Sen. Kennedy is an important leader. Whenever he speaks, I pay close attention because he's a serious and effective legislator who often reflects the heart and soul of the Democratic Caucus. I've been pleased to work with Senator Kennedy on many bipartisan proposals and look forward to continuing those efforts. So, when he spoke to the National Press Club today, I carefully considered what he said.
Sen. Kennedy wants to repeal a portion of the bipartisan tax relief that President Bush signed into law last summer. This legislation carried the support of over one-fourth of the Democratic Caucus. Although the tax relief has been defined by its harshest critics in terms of its budget effects, it's important to look behind the numbers and consider what this legislation means to the American people. Before I get to that point, however, I want to make clear that those of us who support bipartisan tax relief do not agree with a fundamental premise of Sen. Kennedy's proposal today.
Sen. Kennedy is arguing that the budget effects of the bipartisan tax relief deny the Congress and the President the resources to tackle other domestic priorities such as a prescription drug benefit for Medicare, Social Security reform, and education reform. This argument, however, is based on a couple of critical assumptions with which I disagree.
The first assumption is that the tax relief measures beyond 2004 will have no effect on the growth of our economy. So, for instance, bringing the top tax rate for successful small businesses to a level, equal to that of America's largest corporations at 35 percent is assumed to have no effect on the economy. That assumption flies in the face of economic theory and more importantly, the anecdotal evidence I gathered from some small business folks in Iowa. From my vantage point, the best way to bolster federal revenues is to put policies in place to grow the economy.
The second assumption is that the only way to approach federal budget policy is to maintain record levels of federal taxation on the American people. For instance, even when last Summer's tax cut is fully in effect, the Congressional Budget Office reports that as a percentage of GDP, the individual income tax will be at levels exceeded only in the years 1998-2000. Senator Kennedy's proposal assumes even higher taxes are necessary to address all of our priorities. So in facing budget choices, federal spending goes unchecked. The assumption is there are no savings to be made on the spending side of the ledger. Implicit in this assumption is growth in both federal revenue and federal spending as a share of our economy is a desirable objective.
To a certain extent, the proposal Sen. Kennedy puts forward today is a reversal of his previous support for significant tax relief. Over the long-term, Senate Democrats proposed a tax cut of about $1.26 trillion, that compares with a bipartisan tax cut that we enacted that came out at $1.35 trillion. Keep in mind 48 of 49 Democrats, including Senator Kennedy, supported this alternative. Now, I know that despite votes for long-term tax relief, many of the opponents of the bipartisan tax relief like Senator Kennedy now think that we should keep the rebate and repeal the long-term tax relief.
Nothing could be worse for a slumping economy. Do we really want to send a signal to workers, investors, and business people that their taxes are going to go up? Even if Sen. Kennedy is talking about a repeal that takes effect in 2005, higher taxes in the future are higher taxes.
Now, an even bigger question is how Senator Kennedy comes up with $350 billion in tax revenues by repealing death tax relief and individual tax cuts after 2004. Senator Kennedy's numbers don't add up. Does Senator Kennedy have a Joint Committee estimate for his proposal? Does he have a CBO estimate for his proposal? The downward adjustments to the CBO baseline for August will reduce the amount revenue raised from repealing reductions in individual tax rates. Estimates by outside partisan think tanks will not suffice when we are talking about raising taxes on the American People. Since Senator Kennedy and Senator Daschle believe that the only way to solve our budget problems is to raise taxes, instead of reducing spending, what will they do to make up the difference?
We know that Sen. Kennedy wants to dismantle the bipartisan tax relief package to raise $350 billion in additional tax revenues. Raising individual rates and repealing death tax relief won't get him that number. So, I'd ask which additional pieces of the bipartisan tax relief package would he and Senator Daschle scuttle to raise the $350 billion? Let's consider the bill piece by piece.
Let's start with the basis for the rebate. That is, the new 10 percent bracket. The revenue loss for this part of the package is $421 billion over 10 years. It's the biggest tax cut in the bill by the way. I can't believe Sen. Kennedy, or any other member of the Senate, wants to dismantle that piece.
Where do we go next? The marginal tax rate cuts lose almost $421 billion over 10 years. It appears some folks think 35 percent is too low a top rate. Well, guess what? As I alluded to above, repealing the marginal rate cuts hits small business, the biggest job generator in our economy, the hardest. According to the Treasury Department, small business gets about 80 percent of the benefits of the cut in the marginal rates. Do we want to raise the tax rates of small business in a slumping economy. Does that make any sense?
Where do we go next? Do the opponents want to repeal the proposal to double the child tax credit? Or how about the refundable piece that helps 16 million kids and their families? That proposal loses $172 billion over ten years. Does Sen. Kennedy really want to deny American families the increase in the child tax credit that kicks in 2005?
How the death tax relief package? That package scores at $138 billion over 10 years. Most of the revenue loss is attributable to increasing the exemption amount and dropping the rate to 45 percent on already taxed property. Is it unreasonable to provide additional relief from the death tax?
Let's take a look at the marriage penalty piece. It's the first marriage penalty relief we've delivered in over 30 years. This proposal scores at $63 billion over 10 years. Again, don't think many folks would want to raise taxes on folks because they decide to get married. Under Sen. Kennedy's proposal, most of the marriage tax relief would be eliminated.
Continuing on through the bipartisan tax relief package, let's take a look at the retirement security provisions. This package, which will help Americans save more for retirement, scores at $50 billion over 10 years. With the aging of the baby boomers, does anyone really believe we should reduce incentives for savings? Under Sen. Kennedy's proposal, workers who want to put an additional $1,000 in an IRA or Section 401(k) plan, would lose that right beginning in 2005.
Finally, let's talk about education. The bipartisan tax relief package includes $29 billion in tax incentives for higher education. In this era of rising higher education costs, should we gut tax benefits for families to send their kids off to college? Does Sen. Kennedy really want to cutback on these bipartisan investments in higher education?
Now, I've just taken you through about $1.3 trillion of tax relief. It sounds like a lot in abstraction, but it provides relief to every American that pays income tax. I'd ask any of those who want to "adjust" or "restructure" the bipartisan tax relief, including Sen. Kennedy, why would you cut the package?