MALONEY WARNS THAT BUSH TAX BILL THREATENS RETURN TO DEFICITS
Thank you Mr. Chairman for holding this hearing today on the state of the economy. As we have seen since the middle of last year, economic growth has slowed dramatically.
The manufacturing sector has lost over half a million jobs. Only continuing strength in the services industry and strong household spending have kept a recession from spreading throughout the economy.
Unfortunately, recent signs are cause for increased concern. The recent sharp rise in the unemployment rate and the potential impact of high energy prices on household budgets could lead to increased economic difficulty.
The current Administration's one-note answer to all these problems has been its tax cut proposal. While I am personally certain that Congress could pass historically large, responsible tax cuts on a bipartisan basis, the bill that we will vote on later this week is no such agreement. The President's plan risks a return to deficits and is fundamentally unfair to lower income workers and to my state of New York.
As introduced, the Bush tax bill was so large and based on economic assumptions that can vary so greatly that we risk deficits if our numbers are only slightly off. The Senate bill is only marginally better.
CBO, whose rosy projections are the basis for the tax cuts, indicated that its average error margin in projecting budget surpluses or deficits for a fiscal year in progress has historically been about 0.5 percent of the Gross Domestic Product (GDP). In the current economy this would be $54 billion in one year.
As for projecting five years out, CBO's average error has been 3.1 percent of GDP, a six-fold increase. Many of the Bush tax cuts do not fully phase-in for 10 years in order to hide their tremendous cost. To borrow a Bush catch phrase, using CBO projections bassed on continued strong economic growth for the next 10 years is truly "faith-based" budgeting.
While the tax cut itself is large, it is not so large that it provides relief to the lower income Americans who pay the majority of their taxes through payroll taxes rather than income taxes.
Ironically, it is these Americans whose household budgets are most affected by rising energy prices. While President Bush has suggested that the tax cut be enacted to pay for sky-rocketing energy costs, his plan does not benefit these very workers.
Finally, the tax bill on its face is fundamentally misleading. Provisions granting marriage penalty relief and estate tax repeal are so costly that they do not fully phase-in for years. Well after President Bush has returned to Texas, the full force of these provisions will confront the country just as the baby boom generation increases its reliance on Social Security and prescription drugs.
Most misleading about this tax bill is that it treats taxpayers with similar incomes far differently based on the state in which they reside. This is because it greatly increases the impact of the Alternative Minimum Tax which eliminates deductions for state taxes.
The non-partisan Joint Committee on Taxation estimates that our current tax code will push 20 million taxpayers into the AMT over the next 10 years. The Bush plan increases this number to 35 million. This impact is not news to the Bush Administration. The President knew when he introduced his plan that the $1.6 trillion in tax cuts was not "just right" and that an AMT fix is necessary. Signs from the Administration and Congressional leadership are that any such fix will only be included in the next tax bill. I do not believe this is a responsible way to pass a tax cut or a budget that has yet to take into account the defense review.
The Administration has argued that its tax bill will boost the struggling economy, and, at the same time, that the economy is strong enough that a large tax cut is not fiscally irresponsible. I am afraid they have missed both targets.