April 13, 1976
Page 10617
Mr. MUSKIE. Mr. President, I thank the Senator from Kentucky.
I join in commending the distinguished Senator from Massachusetts for scheduling this annual exercise, which I hope eventually will be productive.
I should like to make some observations this year, if I may, from the perspective of the Budget Committee, which I think are most relevant.
Mr. President, it is with some sense of deja vu that I again join with my colleagues this morning in what has become an annual, but important and timely demonstration of support for the reform of our Federal tax laws.
We have for some years scheduled similar colloquies in the Senate just prior to the date when millions of Americans must file their Federal income tax returns.
In April of 1973, I observed that—
We have a crisis over tax reform today because countless ordinary men and women now realize that our revenue laws are basically unfair.
Yet we did not achieve tax reform in 1973.
In April of 1974, I stated:
I hope that we do not have to repeat this exercise next year. I hope that this Congress will pass comprehensive tax reform legislation, this year, to make our tax system truly fair.
Although 1975 did bring significant reforms in the treatment of taxes on oil and gas revenues, and the Congress also moved to reduce the tax rates for both individual and business taxpayers to help stimulate a stagnant economy, we are far from achieving comprehensive tax reform — so 2 years later we again repeat this exercise.
We are continuing to use the tax code to deal in a roundabout way with problems that we are unwilling to meet head on. We have done things through the back door which we should have done in the open.
If we wanted to stimulate the rebuilding of city slums, we put rehabilitation costs into a special tax preference category.
If we wanted to promote exports of American goods, we devised DISC legislation which benefited only those industries that sell abroad.
That is not to say the ends pursued were wrong. But the means we chose often were ill-considered. The result was to put money into the wrong pockets. This wasted very large amounts of Federal revenues and permitted wealthy corporations and individuals to avoid paying their fair share of the costs of our Government.
In none of these cases, however, did these tax expenditures receive the systematic assessment they deserved.
The congressional budget process, hopefully, will give greater visibility and focus closer congressional scrutiny on tax expenditures.
Pursuant to that act, as the Senator from Massachusetts has pointed out, the Senate yesterday passed the first concurrent resolution setting overall revenue and expenditure goals for fiscal 1977. The resolution recommends, as a target, the enactment of legislation which would result in a net increase of $2 billion in fiscal 1977 revenue collections by changes in existing tax expenditure and related provisions.
Tax expenditures are revenue losses that occur as a result of Federal tax provisions that grant special tax relief to encourage certain kinds of activities by taxpayers or to aid taxpayers in special circumstances. These provisions are the equivalent of a simultaneous collection of revenue and a direct budget outlay of an equal amount to those taxpayers who qualify for the special tax reductions.
The estimated revenue losses associated with tax expenditures total more than $105 billion for fiscal 1977. They are listed in the report on the. first concurrent budget resolution.
It is as important to control the growth of tax expenditures as it is to control the growth of direct spending programs.
Tax expenditures should be subject to the same standards of review as are spending programs, if the new congressional budget process is to have a positive effect over the complete spectrum of Federal budget management.
Only essential and efficient new tax expenditures should be enacted, and only essential and efficient existing tax expenditures should be continued.
I point out, Mr. President, that the $2 billion established as a target in yesterday's resolution for a reduction in tax expenditures is proportional to the $8.8 billion that the resolution cut from concurrent expenditure levels in direct spending.
One other question I should like to touch upon: Is it achievable, is it possible, to meet the $2 billion target for fiscal year 1977? I believe it can be. For example, the target would be met if :
First. The Senate accepts the major revenue raising provisions of the House-passed tax bill or develops substitutes for these provisions, which include reducing disc benefits, increasing the impact of the minimum tax, and enacting anti-tax shelter — LAL — provisions ;
Second. The Senate holds the January 1, 1976, effective dates for the major provisions of the House-passed bill; and
Third. The Senate adopts $0.8 billion of net reductions in the level of tax expenditures in addition to those adopted by the House.
The House-passed bill would raise an estimated $1.2 billion in fiscal 1977 if the general January 1, 1976, effective dates are maintained. If the Senate determines it would be inappropriate to maintain this date for some of the House-passed provisions, it still could retain the overall $1.2 billion revenue gain from the House-passed bill by deferral until January 1, 1977, of the effective dates of some of the revenue reducing provisions it decided to adopt that are in the House-passed bill.
The distinguished Senator from Louisiana, who is chairman of the Committee on Finance, continually raises questions about the wisdom of accepting retroactive dates for the purpose of maximizing the revenue impact of tax expenditure cuts.
There are substantial arguments in support of holding the January 1, 1976, effective dates in the Senate for the major provisions of the House-passed bill.
In recent years, numerous major tax increases have been adopted by the Senate with effective dates that preceded their enactment by many months.
For example, although the 1969 Tax Reform Act was not reported by the Finance Committee until November and signed by the President in late December, as part of this legislation the investment tax credit was repealed for property acquired after April 18, 1969. Similarly, limitations on depreciation methods for real estate investments were made effective by the Senate for properties on which construction had begun after July 25,1969, preceding the effective date of the legislation.
Adoption of an effective date related to the first Treasury or House decision indicating possible enactment of a provision often is the most appropriate date, because it precludes taxpayers from taking advantage of the current law during the period before final enactment.
Otherwise, the activities Congress is trying to inhibit by enacting stricter tax rules will be accelerated during this period, and additional revenues will be lost.
From my point of view, public notice of the initial Treasury or House action is deemed sufficient notice to taxpayers that transactions entered into after that date may be subject to increased taxes.
Finally, with respect to the enactment of reductions in the level of tax expenditures in addition to those adopted by the House, there are numerous alternatives that could be enacted to meet the $2 billion overall target.
To give just one possible example, complete repeal effective July 1, 1976, of the DISC export tax incentive — a provision seriously questioned as to its continued need, its efficiency in increasing exports, and its high cost — would raise an additional $1 billion in fiscal 1977 revenues.
Coupled with a $1.2 billion gain from the House-passed bill, repeal of this provision would more than meet the $2.0 billion target set in the budget resolution.
It can be done.
In meeting this target, the Senate will be cutting back the relative level of tax expenditures no more proportionally than it will be cutting back the level of direct spending if it adheres to the targets adopted yesterday in the first concurrent resolution.
Mr. President, again, I compliment my colleagues for scheduling this exercise once again on the day before tax payment day in 1976. I hope that this year, with the increased visibility that the budget process can give to this enormous cost to the Treasury, we can begin to get some movement in the direction of the reforms that we would all like to see in our tax code. I thank my colleagues very much for accommodating themselves to my tight schedule, because I know their schedules are equally tight.
Mr. KENNEDY. I thank the Senator from Maine for his statement. I think all of us have been impressed by the fact that in the past year the Committee on the Budget has addressed itself to the very difficult, complex issue of defense spending. This year, it is prepared to take on what I think is an even more complex and difficult challenge. That is the area of tax expenditures. As we saw yesterday, we were able to persuade the Senate to accept the committee recommendation for a $2 billion reduction in tax spending.
I salute the chairman of the Committee on the Budget for committing the Senate to going on record for a $2 billion reduction in terms of tax expenditures. I look forward to working with him on that matter.
Mr. MUSKIE. I thank the Senator from Massachusetts. I would like to point out that we approved a $400 billion budget yesterday. Tax expenditures are $105 billion. That $105 billion represents the extent to which the tax burden has been shifted in a major way to other taxpayers to support that direct spending budget. This is an important consideration. I think we should make that clear. Senator HOLLINGS has pointed out, and I think he will in his statement this morning, the extent to which tax expenditures have grown at a rate at least parallel to the growth of the direct Federal budget.
Again, I compliment my colleagues.