THE WHITE HOUSE

Office of the Press Secretary

THE HOUSE REPUBLICAN TAX BILL: COMMENTS FROM EDITORIAL BOARDS, ECONOMISTS, REPUBLICANS & OTHERS

July 23, 1999

RECENTLY, A LARGE NUMBER OF ECONOMISTS, LEADING EDITORIAL PAGES, AND EVEN REPUBLICAN MEMBERS OF CONGRESS HAVE EXPRESSED SERIOUS CONCERNS ABOUT THE REPUBLICAN TAX CUT BILL.

ECONOMISTS AND OPINION LEADERS

• Fifty leading economists, including six Nobel laureates, said in a letter on July 21, 1999 that big tax cuts were bad economic policy. The letter stated, "In contrast, a massive tax cut that encourages consumption would not be good economic policy. With the unemployment rate at its lowest point in a generation, now is the wrong time to stimulate the economy through tax cuts. Moreover, an ever growing tax cut would drain government resources just when the aging of the population starts to put substantial stress on Social Security and Medicare. Further, the projections assume substantial undesirable reductions in real spending for non-entitlement programs, including important public investments. Given the uncertainty of long-term budget projections, committing a large tax cut would create significant risks to the budget and the economy."
• Alan Greenspan, Chairman of the Federal Reserve Board, told the House Banking Committee on July 22, 1999, "I remain where I was last time I was here and the time before. I think that the reduction that is occurring in the Federal debt at this stage as a consequence of the ongoing surplus is an extraordinarily effective force for good in this economy. I think it has moved interest rates lower than they otherwise would have been. I think the cost of capital is lower. And for a number of other reasons, I think it has been a major factor in expansion of economic growth."

Greenspan added, "As I have said before I would therefore prefer, because we are being confronted with a very large demographic change down the road which means the ratio of retirees to workers is going to go up very dramatically, that our emphasis needs to be on national savings which creates capital investment which creates increasing productivity and therefore the capacity when finally the baby boomers retire, that their standard of living will be kept high without creating problems in growing standards of living for our working population. Therefore as I have said, my first priority, if I were given such a priority, is to let the surpluses run. '' (Humphrey-Hawkins Testimony of Chairman Greenspan, Before the House Banking Committee, July 22, 1999).

• Robert D. Reischauer, a senior fellow at the Brookings Institute, stated in his July 12, 1999, Center on Budget and Policy Priorities Briefing: "were there to be a tax cut, even of the House of Representatives proportions, $800-and-something over ten years, the amount of relief that would actually be distributed in the next year or so would be pretty modest. And so, the impact on the economy would be really quite small but inevitably in the wrong direction to the extent that it stimulated consumption and therefore boosted aggregate demand in an economy that is already straining against its capacity limits."
• Former U.S. Senators Sam Nunn (D-Ga.) and Warren Rudman (R-NH) stated in their July 12, 1999 op-ed in The Washington Post,: "If spending is increased or taxes are cut based on the expectation of huge surpluses and the projection turns out to be wrong, deficits easily could reappear where surpluses are now forecast."
• Edward Gramlich, a member of the Federal Reserve Board of Governors, told The New York Times (Louis Uchitelle, The New York Times, July 14, 1999.) " If taxes were cut while the nation's resources are highly employed, that would put more pressure on monetary policy." The New York Times added, "He suggested, in effect, that the Fed might have to raise interest rates to prevent the extra spending that would over stimulate the economy. Others worried that the higher rates might reduce investment or bring down inflated stock prices, damaging the economy through these avenues."

(ECONOMISTS & OPINION LEADERS CONT.)

• Alan Blinder, a Princeton University Economist who served as Fed vice chairman from 1994 to 1996 said a tax cut offset by higher interest rates today "would reverse the policy mix that we have followed in the 1990s with such splended effect: low interest rates and high corporate investment."
• Sandra Shaber, an economist at the WEFA Group in Philadelphia, told USA Today (Owen Ullman, July 13, 1999) that "Tax cuts would be a good idea if the economy were to slow significantly. But things look like they're going pretty well."
• Iris Lav of the Centre on Budget and Policy Priorities told the Economist (July 17, 1999) that the annual cost of the Archer plan jumps from $152 billion in 2008 to $203 billion in 2009; thereafter the costs "explode" to $2.8 trillion between 2010 and 2019, "at the same period of time when the baby-boom generation will begin to retire and non-Social Security surpluses are expected to level off and ultimately to decline."
• Joel Slemrod, director of the Office of Tax Policy Research at the University of Michigan, was quoted in The New York Times (Michael Weinstein, July 15, 1999), as saying the "idea of cutting capital gains tax to move the economy significantly is implausibe" The amount of taxes involved which in typical years hovers between $20 billion and $50 billion, "is too small to shift an $8 trillion economy"

MANY LEADING NEWSPAPERS IN THEIR EDITORIAL PAGES OR IN NEW ANALYSIS HAVE EXPRESSED CONCERNS REGARDING THE REPUBLICAN TAX PLAN.

LEADING NEWSPAPERS

• The New York Times (July 22, 1999) said of the Republican tax cuts: "The biggest damage to Federal revenues would come just as the baby boomers begin to retire, driving up the costs of Social Security and Medicare. To make the numbers work, the House Republicans are using rosy forecasts of a continued strong economy and unrealistic assumptions about the level of spending cuts that they are likely to make. We hope the economic predictions prove accurate, but there is a good chance they will not."
• The Washington Post (July 23, 1999) criticized the Republican tax cut: "The true cost of the tax cuts in the Republicans' bills would also be much greater than the surplus. The bills were carefully written in such a way as to mask their cost by delaying the full effect."
• The Wall Street Journal (Gregg Hitt, July 16, 1999) in news analysis called the House bill "a budget buster built around a 10% cut in each of five individual income-tax brackets" While spreading tax benefits to almost every GOP constituency, it soaks up most of the projected surplus, excluding Social Security" fiscal conservatives in both parties wring their hands over whether the huge tax cut envisioned by GOP leaders will crimp the Treasury's ability to reduce the federal debt. It could also pose a long-term threat to Social Security."
• USAToday (July 23, 1999) stated in an editorial entitled "Tax Cut May Look Appetizing, But It's Loaded With Hidden Costs." "The latest poster child for political excess is the whopping $792 billion, 10-year tax cut passed by House Republicans. It has something for almost everyone a - 10% reduction in income tax rates. But no matter what you may think of the package, it is built on fanciful accounting."

SEVERAL HOUSE REPUBLICANS VOTED AGAINST THE HOUSE REPUBLICAN TAX BILL.

HOUSE REPUBLICANS

• Rep. Michael Castle (R-NY): "To have no latitude whatsoever, I think, is an error. We need to have a smaller tax cut."[Associated Press 7/20/99]

Castle also said, "We already have a very large tax cut?We're struggling to increase all our appropriations bills for education, health, the welfare of the country. ... My own personal vote is we should not increase the tax cut at al." [Associated Press, 7/1/99]

• Rep. Connie Morella (R-MD): "I want debt retirement and [putting money into] Medicare and Social Security. I think the tax bill will be better coming next session, after proving what we can do with the budget."[The Washington Times, 7/22/99]
• Rep. Greg Ganske (R-IA): "I cannot support an $870 billion tax cut...I think it would be much more reasonable for us to sit down, reach across the aisle, reach down Pennsylvania Avenue, and come to an agreement."[The Wall Street Journal, 7/15/99]

Ganske, criticizing the Republican tax cut tactics, also said, "They just figured they could bulldoze everyone, twist arms and break off legs. Do my Republican colleagues want to see a campaign ad of Bill Gates and the billions and billions of dollars he is saving from this?" [The Wall Street Journal, 7/22/99]

SEVERAL ECONOMIC OPINION MAKERS HAVE SPOKEN OUT AGAINST THE REPUBLICAN "GIMMICK" AS IT WAS TERMED BY AN ANONYOMOUS GOP CONGRESSMAN THAT PERSUADED SOME MODERATE HOUSE REPUBLICANS TO SUPPORT THE TAX BILL

STATEMENTS

• Robert D. Reischauer, a budget expert and former CBO director was quoted in The Washington Post (Eric Pianin, July 23, 1999) saying yesterday that the compromise measure "appears to provide some modest safety valve, but I wouldn't bet a nickel on its effectiveness."
• Reischauer told The New York Times (David Rosenbaum, 7/23/99) that "It doesn't make a whole lot of sense."
• Stephen Entin, an economist at the Institute for Research on the Economics of Taxation, who was a Treasury official during the Reagan Administration and is a devotee of deep tax reductions, said of the Republicans new tax cut measure: "It's just a dumb idea" [The New York Times, 7/23/99]
• A Senior Republican Congressman, who spoke on the condition of anonymity, told The New York Times that "It was a gimmick, a smear of grease to get us past a sticky spot last night." [The New York Times, 7/23/99]