Jobs and Growth Tax Relief Reconciliation Act of 2003 (Continued)

JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003—CONTINUED

Mr. SCHUMER. Mr. President, I first want to thank my colleagues, Senator LANDRIEU and Senator CORZINE, for their sponsorship of this important amendment.

I also want to recognize Senator GRASSLEY, the distinguished Chairman of the Finance Committee, and Senator
BAUCUS, the distinguished ranking member, for their leadership. Democrats and Republicans may disagree on our economic priorities, but we all appreciate the contribution Senators GRASSLEY and BAUCUS have made to the debate.
    
There is something else we all agree on. By any measure we are in the midst of a very tough economy. Our long-term prospects are very bright, but right now times are tough. We are all familiar with the statistics—rising unemployment, choppy markets, low growth. These are real problems that require real solutions.
    
But too often we hear economic theory and ideology as the rationale for what we should do.
    
I believe that equitable tax relief can be very good short-term and long-term policy. If we can find the means to afford it, hard-working families and successful entrepreneurs should keep more of what they earn. And at this time of low economic growth and high economic uncertainty, there is an important role for the Federal Government to play in reigniting our economy.
    
My concern with the legislation before us, and the reasons I support a complete replacement of that bill, is quite simply that it does not work as advertised. We all recognize that the bill is not a short-term response to the economic downturn. It is a back-door attempt to fundamentally change the tax code.
    
We may need to take up that debate at some point. But our first priority should be getting the economy moving.
    
We need to unite behind an economic plan that is based on the practical needs of our country for jobs and growth, not on an ideology of how the world works.
    
It is time to replace the centerpiece of the President's plan—the dividend tax cut—with something that both Democrats and Republicans can rally behind, a one-time reduction in Federal payroll taxes, wage taxes, for every working American. That is the heart of this amendment. And it is time we put in place real aid to State and local governments so that we don't undo the very economic recovery we are trying to start.
    
Let me briefly review the key elements of wage tax relief.
    
Every working American is subject to taxes on his or her wages which are used primarily to fund Social Security and Medicare. Under the wage tax cut in this amendment, every American worker would receive a rebate for the amount of these taxes they have paid on their first $10,000 of earnings, about $800 for each working American.
    
In addition, every employer would be eligible to receive a tax credit for the payroll taxes they have contributed on behalf of their employees. This tax relief would take effect as soon as possible in 2003.
    
The cost of a payroll tax reduction would be paid out of the general funds of the Treasury, so that there would be no impact on the Social Security trust fund.
    
The benefits of a payroll tax cut are numerous. First, a payroll tax cut gets money in the hands of people who need it and will spend it—the litmus test for most economists of a good stimulus program.
    
While we can have a long debate about the merits of a dividend tax cut, in the real world an additional $800, or $1,600 in the case of two working parents, would have a big impact on the average family's budget.
    
Second, it is good economic policy. The problem with our economy today is that there is not enough demand for products and services. The administration's supply-side approach, in fact, has it backwards. Capacity is not the problem, as illustrated by the fact that inflation has dropped during this downturn from 2.8 percent in 2001 to 1.6 percent in 2002.
    
We need to encourage consumption so that businesses will have the confidence to invest in new plants and equipment and hire more workers. Before the debate was politicized, the Business Roundtable, which represents the CEOs of major U.S. corporations, wrote the President that an immediate reduction in the payroll tax would be more effective than "any other proposal" to stimulate demand and productivity.
    
Third, a payroll tax cut is equitable. It would benefit the many Americans who work, not just the few who receive taxable dividends. The Congressional Research Service estimates that 40 percent of all dividends are received by the wealthiest 2 percent, or those with incomes of $200,000 or greater. By contrast, the majority of American households now pay more in payroll taxes than Federal income taxes.
    
Fourth, a payroll tax reduction removes a large disincentive to creating jobs. In our present economy output is flat with GDP running at an annualized rate of only 1.6 percent, but productivity is increasing. The result is that since 2000 the economy has lost over 2 million jobs, and Americans are remaining out of work longer. A payroll tax reduction will lower the cost of labor for an employer by about 15 percent, making it more likely that employers will keep workers on the payroll and hire more people.
    
Finally, a payroll tax cut is affordable. The $188 billion estimated cost of a one-time payroll tax reduction is about one-half the cost of the President's dividend tax cut plan. While it costs less, a payroll tax reduction provides more immediate stimulus. By contrast, the President's dividend tax cut delivers only $2.5 billion in stimulus in 2003—50 times less impact.
    
If we want to grow the economy today, it makes sense to put money to work now, not ten years from now. Most importantly, since a payroll tax cut is a one year plan, it does not create structural deficits in our economy which drive up our national debt and undermine our long term growth.
    
Let me now turn to the issue of State aid.
    
We have had bi-partisan agreement to provide $20 billion in direct Federal aid to the States and localities on a one-time basis. I commend Senator GRASSLEY for his leadership in getting this done. It is a very good start, but it is not enough.
    
This amendment provides a bigger boost to our States and locals. They clearly need the money.
    
According to estimates provided by the National Conference of State Legislatures, the total budgetary shortfall for all States in fiscal year 2004 was in the range of $80 billion, and an approximate $22 billion gap still remains from fiscal 2003. Many believe these figures remain significantly understated.
    
Almost every State is running a significant, multi-hundred million dollar deficit. In many States the figure runs into the multi-billions of dollars. In several States the deficit's percentage of the total State budget is estimated to be in the range of 25 percent or more. New York State's budget shortfall alone is $12 billion.
    
The situation at the local level is just as dire.
    
According to the National Association of Counties, nearly 72 percent of counties are facing budget shortfalls, 37 percent are reducing services and 17 percent are increasing taxes—all at a time when the demand for services and the need for tax cuts is rising given the sour economy.
    
This is not a regional issue. It is a national crisis.
    
I have heard some argue that State aid is not good economic policy. But numerous reports indicate that most economists believe that aid to the States is, in fact, an extremely effective means of providing fiscal stimulus, as it quickly puts money in the hands of people who need it and will spend it.

    
State and local aid also alleviates the need for States to cut more jobs, cut more programs, and raise taxes, which acts as an "anti-stimulus" on the economy.
    
Without any State aid, an individuals' or family's decrease in Federal taxes could be surpassed by an increase in State and local taxes.
    
We should not support policies where, "What one hand giveth the other taketh away." We should not "rob Peter to pay Paul."
    
This modest increase in the amount of aid is a 1-time shot in the arm for the States. It is not an enormous, multi-year change that threatens to build more deficits. It is a short-term proposal in response to a crisis that threatens to further drag down our economy and further increase the tax burden on our citizens.
    
Some argue that States and cities have dug their own fiscal graves, and should now lie in them. I could not disagree more. Our States and cities face the same economic forces as the Federal Government. As the economy has forced a dramatic reversal in fiscal health in our Federal budget, so has it wreaked havoc on local budgets.
    
Why should we hold states and localities to a different standard than we hold ourselves?
    
And if we want to teach states a lesson, why should we force citizens to bear the brunt of that discipline through higher taxes on their income, bigger class sizes for their children, and less services for those in need?
    
The money we are discussing is not a bailout. Nowhere close. States and locals will still need to make painful cuts and possibly raise taxes. But we can help alleviate the pain which will fall not on lawmakers, as we all know, but on our citizens.
    
At a time when we are struggling to find funds for homeland defense, public education, health services, and the environment, it is unacceptable to many of us to push through massive, multi-year tax cuts.
    
On behalf of the many citizens and business leaders who play by the rules and quietly shoulder the burden of financing our government, it is time for a new approach.
    
This amendment gives us an opportunity for that new approach.

Mr. SCHUMER. Mr. President, I will be brief.
    
This amendment would continue the work we made in the last tax bill a few years back to further increase the deduction for college tuition. The bottom line is a simple one: College is a necessity today for young people. Good jobs are hardly available without a college education. They are getting rarer and rarer. Yet the cost of college is very, very expensive.
    
If you are wealthy, you can afford it. If you are poor, we often pay for your tuition, as we should. I fully support that. But if you are in the middle class, that tuition bill every year is a fright. My wife and I make good salaries, and we are up late at night trying to figure out how we are going to pay for our two daughters' college education. One is a freshman in college. One is in the 8th grade. So we know, because our salary is better than the average American, what the average American does: They struggle in terms of thinking of how they are going to pay for tuition.
    
This amendment, cosponsored by Senators BIDEN, BOXER, DURBIN, CANTWELL, and LIEBERMAN, takes the current deduction and makes it permanent, because now it expires at the end of 2005. It increases the eligible tuition amount to $8,000 for the tax year 2003 and $12,000 for the tax year 2004 and thereafter. It now is $4,000 for the tax year 2003 and thereafter.

The deduction is available to joint filers with taxable income up to $130,000, with a phase-out up to $160,000; and single filers with taxable income up to $65,000, with a phase-out up to $80,000.
    
The bottom line is simple: This helps middle-class people with perhaps the greatest problem they struggle with. It also can be taken by parents or grandparents who pay the tuition of a dependent child or grandchild. It applies to any student enrolled at least half time, including graduate students. It is per student, so if you have two students in college or graduate school, you get the deduction for each of them.
    
It would cost about $26.3 billion for the 10-year period of 2003 to 2013. The cost of the amendment would be offset by slowing the acceleration of the top tax rate reduction so that the top rate would become 37.6 percent in 2004 and 35 percent in 2006.
    
Now, again, we are dealing with choices. It would be nice to get that top rate down quickly, but if you ask me, the future of America depends on kids who deserve to go to the best college being able to afford to go to the best college. That is probably more important than quickly accelerating the top rate.
    
This amendment, as I said, applies to the solid, middle class who get very, very few tax breaks and yet sweat and struggle to send their children to college.
    
Mr. President, when a young man or young woman either does not go to college, even though they have the grades to get in, or goes to a lesser college than the one they deserve to go to, they lose. Their lifetime productivity will be lower. Their families lose, but we lose. America loses, because in this new ideas-oriented economy, we need the best educated labor force possible.
    
So I can hardly think of a better investment for America than tuition deductibility. We made a good step in the tax bill of 2001, as I said.
    
For the first time, I, Senator Snowe of Maine, and then-Senator Torricelli of New Jersey managed to get this into the tax bill for up to the $4,000 level. This will bring it up to $8,000 and make sure it does not expire in 2005.
    
Mr. President, as I said, in today's information-driven economy, a college degree is no longer a luxury, it is a necessity.
    
In terms of long-term economic growth and developing this country's human capital—which is ultimately the true source of innovation and competitive advantage—we could make a few better investments than ensuring future generations have access to an affordable college education.
    
The challenge is that the cost of college tuition has increased faster than any other major consumer item including health care over the last 20 years, skyrocketing from $5,156 in 1981 to $21,768 in 2001, an increase of 322 percent.
    
Even in real, inflation adjusted dollars the price of a 4-year public or private college education has almost doubled over the past two decades.
    
As currently written, this bill does everything except invest in people. We have incentives for plants, property, and equipment. Let's take this opportunity to invest in the next generation.
    
As I said, the amendment makes the current tax deduction permanent and increases the eligible tuition amount to $8,000 for tax year 2003 and $12,000 for tax year 2004 and thereafter.
    
The deduction is available to joint filers with taxable income up to $130,000, with a phaseout up to $160,000, and single filers with taxable income up to $65,000, with a phaseout up to $80,000. For example, for a joint filer with an income of $105,000, the legislation would mean a savings of as much as $3,240.
    
The legislation would allow families to choose the Hope Scholarship instead of the deduction, depending on which is more beneficial to them.
    
I know the hour is late. I heard my colleague from North Dakota got out of his lovely home to come to the floor because he was so eager to speak, and I am eagerly awaiting his remarks. I hope he did not have to get out of his pajamas and back into his nice suit and tie. I don't know what his status was while he was at home.
    
Mr. President, I ask for the yeas and nays on my amendment.