Rostenkowski's Retort | Letters | Chicago Reader

Rostenkowski's Retort 

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To the editors:

I take strong issue with David Moberg's recent article "Politics: Our Man in Washington" [March 13] which demeans my record of service in Congress. Some of what Moberg writes is simply wrong; some of its borders on libel. Your readers deserve to know the facts. Let me set the record straight.

Social Security Reforms

Moberg criticizes the Social Security financing reforms enacted in 1983 because payroll taxes were increased to restore solvency to the Social Security system. These increases, Moberg contends, were "largely regressive, falling disproportionately on lower-income workers and sparing the rich." This criticism reflects a misunderstanding about how the Social Security system is financed and benefits are paid. While Social Security taxes are born equally by taxpayers earning up to $55,500 annually, lower-income workers ultimately get a better return on their dollar. The system, on balance, is progressive.

Moberg also fails to mention that the point of the 1983 financing changes was to restore confidence in the Social Security system and relieve the fears of the nation's senior citizens by building healthy reserves in the Social Security Trust Funds for the next quarter century. To our credit, we have accomplished that goal.

The Tax Reform Act of 1986

Moberg alleges that the Tax Reform Act of 1986 made the tax code less progressive and that the corporate share of taxes declined--allegations that are simply wrong. While the 1986 Act reduced marginal tax rates across the board, it eliminated many tax shelters and loopholes emjoyed by the rich. Wealthy taxpayers may have wound up with lower rates, but more of their income was subject to tax, and thus, they paid more to the Federal treasury. Simply stated, the 1986 Act took six million of our poorest citizens off the tax rolls entirely. The lowest income group now pays 10 percent less in total Federal taxes, and the top 1 percent pays 7 percent more. Clearly, the 1986 Act made the tax system more progressive, although I fully concede further improvements can and should be made.

With respect to the share of taxes paid by corporations, that, too, increased from 8 percent prior to the 1986 Act to over 10 percent after its enactment. Again, Moberg is dead wrong.

Moberg criticizes selective transition rules contained in the 1986 Act as "tax breaks for special interests." The 1986 Act was the most comprehensive revision of the Federal tax code since its original enactment in 1913. The bill provided $120 billion in tax reductions for individuals, while increasing corporate taxes by an equivalent $120 billion. Many corporations, however, had made investments and other financial commitments that were "in the pipeline," at the time the 1986 Act was being considered. As a matter of fundamental fairness, Congress provided transition relief to these companies rather than change the rules in the middle of the game.

Moberg criticizes the transition relief provided to the North Pier and Presidential Towers developments, and ignores the fact that both projects have significantly improved and revitalized their neighborhoods and the city's tax base. In addition, Moberg fails to mention both the fairness and importance to Chicago of other transition rules in the 1986 Act, such as the transition rule that permitted construction of the new White Sox stadium, as well as multifamily housing and urban redevelopment projects across our city. Moberg also makes no mention of my advocacy and strong support for other tax incentives that help to revitalize our neighborhoods--like the low-income housing credit, the rehabilitation tax credit and urban enterprise zones.

With respect to his spurious allegation that transition rules were granted for "big contributors . . . such as insurance companies," I would point out that the 1986 Act, when combined with subsequent tax legislation, will force the insurance industry to pay $20 billion more in Federal taxes than they would have before the tax bills were enacted--some reward for their "big contributions."

First Moberg criticizes me for providing transition rules in the 1986 Act, then he criticizes the absence of transition rules in a later law which imposed restrictions on the issuance of tax-exempt bonds to purchase utilities. Moberg argues that Chicago should have been granted a transition rule to allow it to purchase Commonwealth Edison. He appears to want to both ways--he favors, even though this one would have cost the American taxpayer billions of dollars. So much for consistency.

The 1992 Tax Bill

Having criticized the 1986 Act for these perceived flaws, Moberg then attacks me for not defending the 1986 Act to the death this year, using the capital gains issue as an example. The sad reality is that, despite my repeatedly stated objections to preferential treatment for capital gains, an overwhelming bipartisan majority in the Congress favors a cut in the capital gains rate. When that is the case, one Member, standing by his principles, will not accomplish much. Instead, I chose to work hard, and eventually succeeded, at crafting a progressive, middle-class capital gains proposal that enjoyed broad support with my fellow Democrats in the Congress.

Unlike President Bush's capital gains proposal--which would give about 80 percent of its tax relief to people with incomes over $100,000--the Democratic capital gains proposal that the President recently vetoed provides 70 percent of its benefits to people with incomes under $100,000 --to small businessmen, farmers and other middle-income people who sell their homes, their businesses, their farms or small shares of stock. Instead of letting the train run me over, I helped to steer it in a much fairer direction. It's an accomplishment of which I am particularly proud and one I am confident my constituents support.

Moberg also criticizes the real estate passive loss provisions of the Democratic bill recently vetoed by the President. Once again, he ignores the reality that over 320 members of the House of Representatives cosponsored legislation to liberalize the real estate passive loss rules encacted in 1986. And he doesn't mention that the provision ultimately sent to the President is less than half of what the real estate lobby wanted. Moderating a proposal favored by over 300 Members of the House was not easy, but it was done. Quiet and determined resistance is often more successful than fighting "tooth and nail" as Moberg suggests.

There are also no grounds for Moberg's speculation that my proposal to simplify the tax treatment of intangible assets--such as goodwill--will lead to a new wave of takeovers. I conducted two lengthy days of public hearings on my proposal, and never once was this prospect raised. To the contrary, my proposal was uniformly praised by the Treasury Department and public witnesses alike as a major simplification of a very contentious and litigious area of the tax law.

The North American Free Trade Agreement

Moberg then shifts his criticism to my support for granting "fast track" authority to negotiate a North American Free Trade Agreement with Mexico and Canada, and a similar multilateral trade agreement with our international trading partners. Once again he leaves out several important facts concerning my position. First, I insisted, as a condition for my support for fast-track negotiating authority, that the President commit himself to an "action plan" addressing vital environmental, labor and workers adjustment assistance issues. Only after receiving the President's action plan, and those commitments, did I support the fast-track extension.

Second, and equally important, the granting of fast-track negotiating authority is just that--permission to negotiate. The President has committed himself to a full partnership and extensive consultations with the Congress throughout the negotiations on both the NAFTA and the multilateral GATT agreement in Geneva. If either agreement is not in the best interest of the United States and American workers, the agreement will be rejected by the Congress, and appropriately so. It is premature and entirely speculative for Moberg to conclude that labor and environmental safeguards will be sacrificed in the process. To the contrary, I expect labor and environmental protections to be enhanced, and American consumers and the economy to benefit if a successful agreement is concluded. You can expect me to insist on it.

Health Care Reform

Finally, Moberg criticizes my position on health care reform, my failure to cosponsor the Russo national health insurance bill and my support for an alternative health care reform proposal that Moberg describes as "much more expensive" than the Russo bill. Once again, he is dead wrong--the Russo bill, once fully implemented, would cost in excess of $415 billion annually. By contrast, my bill would cost $65 billion.

Second, both the Russo bill and my bill have the same policy goal--to guarantee that every American has affordable, quality health insurance. The fundamental isue is which approach has the best chance of passing. The Russo bill envisions scrapping entirely our existing health system and starting over along the lines of the Canadian system. My approach builds on the existing system by requiring all employers (who currently provide health insurance to over 150 million Americans) to cover the 34 million who don't have any coverage at all. Although trivialized by Moberg, my proposal has been endorsed by the Pepper Commission, and many labor, consumer and business groups concerned about expanding health care access and controlling health care costs. It is a choice Congress will have to make.

As committed as I am to health care reform, I also would remind your readers that no one has worked harder in Congress to resist the steep and unconscionable cuts in Medicare proposed over the last 12 years by presidents Reagan and Bush, including $23 billion in proposed Medicare cuts last year, and $13 billion this year. Not only did we succeed in resisting Republican assaults on Medicare, but we have been able to enact important preventive Medicare benefits--like mammography screening and immunizations--as well as reforms of the medigap market, to protect senior citizens. Mr. Moberg conveniently forgot to mention these important benefit expansions.

I am proud of my record of public service to my Chicago constituents. It is a record of delivering Federal service and benefits to our community against the intense competition from Sunbelt states like Florida, Texas and California, whose representation in the Congress is increasing.

Apparently, the voters in the new Fifth Congressional District agree with me. They chose to renominate me in the recent primary. For their support and that vote of confidence, I am sincerely grateful. I will be proud to serve as "their man in Washington" and continue to represent their interests in the United States Congress, despite the petty carping and irresponsible and reckless reporting of David Moberg.

Dan Rostenkowski

David Moberg replies:

Congressman Rostenkowski is correct that the net effect of social security, counting both taxes and benefits, is progressive. But the taxes themselves are regressive, though they could be made less so by removing the cap on the amount of earnings taxed. Also, social security overall could in the- ory be more progressively financed through use of at least some income taxes. Instead, over the past dozen years income taxes have risen slightly and social security taxes have skyrocketed. As a result, the social-security bailout, in the experience of the average working person over the past decade, has been regressive.

Rostenkowski defends the transition rules from the 1986 Tax Reform Act that helped projects of developers but rejected a transition rule that would have protected plans already under consideration for the city's acquisition of Commonwealth Edison (or at least the continued threat of acquisition during negotiations on a new franchise). He accuses me of wanting it both ways; the same could be said of him. But if we adopt a standard of favoring transition rules that benefit most broadly the common interest and the interests of low- to moderate-income citizens, Rostenkowski should have supported the city's right to issue tax-exempt bonds to buy out utilities and rejected most of the concessions to private corporations.

As far as Presidential Towers is concerned, the exemption from requirements to include low- to moderate-income housing was simply a gift to the developers at the public expense. Now this fabulous project is bankrupt and probably adding to the public expense. There was also much less revitalization of the west Loop as a result of the towers than expected; what revitalization has occurred could have been accomplished with much different, less costly public involvement. Furthermore, few of the single-room-occupancy hotel rooms demolished to make way for these luxury apartments have been replaced, which has increased the ranks of the homeless. The overall social accounting for Presidential Towers shows a giant loss.

The figures on the relative size of tax cuts for different income groups as a result of the 1986 Tax Reform Act came from information provided by the Internal Revenue Service, as reported in the Philadelphia Inquirer. Those indicate that the richer the taxpayer, the bigger the tax reduction after 1986. I was wrong on corporate taxes; the corporate share did go up slightly, though far less than projected and still far short of what it was before the 1980s. Rostenkowski writes that the act increased corporate taxes by $120 billion, but does not specify over what period; the total corporate income tax paid in every year since the act has been far short of $120 billion, according to Citizens for Tax Justice, a tax-reform advocacy group.

I did credit the act with taking poor people off the tax rolls and acknowledged Rostenkowski's support for low-income-housing credits, though a January Tribune article indicated he was ambivalent on this point late last fall.

It remains true that the net effect of tax laws over the past 15 years, covering slightly more than Rostenkowski's tenure as chairman of Ways and Means, is dramatically regressive. Clearly, since most of the changes in this period came at the initiative of the White House, it's not all--or even primarily--his fault. But he does share some blame for the record of big tax breaks for the rich and slightly higher or unchanged income taxes for the vast majority.

Even if practice did not live up to expectations, the principle behind the 1986 tax bill was sound: eliminate loopholes, broaden the tax base, reduce the tax rates. In discussing the 1992 tax legislation my point was that if Rostenkowski were as powerful as he's often made out to be, he should have been able to mount a more effective defense of legislation he considers one of his major accomplishments. But by suggesting capital-gains taxes could be cut not long after the 1986 law was passed equalizing tax rates on all forms of income, Rostenkowski helped open the hole in the dike he claims he was trying to plug this year with his thumb.

Fast-track authority was not necessary for the president to negotiate a trade agreement with Mexico. Furthermore, if Congress really wanted to guarantee that environmental and labor issues are addressed, it should have retained the right to amend any treaty. Under fast-track rules the time for debate on a simple yea-or-nay vote will be limited, giving the president much too free a hand.

The General Accounting Office study of Canadian-style national health insurance concluded that such a system would save so much money that it would permit coverage of all those now uninsured and permit "a reduction, or possibly even elimination, of copayments and deductibles" for those who now have insurance. The relevant comparison is not the tax bill, since the Canadian-style plan would eliminate all insurance premiums. The relevant financial consideration is overall cost: by that measure the Canadian (or Russo) model wins handily.

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