September 28, 2000

September 28, 2000 | Lecture on Federal Budget

The View from Ways and Means

THE HONORABLE EDWARD DERWINSKI:
Thank you, Dr. Feulner. I assume you are all familiar to some extent with the record of Phil Crane, the congressman. So I will tell you two anecdotes that will tell you something about Phil Crane, the person.

In 1964, I was the Chairman of the Goldwater for President campaign in Illinois. Phil Crane was Chairman of the Republican Professors for Goldwater--and there were two. Phil was the Chairman and another colleague of his from Bradley University was the Treasurer.

In 1980, Phil briefly was a candidate for President of the United States. Phil entered that race because he was worried that Ronald Reagan would not run and that conservatives wouldn't have a candidate. At one point, Senator Paul Laxalt of Nevada called a meeting between Phil and Governor Reagan. Phil and I went to the meeting, and Phil basically said, "Governor, we have to have a conservative candidate for President. Conservatives must capture the White House and I'm going to run because you're not. When you tell me that you're in the race for good, then I'm out."

What these two stories tell us is what is typical of Phil Crane--total honesty, a direct message, and laying it on the line. The real story about Phil Crane is that he has been consistently an intellectually honest, solid conservative in the best sense of the word. It's not an emotional thing with Phil. It's plain old integrity.

The Honorable Edward Derwinski (R-IL) served in the U.S. House of Representatives from 1959 to 1983. Later, he became the first Secretary of the Department of Veterans Affairs.

REPRESENTATIVE CRANE:
Thank you, Ed Feulner and The Heritage Foundation, for this opportunity to speak about what I see as the future agenda of the Ways and Means Committee. And thank you, Secretary Derwinski, for bringing back a lot of recollections going back to my teaching days when there was, literally, only one other faculty member at Bradley University who was willing to come out for Goldwater. We used to get excoriated in the press by our colleagues, who would always speak to the press unidentified by name. It was always gratifying to me when we got that kind of reaction because I knew we were getting through to them. In fact, the chairman of my department came up to me one day in the hall, and he looked both ways, and he patted me on the back and said: "Keep up the good work. I'm for Goldwater, too."

Lessons from the Past
As many of you may know, I was a history professor before I came to Congress. And so I still look to historical parallels for insights as to what the future holds. In this case, I think history has an important story to tell. I voted for the first time in my life in 1952. We elected Dwight Eisenhower to the Presidency and we elected a Republican House and a Republican Senate. At that time we thought it was back to business as usual with the Republicans running the government. We believed the election of Franklin Delano Roosevelt was an aberration and that Republicans would govern indefinitely. For those of you who are too young to recall, just two years later, in 1954, we lost control of the House. We spent the next 40 years in the wilderness. It wasn't until 1994 that the Republicans recaptured the House.

Let us understand clearly that the most important body in your national government is the House of Representatives, except in times of war. In times of war the House and Senate generally defer to the White House. But otherwise, it's not the White House and it certainly is not the Senate that naturally leads, but the House of Representatives. Under the Constitution, all tax bills can only originate in the House of Representatives. More specifically, they can only originate in the House Ways and Means Committee. General appropriation bills have always originated in the House. With the lead on taxation on the one hand and spending on the other, the House of Representatives is clearly, and by design, the dominant force in our government. So when Republicans captured the House of Representatives in 1952, lost it again in 1954, and recaptured it in 1994, these were momentous events.

We are in a position as we enter this new millennium to reproduce the events of 1952, but with, I hope, a better understanding of what is at stake and what needs to be done. We are in a position to elect a strong, conservative Republican in Governor George W. Bush, and to maintain Republican control of both Houses of Congress. We will then have two years to show America the value and effectiveness of Republican policies, including tax policy, spending policy, education policy, trade policy, and so on. If we succeed, then we may materially improve the future for our children and grandchildren, while sending the other party to the wilderness for 40 years. If we fail, then we may see our own repeat of 1954.

The Foundations of Today's Republican Majority
I was genuinely excited to be part of the 1964 Goldwater campaign. While the Goldwater campaign did not succeed at the ballot box, it did succeed in energizing a new generation of activists eager to see a return to fundamental principles. In fact, this theme of returning to traditional values and fundamentals has been part of the national debate, and central to the Republican party, for virtually my entire adult life. For many of us, the Goldwater campaign was exciting because Barry was preaching the gospel of thrift, of family values, and of charity.

I will give you an example. My dad would never give us kids an allowance. He'd paste a nickel on a window in the dining room. He'd tell us, "If you wash that window, you can have the nickel." There was a wage you were paid for everything you did, but you worked for everything you received. And it was your choice. We were brought up in an environment where we understood that the harder you work, the more money you make. I have always been thankful for being brought up in that environment. My dad also counseled us on a couple of other basic points in life. He said, "Boys, be givers in this life and not takers, and, secondly, leave it better than you found it." These were basic American values, and we saw the steady expansion of government eroding these values.

In the 1964 campaign we knew Goldwater wasn't going to get elected. But it was exciting to be involved in an effort to get people thinking again about the basics. The most exciting thing in that campaign was the speech that Ronald Reagan gave and that it was on tape. We distributed that tape all over the country to make sure people heard the articulation of the values that were presented so eloquently by Ronald Reagan.

In 1968, the activists from the Goldwater campaign tried to orchestrate a Reagan nomination at the Republican convention in Miami. Ronald Reagan initially rejected that idea publicly because he'd just been elected governor of California in 1966. But we kept working anyway because we believed he was the natural successor to Barry Goldwater. Reagan was a candidate by the time he set foot on the tarmac at the Miami airport, but it was already too late because our troops were divided. Half of the conservatives were committed to Richard Nixon because they feared that Nelson Rockefeller, a Northeast liberal governor, might otherwise get the nomination. In the end, we nominated Nixon and, of course, we did our duty and worked on his behalf. But it wasn't nearly as exciting or positive as if we could have nominated Ronald Reagan.

In 1976, the Goldwater activists and Reagan loyalists tried again to orchestrate a Reagan nomination at the Republican convention in Kansas City. Unfortunately, we lost by a very tiny margin. That was the most disappointing moment politically in my life, not because Gerald Ford had won so much as because I thought it was probably Reagan's last try. That is why I got in the race in 1980. It wasn't because I felt I was the candidate that should be in the race. Ideally Ronald Reagan should have been in the race, but he was holding off making the announcement. Shortly after the meeting I had with him, Paul Laxalt, and Ed Derwinski, Ronald Reagan became a nominee and went on to triumph in the election.

The significance of that triumph was felt immediately in many ways, but especially in tax policy. The biggest tax cut in our national experience was the 1981 tax cut. That was a mighty blow for freedom, for tax policy, and for economic growth. The 1981 tax cut did not really begin to transform the economy from stagnation to growth until about 1983. It took some time to get started, but the 1981 tax cut had more to do with getting this country on the right track economically than any other single piece of legislation that we have passed since. It laid the foundation for the growth that we're enjoying today.

The Role of Government in a Free Society
If Adam had never bitten the apple, we never would have needed government. Government is the badge of lost innocence. Since we are frail mortals we do need the security that government has traditionally provided at the national level through national defense to deal with foreign rogues and trespassers and, at the local level, through police and fire protection.

Our Founding Fathers could only identify four legitimate functions of the national government, and defense is first. Second is a state department because it's better to talk than fight. Third is justice because federal laws can conflict with those passed by the states, and so the national government needs an agency to resolve these disputes. Finally, treasury because you might have to borrow in time of war. Defense, foreign relations, justice, and the treasury are the four basic functions of our national government.

All other responsibilities of government are best kept closer to home at the state level, at the county level, at the township level, or the village level. The closer you keep the functions of government to the people, the greater accountability and responsibility you get, and the greater involvement you get on the part of the populace. You want the people involved. The more they get involved at the local level, the less government intrusion you have in your life. That's what the Founding Fathers envisioned.

Woodrow Wilson was an historian, and Woodrow Wilson made an observation one time. "The history of liberty," he said, "is the history of limitation of governmental power, never the increase of it. When we resist concentration of governmental power, we are resisting the powers of death, for the destruction of human liberty has ever been preceded by concentration of governmental power."

That is absolutely correct. What we see in Washington is a steady increase in the concentration of power. This is what we face today, and what we need to reverse if we are to remain prosperous and free.

Looking to the Future
Looking to the future, I begin with the assumption that Republicans hold both Houses of Congress and that Governor Bush is elected to the presidency. I make these assumptions both because I believe they will come to pass and because the alternative is too unpleasant to contemplate. Accepting these more pleasant assumptions, I think our initial agenda at the Ways and Means Committee is very clear, and that is:

  • To cut taxes wherever and whenever possible, without returning to deficit spending;

  • To reform our tax code to make it less complex, less intrusive, and less distortive to economic incentives;

  • To reform the Social Security system around the idea of personal security accounts;

  • To reform Medicare to return it to a sound, long-term financial footing; and

  • To continue to advance the cause of free trade at home and abroad.

This is essentially the congressional Republican agenda today. It is what our agenda will be next year. And it is George W. Bush's agenda. We go into the upcoming national elections presenting a remarkably united front and consistent message to the American people. Governor Bush will restore integrity to the White House, and the Congress will restore Social Security and Medicare to solvency, while restoring tax dollars to the overtaxed American people.

Tax Policy
On tax policy the differences between the two parties could not be more stark. Whether it's Al Gore, Bill Clinton, Dan Rostenkowski, or Charlie Rangel, the refrain is always the same: more taxes. Let me give you a couple of examples. Danny Rostenkowski, the former Democratic Chairman of the Ways and Means Committee once said, "If you want to stimulate the economy, you've got to get the money into the government as quickly as possible." And, just in case you think Danny was alone in his opinion or that the Democrats have changed with the times, Charlie Rangel, the current Ranking Democrat on the Committee, and the next Chairman if Republicans lose the House, said recently, "In bad times we'll have to figure out who hasn't been hit so hard and take away some of what they've earned."

The simple fact is, Democrats basically like taxes. They think taxes stimulate the economy. They readily use the tax code to manipulate the economy and individuals' behavior, as shown by Al Gore's tortured tax proposals. And, of course, they like the revenues because they can spend them to build up their constituencies.

You all know how Bill Clinton and Al Gore have thwarted Republican efforts to cut taxes. This year we sent them a very balanced and fair measure to eliminate the marriage tax penalty for millions of taxpayers. The marriage tax penalty violates all of our moral values. We do not want to discourage people from getting married and having a family. I was recently reminded by a campaign worker of mine from when I ran for the presidency back in 1980 that I had promised in a campaign ad to abolish the marriage tax. In fact, we reduced the marriage penalty dramatically in the 1981 tax cut bill I mentioned. But today the marriage penalty is once again very severe. Despite having talked about eliminating the marriage tax penalty in his State of the Union speech this year, the President vetoed our bill.

We will send the President a bill to repeal the death tax. One of our colleagues came up with the line: Taxation without respiration is tyranny. The death tax is obscene. The death tax and the marriage tax penalty are immoral and should have been addressed a long time ago. But it is obviously going to take a Republican Congress and a Republican White House to get the job done, because Clinton and Gore refuse to sign off on correcting even the most obvious failings of our tax system.

I hope when the 107th Congress convenes that the very first bill in the House, H.R. 1, is the marriage tax penalty relief bill President Clinton just vetoed, and that the second bill, H.R. 2 is the death tax repeal bill the President is expected to veto. Delay would simply be unconscionable. We need to get this tax relief passed as quickly as possible, and we need to show the American people that we mean to make good on our promises.

Once these two measures are passed, we will then turn to the balance of the Bush tax plan. The plan's component parts include:

  • Doubling the per-child tax credit to $1,000,

  • Creating a new 10 percent tax bracket for the first $12,000 for married couples,

  • Promoting charitable giving by allowing non-itemizers to make a charitable deduction,

  • Cutting the maximum tax rate on the middle class to 25 percent from 28 percent,

  • Eliminating the 31 percent bracket altogether, and

  • Reducing the top tax rate from 39.6 to 33 percent.

Other provisions we will want to look at include eliminating taxes on saving, abolishing the Alternative Minimum Tax, accelerating depreciation, and anything that serves to simplify the tax code without raising anybody's taxes.

The items I've listed are just the shot across the bow. The tax cuts I've mentioned will assure us of an economy that outperforms expectations and, therefore, continues to generate unexpected revenues which can be returned to the economy in the form of additional tax cuts.

As we continue to cut taxes, both by correcting the tax base and by reducing rates, we will lessen the tax code's influence on the economy while simplifying the tax system. This puts us squarely on the road to long-overdue fundamental tax reform. I have been pushing for a flat-tax bill from the time I first came to Congress. I called it a tithe tax because the Bible says we owe 10 percent to God and I said Caesar should ask for no more. But the structure of the tax I proposed 30 years ago is virtually identical to the flat tax people talk about today.

Let me say a word about the sales tax, and I do this not to dispute my friend Bill Archer, who I know prefers a sales-type consumption tax because he says that pulls the IRS out by the roots. I want to talk about the sales tax for a moment because I think it is important we understand what it would and would not do. First, I'm not sure it would pull the IRS out by its roots because you will still have an army of bureaucrats overseeing our income to provide financial assistance to the working poor to be sure they have the resources for basics like food, shelter, and clothing.

But the thing that really concerns me about the consumption tax is that it's a stealth tax. In my home in Chicago we've traditionally had the highest taxes on a gallon of gasoline of anyplace in the country. What bothers me is that they should only show you the price of the gasoline at the pump. Then, when you go in to settle up for pumping $10 worth of gas, you learn exactly how much more you have to pay because of the gasoline taxes. Taxes should always be raised in the most simple, but pain full way possible. People should always be painfully aware of what they're paying in taxes. That to me is the deficiency of a national sales tax because, in effect, it's a hidden form of taxation.

That's what is fundamentally wrong with all taxes on business, too. We all know businesses do not pay taxes. They collect taxes that come out of somebody else's paycheck or dividend check or get added on to their bill when they buy the products and services the business sells. Taxes on businesses are also stealth taxes. The one major difference between the flat tax I first introduced 30 years ago and today's flat tax is that I eliminated the corporate income tax so that this business stealth tax couldn't be hidden from those actually paying the tax.

Social Security Reform
I had the opportunity to take the Trade Subcommittee down to Chile about five years ago. While we were down there, we met with their labor secretary. He was an economist with a Ph.D. from the University of Chicago. He was also the man that designed the privatized Social Security system for Chile. An important part of this plan is that it wasn't mandated; it was voluntary. It was your choice. Every individual could either go with the personal accounts or stay in the existing system. Over 90 percent of Chileans opted for personal accounts, which made a lot of sense because the yield they received was so much more than they would receive from Social Security.

Social Security personalization is part of a world-wide movement, a movement towards less government and more individual choice, a movement in which we are currently lagging. By the end of the year, it may be that the only countries in our part of the world that have not turned from a big tax and transfer system to personal accounts will be the United States and Fidel's Cuba. I wonder if it's our influence on Fidel or his influence on us. Even in China, they may be looking at what is, in effect, a Social Security system that's personalized. Great Britain and Poland have already moved in the direction of personalization.

We need to join with this movement. It just makes sense to allow people to earn higher returns on their retirement funds and allow them to build up wealth they can pass on to the next generation. Now, to be sure, the new system will have guidelines to prevent individuals from making high-risk investments through their personal security accounts. But even in conservative investments, the returns they will earn will be far superior to what they currently earn. And, importantly, they will be able to pass the accumulated wealth on to the next generation. Personal security accounts will help people become less reliant on government.

The imperative of Social Security reform, of course, is the pending financial collapse of the system when the baby boomers begin to retire. And, there are solutions to the problem other than personal security accounts, such as raising taxes, reducing benefits, or raising the eligibility age. But I strongly oppose these options. We will not raise taxes, we will not reduce benefits, and we will not raise the eligibility age further, especially when a better solution is available based on giving people greater flexibility to invest their own money as they see fit, including letting them stay in the existing program if they want. But you sit down and make the decision yourself. It shouldn't be Uncle Sam making that decision for you.

One more point on Social Security reform. We took the first big step toward reform when we locked up the Social Security Trust Fund. I have always said, they're either trust funds or distrust funds. If you can spend the money elsewhere, they're distrust funds. Now, you can't tap into it, so Republicans have in fact restored and protected the Trust Fund. But that has not solved the problem. Locking up the Trust Fund is not a solution, it is the first step toward a solution. Next, we have to develop and enact a plan for voluntary personal security accounts, much like Governor Bush has suggested.

Advancing Freedom Through Free Trade
I have an uncle-- he's 97 years old now--who was a missionary in China in the 1920s. I've always admired people like that who are committed to advancing our basic values worldwide. But as a history professor, I'll tell you that civilized values have been advanced more effectively through the advancement of free trade than through our missionary efforts. It's a remarkable fact, and it's because free trade brings about far more opportunities for personal contact.

I was in Shanghai about five years ago, and as part of my trip we visited a Motorola plant. Motorola is a corporate constituent of mine, and they have a big plant in Shanghai. The head of the plant explained to me that they provide clean working conditions. They provide overtime pay if you put in more than 40 hours in a work week. They provide health care benefits to their employees. And they went a step beyond that to build a huge apartment complex. If you work for Motorola in Shanghai for five years, you can move in. In 10 years, you can own your own apartment.

Ben Franklin made the observation: A good example is the best sermon. When our companies set up operations abroad, they provide good, positive examples to other people and other nations, which provides an opportunity for personal exchanges between Americans and the local people. This kind of contact advances the values that we enjoy and cherish here in the United States, but that have been denied to so many people around the world.

I've said for years that the advancement of free trade is a win-win proposition. Both sides win. There are no losers in advancing free trade. We used to hear the opponents of free trade talk about the flight of jobs out of the United States. Flight of jobs? Thanks in part to our free trade policies we are so desperately short of workers in this country right now we're importing labor. The head of the AFL-CIO wants to recruit to the AFL-CIO six million illegal immigrants who are working in this country.

Many people do not realize this, but, historically, Republicans were the protectionist party in this country, and Democrats were the free traders. In 1890, for example, Republicans passed the McKinley Tariff Act, and it was the most protectionist measure in our history up to that time. It ultimately led to the Panic of 1893, which was a severe recession that hit just as Grover Cleveland was sworn in for his second term. Cleveland was blamed for the recession, even though he had nothing to do with the protectionism that caused it. You see, Cleveland was a total free trader. He started systematically dismantling the McKinley tariffs and got the economy back on track again. But he made the observation at that time, "When you put those barriers around your country that way, you inflict the greatest injury on that man who earns his daily bread with the sweat of his brow." That was classic Democrat philosophy. Republicans, as I say, were the protectionists in those days.

In 1930, the Republicans Smoot and Hawley passed the most protectionist tariff measure in our entire national history, and that guaranteed that our Depression went worldwide. After World War II, our parties started to shift positions. Republicans started to lift the blinders covering their eyes and became convinced of the merits of free trade by the writings of Adam Smith, Friedrich Von Hayek, Milton Friedman, and others. But, following the war, we were in a privileged position as the only industrial nation left on the face of this earth. By extension, our workers had a privileged position, and the unions wanted to preserve and protect it. In effect, they wanted a Great Wall of China around the United States. Over time they peeled off a number of the Democrats, but thankfully we still have quite a few totally committed free trade Democrats in Congress.

Unlike the other areas I've talked about, like tax policy and Social Security reform, we have had some cooperation from the Administration in the area of free trade. It has not been wholly consistent because the Seattle ministerial negotiations, for example, were derailed largely because of a Clinton comment that he was going to use trade sanctions against countries that did not meet the labor and environmental standards that we were going to arbitrarily impose. That was totally inappropriate.

Even so, the Seattle fiasco aside, we have been able to work with the Administration to make some remarkable progress on the trade front. This year alone, our Africa/Caribbean Basin Initiative trade bill passed by a margin of 309 to 110. Shortly after the vote on Africa/CBI, we had a vote on permanent normal trade relations for China. This has been the hottest political debate we've had on trade in a long time and it passed 237 to 197. While it is confusing, the fact is permanent normal trade relations will not take effect for some time, and so it was necessary to renew our annual normal trade relation status with China. This passed 281 to 137. Last year, we had only 260 votes in favor, so we've gained 21 votes since just last year. We had a Miscellaneous Trade and Tariff Act on the floor just a couple of weeks ago that passed unanimously: 411 to 0. We then had the extension of the Jackson-Vanik waiver for Vietnam, which passed 332 to 91. My point to you is simply this: Free trade is good for the economy; it is good for advancing our values across the globe; and it continues to enjoy strong, bipartisan support.

While we have made some real progress, we still have a long way to go. There are a lot of things left to do. I remember being in Miami in 1994 when President Clinton made his impassioned talk about hemispheric free trade by the year 2005. Well, we're still waiting, but in the interim Brazil has aggressively pushed free trade relationships with our Latin American neighbors. We should be looking to expand free trade to Australia and New Zealand, and to Jordan. And we should be preparing for another round of trade liberalization through the World Trade Organization.

Conclusion
The last seven years have been years of prosperity, and of lost opportunities. We are about to take a new direction. With George W. Bush in the White House and Republicans in control of Congress, we can reduce the size of government, strengthen our national defense capability, provide much needed tax relief, strengthen and personalize Social Security, strengthen Medicare, and ultimately eliminate our national debt.

Let me conclude with a quote from Thomas Jefferson that is relevant to what we go through on a daily basis. He said:

A wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.

We can achieve a return to a wise and frugal government. Jefferson believed in it totally, as did most of our citizens in the early years of this republic. Under George W. Bush and a Republican Congress, we will take the first steps. And meeting success, we will continue to march down the path toward that wise and frugal government.

The Honorable Philip M. Crane has served in the U.S. House of Representatives since 1969. He is Chairman of the Trade Subcommittee of the House Ways and Means Committee.

Related Issues: Federal Budget