SPEAKERS CONTENTS INSERTS
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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Government Reform. Additional material pertinent to this transcript may be found on the web site of the committee at [http://www.house.gov/reform]. Complete hearing records are available for review at the committee offices and also may be purchased at the U.S. Government Printing Office.
57–470 CC
1999
NATIONAL PROBLEMS, LOCAL SOLUTIONS:
FEDERALISM AT WORK
PART II
TAX REFORM IN THE STATES
HEARINGS
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
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FIRST SESSION
APRIL 14 AND 15, 1999
Serial No. 106–14
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
ILEANA ROS-LEHTINEN, Florida
JOHN M. MCHUGH, New York
STEPHEN HORN, California
JOHN L. MICA, Florida
THOMAS M. DAVIS, Virginia
DAVID M. MCINTOSH, Indiana
MARK E. SOUDER, Indiana
JOE SCARBOROUGH, Florida
STEVEN C. LATOURETTE, Ohio
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MARSHALL ''MARK'' SANFORD, South Carolina
BOB BARR, Georgia
DAN MILLER, Florida
ASA HUTCHINSON, Arkansas
LEE TERRY, Nebraska
JUDY BIGGERT, Illinois
GREG WALDEN, Oregon
DOUG OSE, California
PAUL RYAN, Wisconsin
JOHN T. DOOLITTLE, California
HELEN CHENOWETH, Idaho
HENRY A. WAXMAN, California
TOM LANTOS, California
ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
PAUL E. KANJORSKI, Pennsylvania
PATSY T. MINK, Hawaii
CAROLYN B. MALONEY, New York
ELEANOR HOLMES NORTON, Washington, DC
CHAKA FATTAH, Pennsylvania
ELIJAH E. CUMMINGS, Maryland
DENNIS J. KUCINICH, Ohio
ROD R. BLAGOJEVICH, Illinois
DANNY K. DAVIS, Illinois
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JOHN F. TIERNEY, Massachusetts
JIM TURNER, Texas
THOMAS H. ALLEN, Maine
HAROLD E. FORD, Jr., Tennessee
JANICE E. SCHAKOWSKY, Illinois
———
BERNARD SANDERS, Vermont (Independent)
KEVIN BINGER, Staff Director
DANIEL R. MOLL, Deputy Staff Director
DAVID A. KASS, Deputy Counsel and Parliamentarian
CARLA J. MARTIN, Chief Clerk
PHIL SCHILIRO, Minority Staff Director
C O N T E N T S
Hearing held on:
April 14, 1999
23April 15, 1999
Statement of:
Gilmore, James, Governor, Commonwealth of Virginia, accompanied by Ronald Tillett, secretary of finance, Commonwealth of Virginia
Huckabee, Mike, Governor, Arkansas
Pataki, George A., Governor, State of New York
Whitman, Christine T., Governor, New Jersey
Letters, statements, etc., submitted for the record by:
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Burton, Hon. Dan, a Representative in Congress from the State of Indiana, chart concerning tax freedom day
Gilman, Hon. Benjamin, a Representative in Congress from the State of New York, prepared statement of
Gilmore, James, Governor, Commonwealth of Virginia, prepared statement of
Huckabee, Mike, Governor, Arkansas, prepared statement of
Kucinich, Hon. Dennis J., a Representative in Congress from the State of Ohio, prepared statement of
Pataki, George A., Governor, State of New York, prepared statement of
Whitman, Christine T., Governor, New Jersey:
Information concerning recommendations
Prepared statement of
NATIONAL PROBLEMS, LOCAL SOLUTIONS:
FEDERALISM AT WORK
PART II
TAX REFORM IN THE STATES
WEDNESDAY, APRIL, 14, 1999
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room 2154, Rayburn House Office Building, Hon. Dan Burton (chairman of the committee) presiding.
Present: Representatives Burton, Gilman, Morella, Ros-Lehtinen, McHugh, Horn, Davis of Virginia, Souder, Hutchinson, Terry, Biggert, Ose, Chenoweth, Waxman, Towns, Norton, Kucinich, and Ford.
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Staff present: Kevin Binger, staff director; Barbara Comstock, chief counsel; David Kass, deputy counsel and parliamentarian; John Griffin, senior counsel; James Schumann, counsel; Mark Corolla, director of communications; John Williams, deputy communications director; Carla Martin, chief clerk; Lisa Smith-Arafune, chief deputy clerk; Nicole Petrosino, legislative aide; Phil Schiliro, minority staff director; Phil Barnett, minority chief counsel; Elizabeth Mundinger and David Sadkin, minority counsels; Ellen Rayner, minority chief clerk; and Jean Gosa, minority staff assistant.
Mr. BURTON. Good morning. A quorum being present, the Committee on Government Reform will come to order. I ask unanimous consent that all Members' and witnesses' written opening statements be included in the record, and, without objection, so ordered.
Today's hearing is the second in a series that examines the relationship between State and local governments and the Federal Government. Many of the most innovative and successful public policy reforms enacted in recent years originated at the State and local levels. Our first hearing covered the issue of crime and what States and localities are doing to fight it. Today and tomorrow, we are going to take a close look at the issue of tax reform, an appropriate issue for what is now notoriously known as tax week.
We are currently debating a number of tax cut proposals in the Congress, and we have very large projected surpluses for the next 10 years. Someone said, let us not cut taxes now. Some, like myself, think the time is right for tax relief. One of the things we have to remember when we talk about is what is the appropriate level of taxes? It is that we are not the only ones who tax the American people. There are State taxes; there are local taxes. We need to look at the total tax burden on the American people. When you look at that, it is pretty high. The average family today pays more in taxes than it spends on food, clothing, shelter, and transportation combined. The average tax rate for 440,000 individuals who filed their returns in 1916 was 2.75 percent. In contrast, today's total taxes from all levels of government—Federal, State, and local—stand at a record 32 percent of national income. In fact, Federal taxes alone consume about 21 percent of national income, the highest proportion since World War II. That means one-third of every person's check goes right to the Government. Is that too much? I think so. We have a chart that shows how tax freedom day has been extended between 1964 and 1968.
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[The chart referred to follows:]
INSERT OFFSET FOLIOS 1 HERE
[The official committee record contains additional material here.]
Mr. BURTON. This chart shows what is known as tax freedom day has gotten and later and later over the years. According to the Tax Foundation, in 1964, the average American worked 103 days until April 13 to pay their total tax bill, including Federal, State, and local taxes. Last year, tax freedom day was May 10th. The average American worked 129 days to pay their total tax bill. My point is when we are making important decisions on Federal tax policies, we need to take the total tax burden on the American people into consideration. Moreover, we must remember that not all States are fortunate enough to have innovative Governors like the ones we have here before us today. A number of States are still faced with Governors and legislatures who have yet to understand the importance of tax relief and reform and continue to burden their citizens with tax increases and more government bureaucracy.
The committee's hearing will demonstrate how the Governors are doing their part to deal with this at the State levels, specifically, how they have reformed their respective State tax system to put more money in their citizen's pockets.
From crime to education and from welfare reform to taxes, State and local governments have led the way in reforms. For example, much of the highly successful welfare reform law we passed in the 104th Congress was taken directly from reforms first enacted by Wisconsin's Governor, Tommy Thompson, who will testify before our committee next week. President Clinton vetoed welfare reform twice, but once the law was enacted it revolutionized the welfare system across America. Also in response to the Governors and mayors, the Republican Congress curbed the practice of imposing unfunded Federal mandates which place burdensome demands on States and local governments.
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Over the next several months, the committee will continue our series of hearings entitled, ''National Problems, Local Solutions: Federalism at Work,'' by examining the issues of welfare reform and education. Through these hearings, the committee will continue to highlight successful and innovative reforms at the State and local levels, so that many of the solutions to the problems facing America come from the State and local levels and not from Washington; determine which existing Federal programs best assist cities and States, and explore new ways that the Federal Government can help State and local governments in the most cost-effective way.
Today's hearing is entitled, ''Tax Reform in the States.'' The Governors we will hear from today have all worked hard to ensure that the citizens of their respective States keep more of their hard-earned money instead of sending it to the State House. On that point, especially, the Federal Government can learn a lot. The Governors that are going to testify today and tomorrow have set an example for the Congress and the President, because these Governors recognize that the American people know best how to spend their own money. Furthermore, these Governors are included in the ranks of many Governors nationwide who have not only given more money back to the citizens but have stimulated economic growth while maintaining critical government services.
Take Governor Mike Huckabee of Arkansas, for example, in 1997, he worked for an across-the-board tax cut for the citizens of Arkansas. In addition, he has eliminated the State marriage tax penalties, something that we haven't done here in Congress. Governor Huckabee is now working to eliminate the State capital gains tax, something else that Congress should do. Governor Christine Todd Whitman, who is our first guest today, of New Jersey has cut every type of tax imaginable, including some taxes many people probably didn't even know they were paying, such as a tax on yellow pages advertising—I didn't know about that. Virginia Governor Jim Gilmore ran for election on and got the State legislature to pass an elimination of the car tax. He also proposed and passed tax exemptions for military personnel in order to give them a much needed financial break. And Governor Pataki of New York has also enacted tax cuts 36 times, saving the taxpayers of New York $19 billion. These Governors certainly deserve our attention.
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First, this morning, we are going to hear from Governor Whitman of New Jersey, a very intelligent, articulate, and attractive young lady. According to Governor Whitman, ''We are not giving anything back to the people; we are just taking less of what is already theirs.'' She was elected in 1993 on her commitment to make New Jersey government more responsible with taxpayers' dollars. She promised tax cuts and a more efficient government, and she has delivered. On her watch, New Jersey has added 300,000 new jobs; crime is at the lowest level it has been since 1974, and she has enacted at least 17 tax cuts.
The centerpiece of her tax reform plan has been the 30 percent cut of State income taxes. In three installments, she cut 30 percent for most New Jerseyans. In addition, she has taken care of the lowest income bracket by eliminating State income taxes altogether for 380,000 people in her State earning $7,500 or less. These are just a few of her many successes, but, most recently, Governor Whitman proposed a $1 billion school tax rebate to help further ease the tax burden of New Jersey citizens. This legislation is currently making its way through the New Jersey Legislature.
I will talk about Governor Huckabee and the other Governors, subsequently, when they appear before our committee, but, right now, before I introduce our guest, Mr. Waxman, do you have any comments?
Mr. WAXMAN. Yes, thank you very much, Mr. Chairman. I guess no one should be at all surprised that today's hearing is on taxes. It seems that every year, Republicans use the days around April 15th as a time to score political points. The chairman said that the Federal taxes are consuming the highest percentage of national income than at any time since World War II. This is not true. According to a recent analysis by the Treasury Department which looked at average income tax rates for a family of four, the average tax rate for a family earning the median income is at its lowest rates since 1965. For a family earning twice the median income, the rate is the lowest it has been in 25 years. The average income tax rate for a family earning one-half the median income is lower than any year covered by the report which goes back to 1955, and I have a chart over here which illustrates this point.
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Another myth is that States deserve all the credit for tax cuts we are going to hear about today, but the reality is that it is the strong economic growth under President Clinton, the longest peacetime expansion in history, that has made the so-called Republican tax cuts possible. Let me review some economic statistics under the Clinton administration. The U.S. economy has created 18 million new jobs in the last 6 years, over 90 percent in the private sector, which has generated billions of dollars in additional tax revenues. Today's unemployment rate of 4.2 percent is down from 7.5 percent in 1992 and has been below 5 percent for 21 consecutive months, the lowest sustained peacetime unemployment rate in 41 years.
Since 1993, real wages have risen 6.1 percent compared to a decline of 4.3 percent during the previous two administrations. Real hour wages are up 2.5 percent in the past year alone after falling 5 percent from 1981 through 1992. The median family income, adjusted for inflation, is up $3,517 since 1993 after falling $1,835 between 1988 and 1992.
And sometimes what we don't hear is as important as what we do hear. I don't think any of my Republican colleagues will complain today about what is called the Misery Index. The Misery Index, many of you may recall, was the quotient used by Ronald Reagan in 1980 that asked the question, ''Are you better off today than 4 years ago?'' The resounding answer today from coast to coast is yes. Since the Clinton-Gore administration came to office in 1993, we are better off. In New York, in California, in New Jersey, in Virginia, in Indiana, and nearly every other State, we are better off today than we were 6 years ago. It would appear that this strong economic growth, more than any other factor, has made these State tax cuts possible. More people working and making higher wages translates into higher tax revenues and lower expenditures on welfare and unemployment. Given these strong economic statistics, it is no wonder that the States now have money to pay for tax cuts.
One illustration is what has taken place in New Jersey. In her written testimony submitted to the committee, Governor Whitman says that she was able to cut New Jersey's personal income tax by 30 percent while retaining the same level of tax revenue, but what makes this possible is more people working and paying taxes on higher incomes all of which has taken place under a Democratic administration.
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Yet another myth is that it is just Republican Governors who have cut taxes. This is also not true. Democratic Governors, none of whom, as far as I can tell, were invited today, as well as Republican Governors, have been able to take advantage of the strong economy of the last 6 years to cut taxes. For example, Indiana Governor O'Bannon cut taxes by $600 million in his first year in office. He has proposed another $1 billion in tax cuts in 1999. Governor Carper of Delaware has cut taxes for 5 consecutive years. Governor Locke of Washington and Governor Patton of Kentucky have signed tax cuts in recent years. In Missouri, Governor Carnahan has an increase in personal income tax exemptions as well as a reduction for health insurance costs for self-employed individuals. In fact, this year alone, 10 of the country's 19 Democratic Governors have proposed tax cuts for their States. But we are not going to hear from any of these Democratic Governors. We are also not going to hear testimony from anyone about the negative consequences of some of the Republican tax cuts. There is no mention that some States with Republican Governors would be forced to cut funds for education programs and health care to pay for tax cuts. There is also no mention of increases of State debt or increases in local taxes that are necessary to make up for cuts in State funding for services.
So, I can't help but be a little skeptical about the motives behind this hearing. First, we have a hearing to showcase Republican Governors' tax cuts; then, tomorrow, the day taxes are due, Mr. McIntosh is holding a subcommittee hearing entitled—this is the title for the hearing—''Clinton-Gore Versus the American Taxpayer.'' It would appear that these hearings are little more than a taxpayer-funded commercial for the Republican party. I find it ironic that the majority which says it is holding this hearing to find out how to save taxpayers' money would actually waste the taxpayers' money to hold what amounts to an RNC political event. With income taxes due tomorrow, I wonder what the taxpayers will think about that. Thank you, Mr. Chairman, for the opportunity to make this opening statement; I yield back the balance of my time.
Mr. BURTON. Thank you, Mr. Waxman, and, as you know, we always extend to the minority the right to invite someone, and this was no exception; the minority chose not to invite any Governors.
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Do any other Members have any opening statements?
[The prepared statement of Hon. Benjamin Gilman follows:]
INSERT OFFSET FOLIOS 2 TO 6 HERE
[The official committee record contains additional material here.]
Mr. BURTON. Ms. Whitman, thank you very much for being with us today. We really appreciate your being here, and, as you can see, there is some political jousting going on as is normal, but we would love to hear from you about what has been going on in your State and how you have dealt with your problems.
STATEMENT OF CHRISTINE T. WHITMAN, GOVERNOR, NEW JERSEY
Governor WHITMAN. Well, thank you very much, Mr. Chairman and good morning. I want to thank all the committee for the opportunity to talk about tax reform in the State of New Jersey.
It has been said that the power to tax is the power to destroy; conversely, the power to cut taxes is the power to restore. A responsible government balances the pursuit of revenue to do the people's business with the pursuit of low taxes to keep the people in business.
When I ran for Governor 6 years ago, the tax system of New Jersey was, frankly, way out of balance. A national recession had been compounded by the largest tax increase in our State's history, $2.8 billion in tax increases. Companies had fled New Jersey, and we were losing jobs by the hundreds of thousands. In an increasingly global economy, I believe that States must do all they can to attract jobs and, just as importantly, retain the jobs they already have, and it is clear to me that creating a competitive tax structure is integral in that effort.
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During my campaign, I proposed a steep cut in the State's personal income tax, including a 30 percent cut for the majority of New Jersey workers. I believed it was the right way to help families who were struggling to make ends meet as government took more and more money out of their paychecks. I believed it was a good way to force the State government to spend its money more intelligently, and I believed it was the only way to start reversing the exodus of companies and jobs from the State of New Jersey.
The critics had a field day with my proposal, not surprisingly. Some said it was just a cynical ploy to get elected, and I had no intention of ever making it happen. Some feared I would cut taxes, because they said State government couldn't afford the loss of revenue. Others dismissed the idea as likely to have little effect on families or businesses.
We phased in that income tax cut between 1994 and 1996, a year ahead of schedule and removed 350,000 low-income earners from income tax payments altogether. And let me tell you, in every one of those years, we increased the number of jobs and businesses in the State of New Jersey; we decreased the State's tax burden on our families, and we still brought in more tax revenues than we had the year before. We recovered every job lost during the previous administration and added well over 130,000 more. More New Jerseyans are working today than ever before. In fact, New Jersey's unemployment rate is the lowest it has been in a decade.
We received more good news in the most recent regional forecast analysis by WESA, and I would like to quote from it briefly: ''New Jersey now has the fastest employment growth in the mid-Atlantic region for the sixth straight year. It has outpaced both New York and Pennsylvania and all major sectors except for the two that are shrinking in the mid-Atlantic region, government and manufacturing,'' and I am very pleased that government leads that.
Mr. Chairman, we have proved the critics wrong. Tax cuts work. They allow families to keep more of the money they earn. Whether they save, spend, or invest those dollars, that activity has a positive effect on the overall economy. Furthermore, cutting taxes challenges government to spend more efficiently, and tax cuts send a signal to business that government understands their needs for a competitive environment. In our case, we followed up on our personal income tax cuts with several business tax cuts, including one that gave New Jersey the lowest small business tax in the region.
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In total, we have cut taxes 17 times during my tenure with a cumulative savings of $6.5 billion by this July. While the income taxes save taxpayers the most, I would like to mention a few other key reforms in New Jersey's tax structure. We eliminated, as the chairman mentioned, a sales tax on yellow pages advertising which saves businesses, particularly small businesses who are very dependent on that advertising as the only way to meet their customers, $35 million a year. We enacted three tax cuts for research-intensive, high-tech businesses which ultimately will mean $34 million in savings to this key sector of the New Jersey economy. We have also restructured New Jersey's energy tax and have provided for a 45 percent reduction in the energy tax rate. In replacing our utility tax, we will save homeowners and businesses $68 million by the end of next year. By cutting these taxes, we have sent a message that State government in New Jersey is on the side of the taxpayers. Yes, we are in the midst of a Nationwide boom, but I don't think it is coincidence that States like New Jersey, which have cut taxes, are doing exceptionally well.
As I mentioned earlier, when I came into office, citizens were feeling overburdened by taxes at every level of government. Not only had their State taxes gone up but so had their local property taxes, at the same time as their property values were going down. During my administration, we have managed to help local government keep the rate of tax increases, of local property tax increases at historically low levels. But because property taxes are still too high in the State of New Jersey, we continue to fight for our taxpayers.
Just yesterday, I signed four pieces of legislation that create a new $35 million State fund to reward towns and school districts that consolidate or share services. New Jersey suffers from an overabundance of local government. We have over 600 school districts, 566 municipalities, enumerable water districts, fire districts, and other forms of local government. By combining efforts, these local governments can deliver better services at lower cost to the taxpayer.
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I am also pleased to say that we are going to provide an even more immediate and direct relief to property taxpayers. Tomorrow—and it is tax day, and there is some significance in that, which is why we are doing it then—I will sign into law a $1 billion Property Tax Relief Program. It is the largest property tax relief in our State's history. When it is fully phased in by the year 2002, every homeowner in New Jersey will receive a check averaging $600. It depends on their local school tax-property tax burden, and it is based on that, but the average check in the State will be $600, and it will be going to 1.9 million homeowners.
Members of the committee, New Jersey's experience gives me confidence that tax cuts can make a tremendous contribution to the well-being and prosperity of the community, whether it is a town of 5,000 or a Nation of 50 States. The U.S. Congress deserves credit for moving our Nation to a balanced budget and a Federal surplus. Having dealt with that kind of situation at the State level, I know that you have been offered hundreds of ideas—and some of them very good ideas—as to how to spend that surplus even before it arrives.
When considering what to do with the Federal surplus—and I hesitate to offer ideas to the Congress, because you know these issues far better than mere Governors of the States—but I believe that Congress should set aside funding for high priorities, like Social Security and education. I also believe, however, that Congress would do well to consider returning some of the surplus funds to hard-working, American taxpayers. As a Governor of a State that receives the lowest return on our Federal tax dollar—we are 50th of the 50 States—I also believe that kind of a tax cut would be the most equitable to the people of my State.
Tax cuts work. They are important in sustaining economic growth, increasing savings and investment capital and, most of all, giving the working men and women of this country the opportunity to spend more of their hard-earned tax dollars on the needs of their families. Tax cuts keep government's relationship with the people in balance and help limit the size of government. What is more, they also keep our Nation headed toward prosperity as we head into a new century.
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Mr. Chairman, members of the committee, I thank you for your time, and I welcome any questions that you might have for me.
[The prepared statement of Governor Whitman follows:]
INSERT OFFSET FOLIOS 7 TO 10 HERE
[The official committee record contains additional material here.]
Mr. BURTON. Thank you Governor, and I think your record speaks for itself. When you were running, I believe, in 1993, during the campaign it was stated that if you were able to cut taxes as you had promised, the property tax rates would go through the ceiling. You mentioned that you are cutting property taxes, but can you tell us what happened immediately after you started implementing your tax cuts? What kind of effect did it have on the property taxes?
Governor WHITMAN. Well, the property taxes in the State of New Jersey have gone up every year since we have kept records, save one. The 1 year where we didn't see a large increase was the first year after the $2.8 billion tax increase, but the very next year it started to go up again and went up at a rate faster than it has gone up over the 6 years of my administration.
What we have done, we have increased municipal aid; we have also, more importantly, been giving the school districts and municipalities and counties more tools to help them be smarter on how they spend their money and try to keep those costs under control. In the State of New Jersey, we don't collect the property tax; we don't spend the property tax; that is local decisionmaking, but, obviously, State spending patterns have an impact. That is why we have taken over, for instance, in the course of my administration, the full responsibility for funding the county courts, taking a major burden off the counties, something they had to pay for before. We have increased dramatically our funding for schools and school districts, again, to help with the burden. We passed a State mandate-State pay piece of legislation, so we now very carefully consider anything we send down to the municipalities, much as you have done here, and provide State dollars if, in fact, it is a mandate.
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And because of all those, while property taxes have continued to go up, the rate has been better controlled, and with the legislation I signed yesterday, with the relief that we are going to be providing tomorrow and with future legislation that I hope to sign, we will continue to give local entities of government more opportunity to be smarter on how they spend their dollars and encouraging them to regionalize and to share services.
Mr. BURTON. During your remarks, you made a point that cutting taxes challenge government to spend more efficiently. We passed, here in Congress, what is called the Results Act where we are trying to get each agency of Government to come up with a business-like plan, and one of the problems we have had is that the bill we passed did not have a lot of teeth in it, so some of the agencies of Government, while they feign making some changes and coming up with a business plan, they are really not doing it, because we haven't put the teeth in it. Now, the chairman of the Appropriations Committee and I have sent a letter to all of the agencies saying that if they didn't comply with the Results Act that they might run the risk of having their appropriations cut. How did you implement spending cuts in various agencies of government to go along with the tax cuts in your administration? What kind of teeth did you put in that?
Governor WHITMAN. Well, I have a distinct advantage over you in that; I am the teeth. I put the budget together, and I can tell the departments what it is that I think is appropriate after listening to them, obviously, and taking in all their concerns, and if the legislature determines to put more money in, I have the line item veto, and I have exercised it on numerous occasions.
What we did and the first thing we looked at was controlling the rate of growth. We were spending faster than we were seeing revenue grow. We have now changed that. Our revenue stream is now growing faster than increases in expenditures. A lot of the expenditures we saw in State government were formula-driven over which we have no control. In fact, as we look at the pie of State government spending, the part over which the administration has control is ever shrinking, because so much of it comes with strings attached to either government strings that we have to match in order to be able to keep our dollars or it comes from negotiated contract settlements that have automatic escalator clauses in them, things over which we have very little control, but we look there first. And then I ask every department to go back and redefine their core mission, then to look at every program that they support and tell me and defend to me how that meets their core mission. And, as they come forward with new expenditure programs, they have to go back and do the same thing, and when I present the budget to the legislature, one of the agreements that we have come to is that, obviously, they can add things in spending, and that is fine, but where they start to impact on total spending, they have got to find commensurate cuts. If they want to change priorities and spend on a different program, I am willing to listen to that, obviously; they have a responsibility and right to do that, but they also have to understand the need to control spending overall, and we will set the ceiling and ask that they maintain that and that they find commensurate cuts if they want to increase expenditures in some other area.
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Mr. BURTON. One last question, and then I will yield to my colleague from California. When you were running for Governor, you made one of the issues that Governor Florio's tax increases were hurting economic growth and revenues coming into the State, and you have cut taxes—he had increased taxes to bring in more revenue—and you say the revenue stream has increased, while after he increased taxes, the revenue stream went the other way. Can you explain that?
Governor WHITMAN. Well, one of the problems that we faced after the increase of taxes added to an already bad situation; we were still in a recession. New Jersey, which traditionally had done better than the Northeast under any economic circumstances—if the Nation was doing well, New Jersey, generally, did a little bit better than the other States in the region, but when the Nation was doing badly, we still did a little better. We suddenly fell off a cliff after the tax increases. We started to lag behind our neighbors in the Northeast in the recovery. We were the slowest to come out of that recovery.
By cutting the taxes, but sending the message that we were, in fact, interested in promoting business and giving taxpayers more of their dollars to spend or invest as they saw fit, we sent a very clear message that things were going to be changing, and people responded. They responded very well, and businesses responded, and we saw a change in that cycle of businesses closing and leaving, particularly small business, and, therefore, we were getting more revenue. I mean, the economy in the Nation was coming back, but we hadn't been benefiting from that end of the recession until we started to cut taxes and the regulatory burden we were placing on businesses, and that has made a real difference, and people have saved, and they have invested. We now, as I say, we have created over 330,000 more jobs. We have over 330,000 more jobs today than when I took office. It has been dramatic, the change has been dramatic, and we are once again, as WEFA has pointed out, leading the mid-Atlantic States in the recovery, and that is an even bigger jump than it might seem from our past history.
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Mr. BURTON. Very good. Mr. Waxman.
Mr. WAXMAN. Thank you, Mr. Chairman. Governor Whitman, I want to welcome you here today. The majority of people in New Jersey, when they were polled, believe that the cut in income taxes in your State was the cause for a dramatic increase in their property taxes, and, in fact, the average residential property tax increased, during the time that you were Governor, $698 which is more than a 20 percent increase, and the study by the Institute on Taxation and Economic Policy concluded New Jersey's per capita property tax bill is the highest in the country. The same non-partisan New Jersey Office of Legislative Services said ''While they got a reduction in income taxes, there was an increase in property taxes that weren't really offset;'' that the average household saved $410 in 1998 due to the income tax cut while its property tax increased $698.
Now, you are proposing a $1 billion rebate to help deal with the problem that some people think was caused by the State income tax cut, and you are going to give some kind of rebate to property taxpayers for the future, but it doesn't really do anything about taxes paid between 1993 and 1997.
What is going on here? It seems like government's taking with the one hand and giving with the other or giving with one hand and taking it away with the other. People see taxes going up on property, and that is more regressive than the income tax. Why is this—what do you think about that?
Governor WHITMAN. Well, Congressman, as I indicated in my original answer, property taxes have been a problem in the State of New Jersey from the beginning, and, in fact, the overall rate increase was higher under my predecessor who raised every other tax, including a tax on toilet paper, $2.8 billion in the State.
We, unfortunately, at the State level don't control local government spending. We have an impact. This year, for instance, we have $8.4 billion in property tax relief. That includes a $5.4 billion in school aid; $1.6 billion in municipal aid going back to our municipalities, but if I were take the money that we are proposing and that I will actually sign tomorrow in the billion dollar Property Tax Relief Program and send that to the local districts, they would spend it. In fact, interestingly enough, we have school districts right now that are going to their public with their school bond issues and say ''Go ahead and vote for increasing spending for the school district, because the State is going to give you money back. So, you are going to be OK even if you increase this spending.'' We have——
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Mr. WAXMAN. Well, you would think that they would be led to believe that is because that is what is happening. You lower the tax rates at the State level; to make up for the money for services, the property taxes are increased. You say you don't have a connection to it, but now you are going to give a rebate to those taxpayers——
Governor WHITMAN. We are going to give a rebate to the people, because we can't control the local spending. We took over the county court system, literally tens of millions of dollars. Unfortunately, the counties did not respond by lowering property taxes to their constituents; they increased spending, and that is the concern that we have. The only way to get directly to the taxpayer to provide the relief they need is to send the check directly to them.
Would I rather see property taxes overall decrease? Yes, but I will tell you that I would far rather decrease every tax that I can than to see what happened during the Florio administration where we increased taxes $2.8 billion on everything else, and property taxes went up faster than they have gone up in the last 6 years, and property values were going down at that time, so you have got a double whammy there.
Mr. WAXMAN. I am not a citizen of New Jersey; I don't follow it all that carefully. Some of your critics said that you have scaled back on State contributions to State pension plans and unemployment insurance funds, from reimbursing hospitals for medical care for the uninsured, and that funding for transportation and child welfare was cut, and the debt was increased. I don't know if this is happening or not——
Governor WHITMAN. Sure, may I answer that?
Mr. WAXMAN [continuing]. But I want you to answer this question, and you can elaborate on it. Your presentation to us sounded wonderful. You lowered taxes; there are more jobs; people have got money in their pockets; the economy benefited from it. Yet, in 1997, when you ran for reelection, you had one of the closest elections in the country; it was 47 percent to 46 percent. What was going on in New Jersey to make people not appreciate all the wonderful things you have done for them? Or did they have some questions as to whether we're going as well as you presented it?
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Governor WHITMAN. Well, Congressman, you understand politics, and in the State of New Jersey where we have a registration that is overwhelmingly independent and then more Democrats than Republicans, we are a very competitive State. Auto insurance has always been a problem in the State of New Jersey, and we have now—I have signed legislation that has provided a 15 percent reduction in auto insurance to the people of the State; all good drivers get 15 percent off of the mandated policy, but that hadn't happened before the election, and people were really angry over auto insurance. Because everything else was going well enough, they were now focusing on other issues.
But I would like to respond to some of what you had in your question about debt, because this is something I hear about a great deal. We have maintained our general obligation debt at approximately 3 percent of our appropriations. In fact, when you put all debt in, and I believe in acknowledging all debt, and the situation I walked into, I found a lot of debt that was off the books as well as debt on the books. We have kept all the debt—it is lower now as a percentage of the budget itself.
Debt has increased—overall debt has increased $146 million in the 6 years that I have been Governor of the State of New Jersey. That has gone to build roads; it has gone to build jail cells; it has gone to help with construction for educational facilities; it has gone for the appropriate things.
I faced a $400 million unanticipated spike in debt service left by the previous administration, about $8 million in debt that was not on the books. We have saved the taxpayers in pension costs about $46 billion in payment. It has been a very successful record. It has taken a lot of work and a lot of effort. We have reduced our reliance on one-shots. When I came into office, it was almost $2 million; it is now down to about 2 percent of the overall budget, a little over $360 million. It is a lot of hard fiscal discipline that is required here, but the truth of the story is that we have reduced expenditures; we have kept debt steady and focused debt on where it needs to be but have recognized all the debt. We are not playing any games here. We have not sold a piece of highway to one of our authorities and somehow recognized the revenue as being good revenue.
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So, it is important to understand that we have truly made a difference in the fiscal structure of the State of New Jersey, and I am very proud of that record. It is not to say that we have solved all the problems, and it is not to say that property taxes aren't still too high or that auto insurance doesn't still need a lot of work. They both do, but we have been very aggressive and will continue to be aggressive in dealing with them.
Mr. BURTON. Mrs. Biggert.
Mrs. BIGGERT. Thank you, Mr. Chairman, and, welcome, Mrs. Whitman. I come from Illinois which I think has some similarities to New Jersey in that we are 48 out of 50 States in return of our tax dollars. We also have an overabundance of local government. I think we have the leader in having the most unusual townships, county, and et cetera in local government.
I am interested in your funding of schools. I know that in Illinois we have a primary duty of the State to fund local schools, and, certainly, our property taxes are amongst the highest, and funding comes mostly from the property taxes, although the State does try to—the paramount duty has been thought to be 51 percent, but as the property taxes keep rising, it is very difficult for the State to keep up, and we don't meet that requirement. Do you have the same thing? What is your obligation to fund the schools?
Governor WHITMAN. We are facing the same problem. The proportion of the State budget that goes to school aid now is just about one-third. It is right around $6 billion in school aid. We have increased every year dramatically, and it is still, though, largely funded for most of the districts through the property tax. We have what is known as special needs districts where the State bears up to 70 percent—we pay up to 70 percent or more of those districts, and in others in wealthier districts, we don't maintain the same proportion percentage-wise.
What we have done in changing the structure of funding for education—and for the first time in 28 years the Supreme Court has approved the funding proposal and methodology that the States put forward, and we are no longer under court order here—but what we have done is we are now recognizing enrollment, and for the first time we are going to a full enrollment and basing our funding on enrollment, but we are also basing it on something new in the State of New Jersey which are standards and accountability. We had no standards in our schools to speak of. We now have standards in seven academic areas. We are testing children in the 4th, 8th, and 11th grades, and we are watching school's performances, and we are rewarding those schools whose children are succeeding on those tests. We are going to be intervening earlier in schools where children are not achieving those tests, and that is also a part of the school funding. The basic formula, however, is based on enrollment. We have determined what it should take to deliver to the core curriculum standards, and, therefore, we are looking at schools that are above or below that average and seeing what their children are doing.
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We also have proposed and we have in place now a very comprehensive report card on school districts that shows what money is being spent and how it is being spent. We are No. 1 in the Nation, still, on what we spend on average per child in the classroom. When I took office, we were No. 1 on what we spend on child, on average, through education. But we're 37th on what was actually reaching the child in the classroom and what we were spending on the child in the classroom, and our kids were achieving at about 35th percentile. There is clearly something wrong with that. We were willing to pay a lot of money on education on a per child basis, but it was not reaching the children.
So, that is why we have changed the way we are doing the funding. We have given the State a greater ability to work with in a collegial way, not a takeover way, but a collegial way with school districts that are having trouble delivering that education into the classroom, and we are looking forward to ensuring that we are seeing our kids meet those standards, training our teachers, and by the time I leave office, we will have every classroom in the State of New Jersey, not every school, but every classroom in the State of New Jersey wired for the Internet or distance learning.
We are combining those things with the increased spending that we have put in and the way we are trying to help municipalities and school districts. We have school districts that have no schools in them, and still there is a school district and elected board, and they have some administrative personnel which costs everybody money and is wasted money as far as I am concerned and as far as I believe the children are concerned. So, we are trying to ensure the efficiency, focus on the need in the classroom, and ensure that the State's proportion is equitable but not wasted money.
Mrs. BIGGERT. Well, certainly, one thing that we hear a lot about or at least when I was in the Illinois Legislature, too, was the mandates and mandates that we were putting on schools or local government, and I noticed that you also had signed legislation which provided that local government and taxpayers with relief from unfunded State mandates and then eliminated existing mandates. Could you expand on that a little bit?
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Governor WHITMAN. What we have been doing is reviewing every place where the State has placed a mandate that has considerable financial obligations with it to ensure that it is within the scope of what we deem to be the most appropriate thing. We are not going back and refunding dollars on that. What we have said is going forward—we grandfathered the existing programs—but we have said going forward—and it has changed legislation in many instances—any time we have a mandate that has a dollar amount with it that is going to cost local districts money to implement, the State must pick up those dollars, and we have been doing that. The good part of that is that it discourages a lot of legislation. People have thought very carefully now about whether, in fact, this is important legislation to implement when they are going to have to come up with the dollars to pay for it, and that is very important, we think, at the State level. It is nice to have a great idea, but when you start to get serious about who pays for it, there is a second look that is taken.
And, so we are reviewing everything very carefully. We have been reducing mandates, particularly in education. We now do have charter schools in the State of New Jersey which are very successful, and a lot of those—the reason for the having them—I mean, one of the advantages that you get is you are outside of a lot of the requirements of the Department of Education, and that is a good thing. I would like to see more charter schools, and we are moving toward that each year.
Mrs. BIGGERT. Are there some mandates you think that the Federal Government has placed on the States that we should be doing the same thing?
Governor WHITMAN. I could give you a list, and I would be happy to give you a list. We don't expect in State government—certainly, I don't expect—to get money from the Federal Government without parameters, without some kind of overall goal as to what should be achieved through those dollars, but what starts to lose us money, what wastes us all time is when we get so prescriptive that you have to spend so much of your time filling out forms in order to get the dollars or trying to configure and squeeze a State program into the Federal mandate even though that is not where we need to spend our money.
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We have done something very different in the State of New Jersey as far as combining all the dollars that we—we have done it with a focus on our cities, particularly our inner cities, and I have put together a cabinet of the whole and asked them, all departments that have anything to do, any programs that impact on our cities, to come together to reduce the requirements and the strings attached and asked our cities to come forward, particularly with—we have asked them to put together local groups that will tell us neighborhood by neighborhood what that neighborhood needs, recognizing that not only are cities different, one from another, but the neighborhoods within those cities are different, and we have asked the people to come forward with what their needs are, and we have put together, we have taken money from every program that we have available and allowed them flexibility to apply those dollars to their needs, so that it is not a one-size-fits-all, and the challenge, of course, that you face here is you are dealing with 50 different States, and what works in New Jersey is not going to in Wyoming; it is not going to in Illinois, necessary. The flexibility is required at the local level to be able—and at the State level to be able to reconfigure those dollars to meet the needs.
In education, there are a lot of Federal programs that have strings attached on education. We are now in the process of whole school reform within our special needs district. That means changing the way we set our schools up from the ground up. It means taking parents—getting parents involved in the system and administrators and teachers and changing the length of the day, the way they present the classes. We need to oversee—that is what the courts accepted when they accepted our proposal on State spending for schools. That is what they want to see happen. We need to make sure that our special needs districts are addressing those needs. I have a real concern that a great deal of Federal money that bypasses the States and goes straight to the municipalities, we will have no control over; we will have no ability to ensure that they are, in fact, meeting the needs in the classroom as has been accepted by our State supreme court, and that is a real concern that I have, and as you look at legislation, I would just urge you to understand that there is a great difference amongst the States about needs, and while we are trying not to be overly prescriptive on the individual districts, we have standards and accountability at the State level, and we need to ensure that our districts are meeting those.
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Mr. BURTON. Before we yield to Mr. Towns, let me just say that any information that you have or any recommendations that you might have, Governor Whitman, regarding Federal mandates and how they restrict rather than help, if you could have your staff submit those to us, we will take a look at them; maybe we can help you with them.
Governor WHITMAN. Certainly.
[The information referred to follows:]
INSERT OFFSET FOLIOS 11 TO 21 HERE
[The official committee record contains additional material here.]
Mr. BURTON. Mr. Towns.
Mr. TOWNS. Thank you very much, Mr. Chairman. I am looking at this, and I am trying to make certain that it is as beautiful as you say it is, and I want to ask some questions to sort of help me come through this. What about the fees and tuitions for colleges and universities? Has New Jersey increased the tuition or fees paid by college students?
Governor WHITMAN. What I did is, when I first came into office, is revamp the higher education system and the individual universities are now much more independent. College tuitions have generally gone up. They have gone up—although the county colleges, we put a huge investment in last year and this year, and those tuitions did not rise at all either year. Some of our independent and 4-year colleges have gone up, but, at the same time, we have greatly increased our equal opportunity funding and our scholarship programs for students to ensure that they are able to meet those costs.
Mr. TOWNS. What about marriage licenses?
Governor WHITMAN. The cost of a marriage license? I don't know—it is my 25th anniversary next year; I haven't gotten one recently, so I honestly have to tell you——
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Mr. TOWNS. A lot of people in New Jersey have gotten them, though.
Governor WHITMAN. Yes, fortunately.
Mr. TOWNS. And that is a way to raise money.
Governor WHITMAN. That is a municipal. The State doesn't collect——
Mr. TOWNS. Well, no, I am thinking about in terms of what municipalities have to do when the State cuts the budget.
Governor WHITMAN. But we haven't cut municipal aid, Congressman. Municipal aid, overall, has gone up in the 6 years that I have been Governor, and, as I said, it is well over $1 billion this year; it is $1.6 billion in municipal aid this year. What we need to see at the municipal level is the same kind of discipline in spending that we have been able to exercise at the State level.
Mr. TOWNS. Let me be quite specific. You know, you indicated that you are urging in terms of the sharing of—to consolidate, and that word sort of bothers me, because certain things, as we know, once they are consolidated, you are talking about schools consolidating and becoming one or maybe two small schools coming together becoming a bigger school. To me, that is not anything I am impressed with, because one thing that we have learned about education is that in smaller schools people learn more. So, I would not be impressed with encouraging those kind of things. So, tell me what you are talking about here.
Governor WHITMAN. Well, Congressman, I can understand what you are saying, and we all appreciate the need for manageable class sizes and the best education for our students, but when you have school districts that have no schools, I think that school district doesn't need to be in existence. When taxpayers have to pay for a district with no school attached to it, because they are regionalized, because they don't have a school there, then I think it is perfectly reasonable to encourage them to talk about sharing services or to do away with that school district, but what we have done is provided $10 million in aid to districts, to school districts and to counties, to study whether or not consolidation of services is appropriate, and it doesn't mean consolidating school districts, necessary. Perhaps, you can share the food service; perhaps, you can share the janitorial service.
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Let me give you an example, not in a school district, but five towns in Hudson County in the northern part of New Jersey came together to regionalize their fire departments, and those are heavily unionized; there are a lot of people involved in that. They were able to get that done at an annual savings that could be as high as $5 million a year to their local constituents, and everyone involved—nobody lost their job; nobody saw a reduction in their salaries because of some aid that we provided them to do this, and they are seeing better service from their fire departments. In fact, they even will point to a life that was saved, because they had better response time from the consolidated service. That kind of thing makes eminent sense to me.
Mr. TOWNS. Still, when it comes to schools, I think you have to be careful with that, because the one thing——
Governor WHITMAN. This is a local decision.
Mr. TOWNS. Yes, well, and I think that it is a local decision, but it is something being encouraged by the State.
Governor WHITMAN. Sure.
Mr. TOWNS. Because when you say—you are part to it, because if you are saying this is what you do, people will respond to that, because, after all, you are the Governor.
Governor WHITMAN. Oh, don't I wish people would respond if I said, ''This is what you should do.'' Unfortunately, they don't.
Mr. TOWNS. Well, if you say consolidate and you save $35 million, that is enough to create an incentive, you know.
Governor WHITMAN. Well, we believe that is appropriate to look at what is appropriate to do. But you have to understand, Congressman, we also have very strict standards for our schools. We have standards and accountability; we have never had that before, and there is nothing under consolidation that would allow for a reduction in the standards, and I want to make sure—coming from a State that when I took office was No. 1 in the Nation on what it spent on its student on average but 37th in what reached the student in the classroom, we weren't doing things right, and we weren't helping our students. So, I believe that we should be willing to look at changes, because, provided, they are geared to helping both the students and the taxpayers, and they can do both of those things.
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Mr. TOWNS. Let me raise this one—you know, I am trying to be impressed, but I am having difficulty. It does not make sense to me to continue the tax cuts while at the same time you are increasing the State debt. I am referring to the $2.7 billion in pension bonds issued by the State. You look good, but the next Governor is going to catch hell.
Governor WHITMAN. Actually, it is quite the opposite. The next Governor is going to be in a very good position, and I am glad you brought up the pension bond, because I know a lot of the people who have been doing some of the research on the other side of the aisle have been kind of fixated on that. We had an unfunded pension liability, and I don't know about you, Congressman, but I think that is a real liability. It was never the intention, I don't believe, of anyone in State government not to fund our pension system, and for them to claim anything else is disingenuous at best. So, that was a liability of the State. We had this liability of $4.25 billion, and it was funded through the pension system at an exorbitant rate of 8.75 percent over a 60-year period. As you know, the economy has gotten better; the market has gotten better, and what we did is we refinanced that. We paid off some of it, because we were able to pay it off. We refinanced it at 7.64 percent, and we reduced the time of the payments to 36 years—32 years, excuse me, and we are saving the taxpayers of the State of New Jersey $47 billion over the life of this. That is a significant saving, and that is an important saving, and unlike what I found when I walked into office—when I walked into the office, the second budget, I was hit with a $400 million unanticipated spike in debt service, left me by the previous administration. These payments, we have paid them, we have frontloaded, so we paid, and now it is going to be smoothed out and subsequent administrations are going to know exactly what they are going to pay. It is less because we were able to well manage this, and, in fact, we have seen an increase and are subject to appropriation debt by the stock market; our rating and our debt has gone up.
Mr. BURTON. Mr. Horn.
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Mr. HORN. Thank you, Mr. Chairman. Governor, I have been long impressed with your fine record. You have had a scandal-free administration, and you do deal with the nitty-gritty, and that is what Governors need to do, and I think what you have told us this morning shows you have been very successful. I read with interest your comment when considering what to do with the Federal surplus, ''I believe Congress should set aside funding for high priorities like Social Security and education.'' I agree with you on that, but I would give you another choice, I would be curious and like your advice. Another choice besides tax cuts which affect the present generation, to retire a lot of the national debt which will affect our grandchildren, and since we created most of that debt, and the Congress is the one that created it, that we ought to start retiring that, and I just wonder what your thinking is as to how we balance tax cuts for the current individuals that are working citizens versus retiring the national debt which has a heavy interest load and we could put that to a lot better use.
Governor WHITMAN. Well, Congressman, I appreciate what you are saying, and I well understand the burden of the debt that we all pay for over time, and all that I want to do is to urge you to look at the record of the States where we have cut taxes and see what their impact has been on economic growth. What we need to see is increased growth. I don't believe it is an either or in any of these circumstances, and that is the argument that you hear so much—you can either cut taxes or you can address the debt or you can address Social Security. I can believe that you can do some of almost all of that, and all I am saying is that I believe that tax cuts should be part of the mix that is being considered because of the stimulus they will have to economic growth. We have seen it occur; we have seen increased savings; we have seen increased investment; we have seen increased expenditures in our State which has given us more in revenue, so that we are able to do more in those areas where we need to do it, and we have reduced some of our debt payments. We have restructured our debt, as the Congressman brought out, and it is a charge that is leveled on a regular basis with some misunderstanding of fact. We have, in fact, been able to restructure that debt in a very positive way. I wouldn't presume to tell you how that balance should be. All I want to indicate is that as we have seen—and you will hear from the other Governors who will be testifying—that tax cuts can stimulate an economy and can provide more in revenues to allow for an even greater attack, perhaps, on the deficit over the years.
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Mr. HORN. Well, I thank you for that answer. Let me throw out one other program on the table that I was a strong supporter for, and this is revenue sharing. Revenue sharing occurred because the Ways and Means chairman, Wilbur Mills, decided that you needed to do something to please mayors and, perhaps, Governors, and he quit sitting on that bill, and it lasted from roughly 1973 to 1983 when, unfortunately, a Republican President let the majority in the Congress, which was Democratic, kill it. They have never been for it; the lobbyists all over Washington had never been for it, and yet what it did was return money to the communities, to the States, and they are the people that know what the needs are better than we do sitting in Washington. What do you feel about revenue sharing if we have continuing surpluses?
Governor WHITMAN. Well, I certainly agree that those closest to the problem have a better understanding of how to solve the problem and how to spend the moneys. My argument, I guess, would be, while I certainly would never say no to revenue sharing as the State that gets the least back from the Federal Government—we send about $17 billion more down here a year than we see returned to New Jersey—that we would like to see fewer regulations; we would like to see some of the formulas on programs a little more equitable for our State and that we could do more with that with less regulation. However we get the money back, we will take it, don't get me wrong; I am never going to say no to that, but, again, I believe you can do that within the context of still considering tax cuts, and, to me, from the State of New Jersey's perspective, I don't know that we are going to get a better shot at seeing some more equity than through tax cuts, as, again, we may not send the most down here, but we get the least back than any other State. I want to see my citizens get the kind of relief that they deserve from the Federal Government.
Mr. HORN. Well, thank you very much. Thank you, Mr. Chairman.
Mr. BURTON. Thank you, Mr. Horn. Mr. Ford.
Mr. FORD. Thank you, Mr. Chairman and, Governor, good to see you; glad that you are here. Just to piggyback on what my colleague, Mr. Horn, has said, as you know we are dealing with this issue right now here in the Congress, and all of us, I think, support tax cuts. One of the concerns we have is things are going so well, we know we have these debts and obligations as you have in New Jersey, and some of us on both sides of the aisles just feel that we ought to take care of some of those debts and obligations before we go spending the money. I mean, if you have a family of three children that are going to go to college and you hit the lottery, it would be foolish to go to Atlantic City and spend all the money before you take——
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Governor WHITMAN. Oh, no, I think you definitely ought to come to Atlantic City to spend it.
Mr. FORD. We would like you to come down to Tunisa, where I am from, if you really want to spend the money. But it would be foolish to go and waste all the money and then come back and complain when you have lost all the money when your kids are getting ready to go to college.
As you know, we are running into a time period where Medicare will run out of money and Social Security is expected to run out of money. The strength of the economy has extended the solvency of both of the programs, we well know, but we are in the process of debating—as we speak, on the floor right now, we are debating the budget resolution rules, and one of the key issues is what Mr. Horn talked about, and I would just like if maybe you could explore it a little further. I know you gave him an answer but we have an $800 billion tax cut that has been put on the floor by my colleagues on the other side of the aisle. I am a new Democrat; I want as many tax cuts as we can possibly get, but, at the same time, I want my kids to be educated, and I want all the other services which you have to balance in New Jersey, and my Governor and the other Governors who will testify before the committee have to figure out how to balance.
My concern is I just don't—I can't for the life of me figure out if we are still running a debt, we know we have obligations—Medicare and Social Security here at the Federal level—you can't answer those questions; I know you want to answer those questions one day, but you can't answer those questions now—but in your State, you were responding to my colleague, Mr. Towns, and I know before he left he asked the question regarding the tax cuts increasing the State debt by 30 percent, and you talked about the restructuring of the debt, but it is our understanding that it will end up costing taxpayers about $10 billion in debt service over the 35-year life of the loan.
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Maybe you can address that question as well as maybe give us some guidance up here. I know you folks at the State and local level pretend that we, in the Congress, are kind of neanderthal and have no sense of what is going on at home—I go home every weekend; I take issue with my colleagues who think that we in Washington are ignorant and disconnected from the American people. I am connected to my district, and I think I have a sense of what they want and if they want more dollars, but they also want good schools and good roads and not to have to pay high taxes. So, if you wouldn't mind responding to that meandering question or set of questions that I asked, I would appreciate it.
Governor WHITMAN. Well, the question on the debt is a very real one, and, as I indicated in my previous answers, it is not up to me to give you advice as to how to do it but simply to give you the benefit—to the extent that it is a benefit—of the experience that we have had in the State of New Jersey, and, as I indicated earlier in my answer on the debt is, what we have done in the debt of the State of New Jersey is taken all debt on the books and off the books and put it on the books. I think it is disingenuous to pretend that something like a pension bond, an ongoing obligation, is not a debt. It is a debt; you are going to pay that to the people who were relying on their pension bond security for their future. We have now fully paid that; that is fully funded, and it appears as debt where it didn't before; it was hidden off the books. There is a total of about $8 billion worth of that that we have been looking at.
So, you need to be honest about what your debt is and pull it all together. As I have indicated, we have been able to restructure that and save on the pension side of it $47 billion and shorten the lifetime of that, but bonding is an important part of government. I also believe very firmly that when you build roads and bridges, when you build schools, when you build prisons, those are things that are going to be enjoyed by future generations and just as many—there are very few people who can afford to pay for their house all up front and take the mortgage over time and particularly for new construction. We are doing the same thing, and that is appropriate. What you want to do is maintain it as a reasonable percentage of your appropriations, and we have maintained debt at just below 3 percent of our appropriations. That is where it stayed throughout my administration; that is where it was before, and that is manageable. It wouldn't be good fiscal policy if you were to say that you will never have a debt. There is going to be some debt, and as long as it is a bonded obligation for appropriate things that the people want and need that will be used over time and out the long-term, then I think there is nothing wrong with that as long as you keep it as a manageable percentage of your overall revenues and expenditures, and, as I say, we have it at just under 3 percent and find that to be a manageable amount, and we think it is the appropriate amount.
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Mr. FORD. Would you advocate that we do something similar to that here at the Federal level?
Governor WHITMAN. Your ability to control spending is very different than mine, and, therefore, I can only say that that kind of thing works well in our State. You will be hearing from other Governors who might have a slightly different balance ration than we do, but that certainly is one that is manageable for the State of New Jersey.
Mr. FORD. You Governors are very interesting people. You tell us the things that you think we are doing that are working but won't tell us the things that we ought to be doing and you know that we ought to be doing.
Last question, just sort of in a different issue with regard to education. We have a raging debate happening here in the Congress now and will come up. I serve on the Education Committee as well, Governor, and we will talk about the reorganization of ESCA very soon. What are your thoughts about a Federal role in education? I know some of us believe that the Federal Government can build prisons and roads and highways, and, perhaps, we ought to at a minimum explore and, perhaps, begin helping local and State governments find or create avenues to pay for school construction, and, as you know, the President's regime is calling for more accountability, tying that to funds and rewarding schools and school districts that are doing the right thing, and you sound as if you have a great interest and passion in doing the right thing and have been doing some good things.
Governor WHITMAN. Well, Congressman, I have to tell you that the concern I have is when I hear things like a little more control and management. We have spent a long time in New Jersey in developing our core standards in seven academic areas that I mentioned before, and they are very comprehensive. I would be very upset if the Federal Government told me I couldn't get Federal money if I didn't change those standards to meet something that the Federal Government had come up with, and almost every State that I know—it doesn't matter whether the Governor is Republican or Democrat; Jim Hunt has been at the forefront of educational processes. They have made real changes within their State educational systems and structures in order to enhance the education to our kids, and while the Federal Government, I believe, has the potential for a wonderful role of bringing in a lot of information, what are we competing against? What is happening in Japan and Germany? That is where our kids are going to have—they are going to have to be as smart as kids anywhere in the world, and each State can't reinvent that or do all the research that is necessary to find out how we continue to keep our standards at a world-class level, and that is where the Federal Government can help. Obviously, the Federal Government can help with dollars, it always can, but when they come with too much prescription that requires that you can only have certain kind of class days or class sizes or certain types of standards, that is when it starts to get away from what I think we have all thought education should be, is that the local determine with some overarching policy that ensures that children are getting the kind of education that will enable them to compete in the 21st century.
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So, as you look at this, my real concern is, well, I don't believe we should ever get dollars at the State level that come with nothing; just spend it on anything you want. I don't expect that to happen; I don't think it would be appropriate.
Mr. FORD. You are the first Governor to say that; we ought to mark that down, Mr. Chairman.
Governor WHITMAN. Well, it is something I have said over and over, and I wouldn't expect anything less from a responsible Congress, but I would also urge you to understand that the varieties not just between States but within school districts within States is such that it is very difficult to come up with Federal standards that aren't going to end up causing us to spend more time and more money just filling out papers and trying to reconfigure education to fit those molds than really making a difference in the classroom for the child.
Mr. FORD. Thank you, Governor; thank you, Mr. Chairman.
Mr. BURTON. Thank you. Mr. Kucinich.
Mr. KUCINICH. Thank you, Mr. Chairman. I just wanted to welcome the Governor, and, Mr. Chairman, I have a statement I will ask to be put in the record. Thank you.
Mr. BURTON. Without objection.
[The prepared statement of Hon. Dennis J. Kucinich follows:]
INSERT OFFSET FOLIOS 54 HERE
[The official committee record contains additional material here.]
Mr. BURTON. Governor Whitman, you have been an excellent witness, and you sure know your facts, and we really appreciate that. You have been a big help. You have proved your critics incorrect when you got elected and cut taxes and stimulated economic growth in your State, and you are to be congratulated, and I will look forward to working with you in the future.
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We will stand in recess until this afternoon when we will hear from Governor Huckabee.
Governor WHITMAN. Wonderful, thank you very much for the opportunity; I appreciate it.
[Recess.]
Mr. BURTON [presiding]. Governor Huckabee, welcome. Sorry for the delay. We have, on the floor, one of our census bills, and, as a result, we have a number of our Members who are members of our subcommittee that are down there debating and discussing that issue, because it is very controversial. It involves allowing local mayors and local officials to have a voice in the census, and so you will see Members coming in and out, and that is the reason why we don't have a lot of Members. On the Democrat side, I don't think they are of a mind to give a lot of credence to what our Republican Governors are saying, so that is why you won't see a lot of those Members.
Before I yield to my colleague for your introduction, Governor, we really appreciate you testifying, and your information will be regarded by all the Members as very important, for the record.
Governor Huckabee was the Lieutenant Governor of Arkansas in July 1996 and became Governor when Jim ''Guy'' Tucker, resigned, and, as you said in your news conference with us awhile ago, you are the first Governor, I guess, in history to cut taxes, and I am sure that was popular, and we are very happy about that. I would like to tell you, Governor, that in addition to having some very fine representatives from Arkansas representing your State, this fellow right here is from Magnolia, AR, and he is one of our strong right arms on the committee, and he does a great job. He told me to tell you that. I don't know why. Maybe he has political ambitions. [Laughter.]
And, with that, let me just say, I want to welcome you to the committee. We appreciate you being here. I know it is a big imposition for you to come all the way from Arkansas, and, with that, let me introduce Asa Hutchinson to welcome you.
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Mr. HUTCHINSON. Thank you, Mr. Chairman, and I appreciate this privilege and express my greetings to Jay Dickey, my colleague, who is at the table as well. I am delighted to have this opportunity to introduce my friend and the Governor of our State, Mike Huckabee. I want to congratulate you first for the outstanding session that you just completed that drew bipartisan praise from all areas for the leadership that you provided in passing a much needed highway program, providing tax relief initiatives I know that you will talk about, including deregulation of the electric industry, and more realistic laws dealing with teen violence. You are dealing with the same issues that we are trying to address here in Congress, but you have had a very successful session, and all of those were achieved under a balanced budget.
I have known Governor Huckabee since he first entered public life. From the beginning, Governor Huckabee demonstrated leadership and personal strength in his service to the people of Arkansas. This was apparent during the turbulent days and the transition after the resignation of former Governor Jim ''Guy'' Tucker when then Lieutenant Governor Mike Huckabee avoided a constitutional crisis by his firm and principled address to the people of Arkansas leading us out of that unfortunate circumstance, and since that time, the Governor has led a number of successful and innovative initiatives into law. I think that his success shows that by applying a little common sense to the everyday function of government, we can, in fact, provide better services with less bureaucracy and lower taxes.
During his tenure, Governor Huckabee has overseen a comprehensive tax relief package that we are unaccustomed to seeing in Arkansas that included as one of his initiatives the elimination of the marriage penalty. This is a goal that we have been pursuing here in Congress, and I am greatly interested in hearing the Governor's insights on this matter.
Again, Governor, I congratulate you on providing better government services at lower taxpayer cost. That should be the goal of everyone who works in government, and I and my colleagues look forward to hearing from you about which way we, in Congress, might incorporate some of the initiatives that you have been so successful in in Arkansas. Thank you, Mr. Chairman.
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Mr. BURTON. Thank you, Representative Hutchinson. And, with that, Governor, welcome, and we would enjoy hearing your remarks.
STATEMENT OF MIKE HUCKABEE, GOVERNOR, ARKANSAS
Governor HUCKABEE. Thank you, Mr. Chairman. I want to say to you and the members of the committee a special thanks for giving me the opportunity. Quite frankly, hearing that wonderful introduction was worth the trip to Washington, and if my good friend and colleague will promise to give it again, I may show up again.
I am really proud of my home State and particularly proud of two of our Congressmen that I call friends, very close friends while I have campaigned and worked and been able to see some things happen with Arkansas. Asa Hutchinson and Jay Dickey who sits here today I hope as my friend and colleague. Having watched many hearings on television, I expect him to whisper in my ear and tell me what I am supposed to say as we go through this hearing today.
I do want to express that as we approach tomorrow and what is not so, perhaps, popularly known as tax day, many Americans will be reaching for their checkbooks and also for their antacids, recognizing that it is going to be time to once again face the music of that tax system in our country.
In the States, we have been able to bring about some things that we hope will happen in epidemic proportion across the country, and that is a real sense of bringing fairness back to the American family. I would like to try to remind people in talking of tax cuts that it is really a matter of shifting the power from government to families and from government to individuals, because tax cuts are really not just an economic issue; they are an issue about giving people the power to spend the money that they, in fact, have gone out and worked very hard to earn in the first place.
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I sometimes get amazed that government can operate in what amounts to, at times, a vacuum, and, in our State, one of the things that we have done to try to combat that is to require every one in the executive branch of government who has a job at policy level or above to get out and go to work one-half day every month in some State agency in which their particular has a relationship. That includes, by the way, the Governor, and over the past 2 1/2 years in my tenure as Governor, I have worked at the counter of a tourist information center and passed out literature to guests who were coming into our State, some of whom were rather surprised to find that the person behind the counter passing out brochures and maps was, in fact, the Governor. I think they thought that maybe it was a moonlighting job for me, but it was quite an experience.
I have also spent time being an intake worker at a local Department of Human Services office, literally talking to welfare moms and taking down the information over the telephone or in person that would become part of their entry level form.
I have spent time at a Department of Finance and Administration counter making driver's licenses and photographing people for their driver's license, and it was that particular experience that led us to make a major change in the process by which people get car tags in Arkansas, a process that we would like to say was invented by the Flintstones; it had never been approved until 2 years ago when we changed the system from the most cumbersome, time-consuming, bothersome process in the whole world, one that was cursed by every Arkansan at the time of renewal, to the countries most efficient and technologically advanced system that truly has created a whole new way of doing things through the Internet or a touch-tone telephone without ever leaving one's home, instead of the seven pieces of paper that were required to be obtained from six different locations prior to getting a car tag. And the interesting thing is that we were able to make the significant changes in efficiency and do it and cut the cost of it by at least a dollar for Arkansans.
I have also spent time checking licenses on the Little Red River in Arkansas with wildlife enforcement officers in a variety of duties. Enrolling students in the University of Arkansas has been another one of my job assignments.
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But in every one of those, what I have learned is that government, in order to be more efficient, needs to understand that its basic purpose is not to see how much money it can make and take, but rather to see how much money it can give back to its citizens and leave in their hands to being with.
When I became Governor in 1996, there had never been a significant tax cut in the history of our State. I will never forget the conversation that I had with our director of finance administration, and as we were preparing for the session, I said, ''Richard, tell me, how many times have we had a tax cut in Arkansas?'' He looked at me; he looked at his deputy; he looked back at me, and he said, ''Well, Governor, we have never had one.'' Well, in 1997, we finally had one, and for the first time, we were able to bring taxes to a new level of at least becoming more fair.
Some of those tax provisions included the elimination of the marriage penalty. We also created tax relief for the poor by exempting people below the poverty line from any State income tax. We indexed the income tax rates in Arkansas, the first time that that had been done since 1971. We doubled the dependent child care credit in our State. We also, in order to correlate with Federal, law exempted capital gains on the sale of personal residence. We saw additional relief to Arkansas' elderly population by creating what we call the Circuit Breaker Act, providing cash rebates to low income Arkansas taxpayers who are 62 and older. These rebates were based on their real property tax which was paid on their personal residence. We also passed a bill that created the working taxpayer credit. The credit was based on a portion of the Social Security tax that was provided—or paid to provide the retirement benefits.
All of those tax reforms were in the first session that we had in Arkansas and which I was Governor, and I want to say that it was a bipartisan effort that made that possible, and I know that your committee has to look at things in that fashion. It is very important to know this that I didn't do that by myself, and I preside over the most lopsided legislature in the entire country. There are more Democrats and fewer Republicans in our State legislature than any other legislature in the country, and yet we were able to bring about tax cuts, and so I think it is important for me to tell you that even though I am a Republican Governor, this is not about parties, this is about the principle of giving people back the money that they have earned, and I couldn't have seen that through had it not been for Democrats who agree with me that individuals and families should be empowered to spend their own money, and, for that, I am grateful for our legislature in recognizing that.
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In the most recent legislative session, we were able to make some other strides in tax reform. We fought for a long time for capital gains tax reduction. I believe it is as much an economic development incentive issue as it is a tax issue, but we were able to, for the first time, cut capital gains taxes across the board by 30 percent, and, quite frankly, our hope is to eventually eliminate capital gains taxes altogether, and I believe, and I believe many of the colleagues in the legislature join with me in believing that in doing so, the ultimate benefit will be greater investment and a much more stimulated economy which will not result in fewer dollars of revenue but greater dollars of revenue in the long run, not only for the Treasury to operate our schools and to provide for highways and basic human services that are needed, but also which will provide for a greater stimulation in the private sector and in the market-based economy.
In all, the tax cuts that we have enacted went to the heart of an issue that is very much on the surface in Arkansas right now, and that is property taxes, and even though Arkansas property taxes are probably not the highest; in fact, they are not very high at all compared to many other States, the process of their actual execution—I use that word advisedly—are some of the most onerous in the country, because they are so varied from county to county, and one of the things we did in this most recent session was to create a uniformity in the system. We established the property taxpayers' bill of rights, and we brought about a proposal that will be an amendment to our constitution in the 2000 election which, if passed, would provide about $325 per homeowner of tax relief. All of those issues are issues that happened because we worked in non-partisan spirit. It was not so much that we divided ourselves up and said let us work together. We simply looked at the issues and decided that tax fairness and tax reform would be good for Arkansas whether it was good for any of our political careers, but, quite frankly, I don't know of anyone who was ever defeated in politics for proposing that the government took too much money and that people needed some of it back.
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My purpose today in being here is to express, first of all, my appreciation to you, Mr. Chairman, and to the members of this committee for your diligence in trying to bring about true reform in government, to make it so that the States will have the empowerment to carry out programs like welfare reform, which thanks to the Congress working with us, is working. We have seen 44 percent of the welfare rolls cleaned up in Arkansas in a year and a half of implementation. Many of the critics of welfare reform said if we did that, if we cut taxes, if we reformed welfare and caused people—forced them to go to work, and if we did that at the same time, that what we would end up with is huge unemployment lines. Mr. Chairman, I am happy to report to you that today in Arkansas, we have the lowest unemployment rates in the history of our entire State, and we have the highest earning rates for people in our State; the lowest number of people in poverty, and last year, we had a record number of new job creations, many of which were jobs created in the technology sector; those jobs paying sometimes as much as 50 percent of the base level salary that Arkansans had previously enjoyed.
So, I think what we are proving is that responsible government, which includes tax cuts, the form of the system, localized control as much as possible, is not a detriment to good government or their economy, but is, in fact, the only thing that really does make it work.
I know that there may be some questions. I would like to conclude my remarks with something that I hope you find, perhaps, a bit enjoyable. A friend sent it to me, and I couldn't help but think how appropriate it was in light of our conversation on taxes today, and it is a story of what would be if Noah were to be instructed by the Lord to build the Ark in today's modern times, and I thought it might be a nice closing comment for me to make.
And the Lord spoke to Noah and said, ''Noah, in 6 months, I am going to make it rain until the whole world is filled with water and all the evil things are destroyed, but I want to save a few good people and two of every living thing on the planet. I am ordering you, I want you to build an ark,'' and in a flash of lightening, he delivered the specifications for the ark. ''OK,'' Noah said, trembling with fear and fumbling with the blueprints, ''I am your guy.'' ''Six months and it starts to rain,'' thundered the Lord, ''and you better have completed my ark or learned to swim for a long, long time.'' Six months passed, the sky began to cloud up, and the rain fell in torrents. The Lord looked down and he saw Noah sitting in his yard weeping, and there was no ark. ''Noah,'' shouted the Lord, ''where is my ark?'' A lightening bolt crashed into the ground beside Noah. ''Lord, please forgive me,'' begged Noah, ''I did my best, but there were some big problems. First, I had to get a building permit for the ark's construction, but your plans didn't meet their code. So, then I had to hire an engineer to redo the plans only to get in a long argument with him about whether to include a fire sprinkler system. Then my neighbors objected, claiming that I was violating zoning ordinances by building the ark in my front year, so I had to apply for a variance from the city planning board. Then I had a big problem getting enough wood for the ark, because there was a ban on cutting trees to save the spotted owl. I tried to convince the environmentalists and the U.S. Fish and Wildlife Service that I needed that wood to save the owls, but they wouldn't let me catch them, so, I am sorry, Lord, but no owls. Next, I started gathering up the animals, but I got sued by an animal rights group that objected to me taking along just two of each kind, and just when that suit got dismissed, the EPA notified me that they couldn't complete the ark without filing an environmental impact statement on your proposed flood. They didn't take too kindly to the idea that they had no jurisdiction over the conduct of a supreme being. It was then that the core of engineers wanted the map of the proposed flood plain; I sent them a globe. Right now, Lord, I am trying to resolve a complaint with the Equal Opportunities Commission over how many minorities I am supposed to hire. The IRS has seized all my assets, claiming I am trying to leave the country, and I just got a notice from the State that I owe some kind of use tax. Lord, really, I don't think I can finish the ark in any less than 5 years'' And, with that, the sky cleared, the sun began to shine, and a large rainbow arched across the sky. Noah looked up and he smiled, ''You mean, God, you are not going to destroy the world?'' he asked, hopefully. ''No,'' said the Lord, ''the government already has.''
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And, with that, Mr. Chairman, I will conclude and receive questions.
[The prepared statement of Governor Huckabee follows:]
INSERT OFFSET FOLIOS 22 TO 39 HERE
[The official committee record contains additional material here.]
Mr. BURTON. I think you ought to give me a copy of that, Governor. I would like to use that in my next Lincoln Day speech.
Governor, let me start off by asking you what the overall economic impact has been in Arkansas because of these tax cuts and reforms.
Governor HUCKABEE. First of all, our State government has had a surplus. In fact, we had anticipated a $110 million surplus in this past year. The figures are going to be more like $191 million of surplus. We think it is directly the result of both a very healthy economic, but we also believe that it is in part due to the tax cuts that were implemented.
It is very clear that the $90 million of tax cuts that went into effect even in the last year were very helpful in causing people to take that money that was due to them and to spend it in the marketplace. And the more they spend, the more things have to be put on the shelves, and the more things have to be manufactured and shipped and serviced, and everybody wins.
Mr. BURTON. Did you receive a lot of opposition from various groups about the tax cut? What kind of opposition did you experience?
Governor HUCKABEE. Mr. Chairman, we did receive opposition from, I would say, the usual suspects. There are always those who think that government needs more money and more control. But the good news is that their numbers are dwindling in Arkansas, and I think began to see in our State that taxes were, in fact, onerous on many of our families and were willing to give this a try. The result has been, as I have already indicated, a very positive one.
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In this last session, I think the paradigm has truly been moved from coming to the legislature every 2 years in our State, talking about which taxes we would raise, and by how much. Now the discussion centers, when we get together, on which taxes we will cut, and by how much.
Mr. BURTON. You know, we all live by polls anymore in Washington; I am not sure we should, but everybody looks at the polls on everything on tax reform to Kosovo, and I think it does have a bearing on people's decisions, decisionmaking processes. Has there been any polling data in Arkansas to find the reaction of the people toward your administration's tax cuts and tax reforms?
Governor HUCKABEE. Mr. Chairman, probably the most effective poll would be the election last November, and in a State that is considered to be predominantly, overwhelmingly Democrat, I was elected with 60 percent of the vote, and that was with a three-man race. It was a significant election and a decisive margin of victory.
I think, also, the size hit was that nearly 50 percent of the minorities in our State voted for me. It indicates that this crosses party and geographical, gender, cultural, and racial lines. People of all kinds want government to be less intrusive in their lives. People have dignity and want to be able to know that, when they come home tired every day from a hard day's week, that the money that they have earned, they are going to be able to direct its spending as much as is possible.
And people in our State—and we are a small State, and we are essentially a poor State compared to most; we would be the first to tell you that—but our people are proud and they are hard-working. They know that government ought to be there to do certain things. When they dial a 911 call, they want someone to answer it. They want our schools to be decent and our kids to get a good education. But what they don't want is government that goes way beyond the essentials and the basics.
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I think that as people are realizing that tax cuts do not hurt public education, it doesn't hurt healthcare for children—and, in fact, Mr. Chairman, it was 2 years ago that we launched a very innovative children's health initiative called the Our Kids First Program that really is in the long term a very fiscally responsible approach, because it recognizes that preventing illnesses and diseases is less costly than waiting until they are in catastrophic condition and then treating them. I think tax policy is the same kind of approach that we try to look at in Arkansas, not only looking at just cutting taxes for the next election, but trying to cut taxes so that we can stimulate the economy for the next generation.
Mr. BURTON. Let me just ask you one more question, and I might add, before I ask the question, that I went through radio training school in the U.S. Army at Ft. Chapee, AR, and the people at Ft. Smith were really great to me when I was down there. That was back in 1908. [Laughter.]
Let me end up by asking you, you know, we have heard a lot from the pollsters and from the people on CNN and all these talk shows, these talking heads thing, the American people really don't want a tax cut. Can you tell me in Arkansas if that is true?
Governor HUCKABEE. Well, we didn't have anyone turn it down. So the best way I could say it is that I think that they clearly did want the tax cut, and to my knowledge, not one single Arkansan, out of 2.5 million people, wrote us and said, ''Please, you all keep that. You are doing such a great job with it; we would like for you to just hold onto it a little longer.''
Mr. BURTON. OK, thank you, Governor.
I think we will go to Asa, since he was the next one here.
Mr. HUTCHINSON. Thank you, Mr. Chairman, and I will just ask a couple of questions and give my colleagues an opportunity as well. I want to ask two questions, one referenced to property tax.
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I know that in the last session they were concerned about the attitude of the people, but the people of Arkansas really were initiating a referendum, a property tax reduction on the ballot, and the legislature addressed that. Could you explain how that pressure worked and how the legislature responded to it?
Governor HUCKABEE. Congressman, as you are well aware, being from Arkansas, there was a real scare because on the ballot, just before the election, an initiative was there that would have completely eliminated property tax. And while that sounds very appealing, all of us understand that, while we want to lower taxes, we can't eliminate them altogether and still give people a decent government.
This particular proposal would have had a devastating impact on our economy. It would have literally cut our budget by about 35 to 38 percent, which would have devastated our schools. We are already 50th in per-pupil expenditure in terms of student spending.
So many of us fought back that measure, and we said that, if you will give us a chance in the next legislative session, we will do everything possible to bring three things: establish a taxpayer bill of rights, reform the system, and bring some relief to taxes.
Just prior to the election, the Arkansas Supreme Court took that initiative off the ballot for a misleading ballot title. So we sort of dodged the bullet in terms of the vote. But I knew, and so did the legislators, to their credit, that we needed—in fact, we were obligated—to take responsible action in fixing the property tax system, or else it would come back to the ballot in the year 2000.
To the credit of the legislators—and I want to give them 99.9 percent of the credit—they were willing to work hard to make sure that we did accomplish those very three objectives. The property taxpayers' bill of rights will give every citizen detailed information, not only about what his or her rights are in regard to appealing a property tax verdict they don't like, but also detailed information about how the money is collected, what it is used for, and exactly how it is spent, with the process for them to appeal on their own terms and, frankly, in their own timeframe, as to when they can work with it.
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Second, the property tax reform, a number of reforms where we will have uniform assessment across the State; we will also have it in a timely way, so we will not have huge jumps. This is one of the things that triggered the revolt in our State, as you will recall, where people went for 10 years without a reassessment, and when it was reassessed, it was the jump in the property tax that was the sticker shock that caused many of them to feel very angry. And the final issue was the relief, and even though we enacted certain things that we could do statutorily, some of the issues have to be carried out through the constitutional reform. And on the year 2000 ballot there will be a measure that will give Arkansans a choice to make, if they want to enact a significant property tax reduction, and if they do, then it will come in the form of a tax credit on their homestead exemption of about $40,000 to $42,000 per homestead, which will amount to around $300 to $325 per homeowner.
Mr. HUTCHINSON. I was impressed with the legislature and your leadership, responsibly dealing with that energy out there to reduce property taxes.
Then, finally, I wanted to just mention, and particularly for my colleagues to hear how it works in Arkansas, the revenue stabilization act. Some of the pressures that we face in Washington are the approaching or escalating expenses for government each year. In Arkansas, if you could just explain how the expense side of government works, and how it is budgeted so that you do not exceed your budget and have deficit spending each year.
Governor HUCKABEE. Well, if there is anything that perhaps Arkansas could export to Washington that would be of great benefit, it would perhaps be the revenue stabilization act that was enacted several decades ago. It basically requires that we have a balanced budget; that we do not go into deficit spending. It is constitutionally prohibited.
And the revenue stabilization act provides that, as we develop our entire budget, we do so with budget categories—categories A, B, C, and we could even categorize a D category, though we typically do not. As money flows into the State treasury, those items are funded according to the priorities in which they are established. Our forecast is carefully monitored, literally on a daily basis. And whenever we are below forecast, that immediately is applied to the spending that government agencies are allowed to utilize from that budget flow. So that at no time during the entire biennial budget—and we have a biennial budget—is there a point at which the agencies are spending beyond not only what they were budgeted, but what is actually flowing into the treasury. And it gives us a real clear management tool to ensure that there is not deficit spending and that there is proper management throughout the entire biennium.
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Mr. HUTCHINSON. Thank you, Mr. Chairman, and thank you, Governor.
Mr. BURTON. Mrs. Morella.
Mrs. MORELLA. Mr. Chairman, I would be glad to ask a question, but there may have been others ahead of me who are here.
Mr. BURTON. If you prefer, we will go ahead to Mr. Horn.
Mr. HORN. Thank you very much, Mr. Chairman.
Governor, it is a great pleasure to see you. We are delighted with what you have accomplished in Arkansas in such a short time.
The Governor Whitman testimony this morning, she noted that we need to invest some of that surplus that we have, or think we have, in Social Security and education. And I asked her a question that I want to also ask you and the other Governors.
Obviously, tax cuts are one option, and we are doing some of that. And I guess I would ask the question, to what degree do you think we ought to be also reducing the national debt, which is $5.3, $5.5 trillion? A tax cut is good for your and my generation. Reducing the national debt would be good for our grandchildren. And I feel very strongly since Congress, not this Congress, not the last Congress, but the Congresses of the last 40 years, up to 1995, just had a spending spree. The Republican Presidents should have vetoed a lot of it, but they didn't, and they were wrong. They should have gone right to the mat.
But there we are at $5.5 trillion. What advice would you give on how we split that supposed surplus?
Governor HUCKABEE. Congressman, first of all, I would be very reluctant to try to give advice to Members of the Congress. I have enough trouble dealing with our issues back home in Arkansas.
Mr. HORN. Everybody else does; I don't know why you shouldn't. [Laughter.]
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Governor HUCKABEE. But I would just express an opinion that I don't think the tax cuts and a responsible managing of the deficit have to be enemies. I think that they can be parallels of the same track upon which this train of a strong economy can run. Certainly it is important to reduce the long-term indebtedness that the United States has, but it is also important to give people who have earned money an opportunity to direct the expenditure of that money. By the same token that we could create a real undue burden on our grandchildren by not reducing the deficit, we are also really creating an undue burden on the worker today for the sins of the past for his or her grandfather. And while I am concerned about our grandchildren, I am also concerned that we need not to penalize today's American worker for the sins of our ancestors, who perhaps did spend us into this kind of deficit.
So responsible tax cut in the context of overall economic planning, I don't think has to be inconsistent. I think it is a very consistent approach, and one I would hope that would take place.
Mr. HORN. Well, I agree with you on the deficit. We can't be putting out any more deficit budgets. We have to put a stop to that—even though the President has not been very cooperative in the sense of giving us his list of what he wants to see cut. He has a lot of new programs. He has operations all over the world in the military, and yet, we never get a recommendation from him as to what he thinks we ought to cut. And that isn't leadership, in my humble opinion.
But what I am thinking of is, one, having budgets that have no deficit. No. 2, start to take away some of those bonds that are out that cover up the national debt and see if we can't reduce that, and with that, hundreds of billions of dollars in interest annually. Lyndon Johnson ran the Vietnam War and the whole government on a $200 billion budget. Now that kind of money goes to pay the interest rates. And the sooner we can get it down, the less a burden will be. Still, if we live long enough, to Strom Thurmond's age, you and I will still be paying it, and our grandchildren and great grandchildren will also be paying it. So I am looking to see if we can't get rid of some of that national debt.
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[Governor Huckabee shakes head.]
Mr. HORN. I don't know if you shake your head affirmatively or negatively.
Governor HUCKABEE. Oh, I mean, I think your point is well taken. Let me add this one comment as regards to the debt.
One of the most effective ways to be able to have the capacity to draw down the debt would be to give the economy the kind of stimulation where people would earn more. When they earn more, they will spend more. And when they spend more, even if the tax rates remain similar or lower, we have discovered in Arkansas that we can lower our taxes, but actually bring more money into the treasury, because there is a greater level of economic activity taking place.
And I realize that there comes a point at which you can't lower the taxes so low, but, on the other hand, there is a point at which you can also only raise them so high, at which at that point it has, I guess, application of the law of diminishing returns.
So what I would think is that, with the tax rate lowered by the Federal Government, I think that while it may appear on the surface that it would decrease the capacity to go against the debt, I think the opposite will be proven to be true. And it has certainly been proven in our own States. Governor Whitman would tell you that, and Governor Battaglia will tell you that tomorrow, and Governor Gilmore will tell you that this afternoon. I would tell you that in my testimony this afternoon.
Mr. HORN. I think you are absolutely right on that. And if we want to really give tax relief, we would lower the burden of 15 percent on employer and employee, but really it is all out of the employee's pocket, as well as the employer's pocket, on Social Security or Medicare. That is the one that is truly a regressive tax that really hurts lower-income people, and we ought to be doing something about that, too.
[Governor Huckabee nods affirmatively.]
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Mr. HORN. I take it you are nodding that we——
Governor HUCKABEE. I think it is a great idea, absolutely.
Mr. BURTON. Mr. Horn, we all agree with you.
Mr. HORN. Good.
Mr. BURTON. Mrs. Morella.
Mrs. MORELLA. Thank you.
We are honored that you appear before our committee, Governor Huckabee. You know, I used to represent in their home away from home both Senator Bumpers and Senator Pryor, and I want you to know—they are no longer there—but I want you to know you are represented by some great Members of Congress. You have got one sitting right next to you, to your left, Jay Dickey. He is a real admirer. He talks about you often—and Congressman Hutchinson, who was here, who represents as well. So I want you to know that.
I am also on the District of Columbia Subcommittee, and I just had a meeting earlier today talking about the possibility of tax cuts for the District of Columbia people, since we have been doing a lot of revitalization quite successfully. Their income tax is among the highest in the Nation. They have like five different levels of corporate tax. And they have a surplus. So it sounds like it has got the right environment for it.
But I asked then a question I would ask you: Where does the opposition come from? The answer I got: Well, you are going to have those groups who say you need to put more money into health. You are going to have those groups who are going to say you need to put more money into education. Instead of giving tax cuts, let's spend this money on something where we can see some effect that would be beneficial for the public.
Now I want to ask you before—my first question within a question is: Where does Arkansas rank in terms of the per-capita expenditures on education?
Governor HUCKABEE. We are 50th.
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Mrs. MORELLA. I thought I heard you say that.
Governor HUCKABEE. Yes. That is correct.
Mrs. MORELLA. That is why I picked up on it.
Governor HUCKABEE. Right. We are 50th in the amount of money that we spend on a per-pupil basis. So our State has a long way to go in terms of spending. Now the good news is that we are 32nd in terms of our overall academic results—proof positive that it is not just money that equals good education. It is good, dedicated teachers. It is a disciplined environment in the classroom. It is a good curriculum. It is the parental involvement. And it is, I think, a lot of local control at the school board level and the campus level. All of those are important factors, as well as how much money flows to the student.
I think we could all look at surveys that show that some school districts in which the expenditures are extraordinary don't produce academic results that are better or even equal to other districts who don't have that kind of money, but they do have the strong sense of parent involvement. They have a strong sense of discipline in the classrooms.
Mrs. MORELLA. I agree.
Governor HUCKABEE. So I think while I would certainly want—and one of my goals as a Governor, quite frankly, is to make—before I leave office, Arkansas is no longer 50th, and we have increased education funding, and I want to do it more. But I don't think there is a conflict between that and being able to also cut taxes.
Mrs. MORELLA. Did you hear from like the teachers' groups and parent groups about that?
Governor HUCKABEE. We heard from the teachers' union about that. Certainly they were apprehensive about tax cuts, and there were other providers. Quite frankly, Congresswoman—and I know you know this very well, as I do, because of your position—there are a lot