Capitol Hill (CNSNews.com) - Senate Majority Leader Tom Daschle (D-S.D.) says Republican tax cuts passed in the summer of 2001 are to blame for the current recession. He believes new government spending programs and "targeted" tax cuts are the solution.
In a speech at the Center for National Policy (CNP), Daschle accused the GOP of causing "the most dramatic fiscal deterioration" in American history.
"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 going again," Daschle said. "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."
Daschle says the tax cut was "by far the largest factor" in creating a "rapidly disappearing surplus." He dismissed the September 11th terrorist attacks and the war in Afghanistan as causes of the recession, and went on to blame the lack of a surplus for keeping long-term interest rates high, thereby damaging the economy.
But Alan Reynolds, senior fellow for the Cato Institute called the premise of Daschle's attack on tax cuts "simply a hoax."
"Senator Daschle once again takes the side of tax collectors rather than taxpayers," Reynolds said. "Daschle claims 'Low interest rates are the best possible tax cut,' but interest rates do not rise and fall with the U.S. budget."
Reynolds points out that Japan has the world's lowest interest rates, yet it also has the world's highest deficits.
"Besides, if taxes were less onerous, American families and firms would not have to borrow so much," he added.
House Speaker Dennis Hastert (R-Ill.) responded to Daschle's comments with a re-cap of last year's legislative activity.
"Senator Daschle talks about fiscal responsibility, but it was the House that led the way when it came to holding the line on spending. Senator Daschle talks about opening new markets, but it was the House that passed legislation to give the president enhanced trade promotion authority," Hastert said. "He talks about a balanced energy plan, but it was the House that passed the president's comprehensive energy plan."
Hastert says that, just as Daschle is wrong to criticize Republicans for these actions, the he is also wrong to blame the recession on President Bush's tax cut plan.
"Senator Daschle voted against that proposal, and now he seems to indicate that he wants to repeal it," Hastert observed. "Raising taxes just as our economy is starting to grow again is exactly the wrong way to achieve long-term economic security."
Daschle had to attempt a careful balancing act during his presentation, first attacking Republican tax cuts, then proposing so-called "tax cuts that work" only moments later.
He suggested only five tax credits or reimbursements, and no up-front cuts in the amount of taxes the federal government collects, during his approximately 40-minute speech. The tax "cuts" included:
- Increased deductions for business investments;
- Increased equipment depreciation, limited to one year;
- A permanent research and development tax credit;
- Tax credits for investment in high-speed Internet access; and
- A "Job Creation Tax Credit" that reimburse employers for extra payroll taxes incurred as a result of new hiring, restoring reduced work hours, or giving employees raises.
"Again, targeted tax cuts are part of the solution, but only part," Daschle said.
The second part of the solution appears to be new or expanded federal spending programs, of which at least 15 were included in his remarks:
- Reauthorized spending on welfare programs;
- Increased federal education spending;
- New funding for high-speed Internet access;
- Increased funding for the National Science Foundation;
- Additional spending for the Advanced Technology Program;
- Greater funding for the National Institutes of Health;
- Expanded "investment" in physics, computer science, math, and electrical engineering research;
- Continued funding for the nuclear security assistance program in Russian;
- Expanded nuclear assistance security program to include India and Pakistan;
- Increased funding for the Office of Homeland Security (already rejected by OHS);
- Higher levels of defense spending;
- Expanded unemployment insurance benefits;
- New health insurance benefits for unemployed workers;
- Additional spending for job training programs;
- New spending to protect against "wage loss" when unemployed workers return to work for lower wages than they previously earned.
"By returning to fiscal discipline," Daschle said, describing his proposals, "we can craft a plan that leads us back to fiscal integrity and that promotes economic growth."
But John Berthoud, president of the National Taxpayers Union (NTU) says Daschle is merely calling for more of the Washington status quo.
"This agenda has nothing to do with strengthening the economy. It is simply an election year scheme to increase the size of government and to cater to special interests," concluded Berthoud. "If Senator Daschle really wanted to help taxpayers he would look to cut wasteful government spending, not create more."
House Republican Conference Chairman J.C. Watts (R-Okla.) called Daschle's ideas "an expensive scheme to spend more money on federal government social programs instead of creating jobs."
Watts said his breath was taken away by Daschle's "hypocrisy."
"First they block bipartisan efforts to help the economy. Then they propose a host of new spending measures," he said. "I'd love to ask these Democrat 'budget hawks' who's going to pay for all of this."
Both Hastert and Watts urged Daschle to immediately take up the stimulus package passed by the House prior to the December recess.
"The House passed two economic security bills. The Senate has done nothing," Watts charged. "We don't need speeches from Senator Daschle, we need action."