Senator Reid Responds
December 21, 2005
From: DR reader Jon R. Carnes
[Ed. Note: Over that last few weeks, we have been encouraging readers of The Daily Reckoning to write their Congressional leaders, asking them to read the copy of Empire of Debt we recently sent out. All of the 537 members of Congress received a copy, but only a few have actually responded with something substantive. We give you Senator Reid’s response.]
From Senator Harry Reid…
Dear Mr. Carnes:
Thank you for contacting me regarding fiscal responsibility and tax reform. I appreciate hearing from you, and I noted your suggestion to read the book Empire of Debt.
I agree with you that our debt is extremely troubling, and I am disturbed that some in Washington seem to regard the debt as a mere inconvenience rather than the actual threat it represents.Over the last four years, the country has experienced the worst fiscal reversal in history, which is not a temporary deficit due to the economic slowdown or the costs on the war on terrorism. Instead, the $5.6 trillion 10-year surplus the President inherited is now a deficit of $2.8 trillion, creating a total fiscal reversal of almost $8.4 trillion.That amounts to over $25,000 of debt for every man, woman, and child in the United States and threatens to leave our children and grandchildren in debt for a generation.
This massive debt will have a serious and damaging effect on our economy. In order to attract enough buyers to soak up all this debt, long-term interest rates are likely to be higher than they otherwise would be.
Additionally, as government debt eats up a growing share of investment dollars, the private sector will have less and less access to capital. Businesses will not expand and create new jobs at the pace they otherwise might have. That means that, not only will our children have to shoulder the burden of paying back this massive debt, they will also have to contend with a job market and an economy weakened by irresponsible budgeting.
The budget surpluses that we achieved in the late 1990s and early 2000 resulted from a strong economy and some hard choices by President Clinton and Congress. I supported these budgets, but I have been unable to support the recent budgets, awash in red ink.These deals have eroded our country’s surplus and its economic security. Please be assured that I take this issue very seriously and will continue to fight for a renewed commitment to fiscal responsibility.
I also noted your concerns about tax reform. Earlier this year, President Bush appointed a panel to recommend policy options for reforming the federal tax code. This bipartisan panel, headed by former Senators Connie Mack and John Breaux, examined many proposals to make the tax code more fair and simple. The panel delivered their final report to Treasury Secretary John Snow on November 1, 2005. Their report recommended two options for reforming our tax code: the Simplified Income Tax Plan and the Growth and Investment Tax Plan.
The Simplified Income Tax Plan uses the existing income tax as a base, but it eliminates many deductions and preferences to make it simpler. For example, the proposal shrinks the tax brackets from six to four.In addition, this plan consolidates the standard deduction, personal exemptions, and child credits into a single “family credit.”
Other tax-favored savings vehicles, such as 401k funds and IRAs, are consolidated into three specific savings accounts.
The affect of the Growth and Investment Tax Plan will be most pronounced for businesses.All businesses would pay tax at the highest individual tax rate of 30 percent.Interest deductions would be eliminated, but capital expenditures would be fully deductible in lieu of depreciation.
Both options would reduce or eliminate many current tax benefits.Tax deductions for home mortgage interest would be turned into a tax credit and limited to loans up to the average price of a home in your geographic area.For the first time, the exclusion for employer-provided health plans would be capped.The Alternative Minimum Tax (AMT) will also be abolished under both reform plans.This tax was originally designed to prevent wealthy taxpayers from escaping taxation, but many middle class families will be affected by the AMT over the next several years because it is not adjusted for inflation.
Throughout my career in Congress, I have been a strong advocate of tax reform.My leading concern when considering any proposal to change the tax structure is to ensure that no change places an unfair burden upon any particular segment of the population.We must also ensure that any tax changes spur job creation and encourage saving and investment.When Congress considers the panel’s recommendations for reforming our tax code, you may be certain that I will keep your thoughts in mind.
Again, thank you for taking the time to contact me.I look forward to hearing from you in the near future.
My best wishes to you.
United States Senator
[Editor’s Note: Our thanks to Mr. Carnes for sending his letter from Senator Harry Reid. If you would like to get in on some of this letter-writing action and possibly have your response published, visit: Congresional Letter
Also, if you have not purchased a copy of Empire of Debt, you can do so here: Empire of Debt: The Rise of an Epic Financial Crisis]