In the past year, I have traveled across this great country and seen the uniqueness of the American experiment firsthand. Working side-by-side with factory workers, farmers, teachers, and sales clerks, I have heard about the struggle it takes to provide for their families, for their children's education, and their future. And what I hear about taxes over and over is this: it is time to spell reform R-E-D-U-C-E.
This message from ordinary Americans is at odds with what I hear in Washington. The talk along the Potomac is of America's economic boom. We hear about low interest rates, low inflation, low unemployment, balanced budgets, and the far-sighted politicians who made it all possible. Let me offer a dose of reality to the President and the deal makers on Capitol Hill. Washington didn't balance the budget and increase economic growth; the American people did.
The truth is Washington hasn't made any tough decisions. Under last year's much-heralded budget deal, federal spending increased substantially. That's one reason I opposed the legislation. In fact, the Congressional Budget Office tells us the budget would be balanced this year if not for the new spending contained in the so-called balanced budget deal. And over the next five years, the federal government will spend almost $1.4 trillion more than it spent in the previous five years. Congress gave away the store for a package of cowardly tax cuts that added complexity to an already onerously complex code.
The power to tax is the power to destroy; and Washington has bullied and battered American families for more than its share. And so while Washington talks of booming growth and soaring markets, millions of Americans are working harder and longer than ever before.
Taxpayers will pay nearly $600 billion more in taxes over the next five years than they would have otherwise because of the tax increases of 1990 and 1993. Consequently, the tax burden on the typical dual-income family is near an all-time high. And median income is down. Real median household income has fallen nearly three percent since 1989. From this diminished share, the median dual-income family gives 38.2 percent to government. That means the average American must work until May 9th just to pay taxes. I can't help but think of President Reagan's definition of a taxpayer: "Someone who works for the federal government but doesn't have to take a civil service examination."
Instead of new government programs and more spending increases, I offer a plan for tax reduction--bold tax relief--for the middle class. They are the men and women who get up early, work hard all day, and go home late. If we will give them greater control over the money they earn, we will find stronger families, stronger neighborhoods, and cultural renewal. It's that simple.
Before Washington falls prey to yet another binge of new government programs from President Clinton and timid, narrowly targeted tax proposals from Congress, we need to look carefully at the type of tax reform America needs.
The primary goal of any tax overhaul should be relief for the working middle-class. They are the backbone of the nation and deserve to keep more of what they earn. Relief should also be immediate. Middle-class families are struggling now. And we should move to give the middle class their money back before the President and the governmentalists in Congress use the projected budget surplus on new programs. We simply don't have time to wait to begin overhauling the tax code. As each week passes, the call for new spending grows.
I have put together a trillion-dollar tax cut package that offers significant and immediate relief to the middle class, while moving us toward a simpler, fairer tax code for all Americans. Moreover, each of the ten components protects and promotes a core American value.
The three largest elements of this 10-point package are the payroll tax deduction, elimination of the marriage penalty, and a significant cut in marginal tax rates.
With regard to the payroll tax deduction, I propose to eliminate the income tax Americans must now pay on their Social Security taxes. This onerous and unfair double tax must end. Corporations already possess the privilege of deducting payroll taxes. It is unfair to allow companies this tax benefit while denying it to working Americans. This tax cut alone would result in an increase of over $1200 in take-home pay for the average two-income family.
Families should also not be penalized by the tax code because they are married. The most important institution in America is the family. Strong families make the nation more prosperous. And yet, the tax code devalues marriage with higher taxes. My plan would allow married couples to split their incomes when they file their returns, thereby lowering their tax liabilities.
The single largest component of this tax package would lower marginal tax rates and reduce the number of tax brackets from five to four. The three bottom rates would be lowered from 15, 28, and 31 percent to 10, 20, and 30 percent. Although the top rate would remain at 39.6 percent, upper-income taxpayers would benefit from a lower average tax rate. Also, I propose that they not be denied (as they are under current law) the full value of their deductions and exemptions.
These marginal rate reductions are structured with an overriding goal in mind: providing broad-based tax relief to the forgotten middle-class. In fact, our initial estimates suggest that 70 percent of the tax relief will go to Americans earning less than $75,000.
Furthermore, these three tax cuts combined would reduce the tax bill of a married couple with two children earning $40,000 by 55 percent. Similarly, a married couple with two children earning $30,000 would see a cut of 87 percent.
To reward a lifetime of savings and work, we should end the government practice of taxing older Americans on their Social Security benefits. And we should eliminate the Social Security earnings test as well.
To help Americans prepare for retirement, I propose to double the cap on annual IRA contributions to $4000 and index it. If we do this, and if we eliminate the income and pension restrictions that keep millions of people from contributing to IRAs, we can reduce the cost of capital and boost investment in America's future.
I also propose to increase the annual limit on business expensing to $500,000 and to eliminate the estate tax. How many people have been forced to sell the family farm or business simply to pay the estate tax? One person is one too many.
And finally, while every element of this package represents a step toward a simpler, fairer code, I've included two items with simplicity foremost in mind. To unscramble the tax code, we should eliminate the Alternative Minimum Tax for both individuals and corporations. And, we should reduce the maximum tax rate on capital gains for assets held more than a year to 20 percent.
Some in Washington would rather replace the current tax code with a flat tax or a national sales tax. While my proposal does not preclude those reforms, please realize that they are both all-or-nothing propositions. As such, they are likely to be debated well into the next century. My proposal consists of ten practical improvements--all of which are consistent with tax reform--that could be implemented en masse or separately.
If this proposal were enacted into law immediately, the American people would keep $985 billion over the next five years--nearly a trillion dollars of tax relief. Clearly, this is a tax overhaul of substantial size and scope, but it is my belief that it is time to give working Americans the tax relief they deserve. And, it is time to pay for tax cuts with reductions in government spending.
Although the recent track record in Washington has raised doubts about the ability to give middle-income Americans meaningful tax cuts, I know it can be done. During my time as Governor of Missouri, we balanced eight consecutive budgets, while maintaining a per-capita tax burden that was the 49th lowest in the nation. Only New Hampshire had a lower tax burden when I was governor.
We can slow the growth of government to pay for tax cuts. From 1985 to 1992, we cut almost a billion dollars in state spending in Missouri--earning me the moniker "Governor NO." We eliminated programs, streamlined operations, and pushed decision-making to the local level. Because of these changes, Missouri received the nation's highest credit rating and was recognized as one of the three best-managed states in America.
The first step along this road is to make it clear that now is not the time for a spending spree on new entitlements and new programs. Now is the time to provide broad-based tax relief to the middle-class. Americans know Washington will never spend a family's resources wiser than a family can spend on itself.
