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CNN Novak, Hunt & Shields

Charles Grassley Discusses Bush's Tax Cut

Aired May 05, 2001 - 17:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MARK SHIELDS, CO-HOST: I'm Mark Shields. Robert Novak and I will question the Republican leader on tax policy in the U.S. Senate.

ROBERT NOVAK, CO HOST: He is Senator Chuck Grassley of Iowa, chairman of the Senate Finance Committee.

(BEGIN VIDEOTAPE)

(voice-over): Congress recessed for the weekend without passing the budget, but agreed this past week on $1.35 trillion in tax cuts over the next 11 years. That is less than President Bush's proposed $1.6 trillion that he wanted cut over 10 years.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: By finding common ground on an issue that divided the two parties throughout last year's campaign, Republicans and Democrats have today proven we can work together to do what is right for the American people.

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: He was dragged kicking and screaming to that number, and now has claimed victory. And I'm not supportive of this number.

NOVAK: The actual tax bill authorized by the budget will be considered by Congress during the next few weeks, and Senator Grassley, as Finance Committee chairman, will play a major role in that consideration. He assumed the chairmanship this past January, beginning his 21st year in the Senate.

An Iowa hog farmer who once worked as a machinist, he has a master's degree in political science and has served in public office continuously since his election to the Iowa state legislature in 1958 at age 25.

(END VIDEOTAPE)

NOVAK: Senator Grassley, the cut of the president's proposed tax cut has been reduced about 25 percent, almost. Is there enough money left to fund all the different things that the president wants as part of his tax cut, or are you just short of money?

SEN. CHARLES GRASSLEY (R), IOWA: Well, we're short of money to do very good tax policy. But remember, we still have the third largest tax cut in the last 50 years. One million Iowans will get some tax relief from this. The difference between $1.35 and $1.6 is basically that we'll be limited to the four major items of rate reductions, eliminating the estate tax, child credits and the marriage penalty. Income tax rates obviously the most important part of it and the most costly part. And each of those will be scaled down to some extent to fit in.

But what won't be possible is for a lot of other things that individual members are going to want to be put in. Those are going to have to be put off to another day.

NOVAK: Taxpayers, Mr. Chairman, who contributed a lot of money to President Bush and to Republicans in the hopes they were going to get repeal of the estate tax, really they're going to be disappointed. Now, obviously, you're going to have a chairman's mark or a first draft next week. Are you going to have total repeal of the estate tax in your chairman's mark?

GRASSLEY: This very weekend, some of that's being discussed, but I think that we're going to have repeal, yes. I support repeal. And I believe that we can make it work in to reduced numbers, and we'll be able to do it in a way so that people can see at a certain time the estate tax has gone.

If that isn't accomplished, it's going to be well down the road of maintaining the ability of small businesses and farmers, et cetera, that live relatively moderate throughout life, put their life savings into their business, to be able to pass that on to the next generation.

NOVAK: One more point, sir. Many people in the Republican community, in the think tanks, think the most important thing you can do for the long-range tax policy is to reduce the top rate from 39 percent to 33 percent. Will you get it down to 33 percent in your chairman's mark?

GRASSLEY: We'll not be able to do it in the chairman's mark because of the 50-50 makeup...

NOVAK: What will it be, then?

GRASSLEY: It's going to be a reasonable compromise, and I think it's going to be the most significant reduction in marginal tax rates since 1986.

SHIELDS: Senator Grassley, in a meeting you had this week with the Republican members of the Senate Finance Committee, according to sources who were there, in polling your delegation, the consensus, overwhelming consensus with the exception of two members, was that the two inviolate principles, the two non-negotiable elements in this tax plan, were lowering from 39.6 percent, the top rate, to 33, and repeal the estate tax. Is that inaccurate?

GRASSLEY: That's an accurate judgment of what the Republicans on the committee feel, but there's no way that we can get a bill through the Senate that way, considering the 50-50 makeup of the Senate. But we will still be able to get very responsible reductions in marginal tax rates that will do a great deal of economic good for our country and still will be the largest tax relief for American men and women in 20 years.

SHIELDS: On that very point, you, in Iowa, have been a very stout defender, champion, of repeal the estate tax, as far as farmers are concerned. But you lift that top rate, that 39.6 percent, check of the book shows that there are 1.3 million Iowans who pay taxes every year, and less than 4,000 of them pay at the top rate. I mean, is that really a crying need? This is a group, if I'm not mistaken, who've seen their after-tax income double the top 1 percent in the last 12 years.

GRASSLEY: You know, what's really unfair about the high marginal rate? It isn't that individual taxpayers pay that high marginal rate, but it is a lot of self-employed people, the small business men and women of America that create most of the jobs. They're paying that high marginal rate, whereas corporations are paying 35 percent.

And the way you really advance our economy, promote entrepreneurship and create jobs is to make sure that you have a marginal tax rate for small business people that's lower than the corporate rate.

NOVAK: Senator, the tax package that you have is supposed to give $100 billion in tax relief for this year. Now, we have had on Friday some very disturbing news come out on unemployment rate. We have unemployment numbers at recession levels right now.

Do you really believe that $100 billion coming out this year -- and it'll be a while before it kicks into the economy -- is going to do anything to stimulate the economy this year?

GRASSLEY: No. We're going to return a lot of money to the taxpayers this year, but for reasons other than stimulating the economy, of which, maybe an additional one would be to stimulate the economy, but I don't want to overplay that.

No. 1 is, move a lot of money out of Washington that's burning holes in the pockets of congressman that will otherwise be spent. Because it'll do more economic good, create more wealth if it's back there in the pockets of working men and women in Cedar Rapids, Iowa, Waterloo, Iowa.

In the meantime, we're going to create a new bracket at 10 percent. So indicating here and in answer to the previous question, we're going to do much more for low income people. We'll probably have 6 million people that are presently paying income taxes today that won't pay taxes.

But the main motive is to move money out of Washington, as far as that $100 billion is concerned, stimulate the economy. But more importantly, we're going to be able to have new tax rates put into place up front and do more economic good, even if the money isn't in the taxpayers pockets, because they're going to change their behavior for the future. And it's going to have a very dramatic impact on the enhancement of the economy down the road, even if the money isn't in the people's pockets right this minute.

NOVAK: Sir, let me make one more try on something that would help the economy immediately. A lot of people, broad spectrum of opinion, all the way from Senate Majority Leader Trent Lott on the right to Senator Joe Lieberman on the left, think a cut in the capital gains tax would really help. Is that not on your horizon at all?

GRASSLEY: It would be after we get new adjustments and figures from CBO in July or next January. The economic...

NOVAK: Not this year, though?

GRASSLEY: Not in this tax bill. I wouldn't say not this year, but not in this tax bill, because the economics of capital gains reduction is very, very good.

But here's what we're concentrating on: We're concentrating on something that does more economic good than every capital gains, and that's the reduction of the marginal tax rates for all income levels.

GRASSLEY: All income levels, reduce the marginal tax rate. Then in addition to that, we're concentrating on earned income as opposed to unearned income.

SHIELDS: Senator Grassley, it seems to me a little smoke and mirrors going on here. You have gone on record as saying you want to eliminate the alternative -- deal with the alternative minimum tax and it's explosion. Now, $1.5 million Americans pay that tax annually.

Under President Bush's plan, the Joint Tax Committee projects that by the year 2011, 35.7 million Americans, one out of three taxpayers, would be under the alternative minimum tax. And yet, there's nothing in this tax bill, there's nothing in the projections of the budget that even assume we're not going to have that kind of an outrage in this country in 10 years. When are we going to deal with it, and where are the numbers to back it up?

GRASSLEY: This particular weekend, we're working with figures out of this $1.35 trillion tax cut for the next 10 years of somewhere in the area of $100 billion to not take care of the alternative minimum tax, as should be done, but to not have the anomaly of some people getting a tax cut on the one hand, and getting a tax increase on the other hand.

But you're absolutely right, the alternative minimum tax should have been indexed 30 years ago. It's not really serving the purpose that was intended to serve, that it would only hit people that use all sorts of tax loopholes to avoid any tax, that the wealthy ought to pay at least a little bit. And now, it's going to get middle-income people, and that's absolutely wrong. And we're committed to doing something about it, but we can't do it all at once.

SHIELDS: When we come back, we'll ask Senator Chuck Grassley about privatizing Social Security. Back in a moment.

(COMMERCIAL BREAK) NOVAK: Chairman Chuck Grassley, before we turn to Social Security, the administration, I know, wants to get this tax bill passed by Memorial Day. Is that possible? Is that realistic?

GRASSLEY: If we push hard and we don't get into a lot of partisan wrangling -- and that's why I worked for three months very closely with the Democrats hopefully to avoid that. This is a real test of that, but so far my negotiations with Max Baucus, the ranking Democrat, are going very well.

NOVAK: Now, speaking of partisan wrangling, the Democratic leaders have said that President Bush's Social Security reform commission is rigged, it just has people on it who -- even the Democratic ex-members of Congress like former Senator Moynihan, former Congressman Tim Penny, who want to just partially privatize Social Security, have individual accounts.

Do you think that is a rigged commission which really doesn't have any of the mainline Democratic sentiment on Social Security involved in it?

GRASSLEY: Well, I don't know whether you have to do much better than Senator Moynihan, top Democrat on the Senate Finance Committee when he was here, to speak to the bipartisanship of this whole thing.

NOVAK: He doesn't share the mainline Democratic view.

GRASSLEY: Well, OK, then that's maintenance of status quo. That means that we'll never be able to provide Social Security for people beyond the year 2037, that 30-year-olds today won't get out of Social Security even what they pay into it. You cannot maintain the status quo.

All President Bush is doing, quite frankly, is picking up from where Clinton dropped the ball. Remember '98 State of the Union Message? "Save Social Security first." "We're going to have town meetings." He had four town meetings. I had several town meetings in my state. It was really a new -- Republicans welcomed the presidential leadership.

Then he found out that if he pursued that then he wouldn't demagogue Social Security and Medicare throughout the next campaign, so we dropped it. All President Bush is doing is picking up the lack of presidential leadership and carrying the ball forward in the spirit of the bipartisanship that he promoted in 1998.

SHIELDS: In the spirit of bipartisanship, Chuck Grassley is known in Iowa and Washington as a straight shooter, a guy plain talking. And yet, we look at this budget plan, and it looks like more than smoke and mirrors, it's starting to look like a con game.

There is nothing in there for the transition costs of Social Security, nothing, which are estimated by Pat Moynihan and others to be up to $1 trillion. Where's that money going to come from if we're going to move to partial privatization? GRASSLEY: Well, first of all, the Gregg-Grassley-Kerry-Breaux bill of last Congress was the only bill that's ever been introduced on Social Security that's had a 75 percent projection of being fiscally sound and being, whatever the words are, we call it actuarially sound. So we worked that out in the bill. We don't have to worry about that.

Now, to be perfectly candid with you, there is a period of time of 10 years about, from 2010 to 2020, that you do have a lapse in funding. But if we can look ahead for 75 years, the first bill that Social Security has ever had that was 75 years sound, it would be good to get it off to the start to do that.

And what's more importantly, is we're going to -- it's part of the wealth creation in America to let people control some of their own Social Security money so that low-income people can have wealth and have an estate and leave something to their heirs that presently those low-income people can't do.

SHIELDS: The Congress is passing a budget this week and the beginning of next week. And yet, in it, there's no mention of defense increased spending, no mention of funding the Social Security, no mention of the defense missile system that the president is now championing.

I ask Chuck Grassley, the man who blew the whistle on the $7,600 coffeemaker at the Pentagon, the man who said that defense spending ought to be leveling off instead of climbing, isn't this really indefensible, this increase in defense spending?

GRASSLEY: No. And the reason I have to say no in light of my history in this area is President Clinton, for six years, cut defense. And even President Clinton, in his seventh year in office, realized he had done so much to weaken our defense, he came forth with a initiative to increase defense expenditures. Now, it should not be done -- it should be a gradual ramp up.

I brought this up with the president in March after he made his announcement that he wasn't going to increase defense expenditures now, he was going to move slowly. And he said to me, "What do you think we talked about in the cornfields of Iowa when we were traveling there last January?" So I think I've made my point to him.

SHIELDS: Mr. Chairman, you are also a member of the Judiciary Committee. We've got less than a minute before we take a break. But the Judiciary Committee from the other day, the Democrats would not permit the confirmation of the number-two and number-three people at Justice, deputy attorney general and solicitor general, until they got a say on the local option, shall we say, on federal judges.

With a 50-50 Senate, don't you think the Democrats have a point, that they ought to have some kind of an input on the district judges in their own states?

GRASSLEY: They have some input, but absolutely not. It should be done the way it was done since Senator Biden laid down the rules. Senator Hatch has followed those rules for the last six years. And as long as we do things in a Republican administration with a Republican Senate, we ought to do them the same way the Democrats did when we had both a Democrat president and a Republican president.

SHIELDS: We have to take a quick break now, but we will be back in just a second with Senator Chuck Grassley, the chairman of the Senate Finance Committee, with "The Big Question."

(COMMERCIAL BREAK)

SHIELDS: Senator Chuck Grassley, this week FBI Director Louis Freeh announced, after eight years, he was leaving the job early. President George W. Bush expressed sincere regret at that decision. Do you share that sense of deep regret that Louis Freeh is leaving?

GRASSLEY: He's got strong points and weak points. His strong points are very much that he was the most energetic FBI director I've ever seen, and he did a good job of that.

SHIELDS: Weak points?

GRASSLEY: The weak point is basically that he was not able to self-correct things within the FBI organization. They have a tradition of having more public relations concerns than substance concerns.

When the FBI people do what they do best, seek the truth and let the truth convict, they're very good at it. But when they worry about their public relations, they're very weak.

So I hope a new FBI director comes in and is willing to take the bull by the horns and run the organization.

NOVAK: Just briefly, what kind of person would do that? Louis Freeh was a federal judge. He's been in the federal service 27 years. Would you get somebody who was not in law enforcement, not in the federal service?

GRASSLEY: I wouldn't want to say what their background should be, but I think they ought to come from the outside and not from within the organization.

NOVAK: Chairman Chuck Grassley, thank you very much.

Mark Shields and I will be back with a comment after these messages.

(COMMERCIAL BREAK)

SHIELDS: Bob, Chuck Grassley, blunt-speaking chairman of the Senate Finance Committee from Iowa, laid it on the table. That top 39.6 percent rate paid by all your Gucci friends, Bob, won't be cut to 33. He was pretty blunt about that.

NOVAK: But he was also blunt, Mark, in saying he wanted it in his chairman's mark. He wanted to repeal the estate tax. The bad news for the lobbyists community: no individual bills in this measure, and that's what the lobbyists make their money on, in getting these bills through for their big corporate clients.

SHIELDS: Even though Chuck Grassley supports partial privatization of Social Security, he admitted under questioning that the money wasn't there yet for that transition cost of over $1 trillion.

NOVAK: You know, I came to Washington 44 years ago this weekend, Mark, and Harry Byrd Sr., was chairman of the Finance Committee. He would not tell you anything that was going on. Chuck Grassley is an Iowa hog farmer who tells it like it is. He told us everything they're going to do, very refreshing.

SHIELDS: Very refreshing.

NOVAK: I'm Robert Novak. Coming up in one half hour on Reliable Sources, is Vice President Dick Cheney truly the power behind the president?

And at 7:00 p.m. Eastern, Capital Gang talks to former senator and astronaut John Glenn about millionaires in space; baseball commissioner Bud Selig celebrates an American pastime; and Senator Minority Whip Harry Reid of Nevada discusses missile defense, Social Security and tax cuts.

SHIELDS: I'm Mark Shields. That's all for now. Thank you for joining us.

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