August 6, 1976
Page 26092
TAX REFORM ACT OF 1976
The ACTING PRESIDENT pro tempore. Under the previous order, the Senate will now resume the consideration of the unfinished business, H.R. 10612, which the clerk will state.
The assistant legislative clerk read as follows:
A bill (H.R. 10612) to reform the tax laws of the United States.
The Senate resumed the consideration of the bill.
The ACTING PRESIDENT pro tempore. The question is on agreeing to the committee amendment on title XXVII. Who yields time?
Mr. LONG. Mr. President, if neither side is willing or prepared at this moment to proceed, I ask unanimous consent that I may be able to suggest the absence of a quorum, the time to be charged equally against both sides.
The ACTING PRESIDENT pro tempore. Is there objection? Without objection, it is so ordered. The clerk will call the roll.
The second assistant legislative clerk proceeded to call the roll.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, in behalf of the opponents of this amendment, I yield myself 5 minutes at this point.
I realize that only a relatively handful of Senators will be impressed by budgetary arguments against this amendment. Yesterday's votes suggest that, at least. But, being a stubborn State of Mainer, I persist in making that argument.
Second, there are some arguments on the merits which I should like to make and which perhaps will be timely.
On the budgetary side, again, like some of the amendments I opposed yesterday, this one was carefully tailored to take effect in fiscal year 1978, thus avoiding any impact in fiscal year 1977, in an attempt to dilute the budgetary arguments against it. However, this is a costly amendment; and although its impact in fiscal 1977, for the reason I have said, is zero, beginning in fiscal year 1978, there is a budgetary impact which in fiscal year 1981 amounts to $870 million, on an annual basis.
I do not think it is much good, Mr. President, to balance the budget for fiscal 1977 if, in the process of doing so, we are making it impossible to balance the budget in 1981. That is the effect of the amendments — three of them — which I described yesterday, totally an out-year, 5-year projected cost of almost $12 billion. It was said that the Budget Committee has no business worrying about that, that we have a budget resolution that affects only this fiscal year, and that that is the Budget Committee's business.
Mr. President, if the Budget Committee is to endure for only this fiscal year, let us acknowledge that and get rid of it; but let us not pretend or operate under the illusion that the Budget Committee should not be concerned about the budget years 1978, 1979, 1980, 1981, and1982. This amendment would cost $870 million by 1981.
Now I would like to say something on the merits of this amendment, Mr. President, just to make it clear. I think I can do it very simply.
Capital gains are now subject to tax at only half of the ordinary rate of tax. The committee amendment would continue this treatment for all property owned 5 years or less. However, for property held for more than 5 years, the 50 percent deduction would be increased by 1 percent for each additional year of ownership up to 25 years. Thus, for example, the rate of tax on an asset sold after 25 years would be only 30 percent of the ordinary rate of tax.
The amendment would be effective only for assets sold during taxable years beginning in 1978, as I have pointed out.
Let me make four other points, Mr. President. First, often, inflation gains, and this is intended as an anti-inflation amendment, are not related to the period of time an asset is owned. For example, a recent important study which adjusted capital gains for inflation found that gains on stocks purchased in 1956 were less affected by inflation than were stocks purchased in 1971. Yet, under the proposal, stocks purchased in 1956 would be given more preferential treatment than those purchased in 1971.
The second point:
No other aspect of the income tax law takes account of inflation, and the proposed adjustment for capital gains deals with only a small part of the inflation problem.
For example, the other day, the Senate discussed indexing the income tax rates in order to avoid the automatic increase in tax rates imposed upon taxpayers as a result of inflation. The Senate rejected that amendment, and I thought it was wise to reject it, because to accept it would have meant that income tax rates would automatically have been reduced — reduced — in response to inflation. The chairman of the Committee on Finance has told me that indexing would have cost us $5 billion a year. But, Mr. President, that amendment would have helped the so-called little fellow, who was the subject of so much compassion on the Senate floor, the day before yesterday.
Well, we rejected this relief for the little fellow. But now we have this amendment that helps the big fellow, helps the big fellow, you know, to offset the impact of inflation.
So, I repeat, Mr. President, that no other aspect of the income tax law takes account of inflation. But we are going to do it here.
The ACTING PRESIDENT pro tempore. The Senator's 5 minutes have expired.
Mr. MUSKIE. Five more minutes, please.
In fact, Mr. President, on page 604 of the tax reform bill report, the Senate Committee on Finance instructed the staff of the Joint Committee on Taxation to make a study of the possibility of generally adjusting income taxes for inflation.
Mr. President, if we are going to subject the inflation problems of the little fellow to a study before we act to give him relief, why do we not do the same thing for the big fellow, and refer this particular subject to that same staff for that same study?
This is the third point I make, Mr. President:
Since a decrease in the capital gains tax based on the length of the holding period confers the greatest benefits on those taxpayers who hold assets the longest, a sliding scale would act as an incentive to holding assets for longer periods. This would substantially reduce the mobility of capital and, therefore, provide taxpayers incentives to maintain investments which, absent tax considerations, they would terminate for other investments.
So this is an anti-capital mobility amendment and not a pro-capital mobility amendment. Its only purpose is to provide relief for those taxpayers who need it much less than the average taxpayers of this country. It is a classic example of the kinds of tax loopholes or tax expenditures which have triggered the cry for tax reform across this country. I understand that none of those three phrases is popular in the Senate — at least, they do not seem to be. But they are in the country.
The fourth point, Mr. President, and I shall close:
In addition to the foregoing considerations which relate solely to the sliding scale aspect of capital gains, there are persuasive arguments for not reducing further the tax preference provided capital gains generally. These include the fact that capital gains now benefit the wealthiest segment of our population. A recent Treasury study indicates that over 62 percent of the tax saving resulting from the favorable tax treatment of capital gains go to the 1.2 percent of all taxpayers with adjusted gross income in excess of $50,000.
Mr. President, for these reasons, in closing, I again emphasize that the budgetary impact, which seems to be of less and less concern to a majority of the Senate, is a serious reason, in and of itself, to reject this amendment. In the direct spending budget, we have said no, over and over again, to worthwhile projects which, on their merits, could justify the support of a majority of the Senate, because we said we could not afford to spend the money. Mr. President, all I am asking the Senate to do is apply the same steps to tax spending proposals, whatever their merits, because of budgetary considerations.
I have made the arguments on the merits because I think they need to be perceived, but I understand that, on the merits, there can be honest differences of opinion among Senators. Taking that into account, I urge my colleagues to vote against this amendment because of its budget implications.
The picture that we are painting for the whole country in connection with this tax bill is that half of the budget, the revenue half, is not covered by the restraints of the budget process. I doubt very much that upon mature reflection, the Senate would like that message to get out to the country and to be impressed indelibly on the impressions that the country has of this Senate and this Congress.
The ACTING PRESIDENT pro tempore. The Senator's additional 5 minutes have expired.
Mr. LONG. Will the Senator yield to me?
Mr. HANSEN. I am happy to yield.
Mr. LONG. Mr. President, I wish to address myself only to the budgetary aspect.
It always seemed to me, from the very beginning of this budget process, that by establishing it we were not trying to say that the Senate and the House could not vote for a tax reduction in future years. My impression of all this was that we would propose to balance the budget year by year.
Year by year, under the leadership of the Budget Committee, we would look to see what revenues would be, and we would look to see what expenditures could be afforded, based on the income that would be available to us.
Now I, for one, have endeavored to live within the budget targets, and we recommended a bill well within the budget targets, so much so that we could even be criticized for being too far below the budget targets in what we reported to the Senate.
Now, we propose to follow the budget targets year by year. Each year, looking at how much we expect to spend, we should plan to raise enough revenue to pay for whatever the Senate, under the leadership of its Budget Committee, would recommend we should raise.
That, I think, the Senate can live with, and Senators are willing to live with. But I do not think Senators are willing to restrict themselves on the future tax changes they may vote for merely because someone does not agree with their particular view on the budget issues.
As I say, I would propose that we should move toward balancing this bill in conference to take into account the fact that the Senate has loaded this bill with far more tax reductions than the budget can afford for this fiscal year. That is fine, and I am happy to work toward this objective.
But I think we have enough of a job to balance the budget year by year, much less trying to say that we will try to balance it 2, 3, 4, or even 5 years in advance. It is all right with me to talk about what our budget problem might be 5 years down the road, but we should meet it when we come to that situation.
If we are ever going to balance this budget — and the Budget Committee is not recommending this at this time nor is any responsible economist, we are going to have to balance it by not only an improvement in economic conditions but by some major tax increases.
As manager of the bill, I voted for $3 billion or $4 billion of additional taxes beyond what the Senate was willing to vote for, and so have most Senators, each choosing his own combination of things he thinks he can vote for and vote against.
But to achieve those kinds of major tax increases that would balance a budget $70 billion in deficit is going to require the leadership of a President, the support of the Budget Committee, and the support of a tax writing committee, and we do not have that situation now. The President of the United States thought we ought to cut taxes $10 billion more than we are cutting taxes. The Budget Committee did not agree with that, and the Senate went along with the Budget Committee, and so we are not cutting taxes by the additional $10 billion the President recommended.
What we are doing right now is doing the best each of us can under the circumstances where the President recommends a $10 billion tax cut beyond what the Budget Committee recommends to us, and the Senate — the committee stays well within the target — takes us way over the target.
We will try to move back as near as we reasonably can to the target set by the Budget Committee and agreed to by Congress, so that we will cooperate with the Senator in his noble endeavor to protect the fiscal solvency of the country. But we cannot do this by each Senator surrendering back his conscience on tax laws 4 and 5 years in advance.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. LONG. Yes, I yield to the Senator.
I have been told by the Senator from Wyoming that I cannot yield on his time,but I can yield on the time of the Senator from Maine.
Mr. MUSKIE. I would be glad to comment on my time.
Mr. LONG. Yes.
Mr. MUSKIE. In the first place, Mr. President, the whole budget process requires that, to some degree, each Senator surrender his prerogatives, his personal prerogatives, to the overall necessity for discipline in Government spending.
Does the Senator think the message I am preaching is different on the revenue side than on the spending side? On the spending side I understand down there in the spring when the budget resolution was up and we opposed things I was for and supported things I was against in order to maintain a discipline. The Senator knows, because I have known him for a long time, that if this body operates only in response to the consciences of each individual Senator there will be no discipline.
The second point I would make is the Senator says all we are required to do is balance the budget from year to year, one year at a time. But, Mr. President, the uncontrollables on the spending side of the budget have climbed from 56 percent a few years ago to 77 percent this year. So if we were to have no concern for the foot-in-the-door kind of legislation that means spending in the out years, even though it does not hit the current year, the Senator's philosophy will mean that although we may temporarily balance the budget by those kinds of gimmicks in the long run we are abandoning budget discipline.
The Senator said something yesterday on page 25919 of the RECORD that I think exactly describes what we are doing. He said:
Mr. President, we are proceeding about the same way that we did before we ever had any Budget Committee.
And that is exactly right. That is exactly the way we are proceeding on the revenue side of the budget. We are proceeding differently on the direct spending side. I concur wholeheartedly in that statement of the Senator from Louisiana, and I know it is the way he has operated for years.
It is a way which he has tried to use consistent with the public interest. I mean, it is the way that was forced upon him, given the undisciplined way in which Congress, as a whole, dealt with the Federal budget, and he did it in accordance with his conscience and his best view of what the public interest requires.
But where he and I part is in this: We are trying to institutionalize restraint in the budget. We are trying to institutionalize in a way that will put the pressure and the burden on every Senator and every Congressman, because we found that no one man, however able, even if he is as able as the Senator from Louisiana is, can effectively ride herd on the Federal budget in such a way as to make it a responsible budget.
So what I have been saying about the budget is no attack on the Senator from Louisiana. I understand he is a man of enormous ability. He has his own sense of values, as we all do, he is a committed public servant. I do not challenge him in that respect. There are those who have a certain sense of cynicism, and I say that in all good will, about the operation of democratic institutions. It is their view, which I am sure is not shared by Senator LONG, that people move only in response to their self-interest and their selfish interests, and that you have to take account of that, and you have to use those motivations in order to get a final product. We cannot afford to continue to operate in such an ad hoc way. The Budget Act is designed to force each of us to make spending decisions openly and consistently with public interest goals clearly specified in the budget resolution. The Senator and I disagree on that point.
Mr. LONG. I am not going to attribute unworthy motives
The ACTING PRESIDENT pro tempore. The Chair requests who is yielding time at this point?
Mr. HANSEN. How much time do I have?
The ACTING PRESIDENT pro tempore. Who is yielding time? The Senator has 16 minutes.
Mr. HANSEN. I yield to my chairman.
Mr. LONG. Two minutes.
Mr. President, I am not attributing unworthy motives to the Senator, and he should not attribute them to me. I see the guidance of the higher power, as the Senator, I am sure, does the same. Do as the higher power gives me the light to see it.
Mr. MUSKIE. Mr. President, did I not say that about the Senator?
Mr. LONG. Well, anyone can read the Senator's words and interpret them however he wants to, and I am not here to pick a quarrel with the Senator. I will let the Senator choose the best he can with his conscience, and I will choose the best I can with mine.
Now, Mr. President, what we are seeing here is that the budget process does not work very well when the Budget Committee is not working with the other committees but working at cross purposes with another committee or vice versa.
It has worked very well, may I say, as far as the Finance Committee and the Budget Committee matters have been concerned up until this measure came up. I suspect that one reason it has not worked very well in this case, in fact worked very poorly, has been that the chairman and a number of members of the Budget Committee simply have philosophical difference with regard to measures in this bill. And so we find ourselves working on a bill where the President, the executive branch, has a different view toward the whole matter of taxing and spending, different from the Congress as a whole, and within the Congress, the tax writing committee, at least in the Senate, has a different view philosophically on how the bill should be structured, what should go in it, and what should be in it, a view that is different than the view of the Budget Committee.
Now, we have had these argument and it will continue to be so. But when we are able to agree on what we are trying to do — regardless of whether we can agree upon the general philosophical thrust of a bill — I believe we will have better success in working together because we had, from my point of view, wonderful success prior to the emergence of this particular bill.
When we have something less controversial, where there is more of a compatibility in our views on what the matters within the bill should be, my guess that we will be able to work better on these matters.