December 6, 1979
Page 34926
Mr. MUSKIE. Mr. President, I am happy to assume the burden but I doubt that anything I could say could match the peroration of the distinguished Senator from New York. It is rather like getting my conclusions stated before I have marshalled my arguments.
In any case, this amendment is a more complicated amendment than the one we dealt with last night. It, nevertheless, opens up troublesome problems for the future.
Basically, what this amendment proposes is that we index personal income taxes so that they are automatically reduced to respond to the impact of inflation. When one talks about indexing in response to inflation, one must, on the revenue side of the budget, think not only of personal income taxes but corporate income taxes as well. If indexing as a principle is justified by inequities generated by inflation, then surely, the principle ought to apply to corporate income taxes as well as to personal. This amendment does not touch that aspect of the problem. Here are three aspects of corporate taxes which undoubtedly we would be asked to consider or should consider indexing for inflation if Congress adopts the pending amendment.
First, there is the question of inventory profits, inventory profits which are generated by the impact of inflation on the value of inventory. That is a complicated question, as the distinguished chairman of the Committee on Finance could point out to the Senate. Because it is complicated, the Senator from Colorado has not addressed it in his amendment, but businessmen are pressing for that kind of indexing in order to avoid taxes on inventory profits which are generated by inflation. That is not touched by the pending amendment. One can be sure that it would be suggested by the proponents of this amendment if this principle were established.
Second, there is the question of the impact of inflation on business interest. The interest that business must pay on loans rises with inflation and the corresponding rise in interest rates but the real value of the loan repayments declines with inflation. It can legitimately be asked whether business tax liability should be indexed in some fashion for all of these effects.
Third, there is the biggest and most complicated problem of the adjustment of depreciation for inflation. I need only mention the popularity of the so-called "10-5-3" accelerated depreciation proposal to illustrate this point.
Those are issues, Mr. President, that ought to be addressed thoughtfully and carefully by the Committee on Finance, as should the issues raised by the pending amendment. Mr. President, I ask unanimous consent to insert in the RECORD at this point some supplementary material on these points.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
[Tables omitted]
The following table shows that and personal income taxes under current law, the gross tax cost of the Armstrong-Dole amendment, the tax cuts assumed in the Budget Resolution and the margin for other tax cuts.
The table shows that by 1984 the Armstrong-Dole amendment would not leave adequate room in the tax cuts projected from the budget Resolution to accommodate the revenue cost of the popular "10-5-3" accelerated depreciation proposal for business. Yet pressures will certainly persist — and possibly be increased by the Armstrong-Dole amendment — for some form of adjustment of business taxes for inflation. By 1983, the Armstrong-Dole amendment does not leave adequate room for any significant cut in Social Security taxes yet that is clearly a very popular issue.
For the last half of the decade the tax cuts projected in the Budget demands for the 80's analysis are generous — they grow to $150 billion in 1985 and $432 billion by 1990. But after Armstrong-Dole the margin for other tax cuts would be only $100 billion or less in 1990. The cost of accelerated depreciation grows very fast as more and more of business capital becomes eligible. Social Security tax cuts would also impose a growing burden, if the trust funds are to be kept sound by infusing general revenues and the benefits are not to be reduced. The problem of budget margin will not go away.
Some response of revenues to inflation is necessary to cover the added budgetary costs of index programs. These programs include social security and railroad retirement, Medicare and Medicaid, food stamps, child nutrition, Federal pay raises and supplemental security income. The amount in the budget for inflation adjustments in these programs is $9.3 billion in FY 1980, $31 billion in FY 1981, $54 billion in FY 1982, and over $250 billion cumulative for the 5-years FY 1980–84.
Mr. MUSKIE. On the spending side of the budget, Mr. President, we have indexed by law programs such as social security benefits, railroad retirement and other pensions. We have indexed by law, or as a practical effect, medicare and medicaid, food stamps, child nutrition, Federal pay raises, supplemental security income.
Mr. President, if we are going to index revenues for inflation, the effect of which would be to reduce revenues, then surely we cannot do that without addressing, at the same time, the action we have taken to index large chunks of the spending side of the budget.
Otherwise, what we shall have in the Federal budget, as a result of inflation, is revenues going down and expenditures going up. That is a nonsensical result and it is surely not a prudent budgetary result to anybody who contemplates the consequences.
Look, for example, on the spending side of the budget, at the implications of inflation. In 1981, indexing on the spending side represents $31 billion additional spending, $54 billion in 1982; and for the 5 years, 1980-1984, over $250 billion.
Mr. President, over that 5-year period, this amendment would eliminate $10.7 billion in fiscal year 1981; $28.7 billion in fiscal year 1982; $54.5 billion in fiscal year 1983; $82.4 billion in fiscal year 1984. The figures I have just given add up to a $176.3 billion loss in revenue. Inflation adds, at the same time, $250 billion increase in expenditures.
That does not include defense. And, Mr. President, in this year's budget resolution so far as defense is concerned, this Senate has mandated 3-percent increase over inflation in 1980, 5 percent increase over inflation in 1981, and 5 percent increase over inflation in 1982.
Mr. President, what kind of nonsense is it that we, here, seriously contemplate, or at least some of our colleagues seriously contemplate reducing revenues over a 4-year period by $176 billion because of inflation in the face of the facts that $250 billion and more in extra spending is generated by inflation at the same time? Add those two together and the spread is over $420 billion over a 4-year period.
Some in this body may call that prudent budgetary policy. I call it irresponsible budgetary policy.
Let me add this one point, Mr. President. The issue raised by the Armstrong amendment is an issue that deserves to be seriously studied. But it cannot be studied in isolation, and it surely should not be acted upon in isolation from these other consequences of inflation. Down that road lies budgetary deficits of tremendous size and budgetary irresponsibility.
So, Mr. President, I join the distinguished chairman of the Finance Committee and the distinguished Senator from New York in opposing this amendment. I trust that we will reserve this issue for study by the Finance Committee.