REMARKS BY SENATOR McCAIN TO THE HERITAGE FOUNDATION
March 26, 2009
“I appreciate that kind introduction. And thank you for all the good work the Heritage Foundation does to protect the interests of the American taxpayer. I especially applaud the ‘Fiscal Wake-Up Tour,’ your joint project with the Brookings Institution and Concord Coalition to explain and publicize the serious long-term fiscal challenges we face, and propose sensible, bipartisan policies to resolve those looming and dire threats to the solvency of the United States.
I’ll begin today by highlighting some cold, hard facts of our current fiscal predicament. Our current national debt is $10.7 trillion. The projected deficit for 2009 is $1.7 trillion. The total cost of the ‘stimulus’ bill enacted last month is over $1.1 trillion. We gave the Troubled Asset Relief Program (TARP) $700 billion but everyone expects that the administration will request up to an additional $750 billion or more. President Obama recently signed an omnibus appropriations bill totaling $410 billion. Just last week, the Federal Reserve pumped another $1.2 trillion into our markets, and the President has submitted a budget request of $3.6 trillion. If the CBO’s projected deficits in the budget’s out years prove close to accurate, by 2019 Americans would owe a debt that is over 82 percent of GDP, double our debt’s current share of GDP. As Judd Gregg accurately warned this past weekend, the nation would be bankrupt, and the America our children and grandchildren inherit would be, for the first time in our history, a land of limited opportunities.
China owns nearly $2 trillion of our debt. Because of the global economic downturn, the Chinese are now focused on pumping their money into their own economy. I believe one of my colleagues said it best when he warned, ‘The only thing worse than China holding so much of our debt, is China declining to finance any more of our debt.’ Buying our national debt is no longer a very attractive investment for the Chinese, and given the explosion in debt currently envisioned in the President’s budget, an even less inviting one in the future. We see evidence of this approaching predicament brought on by their well founded concerns about the dollars declining value, and in China’s recent suggestion that the world should consider a new international currency to replace the dollar.
We are in the midst of a severe recession. The U.S. Labor Department announced that employers cut another 651,000 jobs in February, raising the unemployment rate to 8.1 percent in February, the highest since 1983. The Labor Department also reported that job losses in December were the biggest monthly decline in jobs since October, 1949. These statistics are dire, and argue for government’s intervention to stimulate the economy. However, it would be an appalling dereliction of duty to use the ‘crisis’ caused by the global credit crunch, as some members of the administration have suggested, to excuse profligate spending that won’t hasten economic growth and that puts the United States on an accelerated path to bankruptcy. And it is, of course, unconscionable to spend any money in these difficult times on pork barrel projects that have little purpose other than to improve the re-election prospects of their authors.
I am aware that earmarks consume a very small percentage of a budget measured in the trillions. But given the seriousness of our current situation and the problems confronting American families, who wake up every morning wondering if they will lose their job or their house or if they will be able to afford their children’s education, it is deeply, deeply offensive that Congress will not stir itself to relinquish any of its self-serving prerogatives in solidarity with the people we serve, who have had to tighten their own budgets, change their spending habits and temporarily, at least, restrain their ambitions. It’s all the more offensive given that we have had in recent times all the evidence we should require to understand that earmarks are, perhaps, the most common means by which Members of Congress betray themselves and the country with acts of official corruption.
The $410 billion omnibus appropriations bill contained approximately 9,000 earmarks. While change has been promised, it has not been delivered by either the Congress or the President. According to Citizens Against Government Waste, in 1991 there were 546 earmarks totaling $3.1 billion. In 2008 there were 11,610 earmarks totaling $17.2 billion – an increase of 337 percent in seventeen years! The numbers for FY 09 are shaping up to be just as bad, with this year’s total earmark tally nearing 12,000.
Thirteen earmarks from the omnibus spending bill, totaling nearly $9.4 million, were directed to clients of the PMA Group, a lobbying firm recently forced to close their doors after being raided last November by the FBI for suspicious campaign donation practices. That firm remains under investigation today.
Last month, Senator Feingold, and I, along with Senators McCaskill, Burr, Lieberman, Graham, Coburn, and Corker, offered an amendment to curtail the earmarking practice once and for all. We didn’t have the votes, but I was pleased that thirty five senators are now on record supporting serious reforms. Our goal is to curtail the practice, not merely to help publicize who is bringing home the bacon, which is really all that the 2007 Lobbying and Ethics Reform Act did with respect to earmarks.
If Congress refuses to reform itself, which, sadly, is usually a reliable presumption, the next best thing is to provide the President with line item veto authority. Recently, Senator Feingold and I, along with Congressman Paul Ryan, introduced legislation to grant the President specific authority to rescind or cancel congressional earmarks, including earmarked spending, tax breaks, and tariff benefits. Granting the President the authority to propose rescissions which then must be approved by the Congress could go a long way toward restoring credibility to a system that encourages waste, special interest pork, and outright corruption.
Regrettably, the so called ‘bipartisan stimulus compromise’ is further evidence that neither Congress nor the Administration are focused intently, as the American people demand us to be, on the immediate threats to our prosperity, but, to a great extent, are exploiting the crisis to advance narrower interests and policy initiatives that are best left for debate in better economic times. Let me be very clear – that measure was not bipartisan, contained too little that was stimulative in the near term if ever, and was hardly a compromise worthy of the name. The $1.2 trillion in new spending was simply a last-ditch effort to cobble together enough votes to pass a bad bill, much of which will not induce real and sustained economic growth.
As both a policy and political matter, it is vitally important that Republicans refrain from becoming or appearing to become the party that just says ‘no.’ During the debate on the stimulus bill, Democrats charged that those of us who opposed the measure saw no need for any stimulus at all. Nothing could be further from the truth. We understand fully the economic situation we are in, and we offered an alternative proposal to get our economy moving again while contributing less to our spiraling deficits and our ultimately growth choking debt. It was supported by every Republican member of the Senate – so don’t tell me we didn’t support a stimulus.
Our plan included smart, fiscally responsible spending; provisions to stabilize the housing market; cuts in individual and corporate tax rates, and established long-term mechanisms to control future spending and balance our budget. The total cost of the Republican alternative proposal was less than half than that of the total cost of the so-called ‘compromise’ measure that was enacted, and I would argue it was substantially more responsive to our current situation than the measure the President signed into law to great fanfare.
Our proposal would have helped fix the housing crisis, invested in our nation’s infrastructure through effective and restrained spending, put money immediately back into the hands of all Americans through a payroll tax holiday, and allowed businesses to keep more of their profits to hire new employees, invest in capital and expand their businesses.
Perhaps most importantly, our alternative provided a mechanism to stop the spending once our economy turned around, returning unobligated funding to the Treasury after two consecutive quarters of economic growth greater than two percent of inflation adjusted GDP.
I want also briefly to address the Troubled Asset Relief Plan (TARP). In January, I supported a resolution to oppose releasing the remaining TARP funds because I had seen no evidence that the additional and substantial expenditure of taxpayers’ money would be used for its intended purpose. TARP was created to allow the Treasury Department to purchase up to $700 billion in ‘toxic assets’ from financial institutions to help homeowners avoid foreclosure and to stimulate the economy. The misuse of the first $350 billion of TARP funds combined with the lack of transparency promised by former Secretary Paulson were reason enough to oppose releasing additional funds. It was my firm belief that no further TARP funds should have been released until we were able to impose strict standards of accountability and ensure the money was being spent only as intended by Congress – to purchase mortgage-backed securities and other troubled assets.
During the debate in January, in an open letter to Members of Congress, twenty six public interest organizations wrote that ‘(T)he stated purpose of the TARP was to purchase toxic mortgage assets. The TARP was also designed to reignite the flow of credit into the market and help stabilize Wall Street. To date, neither has been accomplished.’ The letter also stated that the Treasury Department ‘has invaded the free market, propping up some companies to the detriment of others and purchasing stock in banks without requiring accountability or transparency about the use of taxpayer funds.’
Less than two weeks after enactment of the program, Secretary Paulson decided to use TARP funds to recapitalize banks – a decision that was made with little or no input from Congress, and was an option that was explicitly rejected by Paulson and Chairman Bernanke when they were selling the TARP plan to Congress.
With no regard for Congressional intent, the Treasury Department used TARP funds to prop up the banking industry and to guarantee securities backed by student loans and credit card debt. But most troubling to me was the use of TARP funds to help bail out the domestic auto industry – in direct defiance of Congress. In December, after extensive discussion and debate, the Senate rejected a plan to pump billions of federal dollars into the domestic auto industry because we saw no evidence of serious concessions from the industry and no assurance of the domestic auto manufacturers’ long-term viability.
Rather than being granted an unconditional handout from the taxpayer, auto industry leaders should have been required to consider how they can restructure their business models in order to fix the problem themselves and build more competitive products – including changes in management, renegotiating labor agreements, and reorganizing under the bankruptcy process, steps they should have taken years ago. Unfortunately, that concern was ignored by former President Bush when he decided to give away over $17 billion in TARP funds to the domestic automakers with no assurances they would fundamentally change the way they do business to improve their viability. I continue to believe this was a critical mistake.
In their first oversight report on TARP spending, the Government Accountability Office (GAO) was very critical of the Treasury Department, stating that they had ‘failed to address a number of critical issues while implementing the $700 billion financial bailout plan, including how to ensure its efforts are successful.’ The report added that Treasury ‘has no policies or procedures in place for ensuring the institutions . . . are using capital investments in a manner that helps meet the purposes of the act.’ Additionally, the GAO reported that ‘Treasury cannot effectively hold participating institutions accountable for how they use the capital injections or provide strong oversight of compliance with the requirements under the act.’
It is abundantly clear there has been a stunning lack of transparency, accountability, and effective management of TARP funds to date. Should the administration request additional TARP dollars, I will not support the release of another dime of these funds without first seeing a full and complete accounting of funds already spent or committed as well as the imposition of very strict conditions on the remaining funds as a way to ensure that any expenditures reflect the intent of Congress.
The plan announced by Secretary Geithner this week is, I think, progress, at least in this regard: first, it is an actual plan; and second, it does address these toxic assets and their valuation.
I will reserve judgment on it until the administration explains it in detail. However, I’ve said before and I still believe the least bad option would have been for the government to determine solvent banks from insolvent ones on the basis of the ongoing stress tests; take control of insolvent banks and have a conservator sell off these assets. The bad banks would be dissolved and the toxic assets re-priced. This could include a public/private partnership to buy the assets, but very different selling circumstances. And I don’t know why solvent banks can’t dispose of these assets themselves.
We obviously are living in perilous economic times. But with resolute action and clarity of vision, we can emerge from this period with strong job growth, rising incomes, restored confidence, and the ability to meet our patriotic obligation of passing to the next generation the opportunity to make their lives safer, more prosperous, and more enriching than our own. Unfortunately, fate also tempts us with two far less virtuous paths. The first is to emerge from the crisis, but only by leaving behind a bill so large as to condemn our children to a life of paying our debts. The second is to mismanage the recovery entirely, bequeathing a weakened economy to accompany the bill for our misguided policies.
I believe there are three principles that should guide us in this effort. The first is that we should focus resources on problems. Our economy is suffering under the weight of a financial crisis, a housing crisis, and a consumer-led recession. Why, then, did we spend nearly $10 billion on pork and earmarks in the FY 2009 omnibus? Why did the ‘stimulus’ bill contain hundreds of billions of dollars in spending that will not take place for three years? Why does the President’s budget envision borrowing trillions of dollars for new initiatives in education, health care, energy, the environment, transportation, and technology – without any spending discipline or offsets? Of course, these sound like appealing initiatives. But whether you support or oppose these long term initiatives, addressing our most important and immediate problems should be our urgent priority.
Second, we must marry resources with principles. As I noted earlier, the financial crisis is the greatest threat to the U.S. economy. But we need to use the money in accord with proven principles of responsibility and competition to get this right. Failed, insolvent banks – zombies – cannot be permitted to continue to operate using taxpayer’s subsidies. These institutions should be taken over, their management and shareholders suffer the consequences of their failure, and the assets re-sold to private sector entities as fast as is feasible. Those principles – to discipline failure, promote real competition, and use assets effectively in the private sector – will make the expenditure of taxpayer dollars more effective, promote recovery, and support our obligations to the next generation.
The same principles apply to stimulus – which we’ve already gotten wrong once, and which we may yet debate again. Obviously, there are two ways to make an economy grow. One is to get more workers back into jobs and run our businesses to their potential. That’s the logic of Keynesian stimulus. It is self-admittedly only a patch that has no lasting benefits, as evidenced by the CBO’s finding that the stimulus bill will hurt the economy in the long run.
But why not marry the need for stimulus with the other kind of growth that comes from innovation, use our workers not only more, but better, and put our capital in the best place for the future, not just where it was when the recession started? That is stimulus that is focused on incentives. It will restore vitality to the economy – which we must – but in the process also leave our children a stronger economy.
Finally, we must respect the principle that solutions must be durable. If we fall prey to the siren song of short-run expediency, we will spend money in ways that we will just have to reverse in the future.
Sadly, I believe that the President’s budget is a leading example of this problem. President Obama is sticking five percent of Americans with the bill for a massive expansion of government. As budget policy, this is risky business and bad economics, and it is premised on a misguided approach to fairness that will not stand the test of time.
It is risky because the expansion – ushered in under the guise of ‘stimulus’ – has already taken place. Congress will undoubtedly keep the increased spending, but if it fails to enact higher taxes to pay for it, the deficit will remain close to a trillion dollars for the foreseeable future.
It’s bad economics. The antiquated U.S. tax code has driven an increasing number of businesses – especially the small, dynamic start-up ventures – to file their taxes as ‘individuals.’ Nearly one-half of Americans work in businesses with fewer than fifty employees – and we should focus on keeping those jobs and creating more of them. While the Administration argues that a miniscule number of businesses are affected by its proposed tax increases, a majority of small business income will be hit by them. Jobs are where the money is, and increasing taxes on jobs endangers the recovery.
It is a misguided policy toward fairness. Rising inequality is a thirty-year process with its roots in skills and education – not tax policy.
Lastly, insulating 95 percent of voters from the consequences of their electoral decisions is dangerous for a democracy. It is also misleading. Does anyone really believe we can expand non-defense spending to a record share of GDP, reform the health care system that is one-sixth of the economy, re-invent the energy portfolio that powers our lives, and drive next-generation broadband to every home while cutting taxes for 95 percent of Americans? It doesn’t add up. It won’t add up. And it won’t last.
I wish I could deliver a more upbeat message about the current state of affairs in Washington. Sadly, we have not devoted resources to the right problems; we’ve left our principles behind as we deliver check after Treasury check; and we will not be able to continue down this road.
But that is no reason to despair or abandon our efforts to right these costly mistakes. Rather, let us propose, reason, debate and exhaust every means to invest in the future of this country according to our faith in free people and free markets, a faith that has produced more good for more people than ever imagined in the most ambitious dreams of our founders. We might be standing at a moment when the great and accomplished history of the United States is about to swing on its hinge. Let us not exploit this moment, this crisis, for political gain or to establish a new governing conviction that trusts more in the wisdom and benevolence of government than the enlightened self-interest of the people. Let us use it as careful and temporary stewards of the nation’s wealth, and do, what every preceding generation has managed to do, bequeath subsequent American generations a land of unlimited opportunities.”