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Originally Processed With FOIA(s): FOIA Number: S FOIA MARKER This is not a textual record. This is used as an administrative marker by the George Bush Presidential Library Staff. Record Group/Collection: George H.W. Bush Presidential Records Collection/Office of Origin: Speechwriting, White House Office of Series: Snow, Tony, Files Subseries: Subject File, 1988-1993 OA/ID Number: 13894 Folder ID Number: 13894-004 Folder Title: [Economy-Taxes/Tax Reform, 1991] Stack: Row: Section: Shelf: Position: G 18 29 2 2 FRANK R. WOLF COMMITTEE ON APPROPRIATIONS à 10TH DISTRICT, VIRGINIA SUBCOMMITTEES: TRANSPORTATION WASHINGTON OFFICE: TREASURY-POSTAL SERVICE-GENERAL 104 CANNON BUILDING Congress of the United States GOVERNMENT WASHINGTON, DC 20515 (202) 225-5136 SELECT COMMITTEE CONSTITUENT SERVICES OFFICES: house of Representatibes ON CHILDREN, YOUTH AND FAMILIES 1651 OLD MEADOW ROAD SUITE 115 Mashington, DC 20515 SELECT COMMITTEE MCLEAN, VA 22102 ON HUNGER (703) 734-1500 COMMISSION ON SECURITY AND COOPERATION IN EUROPE 19 EAST MARKET STREET LEESBURG, VA 22075 (703) 777-4422 METRO NUMBER (703) 478-1303 STATEMENT OF FRANK R. WOLF ON "MIDDLE CLASS TAX RELIEF: WHAT'S THE BEST APPROACH?" Center on Budget and Policy Priorities October 2, 1991 Good Morning. I am happy to be here with Senator Rockefeller and all of you at the Center for Budget and Policy Priorities to discuss an issue which has been one of my top priorities in Congress this year middle class tax relief for families. Financially reinvigorating families should be a central budget and policy priority this year. When families are better able to deal with their financial picture this in turn impacts upon the time they can devote to their families and children. Since today's parents spend 40 percent less time with their children than did parents a generation ago, easing these twin deficits of time and money is essential. I am encouraged that this is an issue where there is growing bipartisan agreement. 1 THIS STATIONERY PRINTED ON PAPER MADE OF RECYCLED FIBERS The release of the National Commission on Children's Report this summer shows how far we have come in the past decade in addressing the family debate. Ten years ago this report would not have looked the way it does today: a chapter on the importance of the "moral climate" for children, the emphasis on the family as the primary institution for raising children, and a focus on putting money back in the hands of families. As Robert Frost once wrote, "Most of the change we think we see in life is due to truths being in and out of favor." Fortunately the truth that the family is the foundation of a free society is now once again in favor. And now many across the ideological spectrum are joining the ranks! All understand that the family is under attack today like never before. Most all of the indicators of family well-being are heading in the wrong direction. Child abuse is up, spouse abuse is up, teenage suicide is up, and families living with single parents continue to increase. Perhaps it is no coincidence that a corresponding decline in family financial strength has preceded these trends. As you can see from this graph ("Share of Family Income Protected From Federal Income Tax By Personal Exemptions) the percentage of non-taxable income has dramatically diminished over the past 2 decades to approximately one-quarter of what it was in 1948. However, I am not here to sell you utopian policies in which all of these things can be turned around through a government program. We are always hearing speeches from many, admittedly of good will, who sincerely state, "No child should be homeless, no child should be without a good education," etc. No one disagrees with this; we would indeed be heartless and remiss if we thought and hoped for anything less. But the fact is that as long as we are mere mortals we will not be able to solve all of the problems of children and families. Utopian government policies that claim to do so will always disappoint and perhaps mislead us as to what government can actually do and what families themselves can and should do. We have turned a corner. We realize that the government, even under the guidance of highly credentialed and lavishly funded experts, cannot do for families what families can do for themselves. We also realize that the family does matter, particularly for the well-being of children. No viable substitute has been found. It is heartening that the family debate is no longer a right VS. left debate or a right VS. wrong debate. It is rather a debate on what works and what doesn't work. We know that the family - when allowed to - does work; it 3 is the best Department of Health and Human Services. So what can we do? We can set our expectations high -- very high. As the National Commission on Children's Report observed, "Many scholars and advocates have noted that improving the economic well-being of American families with children in the 1990s will require significant changes in both personal behavior and economic policy." Therefore, we can demand government policies that respect and recognize the family as an essential, vital unit of society and make responsible demands on our citizens, particularly parents. When we focus on these principles we can come to agreement on policy initiatives. The expansion of the Earned Income Tax Credit (EITC) is a good example of a policy with bipartisan support that is based upon the principles of work and responsibility. The EITC has doubled since 1986 and in 1990 benefitted 11.3 million families. The EITC will significantly increase under the current budget agreement over the next few years to where the credit will amount to 23 - 25 percent of earnings for eligible families by 1994. As the National Commission on Children's Report highlighted, over the past several decades the encroachment of government programs into the family 4 arena has "often unwittingly undermined the formation and maintenance of stable nuclear families." To turn around some of these disincentives, I have proposed two family tax relief bills which would provide significant tax relief to families by allowing families to keep more of their own hard earned money to take care of their own needs. Like the EITC, these measures reward work, family and independence -- three fundamental principles set forth in the Commission report. H.R. 1277, "The Tax Fairness for Families Act of 1991" which would increase the dependent deduction to $3,500 (from the present inflation-adjusted level of $2,150) already has 251 cosponsors. This is the only family tax measure that has the bipartisan support of a majority of members in the House. When coupled with H.R. 2633, which would provide an additional $500 tax credit for children under 5 in middle class families, these two measures would provide families with young children approximately the same tax benefits as was provided to families in the 1950s. For example, a family earning $30,000 with two children under 5 would pay approximately $1400 less in taxes under these combined measures. This would be approximately $116 a month for this family to spend on whatever their needs may be -- child care, housing, or to enable a 5 parent to cut back on some work hours to spend more time with children. These measures are simple means of providing middle class tax relief. They build upon already existing tax measures and are targeted to the middle class. And we should remember an important aspect of "middle class tax relief" -- it should go to middle-class taxpayers. It is important to distinguish between expanding welfare for families and middle class tax relief for families. If we are going to expand welfare we should be forthright and make the affirmative case for that and not try to hide this agenda under the family tax relief mantle and threaten to destroy the consensus on middle class tax relief. After we provide tax relief, perhaps equally as important we can demand more of ourselves, our communities, our churches and our children. In this role the Federal Government can also play an important leadership role by doing what we are doing here today -- insisting that we focus on the family and pull together in our communities to provide a healthier future for our children and families. A member of the National Commission on Children, Nancy Rohrbach, highlighted testimony from witnesses who pointed out that "government programs were frequently lacking in meeting their objectives and the needs of 6 families and children. We found that increasingly, individuals in business and in communities are filling the gaps and are successful where government interventions could never succeed." And as President Bush recently pointed out: "When government tries to serve as a parent or a teacher or a moral guide, individuals may be tempted to discard their own sense of responsibility and to argue that only government must help people in need." We do need to seriously consider the cultural indifference that can be generated by the increasing role of government in areas previously handled by communities, schools, churches and neighborhoods. Over 100 years ago, Abraham Lincoln wrote, "In all that the people can individually do as well for themselves, government ought not to interfere." We should heed this advice when it comes to families -- in all that families can do as well for themselves, government ought not to interfere. When we look to helping families it comes down to simple questions: Do we think that the government or the family is better at helping and raising children? Do we think that big government is too small? Do we want to add billions to government agencies and hope that it trickles down to families or do we want to give this money directly to the families -- the taxpayers -- 7 themselves? The bipartisan consensus is on the side of helping families themselves -- directly through tax relief. Today's families are not hurting because big government is too small or because families are not taxed enough. Families are hurting because their own personal budgets are too small and this is for a simple reason -- Uncle Sam keeps taking a bigger and bigger bite out of their paychecks. But the $64,000 question or rather the $12-15 billion question is, "How will we pay for this measure?" Unfortunately some have suggested raising taxes to pay for this tax relief. As another Commission member, Wade Horn, pointed out, "One of the major consensus items contained in this report is that families with children are over-taxed. It would be ludicrous to recommend tax cuts for families with children on the one hand, and then raise their taxes on the other in order to 'pay for it." Even raising the top tax rate to 50 percent would only produce $20 billion dollars -- and this is using a "static" estimate which assumes that people would not change their behavior if you took away 20 percent more of their money. Furthermore, raising taxes almost always fails to produce expected revenues and instead increases the deficit. 8 We could provide the tax relief in these two measures if we limited the rate of growth of domestic government programs to 6 to 6 1/2 percent. This rate of growth is reasonable and well above inflation. Certainly in today's tough economic times, many of today's hard-pressed families would find a 6 percent rate of growth in their own personal budgets a welcome and substantial bonus! Instead of automatically pushing the "higher tax" button and detonating any chance for consensus on real family tax relief, we should seek such pro-family and pro-growth policies instead. This proposal is workable under current budget realities and is one that family advocates of all stripes can and already have united behind. Today's children and families need our help. With the growing consensus on family tax relief, particularly reflected in the 251 cosponsors of H.R. 1277, we can boldly act on behalf of children and families. We have an opportunity to unite behind a strong bipartisan coalition dedicated to immediate family tax relief. The strong current of public policy debate is clearly flowing toward providing families with tax relief. With united bipartisan effort we can navigate the stormy family seas and provide an essential lifeboat to American families. 9 Family Tax Relief Increasing the Dependent Deduction (H.R. 1277) and Expanding the Young Child Tax Credit (H.R. 2633) Value of 1991 Value Under Value Under H.R. 1277 + Dependent Deduction H.R. 1277 In the H.R. 2633 ($500 Credit) 15% Tax $322 $525 $1025 ($525 + $500 credit) Bracket (most families in the 15% bracket would also be able to take the full $500 credit for children under 5 once they reached an income threshold of $10,000.) In the 28% Tax $602 $980 $980 Bracket (families in this tax bracket with an AGI of under $50,000 would be able to declare the additional $500 credit while those over $50,000 would not.)** In the 31% Tax $666 $1,085 $1,085 Bracket (families in this bracket would not be eligible for additional credit and the exemption begins to phase out for joint return filers at $150,000, for head of household filers at $125,000.) ** 1991 tax brackets for joint returns: 1991 tax brackets for head of households: 15% bracket = $0 - $34,000 15% bracket = $0 - $27,300 28% bracket = $34,000 - 82,150 28% bracket = $27,300 - 70,450 31% bracket = over $82,150 31% bracket = over $70,450 FAMILY TAX FAIRNESS INCREASING THE DEPENDENT DEDUCTION AND EXPANDING THE YOUNG CHILD TAX CREDIT INCREASING THE DEPENDENT DEDUCTION FOR CHILDREN TO $3,500 (H.R. 1277) * The current value of the dependent deduction gives $322 dollars per child in tax relief to families in the 15% tax bracket and $602 per child to families in the 28% bracket and $666 per child to families in the 31% bracket. Under H.R. 1277, these amounts would increase to $525, $980 and $1085 respectively. (The deduction phases out for families earning over approx. $150,000.) * H.R. 1277, "The Tax Fairness for Families Act of 1991" which will increase the dependent deduction to $3,500 has obtained over 250 cosponsors including over 100 Democrats. EXPANDING THE YOUNG CHILD TAX CREDIT - $500 FOR CHILDREN UNDER 5 IN FAMILIES EARNING UNDER $50,000 (H.R. 2633) * The new credit proposed is $500 per child for children under 5 in families earning under $50,000. This would provide additional tax relief largely to families in the 15% tax bracket. * Adding an additional credit for young children in middle income families would have the effect of providing approx. $1,000 in tax relief for all young children in working families. * There are approximately 100 million people in the category "married couples with children" (including approximately 50 million adults) and 21 million people in the category "single mothers with children" (including 7 million adults). (Green Book, p. 1188) Approximately 70% of families earn under $50,000 a year. (House Republican Study Committee, 1991) * Currently 84% of all poor and near-poor families with pre- schoolers do not use market child care at all. About 60% of all families with incomes under $15,000 use unpaid relatives for child care. (American Enterprise Institute, 1989)) These families would greatly benefit by this additional young child tax benefit. * The full amount of $500 per child is available once a family has earned income of $10,000. This credit would be refundable and as such would be a substantial incentive for the working poor. The credit starts to phase out at $50,000 and is unavailable after $60,000. This is a substantial credit for working and middle class families who too often become "America's forgotten families" in the policy arena. * This credit is available to all families with young children regardless of whether they use paid child care or not. Even among families with both parents working, many do not use paid child care. * This tax credit would complement the $3,500 dependent deduction by providing additional tax relief to families in the middle income range. For example, a family earning $30,00 with two children under 5 would pay approximately $1400 less in taxes under the combined measures of increasing the dependent deduction and increasing the young child tax credit. ($1000 tax credit for 2 children + $405 increased dependent deduction for two children.) Share of Family Income Protected From Federal Income Tax By Personal Exemptions 80% 60% 40% 20% 0% 1948 1954 1960 1966 1972 1978 1984 1989 Source: Heritage DataChart. SHARE OF FAMILY INCOME PROTECTED FROM FEDERAL INCOME TAX BY PERSONAL EXEMPTIONS In 1948 close to 80% of family income was protected from federal income tax by personal exemptions and dependent deductions. In 1989, only 20% of family income was protected from federal income tax by personal exemptions and dependent deductions. This chart demonstrates that the only times the percentage of family income protected by the personal exemption improved were after the 1979 and 1986 increases in the personal exemption and the indexing in 1984. The indexing method currently used round downs to the nearest $50 in determining each year's new level. Under H.R. 1277 the inflation adjusting would be done by rounding to the nearest $10. For example, in 1990, the personal exemption would have been $2090 instead of $2050 if the amount had been rounded to the nearest $10 instead of the nearest $50. Child Care Arrangements for Children Under Five Center Based Care 14% Babysitter 3% Family Day Care 12% Other Relative 11% "Doubletime" Mother 5% "Tag-Team" Parents 8% Mother at Home 47% CHILD CARE ARRANGEMENTS FOR CHILDREN UNDER FIVE The Young Child Tax Credit will provide a $500 tax credit for all working families earning under $50,000 with children under 5 regardless of whether the family uses paid child care or not. The current child care related provisions of the tax code only provide relief for those who use paid child care. These provisions are only used by a minority of families with young children. * Two parent families in which the wife does not work have average incomes equal to 67-87% of that of married couples in which both did work. (Robert Shapiro, Progressive Policy Institute, 1990) This chart demonstrates that the majority - 71% - of children under five are cared for by their mothers, fathers or other relatives: 47% cared for by mothers at home 8% cared for by "tag team" parents 5% cared for by mother while she works 11% cared for by other relative The American Enterprise Institute has found that 84% of all poor and near-poor families with pre-schoolers do not use market child care at all. About 60% of all families with incomes under $15,000 use unpaid relatives for child care. Only 23% of children under 6 have mothers who work full-time year round. (Select Committee on Children, Youth and Families Report, "U.S. Children and their Families: Current Conditions and Recent Trends, p. 85) In a national sample of young married dual-earner families, 30% of full-time workers and nearly 40% of part-time workers worked some kind of shift schedule enabling the parents to share the care of their children between them. ("The Child Care Market: Supply, Demand, Price and Expenditures," January 13, 1989, Family Impact Seminars, p. 5) In 1989, over $87 million dollars in tax credits (the dependent care tax credit) went to families earning over $100,00, but for the large majority of families with young children who do not use market child care, no such tax relief was available. The Young Child Tax Credit will provide equity to both one earner and two earner families and provide equitable tax relief for most families with children under five. The current tax code only provides tax relief for families with young children, when both parents work for wages. For example, a mother with a child in preschool who works during her child's preschool hours could take a tax credit on the cost of the preschool. If this same mother was instead an unpaid volunteer at the preschool or volunteer for a community charity, she would not be able to take a tax credit. The Young Child Tax Credit would provide a tax credit for both of these families. Comparison of Family Tax Relief Proposals National Commission Wolf Gore-Downey on Children Credit and/or exemption is Yes Only No tied to work Partially Equal treatment of one-earner and Yes No No two-earner families Provides the most tax relief to the working poor and Yes No No the middle class Works within the current tax and Yes No No welfare structure COMPARISON OF FAMILY TAX RELIEF PROPOSALS CREDIT AND/OR EXEMPTION IS TIED TO WORK The Wolf Proposals - both the dependent deduction and the additional young child tax credit - are tied to work. The bipartisan concensus over the past decade has been to tie tax relief to the incentive of work. Gore-Downey, on the other hand, converts the present deduction to a credit that is only partially tied to work. While families would have to be working to get the full $800 per child credit under Gore-Downey, there would still be a $400 credit available to non-working welfare families - in effect an average increase of 10% in welfare spending under Gore-Downey. The National Commission on Children proposal to convert the current deduction into a $1,000 credit also results in making tax relief a significant backdoor welfare increase by failing to tie the credit to work or offset it by a reduction in welfare. (In fact, the Urban Institute, which provided the research on the $1,000 credit had tied the $1,000 credit to an offset in AFDC.) EQUAL TREATMENT OF ONE-EARNER AND TWO-EARNER FAMILIES The Young Child Tax Credit (H.R. 2633) builds upon the "wee tot" credit passed last fall which provided up to $355 to families with a child under 1 in a family earning less than $20,000. The credit is tied to earned income and is much like the EITC. Currently 84% of all poor and near-poor families with pre- schoolers do not use market child care at all and therefore are not eligible for the dependent care tax credit which is only available to families who use paid child care. The concept behind the Young Child Tax Credit (H.R. 2633) is to provide an additional tax credit to all working families with young children, instead of the current situation which only provides an additional tax credit to those who use paid child care in families with both parents working (or in the case of a single parent family, with one parent working). Gore-Downey, on the other hand, eliminates the "wee tot" credit that was passed last year for low income families who do not use paid child care. The National Commission on Children proposal would provide $1000 in tax relief for each child but fails to remedy the inequity in providing additional child based tax relief for families who use paid child care. PROVIDES THE MOST TAX RELIEF TO THE WORKING POOR AND THE MIDDLE CLASS The Wolf bills target tax relief to working middle class families. The bills would provide the most tax relief to those families with children earning $15,000 - $50,000. Seventy percent of families with children earn under $50,000. The combined impact of the Wolf bills would be to provide approximately $1000 in tax relief per child to all families with children under 5 while still providing a significant amount of tax relief for all children. The Gore-Downey proposal provides an additional $400 for welfare families and concentrates a significant portion of the expenditures in the lowest income families with the benefits almost negligible for families earning over $34,000. Also the increased taxes on families in the 28% and 31% brackets would result in a net loss of child based tax relief for families in these brackets. The National Commission on Children proposal which would provide a $1,000 credit for all children would result in providing welfare families and millionaires an additional $1,000 per child in tax relief while only providing a median income family less than $400 per child in additional tax relief. WORKS WITHIN THE CURRENT TAX AND WELFARE STRUCTURE The Wolf bills work within current tax and welfare structure by increasing the amount of the dependent deduction and expanding the amount, age and income level for which the young child tax credit is available. Major tax reform is not necessary to pass these measures. Gore-Downey and the National Commission proposal require conversion of the dependent deduction into a credit and therefore involves a considerable tax policy change. In addition, the increase in dollars going to welfare families results in a significant increase in welfare expenditures without tying these expenditures to work or improved behavior. Cosponsors for H.R. 1277 Gary Ackerman Hamilton Fish William Lipinski Robert Roe Bill Alexander Gary Franks Bob Livingston Marge Roukema Wayne Allard Elton Gallegly Marilyn Lloyd Roy Rowland Glenn Anderson Dean Gallo Bill Lowery George Sangmeister Frank Annunzio Joseph Gaydos Nita Lowey Rick Santorum Dick Armey George Gekas Charles Luken Bill Sarpalius Chet Atkins Ben Gilman Ronald Machtley Jim Saxton Jim Bacchus Wayne Gilchrest Ron Marlenee Dan Schaefer Richard Baker Paul Gillmor David O'B. Martin Steven Schiff Cass Ballenger Newt Gingrich Matthew Martinez Patricia Schroeder Bill Barrett Dan Glickman Romano Mazzoli James Sensenbrenner Joe Barton Bill Goodling Al McCandless Bud Shuster Charles Bennett Bart Gordon Bill McCollum Gerry Sikorski Helen Bentley Porter Goss Jim McCrery Joe Skeen Doug Bereuter Fred Grandy Joe McDade French Slaughter James Bilbray Steve Gunderson Bob McEwen Bob Smith Michael Bilirakis Ralph Hall Ray McGrath Chris Smith Ben Blaz Tony Hall Clarence Miller Lamar Smith Tom Bliley John Paul Hammerschmidt John Miller Larry Smith Sherwood Boehlert Mel Hancock Patsy Mink Jerry Solomon John Boehner James Hansen Susan Molinari Floyd Spence William Broomfield Claude Harris Sonny Montgomery Richard Stallings John Bryant Dennis Hastert Carlos Moorhead Cliff Stearns Jim Bunning James Hayes Jim Moran Charles Stenholm Dan Burton Joel Hefley Connie Morella Bob Stump Albert Bustamante Bill Hefner Sid Morrison Dick Swett Beverly Byron Paul Henry Austin Murphy Robin Tallon Dave Camp Wally Herger John Murtha John Tanner Ben Nighthorse Campbell Dennis Hertel John Myers Billy Tauzin Tom Campbell David Hobson Richard Neal Charles Taylor Sonny Callahan George Hochbrueckner Dick Nichols Gene Taylor Bob Carr Clyde Holloway Eleanor Holmes Norton Bill Thomas Rod Chandler Larry Hopkins Jim Nussle Craig Thomas Jim Chapman Joan Kelly Horn Solomon Ortiz Esteban Torres William Clinger Frank Horton Bill Orton Robert Torricelli Howard Coble Carroll Hubbard Major Owens Jim Traficant Barbara-Rose Collins Duncan Hunter Wayne Owens Fred Upton Larry Combest Earl Hutto Mike Oxley Tim Valentine Gary Condit Henry Hyde Ron Packard Guy Vander Jagt John Conyers James Inhofe Frank Pallone Barbara Vucanovich Bud Cramer Andy Ireland Mike Parker Bob Walker Phil Crane Craig James Liz Patterson James Walsh Christopher Cox William Jefferson Bill Paxon Vin Weber Duke Cunningham Nancy Johnson Nancy Pelosi Ted Weiss Bill Dannemeyer Sam Johnson Carl Perkins Curt Weldon Buddy Darden Tim Johnson Pete Peterson Charles Wilson Bob Davis Harry Johnston Thomas Petri Bob Wise Tom DeLay Ben Jones Owen Pickett Chalmers Wylie Ron DeLugo Walter Jones John Porter Sid Yates William Dickinson John Kasich Glenn Poshard Gus Yatron Calvin Dooley Joe Kennedy Carl Pursell Don Young John Doolittle Dale Kildee James Quillen C.W. Bill Young Bob Dornan Scott Klug Nick Joe Rahall Bill Zeliff David Dreier Jim Kolbe Jim Ramstad Dick Zimmer John Duncan Joe Kolter Arthur Ravenel Bernard Dwyer Jon Kyl Richard Ray Mervyn Dymally Bob Lagomarsino Jack Reed Dennis Eckart Martin Lancaster Jay Rhodes Mickey Edwards Greg Laughlin Frank Riggs Bill Emerson Jim Leach Matt Rinaldo Eliot Engel Richard Lehman Don Ritter Ben Erdreich Bill Lehman Pat Roberts Mike Espy Norman Lent Hal Rogers Tom Ewing Tom Lewis Dana Rohrabacher Harris Fawell Jerry Lewis Charlie Rose Ed Feighan John Lewis Ileana Ros-Lehtinen Jack Fields Jim Lightfoot Toby Roth 10/31/91 255