8:04 PM EDT
Brad Sherman, D-CA 27th

Mr. SHERMAN. Mr. Speaker, I came down here to talk about taxes, but let me first talk about Texas. All Americans must unite in the war against terrorism and we did that. We passed the PATRIOT Act. We provided resources for the Department of Homeland Security. But now we discover that the war on terrorism is a war against Democrats. This will divide America, and that is good for the terrorists. How many Americans may lose their lives because we cannot empower the Department of Homeland Security

because it uses that power to pervert American democracy? Only an honest release of the tapes, only an honest approach will save the Department of Homeland Security and save only the Americans that it can save.

Now let us talk about taxes. The Bush recession continues. Republicans continue to use their political power to adopt job-killer policies which means the Bush recession will continue to continue. The most obvious job-killer policy is the dividend exclusion provision included in the Senate tax bill passed last week. Every major tax provision has both positive and negative effects on our economy, and Republican after Republican has come down here to talk about the rather modest economic benefits

of excluding dividends from taxation. Democrats, though, have not used our time to respond and to point out the much larger offsetting negative effects of this provision. The reason for that is that we Democrats have been so incensed at a policy that provides 50 percent of the tax benefits to 1 percent of the population and gives 1 percent of the benefits to 50 percent of the population.

We have been so incensed that the Republicans would launch a class war attack against working families. We have been so incensed that they would come up with a policy designed to allow the richest in America to buy the new $350,000 Mercedes Benz, the Maybach, and pass the cost on to the sons and daughters of working Americans as they build the deficit. We have been so incensed about that that we forgot to mention, oh, by the way, it is a job killer.

Let us talk about that. We could of course drop currency from helicopters, $25 billion a year, $50 billion a year, and that would have some positive economic effects; but it would have a much larger negative economic effect because it would raise interest rates and it would deprive us of the opportunity to help States. They will have to discharge teachers, law enforcement officers, and others; and those folks will lose their jobs. So even helicopters dropping cash has some positive effect, but

a larger offsetting effect.

The offsetting and negative effect of this dividend exclusion is worse because at least the people who catch the money from the helicopter will probably go out and spend it on necessities of life, whereas the dividend exclusion is aimed at the folks most likely to buy foreign luxury imports, which does not provide jobs for Americans.

The dividend exclusion was justified on the idea that it was going to build up corporate treasuries because people would invest in stock and then the corporations would go out and buy plants and equipment. This was proven to be a phony ruse because under pressure to bring down the price tag of the dividend exclusion, the White House has now written a version that obviously will not cause any additional corporate investment. What does that provision do? It provides half-tax exclusion for dividends

paid in 2003; full exclusion for 2004, 2005, 2006, and then back to a full taxation of dividends starting in 2007 and future years.

What will that mean? First, all the dividends corporations were going to pay out this month and in the next 8 [Page: H4226]

months will not be paid; so we will have a slump in expenditures by those who receive dividends. Why? Because they can wait until January 1 of next year, pay the dividend, and have it be completely tax exempt. So we start with the decline even in the amount of dividends paid, but come 2004 we will see huge dividend payments. That money comes

out of corporate treasuries. It reduces the amount that corporations have available for investment of plant and equipment; and if they have any money after 2004, they will pay it all out in 2005, 2006. No corporate investment; huge dividends.

But it is argued that this dividend exclusion is going to encourage investment in stock. If it had been a permanent exclusion, maybe that was a possibility. A lot of people buy municipal bonds because they get tax-free income. But who would buy municipal bonds if their income was going to become fully taxable in just a few years? Who is going to buy corporate stock because they want dividend exclusion when the dividend exclusion is going to expire in just a few years? So there will be a huge

outlay of corporate funds from corporate treasuries that will not be available to buy plant and equipment. But there will be no investment in corporations caused by this provision because nobody is going to buy a new issuance of stock if in just a few years we are going to be back to the old tax law.

The Bush recession continues. Job-killer policies like that contained in the Senate bill will ensure that the Bush recession will continue to continue.

END