Conrad Calls for Comprehensive Tax, Entitlement Reform Plan

We want to welcome everyone to the Senate Budget Committee today. Today's hearing will focus on the President's budget and revenue proposals. Our witness is the Treasury Secretary, Tim Geithner.

Mr. Secretary, welcome back to the Committee, always good to have you here. We look forward to your testimony. I want to begin by noting how far the nation has come over the last few years.

It's important to remember the fiscal and economic disaster that President Obama inherited. We were losing more than 800,000 private sector jobs a month when the President took office. We are now gaining more than 200,000 private sector jobs a month. That is a dramatic turnaround by any measure.

The President deserves, I think, considerable credit for that success. And, I would note that Secretary Geithner deserves credit for the part he has played in that performance as well.

In the fourth quarter of 2008, the economy contracted at a rate of nearly 9 percent. Positive economic growth returned in the third quarter of 2009, and we have now had 10 consecutive quarters of economic growth.

We see a similar picture in private sector job growth. As I noted, in January of 2009, the economy lost more than 800,000 private sector jobs. Private sector job growth has now seen 23 consecutive months of growth. And, of course, we'd like to see even stronger growth, but, nonetheless, we have seen a dramatic turnaround.

I believe the President's budget would continue to move the nation in the right direction. I think we all know that there is more that needs to be done in terms of dealing with our long-term debt.

According to the Administration, under the President's budget, the deficit as a share of the economy would fall from 8.5 percent of GDP in 2012 to 2.8 percent in 2022. That represents real progress.

In terms of revenue, the President's budget actually calls for a lower revenue level than we reached during the Clinton Administration, and a lower revenue level than called for in the final year of the bipartisan Simpson-Bowles plan, of which I was part of. Revenue reached 20.6 percent of GDP in 2000 during the Clinton Administration, when we were experiencing the longest period of uninterrupted growth in our nation's history. That ought to tell us something.

The Simpson-Bowles plan called for a revenue level of 20.6 percent of GDP in the final year of its plan. In comparison, the President's budget calls for a revenue level of 20.1 percent of GDP in its final year of 2022.

Some of my Republican colleagues have argued that revenue should not exceed 18 percent of GDP, but on the five occasions when the budget has been in surplus since 1969, revenues have ranged between 19.5 percent of GDP and 20.6 percent of GDP. We will likely need an even higher revenue level in the future, because the country now faces an unprecedented demographic situation with the retirement of the baby boom generation.

Let me just say, I am part of that generation. I am going to be retiring. I am going to be eligible. I am not going to be taking Social Security anytime soon, but, nonetheless, I am part of a generation that is going to be retiring and that's not a forecast. These people have been born; they're alive today; they're going to retire; and they are going to be eligible.

The fact is we are also facing growing income inequality in this country. We have seen the wealthiest among us become much wealthier, and we have got nothing against people becoming wealthy. I think we all hope that as many people as possible will be successful and become well-to-do. That's a good thing.

But the share of the burden in our society is not fair. This chart shows that since 1979, the pre-tax household income for the top one percent has grown about 240 percent. Over the same time, the income for the middle quintile, the middle 20 percent, has grown about 19 percent, less than one-tenth as much.

And our tax system is certainly contributing to this income inequality. The Bush tax cuts for 2001 and 2003 were particularly notable for how much they were tilted to benefit those who are the very best-off.

The effective tax rate for the wealthiest people in this country, the rate actually paid after factoring in exclusions, deductions, credits and other preferential treatment, has fallen dramatically. The effective tax rate for the 400 wealthiest taxpayers in America dropped from about 30 percent in 1995 to 18.1 percent in 2008. Certainly, we can have a more fair distribution than that. As the Fiscal Commission and the Group of Six proposed, we can make the tax code simpler and fairer.

We proposed additional revenue, but not by raising tax rates, but by reducing tax expenditures, broadening the base, using some of that revenue to actually reduce rates to make the country more competitive, but to do it in a way that maintained the progressivity of the system -- actually improve the progressivity of the system in the case of the Fiscal Commission and the Group of Six.

Adopting comprehensive tax reform will spur economic growth and allow us to compete better in the global marketplace. Here's how the Congressional Budget Office Director described the economic benefit of tax reform in his testimony before this Committee. He said, and I quote, "I think analysts would widely agree that reform of the tax code that broadened the base and brought down rates would be a positive force for economic growth, both in the short-term and over the longer period."

I recognize the difficulty of considering comprehensive tax reform in an election year. I am a realist, but I am also hopeful, because I think if we are honest with each other, we know we are on an unsustainable course as a country.

I applaud the President for the blueprint he's laid down. It is a step in the right direction. I also believe deeply that we have got to do more, and we really need an economic two-step. In the short-term, steps to increase demand to strengthen the economy, but, over the longer term, we need a comprehensive plan of tax reform, entitlement reform, and going after wasteful spending to take on this debt threat.

If we don't, as a country, at some point we will face very severe consequences.