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“IMMEDIATE ECONOMIC STIMULUS THROUGH THE EDUCATION OPPORTUNITY TAX CREDIT” mentioning the U.S. Dept. of Commerce was published in the Senate section on pages S9942-S9943 on Oct. 1, 2001.
The publication is reproduced in full below:
IMMEDIATE ECONOMIC STIMULUS THROUGH THE EDUCATION OPPORTUNITY TAX
CREDIT
Mr. ALLEN. Mr. President, I rise to share with my colleagues my concern about our economy, the loss of jobs, and the economic stimulus package being considered by Members of the House, the Senate, and the White House. Mr. Thomas, the Senator from Wyoming, mentioned some of the economic stimulus package. In my view, an education opportunity tax credit should be included in any economic stimulus package put together in the coming weeks.
We know our economy is in serious trouble. The economy grew just 0.2 of 1 percent in the second quarter of this year, compared to 4.1-
percent average growth in the year 2000. The most important thing we can do at this point is increase consumer spending, especially on durable goods. Orders for durable goods dropped in August, as reported by the Commerce Department, all of which was due to the technology and transportation sectors. We have addressed the transportation industry partially, with the airline industry stabilization bill, but the technology sector still remains unaddressed.
Consumer confidence is dropping like a stone. The University of Michigan Consumer Sentiment Index released last week, September 28, indicated that consumer confidence dropped 21 percent. Although the correlation between consumer confidence and spending is not strong in the short term, it is strong in the mid-to-long term. The No. 1 reason for this precipitous drop in consumer confidence is because of where consumers thought they would be in their own lives 6 months out. One financial market analyst was recently quoted in the Washington Post as saying that the size of this decline in consumer confidence will translate into reduced spending in the next 6 months. That confidence decline is not over. Consumers, clearly, are on a very cautious mindset. That is why we must take measures to improve consumer confidence and spending again.
There is a debate currently underway in our country over which types of tax cuts are the answer to providing immediate economic growth. In my judgment, we must focus on individual tax cuts that will immediately lift consumer confidence and result in greater consumer spending--the idea that we need to increase corporate savings and investment necessities, that those companies have revenues in the first place, revenues that come from consumer spending.
Instead, what is needed, as the Wall Street Journal editorialized today, is ``temporary, not permanent tax breaks--and preferably for consumers, not business.''
The Wall Street Journal article was very clear as to the ineffectiveness of corporate tax cuts in order to spur the economy, citing Gregory Mankiw, an economist at Harvard, who favors permanently abolishing the corporate income tax, but states that doing so now would not result in immediate investment. He is quoted as saying:
The problem now is there's a lot of uncertainty, which is inducing people to wait, which depresses aggregate demand, which in turn exacerbates the economic slowdown.
The Wall Street Journal further opines that:
. . . stimulating spending and making members feel secure would be more effective than reducing corporate tax rates as a way to boost economic growth.
In fact, we all know our economy, this free market, is all about the consumer. If consumers do not buy, companies will not have revenue. If companies do not have revenue, they will not be able to invest, nor will companies need employees to be in those jobs to produce. If they do not invest, if they are not creating jobs, our economy will not grow out of this economic sluggishness.
The technology sector, which was once the leading force behind economic growth and productivity, is now the most significant detractor, getting hit the hardest by the contractions in spending and investment. There has been a 19-percent drop in technology spending, including a 45-percent drop in personal computer orders and a 14.5-
percent drop in software and equipment spending.
Other sources of capital and growth have dried up as well. Banks continue to limit their exposure to the high-technology sector and tighten lending standards, cutting off resources at a time when money is already scarce. Venture capital has all but disappeared from this sector. First-round venture capital funding has already fallen $1.84 billion, down 87 percent from the previous year during the second quarter of 2001.
This has all led to widespread layoffs within the tech sector over this past year. Job cuts in the high-tech industries of telecommunications, computers and electronics--those job cuts are up 13 times over what they were last year.
Through the end of August, high tech accounted for nearly 40 percent of the 1.1 million job cuts so far in 2001.
Just to put that in perspective, that is 4 times more, 4 times greater than the entire post-attack airline industry layoffs--over 400,000 jobs lost in the tech sector versus, obviously, a great concern over 100,000 jobs lost in the airline industry sector. The total tech job sector cuts in August alone exceeded all of the cuts for the year 2000.
This technology sluggishness is clearly harmful for our future. Technological advancements are how America and our economy will compete and succeed internationally, and technological sector growth and rapid advances in productivity have been the base of our economic growth in the past and will be a vital key to our competitiveness in the future. As we look at technology in the future, whether it is computers, whether it is clean coal technology, whether it is fuel cell technology, these are important for future competitiveness, our quality of life, and good jobs in the future.
The lifeline to our economy, consumer spending, has been seriously dampened by the terrorist attacks which occurred on September 11, 2001. That is why I would like to bring the attention of my colleagues back to a bill I introduced in March of this year, the Educational Opportunity Tax Credit of 2001. This proposal will provide a $1,000-
per-child computer purchase tax credit which families can also use, not just to buy computers but printers, monitors, educational software, or Internet access. However, this tax credit would not apply to tuition at a private school. This would provide the exact type of boost both consumer spending on durable goods and the technology sector need. Maybe we could limit this tax credit to 1 or 2 years. Even with that limitation I would estimate it would provide upwards of $20 billion in new consumer spending.
Think of parents who have a child in school. If they could buy their son or daughter a computer or some peripherals, a printer, they would say: Gosh, if I do it this year or next year, I will get a tax break for it. That will induce that spending.
It clearly would induce computer and technology spending, especially if it is available for 2 years, thus propelling the technology sector while also improving educational opportunities for students. The fact is, experience shows that even a small, temporary reduction in taxes can bring about huge increases in computer sales.
In South Carolina, they had a sales tax holiday on computers for just 3 days. CPU sales increased more than tenfold; 1,060 percent in those 3 days.
In the Commonwealth of Pennsylvania they eliminated the sales tax on computers for 1 week. CPU sales increased sixfold; 615 percent in that time.
My Educational Opportunity Tax Credit would not just impact computer sales but also software makers, Internet access providers, printer, monitor and scanner manufacturers as well.
In South Carolina they realized a 664-percent and 700-percent increase in monitor and printer sales, respectively, with only a 5-
percent tax break. We know that consumer spending accounts for two-
thirds of all economic activity, which is largely flat and has been flat this summer and weakening in the last report in our economy.
The Education Opportunity Tax Credit represents the right solution for our economy. No. 1, it increases consumer spending on computers and related technology. No. 2, it injects $20 billion into the weakest and one of the very important links in our economy. No. 3, it provides previously out-of-reach education and technology opportunities for families.
As I said before, I am willing to work with my colleagues in addressing the best way to implement this proposal. We can shorten the applicable timeframe from the original bill. We can look at a different credit level to make sure we get the maximum economic impact for minimum fiscal impact to the Treasury. But I am convinced that combining consumer-oriented tax cuts with appreciation of what is really going on in the technology sector can improve consumer confidence, accelerate consumer spending, and provide the technology sector the revenues they need to reinvest and return our economy to strong growth and also provide more good paying jobs for the people of America.
Mr. President, I yield the remainder of my time, and I suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. Johnson). The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. FRIST. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Bingaman). Without objection, it is so ordered.
Mr. FRIST. Mr. President, I understand we are in morning business.
The PRESIDING OFFICER. We are in morning business.
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