February 11,2009

Grassley Sets Record Straight on 1993 Tax Increase, Effects of Taxes on Jobs

Floor Statement of Senator Chuck Grassley
Fiscal Effects of Stimulus Bill:
Response to Senator Boxer
February 11, 2009

Earlier today, the junior Senator from California was discussing President Clinton’s 1993
tax hike bill that broke his campaign promise to cut taxes on those making $200,000 and
less, and instead raised taxes on those making more than $20,000 a year. The junior
Senator from California said “Charles Grassley, I do not think it takes a rocket scientist to
know that this bill will cost jobs. That’s what he said of the Clinton plan that created 23
million jobs.”

I made that statement about the 1993 Clinton tax hike bill on seniors and the vast
majority of other Americans. So, the junior Senator from California is saying that one
tax hike bill in 1993 is solely responsible for creating 23 million jobs from 1993 to 2000,
and we should ignore all other economic events, work of a Republican Congress, free
trade legislation, and many other factors that actually caused the job creation during that
period. Other than being simply wrong, it revises fiscal history. I felt the need to
respond to these remarks because the junior Senator from California called me out by
name on the Senate floor. I gave a speech on the Senate floor yesterday that clearly
rebuts her mistaken assertion that the Clinton 1993 tax hike bill was the cause of 23
million jobs. Perhaps she was involved in partisan negotiations on this stimulus bill
instead of watching my speech.

I will note that as one of five Senate conferees on the stimulus bill, I have been excluded
from participating in conference negotiations, and instead will only be invited to the
Democratic photo op today scheduled at 3 p.m., which the Democrats are referring to as
the one conference meeting that is required under the rules. Dave Camp, the only other
Republican tax-writer that is a conferee, has also been excluded from conference
negotiations. There will not be any negotiation, give or take, or compromise at that
meeting — it will simply be to ratify a deal that the Democrats and 3 Republicans out of
219 in Congress agreed to. In fact, there were more Democrats, 11, who voted against
the stimulus bill, than there are Republicans, 3, who voted for it. This bill was handed
over to the House Democratic Leadership to write, and they wrote a bill that was loaded
down with pork, Democratic agenda items that are not stimulative, items that reward

Democratic supporters such as unions and environmental groups, an enormous bailout of
the states that overspent their budgets, and a lot of spending that belongs in an
appropriations bill but that has no place in a stimulus bill. Less than 34 percent of the
Senate bill was tax relief, according to the CBO, which is the official scorekeeper on that
matter. Less than 1 percent of the Senate bill was tax relief for small businesses, which
are the engine for job growth in our economy, creating three-fourths of the new jobs in
our economy.

Since the junior Senator from California clearly did not hear my speech from yesterday, I
would like to go over some key items that she has overlooked.

Two days ago, and again this morning, there was a lot of revision or perhaps editing of
recent budget history. Our President alluded to it. And I agree with the President that
there’s a lot of revisionism in the debate. The revisionist history basically boils down to
two conclusions:

That all of the “good” fiscal history of the 1990’s was derived from a partisan tax
increase bill of 1993; and that all of the “bad” fiscal history of this decade to-date is
attributable to the bipartisan tax relief plans.

Not surprisingly, nearly all of the revisionists who spoke generally oppose tax relief and
support tax increases. The same crew generally support spending increases and oppose
spending cuts.

In the debate so far, many on this side have pointed out some key, undeniable facts. The
bill passed by the Senate, with interest included, increases the deficit by over $1 trillion.
The bill passed by the Senate is a heavy stew of spending increases and refundable tax
credits, seasoned with small pieces of tax relief. The bill passed by the Senate has new
temporary spending, that, if made permanent, will burden future budget deficits by over
$1 trillion.

All of this occurs in an environment where the automatic economic stabilizers are kicking
in to help the most unfortunate in America with unemployment insurance, food stamps
and other benefits.

That anti-recessionary spending, together with lower tax receipts, and the TARP
activities has set a fiscal table of a deficit of $1.2 trillion. That’s the highest deficit, as a
percentage of the economy, in Post World War II history.

Not a pretty fiscal picture. And it’s going to get a lot uglier with this bill. So, for the
folks who see this bill as an opportunity to “recover” America with government taking a
larger share of the economy over the long-term, I say congratulations.

If a member votes for this bill, that member puts us on the path to a bigger role for the
government. But supporters of this bill need to own up to the fiscal course they are
charting.

That’s where the revisionist history comes from. It’s a strategy to divert, through a
twisted blame game, from the facts before us. How is the history revisionist? Let’s take
each conclusion one-by-one.

The first conclusion is that all of the “good” fiscal history was derived from the 1993 tax
increase. To knock down this assertion, all you have to do is take a look at this chart. It
was produced from data from the Clinton Administration.

The much-ballyhooed partisan tax 1993 tax increase accounts for 13 percent of the deficit
reduction in the 1990’s. Thirteen percent.

The biggest source of deficit reduction, 35%, came from a reduction in defense spending.
Of course, that fiscal benefit originated from President Reagan’s stare-down of the
communist regime in Russia. The same folks on that side who opposed President
Reagan’s defense build-up take credit for the fiscal benefit of the “peace dividend.”

The next biggest source of deficit reduction, 32%, came from other revenue.

Basically, this was the fiscal benefit from pro-growth policies, like the bipartisan capital
gains tax cut in 1997, and the free-trade agreements President Clinton, with Republican
votes, established.

The savings from the policies I’ve pointed out translated to interest savings. It is right
here at 15%.

Now, for all the chest-thumping about the 1990s, the chest thumpers, who push for big
social spending, didn’t bring much to the deficit reduction table in the 1990s. Their
contribution was 5%.

What’s more the fiscal revisionist historians in this body tend to forget who the players
were. They are correct that there was a Democratic President in the White House. But
they conveniently forget that Republicans controlled the Congress for the period where
the deficit came down and turned to surplus. They tend to forget they fought the
principle of a balanced budget that was the centerpiece of Republican fiscal policy.

Remember the government shutdown of late 1995 my friends on the Democratic side?

Remember what that was about? It was about a plan to balance the budget. Republicans
paid a political price for forcing the issue, but, in 1997, President Clinton agreed. Recall
as well all through the 1990s what the year-end battles were about. On one side,
Congressional Democrats and the Clinton Administration pushed for more spending. On
the other side, Congressional Republicans were pushing for tax relief. In the end, both
sides compromised. That’s the real fiscal history of the 1990s.

Let’s turn to the other conclusion of the revisionist fiscal historians. That conclusion is
that, in this decade, all fiscal problems are attributable to the widespread tax relief
enacted in 2001, 2003, 2004, and 2006.

In 2001, President Bush came into office. He inherited an economy that was careening
downhill. Investment started to go flat in 2000. The tech-fueled stock market bubble
was bursting. Then came the economic shocks of the 9-11 terrorist attacks. Add in the
corporate scandals to that economic environment.

And it’s true, as fiscal year 2001 came to close, the projected surplus turned to a deficit. I
have a chart that shows the start of this decade’s fiscal history.

In just the right time, the 2001 tax relief plan started to kick in. As the tax relief hits its
full force in 2003, the deficits grew smaller. This pattern continued up through 2007.
If my comments were meant to be partisan shots, I could say this favorable fiscal path
from 2003 to 2007 was the only period, aside from 6 months in 2001, where Republicans
controlled the White House and the Congress. But, unlike the fiscal history revisionists,
I’m not trying to make any partisan points, I’m just trying to get to the fiscal facts.

I have another chart that compares the tax receipts for four years after the muchballyhooed
1993 tax increase and the four year period after the 2003 tax cuts.

On a year-by-year basis, this chart compares the change in revenues as a percentage of
GDP. In 1993, the Clinton tax increase brought in more revenue as compared to the 2003
tax cut. That trend reversed as both policies moved along. You can see how the extra
revenue went up over time relative to the flat line of the 1993 tax increase.

So, let’s get the fiscal history right.

The pro-growth tax and trade policies of the 1990’s along with the “peace dividend” had
a lot more to do with the deficit reduction in the 1990’s than the 1993 tax increase. In
this decade, deficits went down after the tax relief plans were put in full effect.

That’s the past. We need to make sure we understand it. But what is most important is
the future. People in our states send us here to deal with future policy.

They don’t send us here to flog one another, like partisan cartoon cut-out characters, over
past policies. They don’t send us here to endlessly point fingers of blame. Now, let’s
focus on the fiscal consequences of the bill in front of us.

President Obama rightly focused us on the future with his eloquence during the
campaign. I’d like to paraphrase a quote from the President’s nomination acceptance
speech:

“We need a President who can face the threats of the future, not grasping at the ideas of
the past.”

President Obama was right.

We need a President, and I’d add Congressmen and Senators, who can face the threats of
the future. This bill, as currently written, poses considerable threats to our fiscal future.
Senator McCain’s spending trigger amendment showed us the way. We can re-write this
bill to retain its stimulative effect, but turn off the spending when the recovery occurs.
Grasping at ideas of the past or playing the partisan blame game will not deal with the
threats to our fiscal future.

It’s not too late to do a clean stimulus bill, which is what the American people want and
need. There is a way to reach a real bipartisan compromise, not just picking off a few
Senators that frequently vote with the Democrats. We can have a significant amount of
infrastructure spending for roads and bridges. Even though some on our side of the aisle
have issues with the Making Work Pay credit, we could take that and expand it to cover
all those making up to $250,000—which is the level that President Obama and his
surrogates said during the campaign that he wants to cut taxes for people. Instead, the
Making Work Pay Credit phases out starting at $70,000 for individual workers. So we’re
saying, a large part of the middle class by President Obama’s definition won’t get the tax
cut. In fact, the “we give a tax cut to 95 percent of working families” number that has
been bandied about is wrong. According to the Joint Committee on Taxation, 87 percent
of workers qualify for some or all of the credit, and even less get all of the credit. So
there’s a way forward. It’s a clean stimulus bill. All the Democratic agenda items and
spending items that should go in the appropriations bill can get done in regular order.

The Democrats have the votes. They don’t need to push that agenda on the American
people and dig a deficit ditch an additional $1.2 trillion deeper with this bill, when
interest on the bill is considered. They have the votes to push their agenda later in the
year. For now, let’s give the American people what they want, a clean stimulus bill, and
not scare them into thinking that the Democratic agenda needs to be pushed in the
stimulus bill. It is reminiscent of that famous chicken, Chicken Little, who said, “The
sky is falling.” Let’s do a clean stimulus bill instead. I think this clears up the record. I
yield the floor.