clear history in mind. We need to probe the candidates in 2008 on where they want to go on tax policy so what they say in 2008 is done in 2009, not a repeat of what was said in 1992 and what was done in 1993. We need to be careful not to leave escape hatches on favorable sounding tax cut campaign promises.

In that vein, I will follow up on this discussion and the prior discussion with a later speech that concentrates on where each Presidential candidate stands this year on tax issues. I will examine these positions in the light of this history I have discussed--of the likelihood of each side, whether they will deliver on campaign tax policy positions.

To sum up, we are hearing from a very articulate and attractive Democratic Presidential candidate. On tax issues, as we heard 16 years ago from the soon-to-be President at that time, Bill Clinton, we are hearing a proposal to tax the rich this year to provide tax cuts for the middle class. We are hearing that this year.

The Presidential candidate on the Republican side has a different message. We need to explore that as well. His message, consistent with a Republican position for almost 30 years, has been to continue progrowth, low levels of taxation. In light of history I look forward to discussing the two competing visions of tax policy in the future.

I yield the floor.

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