Remarks by Senator Joe
Lieberman to the Economic Club of Detroit
May 20, 2002
Thanks for having me here today. So many of the members of the Economic Club of Detroit have been powerful engines each in your own way driving Detroit's, and Michigan's, transformation from a 20th Century industrial stalwart into an agile and creative 21st Century job creator. I admire all that you did in the 1990s to embrace the new economy and take the reins of this region's future. It wasn't easy-bold change never is-but it has paid off, with hundreds of thousands of new jobs for Michigan residents.
I saw a lot of them during the 2000 campaign. I visited Visteon, an automotive parts firm in Ypsilanti, which, as I'm sure you know, had spun off from Ford earlier. The employees had been through a lot. They had felt some serious growing pains. But the United Auto Workers and the management worked together with an openness to change, and they have succeeded. One employee said to me, "I've been here 28 years and I've seen a lot of changes." I thought he was complaining. But then he said, "If we hadn't changed, we wouldn't be working here today. These jobs would have left Michigan."
The same is true of the American economy. If, generation after generation, our leaders hadn't come to the table with forward-looking economic strategies and the capacity to adapt those strategies to the new realities, you and I today wouldn't be a part of the most prosperous, innovative, and resilient economy in the history of the world.
But that economy has some problems today. With government budget deficits reappearing and the economic recovery coming only in fits and starts, with Social Security's insolvency looming ahead and new homeland security and defense obligations pressing in on us today-we're at a critical crossroads.
I want to talk with you about the steps I believe we must take to return to the high-growth passing lane where we spent the 1990s. As I do, I want to stress this isn't just about economic statistics. It's about creating and protecting jobs for millions of Americans, expanding the middle class, and sustaining the American Dream for all who want to give their children opportunities they never had.
That's why I am so concerned that, although President Bush has been in office for almost 16 months now, he has not yet presented a real economic growth plan for our country. While the President has shown a willingness to make tough choices in the war against terrorism, in the fight for America's prosperity, the President's policies have been passive at best.
As a result, we're witnessing the appearance of a new troubling deficit: an economic leadership deficit. The President needs to close that deficit and open new possibilities for our people. He and we in Congress can best do that by learning from what has worked in the past.
The 1990s: The Progress We Made
To make an economy grow, you need to know how business works. I'm the son of a small-businessman who worked days and nights, balanced his books, and taught his children to respect every dollar-so I've always appreciated the fact that business, not government, creates economic growth and jobs. Jobs and wealth are created because of private labor, private investment, private productivity, and private innovation.
But government has an important part to play. It must create the conditions for growth. When it does and the private sector responds, everyone wins. That's exactly what happened during the Clinton Administration: good government policy encouraged and unleashed the genius of American enterprise. And don't let Enron's collapse fool you into thinking that the success of the 1990s was just balance sheet bloat. It was real. Businesses created more than 22 million jobs. More than 7 million Americans moved off welfare. Record numbers of families sent their kids to college, invested for retirement, and bought homes.
Notwithstanding current cinematic suggestions, the economy of the 1990s didn't get superpowers from a spider bite. Nor did it harness The Force. The economy grew because, after years of mounting deficits that put a dark cloud over our economy, President Clinton and the Democratic Congress had the courage to change course. We got our government out of hock. We cut taxes strategically to lubricate the engines of growth. We made smart investments in education and other incubators of innovation. And we opened markets around the world. In short, we, like any successful business, had a growth strategy. We stuck to it. And it worked.
Helping to unleash all that investment capital took no small amount of political capital. At many points, special interests cried foul. Every Republican in Congress opposed the 1993 balanced budget plan. Many Democrats opposed NAFTA, GATT and other free trade agreements. But, knowing that sometimes the right choice is one that goes against the orthodoxies of both parties, we stood by our blueprint of fiscal discipline, strategic public investments, and open markets, and the American people reaped the bounty of prosperity and progress.
Dostoevsky said, "Money is coined liberty." He was right. When we create the conditions for our markets to thrive, we keep the American Dream alive. The American Dream isn't a hollow political slogan or a crass caricature of surpassing the Joneses. It's about individuals working hard to enter the middle class, own a home, send their kids to college, or start a business. It's the steady and satisfying march toward economic advancement, equal opportunity, personal fulfillment, and family security.
Bush: Weakening the Pillars of Growth
If this Administration doesn't show some economic leadership soon, the American Dream will be harder and harder for millions of Americans to realize. I'm a naturally optimistic person, especially when it comes to the American economy-and we've seen some encouraging flickers of economic activity recently. But day after day, business leaders all across America still express their pessimism to me about the future. They're not worried about a deeper recession. They just don't have confidence in a strong recovery. Profits are generally low. Unemployment remains high, and job growth is slow. In fact, we've gone from creating 2 million private sector jobs a year in the 1990s to losing nearly 2 million in the first 15 months of the Bush Administration -including nearly 70,000 job losses thus far this year, during what was supposedly an economic recovery.
We've gone from a $260 billion annual surplus in 2000 to a projected $100 billion deficit this year. The 10-year federal surplus projections have collapsed from $5.6 trillion last year to a little more than $1 trillion now, and they are still falling. That means a loss of more than $4 trillion and an extra $1 trillion required in interest payments on the debt we're not retiring. Let me repeat that. The debt the federal government is not retiring will cost taxpayers $1 trillion in interest payments alone over the next 10 years-a trillion dollars that will bring us nothing: no stronger defense or homeland security, no better schools or healthcare, no cleaner water or air, no more guaranteed Social Security and Medicare.
That would be bad news at any time, but it is particularly bad now. Beginning in 2017--only 15 years from now--and for the 24 years that follow, we'll have more than $7 trillion in Social Security promises to keep-and the payroll tax won't nearly cover them. In fact, in 2020 alone the tax is projected to fall $125 billion short of what we need to pay Social Security benefits. In 2030 that gap grows to $630 billion. By 2040, we start counting in trillions.
The only way we'll ever be able to meet these solemn obligations to American workers is for the government to have the strongest possible fiscal position, with the least debt and the most growth. The Bush Administration's slow-growth, high-debt policies just won't do it.
Sometimes it seems as if this Administration has been stricken with economic amnesia. The record-breaking growth of the 1990s was built on four powerful pillars: balanced budgets, pro-growth tax cuts, intelligent investments, and open markets. President Bush has weakened each one of those pillars. His economic plan could fit on the back of a shampoo bottle: "Cut taxes, increase spending, borrow, repeat." If he keeps repeating that plan, he will surely endanger Social Security benefits and slow our economy to a halt, just when we need the most economic strength we can muster to fight and win the war against terrorism.
Fixing the Hole: Returning to High-Intensity Growth
How, then, can we do better? The best way to produce prolonged prosperity is by making tough choices and applying a coherent growth strategy.
First, we must get our federal budget back in balance and stop taking money from the Social Security and Medicare trust funds. To do that, we must be prepared to postpone the most expensive and least progressive parts of the Bush tax cut that go into effect in 2004, 2006 and thereafter.
I voted against the tax cut last May for three reasons. I said it would be ineffective, failing to spur economic growth or job creation; irresponsible, spending projected surpluses that very well might not materialize; and unfair, giving the biggest benefit to those who needed it the least. Instead, I wanted to do something very close to what Al Gore and I campaigned on in 2000-put a third of the projected surplus toward debt reduction, a third toward strategic investments, and a third toward tax cuts. The tax cuts I could have supported would have kept our budget in better balance; ignited investment and innovation with real incentives for business growth; and given the most help to those who needed it the most.
Without hesitation, that's the plan I would implement today. But President Bush has made adamantly clear that he won't budge-so starting from scratch is just not within the realm of possibility. Meanwhile, every single one of the problems I had with the Bush tax cut last year has grown even bigger now in light of our stagnant economy and the new investments we must make in homeland security and national defense.
In that context, it's irresponsible for President Bush to call for another $600 billion in tax cuts on top of the $1.7 trillion already enacted, and to ask that all of last year's tax cut be made permanent. Because the tax cut's most expensive provisions are back-loaded, in the first decade after 2012, making the whole tax cut permanent would cost us another $4 trillion-or more than $7 trillion, when you add in the interest on the debt (according to the Center on Budget and Policy Priorities).
Both suggestions are unacceptable, because they are self-destructive. We can't just go on a big spending spree and then stiff our children with the bill. That's just plain wrong.
The President and Congress have to closely monitor our economy and our books. Unless we see stronger economic and budgetary projections next year, it would be irresponsible to let the next big tax cuts-which are mostly for the wealthiest in our country-go into effect in 2004. If in 2003 our budgetary and economic outlook remains weak, we must appeal to the President and our colleagues in Congress, both Republican and Democrats who voted for the tax cut last year, to come together and do the responsible thing: postpone at least three slow-growth and overly-expensive parts of the tax cut that have yet to be implemented. Specifically:
* The reduction of the top rate from 38.6 percent to 35 percent scheduled in 2004, and the further reduction of the next rate from 35 percent to 33 percent scheduled in 2006, should both be put off;With the money saved-which would total approximately $1 trillion over 20 years-we should: 1) make pro-growth tax cuts including incentives for investment and research and development and a broad tax deduction for the cost of higher education; 2) reduce the growing deficit; and 3) pay for some of the critical investments we need to make in education, defense, and homeland security.
* The full repeal of the estate tax should be replaced with a substantial rate cut and exemption increase;
* The "PEP and Pease" personal exemption and itemized deduction provisions should be postponed.
In my view, every tax cut we make should be sustainable. In other words, it should be a cut that's effective enough and responsible enough to keep for the long run. We're lucky that the portions of last year's tax cut that have already been implemented are the least expensive and most defensible parts. That's why I support not only keeping, but making permanent all parts of last year's tax cut that have already gone into effect. These include:
* The creation of the new 10 percent income tax bracket-which benefits all taxpayers, and especially lower income Americans;If we were to postpone the three items I have just described, 98 percent of all families-those who make less than $180,000 a year, and fall in the 15 percent, 28 percent and 31 percent tax brackets-would get every dollar included in the tax rate cuts adopted last year. Not a single American would be paying more in taxes than they are today. Even the top two percent would get the tax cuts they've already received-which are substantial. I know that some will say that this would be raising taxes, because they prefer to play politics rather than grow our economy. But read my lips: Keeping current tax rates is not a tax increase.
* The reduction in the 39.6, 36, 31, and 28 percent rates by one point each;
* The cut in the estate tax rate, and the increase in the exemption.
The choice is ours. Let's have the brains and the guts to make it if that's what the numbers require next year.
That's step one. Our second step to restore strong economic growth should be recommitting to free and fair trade.
I've supported China's entry into the World Trade Organization, the creation of NAFTA, GATT, and countless other free and fair trade agreements that opened markets around the world to American products and services-and vice versa. Opening markets widens the winner's circle for everyone. That's why I'm proud that in the Senate we are on the verge this week of finally giving the President the fast track trade promotion authority that President Clinton was denied five years ago.
But our work to open foreign markets is far from done. We must keep moving in the same direction, selling our products in new markets around the world because that will create and continue more jobs here at home, but understanding that not all boats will be lifted by the rising tide of exports. The answer to those workers who may be left behind is not to raise the false hopes of fake walls, but to give them the financial support and training assistance they need to prosper in this rapidly-changing global marketplace-which is exactly why the Senate is right to pair TPA, Trade Promotion Authority, with TAA, Trade Adjustment Assistance. We can and must be pro-trade and pro-worker at the same time.
Third, we must limit spending and find savings to help us get the federal budget into balance and make room for critical new investments in defense and homeland security.
One of the great achievements of the 1990s was the slowing of federal spending to half its rate of growth in the 1980s. Right now we're in danger of losing our spending discipline, so I propose capping all non-defense discretionary spending, perhaps at the rate of inflation.
I also support the proposal by my colleague John McCain to create a commission to recommend cuts in corporate welfare-multi-billion dollar payments that don't produce new economic opportunities.
Even when it comes to military spending, we have to be willing to make the tough choices. For example, the Crusader artillery is a good system, but Secretary of Defense Rumsfeld is right: given the changing nature of war, the billions we would spend on it should be invested in more effective future capabilities that take advantage of emerging technologies. I will support Don Rumsfeld's decision to terminate the Crusader.
Fourth, we must make focused, high-return investments in job creation and economic growth. The Bush Administration doesn't seem to understand the new economy as well as you in Michigan have proven you do. In this century, focused government investments in education, training, and innovation will drive economic growth worth many times their initial expense.
As you know, the new economy's success rises or falls on the quality of our schools, so we need to provide the resources enabling all our children to acquire the skills they need to compete in era of globalization. But the President has recommended $5 billion less for our public schools this year than we, and he, promised in the reform bill he signed into law in January. We must match that with a new effort to give more Americans access to high-quality higher education. As long as young people from high income families are seven times more likely to graduate college than young people from low-income families, billions of dollars in economic potential-and millions of human opportunities-will be lost.
We also need to make research investments and create smart tax incentives, including targeted capital gains cuts, to sow the seeds of business innovation-not to manufacture growth, but to spark it. We need a coherent, coordinated national strategy for broadband Internet deployment, which has the potential to deliver up to $500 billion in new annual economic growth to our economy. We need to invest in medical research, which in addition to economic benefits will save, prolong and improve lives. We also need to invest in R&D and use tax incentives to leverage economic growth in breakthrough areas like nanotechnology, which are already demonstrating the potential to remake and remap a whole host of industries.
All these elements of a strong economic growth strategy will require both leadership and bipartisanship to implement. Spenders will oppose every cut, and ideologues will try to thwart every high-growth incentive.
But if we're serious about producing jobs-and securing the blessings of prosperity for ourselves and our posterity-we have only one good choice. We have to be disciplined. We have to work together. We have to be strategic. We have to sow the seeds of enterprise, not squander them.
In 1962, President Kennedy-who helped lay the foundation for the economic boom of the mid- to late- 1960s-said something that still rings true today. "What is at stake in our economic decisions is not some grand warfare of rival ideologies which will sweep the country with passion, but the practical management of a modern economy. What we need is not labels and clichés but more basic discussion of the sophisticated and technical questions involved in keeping a great economic machinery moving ahead."
That is what I have tried to do today. That is the discussion our nation needs. And those are the choices before us. If we make the right ones today, then tomorrow our great economic machinery will be moving ahead, firing on all pistons, into the 21st Century.