Senate Floor Speech
Senator Kay Bailey Hutchison
January 15, 2003 -- Page: S312

MRS. HUTCHISON. Mr. President, I rise today to talk about the President's bold and visionary stimulus package, one that will promote jobs and growth in our country. One would have to admit to sleeping for the last 3 years not to have seen that we have had a very unstable economy. It has spooked investors. It has spooked retirees. People do not know what they can count on to live.

The President has said: I can sit here and twiddle my thumbs or I can do something, and I can do something bold that will do the most for the most people in our country.

The President did not say: I am going to only try to help one segment of our society. He said: I am going to try to help every segment of our society. That is why he put forward a very balanced plan and one that certainly will stimulate the economy.

I wish to talk about the income tax rate deductions. The income tax rate reductions were set in the bill that we passed 2 years ago that cut taxes, probably one of the largest tax cuts in the history of America. The bill provided that over the next 10 years, people would have income tax rate reductions that would allow them to keep more of the money they earned. This applies to every person in America who works--people who pay taxes at the highest level and people who do not pay taxes at all and yet get an earned-income tax credit, even if they are in the lower brackets. We want to help every single segment of working America.

We especially want to help those at the lower end because we do not want the many people coming off welfare to think that their lifestyle and their ability to live has gone down. That is why we have the earned-income tax credit for the very lowest brackets. These are people who do not pay taxes. Their wages are too low to pay taxes, but we give them an earned-income tax credit. They get money back to help them and give them the incentive to work and to continue working and to build their working lives so they can improve their incomes. That is expanded in the tax cuts that are envisioned by the President.

In the marriage penalty, for instance, we increase the amount one can earn by $3,000 and still get the earned-income tax credit. That is part of the President's plan. That is a bill I have introduced with Senator Evan Bayh that would allow every married couple to double their standard deduction, and we would double the 15-percent bracket.

That helps people in the 15-percent bracket stay in the 15-percent bracket even if they get married to someone who makes about the same amount of income as they do. We do not want to penalize marriage, and we bring forward the marriage penalty reduction to January 1 of this year under the President's plan.

We also increase the earned-income tax credit. That is a very helpful part of this bill. We also decrease the rates that every taxpayer pays, from the lowest to the highest levels, because we want everyone in America who is working and paying taxes, and people who are not paying taxes because they are not in a bracket, to have more money in their pockets to spend. We believe this is good policy. I think the President has been very bold in this.

I will be carrying the marriage penalty part of this bill. I carried the bill 2 years ago when we passed the tax cuts, and I certainly intend to try to bring it forward so it takes effect this year.

Senator Bayh and many others are cosponsoring this legislation, and I hope that we can finalize this when we are talking about the President's plan.

In addition, the President has suggested that we take away all tax on dividend income. A lot of people say: That just helps the rich. Let me talk about the dividend investment income part of this tax cut.

A tax cut on investment income particularly helps the elderly and others who rely on fixed incomes. More than half of all dividends go to senior citizens. With such pressures as rising health care costs, it is certainly critical that we let them keep more of their money. These tax cuts will help a broad cross section of Americans. For example, almost half of those who receive dividends have less than $50,000 in income.

I have talked with senior citizens who are very concerned that the retirement for which they have prepared, for which they have saved is not going to be enough to allow them to cover their expenses.

Interest rates and dividends are notoriously low, and then they are taxed. That is because our Tax Code has promoted a tax that is a double tax on dividends for people who give it and people who earn it. People who have already paid taxes on their income take that money after paying taxes and try to invest it in the stock market. Companies that have already paid tax on their income before they distribute also are hampered from giving dividend income. There is no incentive for them to do it because they have to pay tax on their income before they distribute. The people who receive it are receiving money on which they have already paid taxes. So we have a double taxation to the corporation, a disincentive to the corporation to pay dividends, therefore hurting the people who have invested and who are trying to prepare for their own retirement security. This leads to two unintended consequences.

First, it encourages investors to focus on returns through stock price appreciation which are taxed at the lower capital gains rate. So people are encouraged to invest in companies that might be riskier, and in many cases are riskier, than the more stable dividend-paying companies. As anyone can see from the collapse of stock prices in the high-growth sectors over the past 2 years, the current incentives in the Tax Code may not lead to the best investment decisions for people who are trying to prepare for their own retirement security.

Second, the double taxation of dividends encourages companies to raise capital by loading up on debt rather than issuing stock because interest expense on debt can lower a company's taxes while dividend payments do not. This leads to an increase in highly leveraged companies that then become at a greater financial risk when the economy slows.

America is increasingly a nation of investors. Today, one-half of U.S. households own stock. That has increased 60 percent since 1989. This is a good thing. It is good for the people of our country to say: I am going to try to make sure I have a retirement security for myself and my family. I am going to do it myself. I am going to take advantage of the Tax Code where I can invest in IRAs--and certainly 401(k)s, if one works for a corporation--to be able to invest tax free while they are still in the earning mode and then have something that will be a bigger nest egg when they retire.

We have encouraged people to invest for their retirement security, but our Tax Code today is not helpful. It is not helping them with interest income deductions. They cannot get any help on paying taxes on their interest, and certainly they have to pay full income tax rates on their dividends from corporations.

So where do people on fixed incomes go? What do they do to try to live and not go for help to their children or to the Government? Well, they do not have many choices right now. That is why the President is trying to spur the economy to encourage corporations to give dividends rather than going to the market and borrowing money. It will make the corporations healthier. It will encourage people to invest in corporations, thereby increasing the prices of stocks, which will stabilize the stock market, which is a key indicator of the economic growth in our country. It will also allow people to make these investments and know they are going to have a better chance of getting dividends.

If a corporation can pay dividends before taxes rather than after taxes, they will have more to distribute and it will be in their best interest to distribute. It will be an encouragement. If we pass this, I am going to be the first person to stand up and call on corporations to look at paying dividends instead of sitting on pots full of money or going out and borrowing in the market. They can do their part to help the security of our country by paying dividends, and I encourage them to do it. We need to give them an incentive to do it because right now it is a disincentive, both for the corporation and for the recipient of the dividends.

I also want to bring up another point that has been raised against the President's plan, and that is that we do not do anything for States. I disagree with that. I think it is absolutely wrong. My State, like most States in this country, is looking at lower revenues this year. My State mostly relies on sales taxes. We do not have an income tax so we rely on sales taxes. Everybody who has read a newspaper in the last 5 months knows we had a very slow holiday season. Consumers did not buy as much. Our retailers are suffering from that. So when we encourage people to spend by putting more money in their pockets, that is going to help our States as well. It is going to increase State revenues. It is a key help for States.

Secondly, in other parts of our appropriations bills, we are sending money to the States. We are sending money to the States for homeland defense. We are going to fund our first responders in our States on a population basis so that it will be a fair distribution of our assets at the Federal level to try to help our States and local governments deal with protecting our citizens from domestic terrorism. We want our citizens to have a trained police force and first responder force. We want our citizens to know that our water supplies are safe, that our transportation lines are safe. So we are going to give money back to the States to help them meet the needs of our citizens for homeland defense at the local level.

We are also trying to look at giving more money to the States in Medicaid. I am cosponsoring a bill by Senator Rockefeller that would increase the Medicaid payments, making sure that our public hospitals that treat our Medicaid patients are fully reimbursed so they can stay in business and so our health care system will remain a great health care system for those who cannot afford it and those who can.

We want to also encourage people to have health insurance by allowing more trade associations to give health insurance options to their members because small businesses are not able to afford health care costs. If they are able to afford them, they are suffering even more. We are hearing of more small businesses that are dropping health care coverage for their employees because of the high cost of health care. So we are going to be doing some things that would benefit the States.

The President's package is a good one. It is a bold package, and it is a package that will stimulate our economy. If people know they are going to have money in their pockets, even if it is next year or the following year, they can plan. That is the key--being able to know what the Tax Code is, so people can plan accordingly and know what their savings are going to do.

So I applaud the President. I think he has been visionary in not sitting back and saying: I cannot do anything; we are going to let the market take its course. He is watching the stock market. He is watching the jobless rate. He is concerned about it. I have talked to him. He is very concerned about people who do not have jobs. It is probably the largest concern he has right now in addition to national defense and trying to make sure we make the right decisions in national defense for the security of our country. These are the two most important issues we are facing. So the President is trying to do something about them. He is trying to stabilize the market, give people more money to spend, and encourage corporations to make the capital investments that would create more jobs.

I applaud the President. I am going to support him, and I am going to do everything I can to see that we do not have rhetoric that says this is class versus class. This is for everyone. Tmore jobs. It is for more money to spend for people who are working and who deserve to keep more of the money they earn.