1 2 ASIM looks forward to continuing to work with the Committee in the future as it takes on the important task of reducing federal deficits. /bje Americans for Democratic Action appreciate the opportunity to present its views on the federal deficits, and its recommendations for legislative action to sharply reduce them. My name is Leon Shull and I am the National Director of ADA. We commend the Committee for holding these hearings for we believe those huge, unprecedented deficits pose an ominious threat to the capability of our federal government to meet the legitimate needs of our nation in a broad range of social, welfare and economic domestic, as well as international programs. Bolstering existing measures to keep them current with a growing service demand brought on by high unemployment, expanding population and higher prices will be difficult in the face of record breaking deficits. Clearly, far more difficult will be any effort to initiate long-delayed, and urgently required legislation in health, housing, infrastructure repairs, job creation, international economic assistance and other equally important areas. Moreover, the present giant budget deficits foster a highly restrictive monetary policy that result in excessive interest rates that seriously harm our economy at home and drastically worsen our trade imbalances leading to severe unemployment in interest-sensitive industries and those engaged in export trade. The expert witnesses who have already testified before your committee have clearly identified the roots of the federal deficits. Essentially they agree the single dominant cause was the Reagan Administration's 1981 Tax Economic Recovery Act which so drastically and inequitably reduced tax revenues over five years. The enormous loss of some $750 billion was offset, far too little, by the approximate $100 billion levies of the Tax Equity and Fiscal Responsibility Act of 1982. A second major contributing factor was the deep recession, brought on by misguided supply-side economics and monetary policies. Third, was the almost doubling of defense outlays from their 1980 level of $136 billion to about $250 in 1984 - a staggering rise of $114 billion which ADA considers grossly excessive in light of our military power. Indeed the ability of our defense forces to effectively use such huge additional funds is highly questionable. (Proposals by this Administration for future defense spending continue the trend of sharp escalation in military expenditures - a policy ADA staunchly rejects as unnecessary and even dangerous to U.S. security.) Fourth, interest on the debt generated by the record deficits adds to that imbalance between outlays and revenues. Net interest in 1980 amounted to $53 billion. Under the policies of this Administration, deficits will aggregate some $800 billion for the years 1981 through 1985 a total greater than the combined deficits of every president from Washington through Carter. Net interest for FY 1985 will be about $114 billion more than $60 billion, greater than the 1980 figure. With the prospect of a continuation of $200 billion deficits, net interest payments will continue their sharp upward trend. In view of this widely-shared analysis of the factors which were responsible for rapid and huge growth in federal deficits, the ADA recommends the following actions: 1. Tax Reform ADA supports the repeal of the indexing of tax brackets adopted in the 1981 law to become effective in 1985. The budget picture, and the urgency to preserve the government's capacity to meet its needs adequately dictate the repeal. those in Secondly ADA supports a major reform of the tax loopholes and special tax preferences which cost the Treasury hundreds of billions each year. Overwhelmingly these tax expenditures benefit wealthy individuals the top 15 percent of taxpayers and the most powerful, richest corporations. Among the major revisions Congress should adopt are the following: - o Personal Income Tax - The 1981 tax legislation slashed billions from personal income taxes in a grossly inequitable manner. Fully 35% of the saving went to taxpayers with $50,000 yearly income -- a group comprising only 6% of the total. ADA supports setting a $700 cap on the tax savings any taxpayer gained from the last installment of 10% tax reduction put into effect in July 1983. Such a cap permits the full tax saving to go into effect for about 85% of all taxpayers those with income below approximately $45,000 a year, and yields $6-$7 billion per year. - o Oil and Gas - The oil depletion allowance, the windfall profits tax, and the expensing of intangible drilling costs will cause the Treasury to lose from $18 billion to $24 billion in the 1984-1986 period. o Foreign Tax Credit - These dollar-for-dollar tax credits against a multinational company's U.S. income tax liability encourage U.S. business |