February 23, 1999

The Honorable John R. Kasich
Committee on the Budget
309 Cannon House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

I am pleased to transmit the views and estimates adopted by the Rules Committee regarding the Presidentís Fiscal Year 2000 budget.

The Committee is pleased that the President is focusing his attention on the need to save Social Security, prioritize education spending and increase defense spending. At the same time, the Committee is disappointed that the President has ignored the need for meaningful tax relief in his budget agenda. Tax relief is essential because the extra tax revenue flowing into the government was never anticipated by Congress. Tax revenues have been rising an average of 7.6 percent a year since 1992, or roughly three times the rate of inflation. In 1992, Washington collected $1.1 trillion in taxes; this year, it will collect $1.8 trillion. Despite the benefits of the Taxpayer Relief Act of 1997, the tax take on the American people is the highest in our nationís peacetime history. In the 3rd quarter of 1998, Federal tax revenue hit 21.8% of GDP, the highest recorded level in American history, exceeding even the percentages reached in WWII (19.9%), the Korean War (20.1%), and the Vietnam War (20.7%).

As a result, the Presidentís budget, along with the Congressional Budget Office (CBO), projects a continued increase in the budget surplus over the next five years. Fueled by strong economic growth, lower levels of projected government spending and overburdened taxpayers, the budget will boast an actual on-budget surplus (excluding Social Security) beginning in 2001 and continuing into the out years as a result of these taxpayer overcharges. A more efficient and competitive private sector, combined with a sound monetary policy, have resulted in skyrocketing tax receipts producing the first on-budget surplus since 1960. The Rules Committee looks forward to working with Members of the House and the Senate, and the Administration in confronting the budget challenges arising in this era of over-taxation. Even after saving Social Security, Congress and the Administration will face new challenges and opportunities as we work to reduce the excessive tax burden, pay the national debt and prioritize government spending.

As you know, the Committee on Rules does not have legislative jurisdiction over specific spending or revenue measures required by section 301(a) of the Congressional Budget Act of 1974 to be included in a budget resolution. However, section 301(c) of the Budget Act does grant the Rules Committee sequential referral authority over any matter or procedure included in a budget resolution which has the effect of changing any rule of the House.

Moreover, as required by clause 3(i) of rule X of the Rules of the House, the Rules Committee has played a proactive role in budget reform, especially in recent years with the Unfunded Mandates Reform Act and the Line Item Veto Act.

During the 105th Congress, our committees worked extensively together and across party lines to develop the Comprehensive Budget Process Reform Act, introduced on October 14, 1998 as H.R. 4837. This broad reform proposal should serve as a starting point for our committeesí work and ultimately the Houseís consideration of fundamental changes in the budget process.

Two specific process-related reforms are proposed in the Presidentís FY 2000 budget submission: biennial budgeting and expedited rescission authority. Regarding biennial budgeting, the President states: "An arrangement that required the Presidentís budget and the Congressional budget resolution to lock in (perhaps through a joint resolution) aggregate levels for each of two fiscal years - or more - would essentially codify the current practice of making a budget "deal" on the aggregates for several years and appropriating within those amounts." With numerous legislative measures on biennial budgeting pending before both the Rules and the Budget Committees, this is a matter deserving of further consideration. Furthermore, the Committee is intrigued by the Presidentís comments regarding a joint budget resolution and will follow up on and examine the ramifications of such a proposal.

The Rules Committee played the primary role in the development of the Line Item Veto Act. After last yearís Supreme Court ruling finding that statute unconstitutional, Members of the Rules Committee pledged to renew their efforts to devise legislation that is constitutionally sound, and to achieve the goals of enhanced accountability and fiscal discipline over spending. Likewise, the President has stated that "expedited rescission authority would be a useful tool for the President and Congress in their efforts to ensure the effective use of taxpayer dollars." Agreeing with these principles, the Committee intends to review the existing rescission process outlined in Title X of the Budget Act and to consider proposals for reform such as expedited rescission authority.

Overall, the Rules Committee intends to continue to work closely with the Budget Committee to maintain fiscal discipline in the congressional budget process as Congress considers various spending and revenue measures for fiscal year 2000.

In addition to its jurisdiction over the budget process, the Committee intends to focus considerable energy on issues relating to oversight of executive departments and agencies by House committees and the implementation of the Federal budget. The impact of legislating by executive order is of a particular concern to our Committee. We plan to proactively assist other committees in addressing these concerns.




We will address two points in the Republican views and estimates: (1) the Presidentís request for joint budget resolutions and (2) the charge that Americans are overtaxed.

(1) The President, while arguing for a biennial budget, suggests the practicality of a joint budget resolution. Republicans are "intrigued" by the Presidentís suggestion. Well, if Republicans wonít stick up for the institution, weíll be the responsible ones. It is no surprise that a President wants to invade the congressional budget process. Every President wants to gain advantage over the Congress in setting spending and tax priorities and, as a result, most Presidents have sought ways to short-circuit the congressional budget process. The Democratic members of this Committee cannot advocate throwing away the advantage Congress now has in setting spending and tax priorities, especially given the special role the founding fathers gave to Congress, and the House in particular, in this area.

One last point on this issue. It is a bit odd to be considering a proposal that will make it more difficult to agree on a budget resolution immediately after the first year in which the House and Senate could not agree on a budget. It would seem more logical to be seeking ways to insure that the House and Senate put a budget resolution in place.

(2) Republicans say they look forward to "confronting the budget challenges arising in this era of over-taxation." We reject that characterization. We believe the budget surplus is the result of a robust national economy, not burdensome federal taxes.

In fact, tax burdens on ordinary working families have hit record lows. A Deloitte & Touche study is summarized in the Sunday, February 21, Washington Post business section as follows:

From a working mother cleaning hotel rooms for a little more than minimum wage to a computer-company executive bringing home almost half a million dollars a year, Americans across the economic spectrum will pay less of their income in federal taxes this year than they did 20 years ago.

According to February 1999 data from the Treasury Department, the federal income and payroll tax burden for a family of four with median income is at its lowest level in 21 years. For a family of four with half the median income, the tax burden is at its lowest level in 31 years, in large part because of the 1993 expansion of the earned income tax credit. And for a family of four with double the median income, the federal income tax burden is at its lowest level in 25 years.

Why do Republicans insist on claiming we are overtaxed when tax burdens are at record lows?

Republicans base their charge on statistics about the sharp rise of tax revenues as a percentage of GDP. In one quarter in 1998, they note in their views, revenues as a percentage of GDP reached "the highest recorded level in American history." How is it that tax burdens on average families have been dropping yet tax collections as a percentage of GDP are growing?

Measuring tax collections as a percentage of GDP is misleading. The distortion comes from the fact that GDP does not count income from capital gains realizations but the total revenue figure includes capital gains taxes. When capital gains income rises sharply (and the taxes collected on those gains rise in sync), the revenue side of the equation will automatically rise more sharply relative to GDP. In such times, revenue as a percentage of GDP is a less reliable statistic and will, by definition, be an unreliable indicator of trends in tax burdens.

Indeed, capital gains income has risen very sharply since enactment of the 1993 Omnibus Reconciliation Act.

According to the Congressional Budget Office The Economic and Budget Outlook: Fiscal Years 2000-2009 (January 1999):

Realizations of capital gains increased by 150 percent between 1993 and 1997, and most of that growth occurred before the 1997 cut in tax rates on capital gains.

There is a second reason tax revenues have increased as a percentage of GDP. Along with the growth of capital gains, families at the top of the income ladder have been earning more. As CBO Director June OíNeill in testimony to the Budget Committee explained, revenues are rising:

...mainly because realizations of capital gains were unusually high and because a larger share of income was earned by people at the top of the income ladder, who are taxed at higher rates.

According to the Congressional Budget Office The Economic and Budget Outlook: Fiscal Years 2000-2009 (January 1999):

The share of AGI [adjusted gross income] going to taxpayers with AGI greater than $200,000 (in 1997 dollars) rose from 14.4 percent in tax year 1993 to 19.9 percent in tax year 1997. Two factors accounted for that increase: more taxpayers had AGIís over $200,000, and those taxpayers experienced a higher-than-average growth in income. Their share of tax liability increased from 29.5 percent to 37.2 percent during the same period. The growth for those with more than $1 million in AGI is even more dramatic. The increased share of taxes from high-income taxpayers, moreover, occurred without an increased effective tax rate for that group.

The well-off are paying more in taxes because they are making more money, not because their tax rates are going up. The facts do not argue for Republican proposals to cut tax rates for the wealthy, so Republicans ignore the facts.

By suggesting that budget surpluses should be used to pay for huge tax cuts to the rich, the Republicans threaten those very surpluses. As the President notes in his Budget Message:

This yearís budget surplus is one in many decades of surpluses to come Ė if we maintain our resolve and stay on the path that brought us this success in the first place.

The Republicans also ignore the Presidentís proposals to invest the surplus to protect and preserve Social Security. The President said in his Budget Message:

First and foremost, in the last year of this century, the task awaiting us is to save Social Security. The conditions are right. We have reserved the surplus, our economy is prosperous, and last yearís national dialogue has advanced the goal of forging consensus.

The President proposes using most of the budget surplus to retire publicly held federal debt, which is at a staggering level of $3.72 trillion. He proposes then to reissue the obligations and credit the new assets to the Social Security trust fund (and a smaller share to the Medicare trust fund). In this way, the budget surplus is in a trust fund "lock box," locked up for use by Social Security and Medicare.

The President proposes several targeted tax cuts, provided we first solve the long-term financing problems of Social Security. The largest tax cut is for Universal Savings Accounts (USAís), to provide tax incentives to save for retirement to those who currently can not participate in individual retirement accounts or employer-sponsored pension plans.

The President also proposes tax cuts for long-term care and for small business health plans; he offers once again incentives for public school construction and modernization; he recommends expanding the child care tax credit and he suggests a new tax credit for Better America Bonds to generate bond revenue for community environmental and economic enhancements such as making urban parks, protecting water quality, and cleaning up abandoned industrial sites.

Republicans hope to distract attention from the Presidentís budget by using misleading statistics to argue for a 10% across-the-board tax cut which principally benefits the wealthy. We hope they do not succeed.

John Joseph Moakley                                                     Martin Frost

Tony Hall                                                                      Louise Slaughter