Opening Statement of the Hon. Jim McDermott, M.C., Washington

Hearing on President's Tax Relief Proposals

February 13, 2001

I believe in a tax cut for all Americans, within the context of a fiscally responsible budget framework.

In contrast, the tax cut proposal from President Bush is biased and unfair, giving disproportionately less money to working poor families.

Why should lower-income families who do not owe any federal income tax, but who do pay substantial payroll taxes, get no tax cut? Bush supporters talk in terms of marginal tax rates and percentages, but not dollars. They will tell us that the poor receive a large reduction in marginal tax rates in order to help them obtain access to the middle class. But they do not tell us that one in three families receive no benefits. That is, an estimated 12 million families with children would not receive any tax cut. Nor do they tell us that the lowest 20% income group earning less than $13,600 will receive an average tax cut of $42 as compared with the top one percent group who receive an average tax benefit of $46,000.

Why should the child credit be extended to families with incomes between $100,000 - $200,000 before making the credit refundable? This is in effect giving the relatively more affluent taxpayers a raise in the child credit from zero to $1,000 while many low income individuals receive no benefit. Why shouldn't all Americans benefit from the economic growth and prosperity that has resulted in our surpluses?

Furthermore, President Bush's tax cuts are irresponsible.

His proposal does not leave enough money to pay off the debt, strengthen Medicare and Social Security, and invest in health care, education and defense. There will not be enough money for the partial privatization of Social Security that Bush has proposed. There will not be enough money for prescription drugs or helping the uninsured, (for which he committed $130 billion). Nor does the Bush proposal account for extending expiring tax provisions and AMT reform.

Supporters of Bush's plan will argue that tax cuts are needed to stimulate the economy. But this tax cut was proposed in 1999. It had nothing to do with the economy then. Further, the principle reason CBO's budget projections show larger surpluses than previously assumed is that CBO now believes the economy generally will be stronger over the next 10 years than previously thought. Therefore, the argument that a large, permanent, and growing tax cut is needed because of a weaker economy does not stand up well.

I support a responsible tax cut that gives something to all families. I support a budget that recognizes economic and fiscal realities. The current projections are just that - projections. The budget must maintain a reserve for inevitable errors in these projections. It must pay down the debt, shore up resources for Medicare and Social Security, allow for other initiatives, as well as providing for tax cuts.

There has been much focus on Chairman Greenspan's testimony and the peril of reaching zero debt. There is a misconception that government spending is a bad idea. If the surpluses do indeed actualize, what about the commitment to our seniors - to ensure financial viability for the Medicare and Social Security programs? And what about the 44 million uninsured?

In fact, in a recent Newsweek poll, 65% said they would rather see the surplus used to pay down the federal debt and make entitlement programs more solvent than have the surplus used for a tax cut.

I support tax relief, which includes modifying the estate tax, easing the marriage penalty and expanding the earned income tax credit. But any tax cut must be designed within the framework of balanced priorities.

Thank you.