Remarks by Senate Majority Leader Tom Daschle
America's Economy: Rising to our New Challenges

As we begin this new year, our nation is engaged in two great battles. One is literally about life and death; and that is our battle against global terrorism.

Our other battle will determine a great deal about how we live, and what kind of future we leave to our children. That's the battle to deal with the economic challenges facing our nation -- both short-term and long-term.

In the first battle, the battle against terrorism, President Bush and his national security team are doing a superb job. They've united our nation, and virtually the entire world, in defense of freedom and civilization. They deserve our support, and our praise.

Our men and women in uniform have been nothing short of heroic. They took on an assignment that some said was un-winnable, and they're winning. Not only are they bringing justice to the killers, they're helping to bring the people of Afghanistan their first real chance for peace in nearly a quarter-century. They are making our world safer, and making us all very proud. Next week, I'm going to be visiting some of our troops stationed in Central Asia, and I'm looking forward to it.

When it comes to our second battle, our economic battle, I think most Americans would probably agree that the news hasn't been so good lately. But there's no reason we can't win both of our battles. Americans are the most productive, most innovative workers in the world. We have the most advanced technologies. We are the people who pioneer new ideas and break new ground.

If we can root out a network of terrorists half a world away, we can solve the problems in our own economy. After all, unlike the war on terrorism, the economic battle is a battle we have fought many times before, and won.

The way we've won it has always been the same: by keeping our fiscal house in order, and by relying on comprehensive plans to keep our economy growing.

Today, I would like to make a case for a return to fiscal responsibility, and a comprehensive, new plan for economic growth.

We don't have to look back too far to see a template. A decade ago, our economy was shrinking, as we struggled to emerge from a recession. We were running record annual budget deficits, with no end in sight. From 1980 to 1992, our national debt had quadrupled.

Some people feared we'd never get out of that fiscal hole. But we did. And we did it the old-fashioned way. In 1993, we made a decision: No more living beyond our means. No more borrow-and-spend and piling up mountains of debts to leave to our children and grandchildren. From that point on, we decided, everything we did had to fit into a new framework of fiscal discipline.

Fiscal discipline lowered our long-term interest rates and increased business confidence... which helped spark new investment... which produced strong economic growth... which lowered the deficits even more... which reduced long-term interest rates even further... which created more jobs and stronger economic growth.

By embracing fiscal discipline, investing in people and technology, and opening up new markets abroad, we helped lay a foundation for a new growth economy. Over the next eight years, we achieved broad-based economic growth. Businesses boomed and people benefitted. Corporate profits rose, and so did family incomes -- and not just at the top. We created more millionaires and billionaires in the 90s than at any time in our nation's history, while creating a boom that raised family incomes across the board.

More companies were started -- more people went to college -- and more Americans owned their own homes in the last decade than ever before in our nation's history. At this time last year, unemployment, inflation and long-term interest rates were all lower than they'd been in a generation. We'd disproved the old idea that you can't have low unemployment and low inflation at the same time.

While we were laying the foundation for a prosperous future -- we were also paying off the mistakes of the past.

In 1993, our economy was saddled with a record $290 billion deficit, and that deficit was projected to grow substantially for years. By 2000, not only was the deficit gone, we had a record $236 billion surplus -- and that surplus was expected to increase dramatically for years.

We'd also paid down more than $400 billion of the trillions of dollars in debt the federal government had run up during the 1980s and early 90s, and were on a path to pay off the full debt. For the first time in years, the challenge of the Baby Boomers retirement, while still formidable, no longer seemed insurmountable.

For the first time in a generation, both our short-term, and our long-term, economic positions appeared strong.

Then, the inevitable happened: our economy started to cool. By last March, we now know, the expansion was officially over and a recession had begun. Every economic boom eventually slows down. When that happens, the question is not who is to blame, but what do we do to get the economy growing again? How we answer that question is critical, because it will determine -- to a large extent -- how deep the recession will be, how long it will last, and how strong the recovery will be.

Unfortunately, last spring, Republicans chose exactly the wrong solution. They made a huge tax cut their number one priority -- ahead of everything else -- and discarded the framework of fiscal responsibility. They said their tax cut cost 1.3 trillion dollars. It is actually $1.7 trillion when you include interest costs. And many experts believe the true costs are even more dramatic. The IMF, for instance, estimates the cost of the tax cut at $2.5 trillion -- nearly a trillion dollars more than advertised.

Supporters of the tax cut said the surplus was so massive and so certain that we could have a huge tax cut, increase spending on education and the military, and provide prescription drug coverage. We could protect the Social Security surplus, pay off the entire federal debt in a decade, and still have enough money left over to get us through any unforeseen disasters.

What we got instead was the most dramatic fiscal deterioration in our nation's history.

Instead of the record surpluses we expected, the President's own budget director now says the federal government will run deficits until at least 2004. Instead of continuing to pay down the debt, the President's Treasury Secretary sent Congress a letter just after Thanksgiving asking us to approve raising the nation's debt limit.

There are those who say the reason the surplus deteriorated so quickly is the attacks on America and the war against terrorism. Clearly, September 11th was a major blow to our economy. And, to some industries, it's been devastating, especially travel and tourism, which is hugely important to my home state. But September 11th and the war aren't the only reasons the surplus is nearly gone. They're not even the biggest reasons. The biggest reason is the tax cut.

In May, the Congressional Budget Office reported a 10-year budget surplus of $5.6 trillion. By the end of the year, $3.7 trillion was gone. Nearly half of that was a direct result of the tax cut. The tax cut was by far the largest factor.

The rapidly disappearing surplus is a key reason long-term interest rates have barely budged. This, despite the fact that the Federal Reserve cut the short-term, federal funds rate a record 11 times last year. All together, the Federal Funds Rate dropped nearly 5 percentage points last year. Yet the 10-year Treasury rate ended the year almost exactly where it began.

Investors understand that the dwindling surplus means the federal government may have to borrow money soon or, at the very least, won't be paying down nearly as much of the debt as had been expected. That is keeping long-term interest rates higher than they would have been. And the continued high interest rates and the adverse impact on investor confidence, in turn, leads to less investment, less consumption, more job losses, and bigger deficits. That's the hidden tax of the current fiscal policies.

So, not only did the tax cut fail to prevent a recession, as its supporters said it would, it probably made the recession worse. It also put us in an unnecessary fiscal bind at the worst possible time. At a time when we need to fight both a war and a recession -- when our nation has urgent needs on all fronts -- the tax cut has taken away our flexibility and left us with only two choices -- both of them bad. We can shortchange critical needs, such as homeland defense, or we can raid the Social Security surplus -- and even run deficits -- to pay for these critical needs.

We should not be in this position. A year ago, we had the resources and the flexibility to make virtually any urgent investments we needed. We don't have that flexibility, or those resources today, because Republicans chose ideology over experience. Experience showed that fiscal responsibility works. Ideology dictated tax cuts no matter what the circumstances.

I know a lot of good, fiscally conservative Republicans. South Dakota is a majority Republican state, and the people in my state are about as hard-working and fiscally conservative as you get. But the Republican agenda in Washington today is being written by a wing of the Republican party that isn't interested in fiscal discipline. They have one unchanging, unyielding solution that they offer for every problem: tax cuts that go disproportionately to the most affluent.

Democrats see things differently. We support tax cuts that work. But we want to make sure that any tax cuts we pass don't threaten the Social Security or Medicare reserves, crowd out other critical investments, or drive us deeper into debt.

President Bush deserves great praise for the way he is leading our armed forces. He's shown real leadership by setting aside partisan criticism of America's necessary involvement in multilateral military action and "nation building." And he's demonstrated statesmanship by re-engaging in the difficult work of the Middle East peace process, where American engagement is essential.

President Bush is absolutely right to use every tool at our disposal to fight the war on terrorism: diplomatic, military, financial, and humanitarian.

But we also have to use every tool at our disposal, including the right kind of tax cuts, in our battle to strengthen our economy.

America's greatest strength is our resolve and our unity in times of challenge. The world saw that again on September 11th and in the months that followed. If we can come through a tragedy as terrible as that, I have no doubt we can solve the economic challenges facing us, too.

We can restore fiscal integrity, keep America on the cutting edge of technology, and help Americans seize the extraordinary opportunities this new global, information economy affords. We can go back to paying off our debt rather than risk running up the deficit.

The first step is to get our economy back on track by passing a real economic stimulus plan.

In putting together a plan, we talked to business leaders in high tech, manufacturing, finance and other key industries. We consulted with Bob Rubin and Alan Greenspan, two of the chief architects of the economic success of the 1990s. On the basis of those discussions, we proposed a plan designed to increase consumer demand, and spur business investment.

Nearly 2 million Americans lost their jobs last year. New figures out this morning show the unemployment rate in December rose to 5.8 percent the highest in six years.

We included unemployment and health care benefits for laid-off workers in our plan because, as any objective economist will tell you, it's one of the most effective ways to boost demand and pump money into the economy quickly. It's also the right thing to do.

To spur business investment and job creation, we proposed allowing businesses to write off a larger share of their investments immediately.

Our Republican friends like to describe the economic stimulus debate as a choice between Republican tax cuts and Democratic spending. The fact is, both of our economic stimulus proposals are more than 75 percent tax cuts.

The real difference is our tax cuts will keep people at work and keep the economy growing by stimulating economic activity right now. Their tax cuts have very little to do with sparking an economic recovery.

Sixty percent of their stimulus plan's five-year cost occurs after 2002. It occurs after the Administration and most economists believe the recovery will be well on its way. They also want to eliminate the corporate alternative minimum tax. Even if you think that's good economic policy -- and I don't -- it's not a stimulus.

Let me be clear about what I think needs to be done to stimulate the economy right now: We should move quickly to pass a bill that boosts demand, encourages investments and creates jobs. It should consist entirely of one-year measures that promote economic activity now -- when our economy needs it. And it should include nothing that will run up long-term deficits or drive up long-term interest rates. This adheres to the bipartisan principles established last fall.

Today, I am proposing two new ideas to try to get the economic stimulus debate back on track. First, we should pass a new Jobs Creation Tax Credit. This tax cut would be available to every business in America. It says, simply, that if you increase your payroll -- if you hire new people, restore hours that have been cut, or give your workers a raise -- you'll be reimbursed for all of the extra payroll taxes.

In addition, we know that many companies are deferring investments right now. Providing a robust depreciation bonus gives companies an incentive to make investments now, when the economy needs a boost. So today, I'm also proposing that we allow 40 percent bonus depreciation for the first six months and 20 percent for the next six months.

If you want to know whether this will work, just take a look at what's happened with car sales these last three months. When consumers were told that they'd be able to purchase a car with a zero percent interest rate, they shelved their financial uncertainty and purchased cars in record numbers. We want businesses to do the same thing when it comes to purchasing new equipment and technology.

I hope President Bush and our Republican colleagues will work with us in the spirit of compromise to pass an economic stimulus plan early this year, and put America back to work.

Second, in addition to the predictable costs like Social Security, we now have the new and urgent costs of homeland security.

If people don't feel safe about getting on an airplane, going about their business, and living their lives, our efforts to stimulate the economy won't work. We made a start last year with new airline security measures -- emergency assistance to help rebuild New York and the Pentagon -- and more funds for antibiotics and vaccines for anthrax and other kinds of bioterrorism. But that's only a small fraction of what we need to do if we're going to better protect against terrorist attacks and the economic damage they cause.

Consider just a few facts:

  • Right now, out of every 100 cargo containers that enter US ports each day, two are inspected.