October 6, 1978
Page 34318
Mr. LONG. Mr. President, I yield 5 minutes to the Senator from Maine.
Mr. MUSKIE. I thank the distinguished floor manager for yielding.
Other Senators may think it strange that Senator LONG and Senator MUSKIE are on the same side of an issue. Actually, we often are, and I take just a second to compliment the Finance Committee for reporting to the floor a bill which is within and consistent with the revenue assumptions of the second budget resolution. We may not agree on all the components of the bill, but the committee has scrupulously observed all the limits of the Congressional budget resolution. It is in that connection that I would like to make my first observation in connection with the Kemp-Roth proposal.
The Senate will have no doubt, I hope, that the Kemp-Roth proposal, which as first submitted provided for a tax cut of 10 percent in 1979, another 10 percent in 1980, and another 10 percent in 1981, has been modified; and the modification suggests precisely why.
By the first year modification, the reduction was reduced from 10 percent to 7 percent, making up the difference in the later years, because 10 percent would have breached the budget. In other words, notwithstanding the cuts we have been able to make since January in budget authority and outlays and in the deficit, under the budget process, we still would not have been able to accommodate the 10 percent cut for this year that the distinguished Senator from Delaware projected in his bill.
So his bill as originally introduced would have produced for this year the very result that those of us who oppose it predict for future years: It would have added to the deficit, it would have added to the inflationary pressures, and it would have reduced the possibility of balancing the budget at some time in the future.
The distinguished Senator from Delaware earlier used the Budget Committee report to justify his projection of future year implications. Let me sum those up very succinctly and briefly.
The Budget Committee's 5-year projections assumed $47 billion of possible additional tax cuts or spending in fiscal year 1983. In other words, there would be that much free board to accommodate additional tax cuts or spending, in addition to the tax cuts in the Senate bill that is before us. By comparison, the Roth amendment would provide tax cuts of $124 billion beyond the Finance Committee bill in fiscal year 1983. This is $77 billion more than provided in the budget assumptions, and it would add $40 billion additional to the deficit in 1983.
Mr. President, if I may address myself to the underlying philosophy of Kemp-Roth, the 1983 inflation rate if Kemp-Roth is enacted would be nearly 2 percentage points higher under Roth than with the more moderate fiscal stimulus in the 5-year projection in the Budget Committee's report on the second budget resolution. Moreover, this estimate of inflation is conservative in view of the difficulty of achieving a 4 percent unemployment rate, given the demographic and structural changes in the labor market and the inflationary psychology evident in the economy today.
In other words, the Budget Committee's report is conservative in the light of the almost impossible challenge of achieving that 4 percent unemployment rate in fiscal year 1983 — an argument, indeed, that I gather will be advanced by the opponents of the Humphrey-Hawkins bill, if and when that bill comes before the Senate for debate.
In addition, Mr. President, the budget deficit would also rise sharply as a result of the Roth tax cut, even after accounting for the substantial reflow produced by the increased GNP.
The net impact on the deficit after reflows of the Senate tax bill as amended by Senator ROTH would be approximately $80 billion by fiscal year 1983. The more moderate fiscal picture in the committee report would have a net impact of about $40 billion, so that the Roth deficit, in 1983, would be about $40 billion higher.
We project the budget to be roughly in balance under the committee's assumptions in fiscal year 1983, because the deficit will fall as the private sector growth raises revenue. On comparable assumptions about the strength of private sector demand, Roth would then show a deficit of about $38 billion in fiscal year 1983, almost identical to the $38.8 billion deficit in the second budget resolution for this fiscal year, 1979.
The PRESIDING OFFICER. The Senator's 5 minutes have expired.
Mr. MUSKIE. Mr. President, could I have another minute?
The PRESIDING OFFICER. Does the Senator from Louisiana yield further?
Mr. LONG. Yes.
Mr. MUSKIE. So, Mr. President, a larger part of the revenue reflows would be generated under Roth by increased inflation, particularly in the later years. A comparison between the Senate bill with the Roth amendment and the committee's projection is shown in the table which I ask unanimous consent to have printed in the RECORD at this point.
There being no objection, the table was ordered to be printed in the RECORD, as follows :
[Table omitted]
Mr. MUSKIE. Finally, it must be noted that these projections assume continued rapid growth under Roth in spite of its severe inflationary impact. In fact, as CBO has noted, this may not be realistic.
This growth would require very rapid growth of the money supply, well above the Federal Reserve's targets. The Federal Reserve is most unlikely to accommodate this rapid inflationary growth, and would almost surely restrict monetary growth to a much slower rate.
The PRESIDING OFFICER. The Senator's 1 minute has expired.
Mr. MUSKIE. May I ask the Senator for 1 more minute?
Mr. LONG. Yes.
Mr. MUSKIE. One result would then be sharply higher interest rates and the "crowding out" of housing and business investment by consumption spending — exactly the opposite of the increased capital formation which Roth-Kemp proponents claim. The high interest rates would then terminate the rapid expansion with a credit crunch, and the economy would fall into recession.
These are our projections of the long-term impacts of Kemp-Roth.
I yield back whatever time is left.