The basic focus of the president's program for economic recovery is sound. To address our country's serious economic problems, we must cut government spending, reduce the tax burden and increase private saving and investment to improve productivity.
Recently, I joined with 11 other moderate to conservative Senate Democrats in a public statement of strong bipartisan support for the president's goals. Spending must be cut by at least the total figure set by the president. We cannot afford to play partisan politics with the nation's future.
While also supporting the president's proposal for a general reduction in taxes, we did, however, offer two constructive suggestions for changes that we think will improve the tax-cut package.
First, the total tax cut should be somewhat smaller so that we can reduce the deficit more in the first year. Even under the administration's assumptions, if all of the president's spending cuts are approved, the tax package would leave a $55 billion deficit this year. High deficits continue to fuel the inflationary psychology. In addition, high deficits keep pressure on the credit markets maintaining high interest rates, which pose a critical short-term danger to the economy.
We must not sacrifice our commitment to balance the budget. The administration indicates that if the inflation rate falls below 6 percent and interest rates fall to 7 percent, and if another $40 billion in unspecified spendings cuts are achieved, we would barely reach a balanced budget by 1984.
We cannot take a chance on economic assumptions that are, at the very least, subject to question. Anyone who runs for office wants to vote for tax cuts, but we must keep them within levels that are responsible and that will give realistic certainty of a balanced budget by 1984.
Supply-side economics is basically correct. In the long run, tax cuts will stimulate economic growth sufficient to generate more revenue. The situation today, however, is very different from that in the early 1960s when President Kennedy's tax-cut program achieved success. At that time, the inflation rate ranged between 1.5 percent and 2 percent. This past year it was 12.6 percent. We must deal more carefully with the short-term deficit than was necessary in 1962.
The second major change that should be made in the administration tax-cut package, especially in the first year, is to more carefully target it to improve productivity. There is no doubt that some individual tax cuts are badly needed to provide more incentive to produce. In fact, a multi-year program for reductions is in order. Perhaps any reduction beyond a second year should be conditioned upon Congress' maintaining fiscal discipline by making additional spending cuts. Such a condition would keep the pressure on Congress to hold down spending.
While personal tax reductions are needed, the administration's package goes too far in allocating more than 80 percent of the total tax-cut package to individual rate reduction and less than 20 percent to investment formation.
The American people are making sacrifices that will be painful, especially to those at the bottom end of the economic scale. It is one thing to ask for this sacrifice in order to increase savings and investment so that we can protect the jobs of American workers that depend upon new technology and equipment to help us compete in world markets. It is quite another thing to ask for a sacrifice that could be viewed as merely increasing the ability of the rich to buy more consumer goods.
Personal tax cuts are important, but a balance must be struck to ensure that we are getting the greatest possible amount of increased productivity for each dollar of tax cuts. President Kennedy devoted more than one-third of his package to investment stimulation even though there was much less concern about the size of the deficit and the rate of inflation.
In view of current conditions, at least in the first year, half of the tax-cut package should be used to more directly increase savings and investment. I hope the president wil seriously consider the following, in addition to a much needed change in depreciation rates:
Immediately ending tax discrimination in the treatment of investment income;
Further cuts in capital gains taxes;
More investment tax credits for research and development;
A permanent exemption for income derived from savings and investment for middle-income Americans;
Reduction in the corporate tax rate for small businesses; and
Reductions in the inheritance taxes, which often force the sale of small businesses and farms.
The president has a good basic plan for economic recovery. Let's make it better