Senators Feinstein and Chafee Introduce
Legislation to Freeze Top Income Tax Rate

January 9, 2003
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Washington, DC - U.S. Senators Dianne Feinstein (D-Calif.) and Lincoln Chafee (R-RI) today introduced legislation to freeze the top income rate at its current level until there is a return to budget surpluses.

Under current law, the top income tax rate is scheduled to drop from 38.6 percent to 37.6 percent in 2004 and then to 35 percent in 2006, before the entire 2001 tax cut expires in 2011. The following is the text of Senator Feinstein's statement.

"With the nation once again facing growing budget deficits, Senator Chafee and I will today introduce legislation to freeze the top income tax rate at its current level of 38.6 percent - until such time as the federal budget returns to surpluses. We believe the ballooning deficit is bad for the economy, bad for interest rates, and bad for the health of the nation.

Under current law, the top income tax rate is scheduled to drop from 38.6 percent to 37.6 percent in 2004 and then to 35 percent in 2006. This rate is applied to the adjusted gross income of those who earn over $312,000. This top rate freeze would save $88 billion between now and 2010, and $132 billion through 2012 - every penny of which would go toward reducing the federal deficit.

Everyone should understand that this top tax rate is paid by just 908,000 of the more than 128 million taxpayers nationwide - just 0.7 percent of American taxpayers. This is not a time for tax policies which benefit only a small portion of the population. It is a time for fiscally responsible policies that will ensure long-term growth and provide an immediate stimulus to our economy.

In June 2001, I voted for the President's tax plan. It was truly a different time:

Those times are as different from today as day is from night. At the time, Senator Chafee and I, along with twelve other Senators from both parties, supported a 'trigger' on the 2001 tax reduction.

This would have frozen future tax reductions under the Bush Tax Cut if the budget returned to deficit. Unfortunately, we were able to attract only 49 votes on the amendment. I wish we had that trigger today.

Now, it is estimated that we face $1.4 trillion in cumulative budget deficits between now and 2012. And that is why we return to the idea of the trigger. I believe that we should not allow the rate reduction for the top rate to proceed -- until we return to budget surpluses.

And that brings us to the Bush Administration's $674 billion tax cut and economic stimulus package. In my view, this is the wrong plan at the wrong time. It digs the nation deeper into debt. It is not a stimulus. It is skewed to the wealthy. And it severely limits the government's ability to pay for needed programs, like education, transportation, and law enforcement.

First, the President's plan would be a major contributor to massive budget deficits. The proposal would result in a budget deficit of approximately $482 billion this year alone, if the social security trust fund surpluses were not used to fund the budget. Using the social security trust fund, the deficit would still be $321 billion. This does not include the costs of a possible war with Iraq, an extension of federal unemployment benefits, and the FY '03 and FY '04 appropriations bills.

Furthermore, as the federal debt increases, the government will spend billions more in tax dollars on servicing the debt - instead of priorities like homeland security, healthcare, education, transportation, or the environment. Interest on the debt over ten years is already projected to be $1.3 trillion higher than expected, even before this new package, and this package would add more than $100 billion in new interest payments over the next ten years. Unlike home mortgage payments, interest on the debt is rolled over and compounds, which makes a rising debt extremely dangerous over the long-term.

Second, the President's tax cut is skewed to the wealthiest 1 percent of Americans. Taxpayers with incomes over 1 million would receive $88,000 in benefits, while the typical middle-income taxpayer would only benefit by $265. This is clearly unfair. In fact one-third of all benefits would go to the wealthiest 1 percent, while less than 10 percent of the benefits would go to the 60 percent of taxpayers making under $54,000.

Third, the proposal is not stimulative. The central feature of the Administration's plan, an elimination of taxes on corporate dividends, would not begin to be felt until April 2004. And when those savings do kick in, they would largely benefit the wealthiest taxpayers - with more than half the benefits ($225 billion) going to the top five percent of taxpayers. So to say this is a stimulus is simply inaccurate and misleading.

So, today we are urging the Senate to consider freezing a single element of the 2001 tax package. I urge my colleagues to approve a fiscally responsible package of tax proposals that reduce the deficit and stimulate the economy - instead of a massive tax cut which will do neither."

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