NATIONAL PROBLEMS, LOCAL SOLUTIONS: TAX REFORM IN THE STATES WEDNESDAY, APRIL, 14, 1999 HOUSE OF REPRESENTATIVES, COMMITTEE ON GOVERNMENT REFORM, Washington, DC. The committee met, pursuant to notice, at 10 a.m., in room 2154, Rayburn House Office Building, Hon. Dan Burton (chairman of the committee) presiding. Present: Representatives Burton, Gilman, Morella, Ros-Lehtinen, McHugh, Horn, Davis of Virginia, Souder, Hutchinson, Terry, Biggert, Ose, Chenoweth, Waxman, Towns, Norton, Kucinich, and Ford. Staff present: Kevin Binger, staff director; Barbara Comstock, chief counsel; David Kass, deputy counsel and parliamentarian; John Griffin, senior counsel; James Schumann, counsel; Mark Corolla, director of communications; John Williams, deputy communications director; Carla Martin, chief clerk; Lisa Smith-Arafune, chief deputy clerk; Nicole Petrosino, legislative aide; Phil Schiliro, minority staff director; Phil Barnett, minority chief counsel; Elizabeth Mundinger and David Sadkin, minority counsels; Ellen Rayner, minority chief clerk; and Jean Gosa, minority staff assist ant. Mr. BURTON. Good morning. A quorum being present, the Committee on Government Reform will come to order. I ask unanimous consent that all Members' and witnesses' written opening statements be included in the record, and, without objection, so ordered. Today's hearing is the second in a series that examines the relationship between State and local governments and the Federal Government. Many of the most innovative and successful public policy reforms enacted in recent years originated at the State and local levels. Our first hearing covered the issue of crime and what States and localities are doing to fight it. Today and tomorrow, we are going to take a close look at the issue of tax reform, an appropriate issue for what is now notoriously known as tax week. We are currently debating a number of tax cut proposals in the Congress, and we have very large projected surpluses for the next 10 years. Someone said, let us not cut taxes now. Some, like myself, think the time is right for tax relief. One of the things we have to remember when we talk about is what is the appropriate level of taxes? It is that we are not the only ones who tax the American (1) people. There are State taxes; there are local taxes. We need to look at the total tax burden on the American people. When you look at that, it is pretty high. The average family today pays more in taxes than it spends on food, clothing, shelter, and transportation combined. The average tax rate for 440,000 individuals who filed their returns in 1916 was 2.75 percent. In contrast, today's total taxes from all levels of government-Federal, State, and local-stand at a record 32 percent of national income. In fact, Federal taxes alone consume about 21 percent of national income, the highest proportion since World War II. That means one-third of every person's check goes right to the Government. Is that too much? I think so. We have a chart that shows how tax freedom day has been extended between 1964 and 1968. [The chart referred to follows:] Note: Tax Freedom Day denotes the number of days that the average American must work each year to pay their share of federal, state, and local taxes. (Source: The Tax Foundation.) • Tax Freedom Day, April 13, 1964: In 1964, the average American worked 103 days to pay their total tax bill. • Tax Freedom Day, May 10, 1998: In 1998, the average American worked 129 days to pay their total tax bill. Office of the House Majority Leader www.freedom.gov Mr. BURTON. This chart shows what is known as tax freedom day has gotten and later and later over the years. According to the Tax Foundation, in 1964, the average American worked 103 days until April 13 to pay their total tax bill, including Federal, State, and local taxes. Last year, tax freedom day was May 10th. The average American worked 129 days to pay their total tax bill. My point is when we are making important decisions on Federal tax policies, we need to take the total tax burden on the American people into consideration. Moreover, we must remember that not all States are fortunate enough to have innovative Governors like the ones we have here before us today. A number of States are still faced with Governors and legislatures who have yet to understand the importance of tax relief and reform and continue to burden their citizens with tax increases and more government bureaucracy. The committee's hearing will demonstrate how the Governors are doing their part to deal with this at the State levels, specifically, how they have reformed their respective State tax system to put more money in their citizen's pockets. From crime to education and from welfare reform to taxes, State and local governments have led the way in reforms. For example, much of the highly successful welfare reform law we passed in the 104th Congress was taken directly from reforms first enacted by Wisconsin's Governor, Tommy Thompson, who will testify before our committee next week. President Clinton vetoed welfare reform twice, but once the law was enacted it revolutionized the welfare system across America. Also in response to the Governors and mayors, the Republican Congress curbed the practice of imposing unfunded Federal mandates which place burdensome demands on States and local governments. Over the next several months, the committee will continue our series of hearings entitled, "National Problems, Local Solutions: Federalism at Work," by examining the issues of welfare reform and education. Through these hearings, the committee will continue to highlight successful and innovative reforms at the State and local levels, so that many of the solutions to the problems facing America come from the State and local levels and not from Washington; determine which existing Federal programs best assist cities and States, and explore new ways that the Federal Government can help State and local governments in the most cost-effective way. Today's hearing is entitled, "Tax Reform in the States." The Governors we will hear from today have all worked hard to ensure that the citizens of their respective States keep more of their hardearned money instead of sending it to the State House. On that point, especially, the Federal Government can learn a lot. The Governors that are going to testify today and tomorrow have set an example for the Congress and the President, because these Governors recognize that the American people know best how to spend their own money. Furthermore, these Governors are included in the ranks of many Governors nationwide who have not only given more money back to the citizens but have stimulated economic growth while maintaining critical government services. Take Governor Mike Huckabee of Arkansas, for example, in 1997, he worked for an across-the-board tax cut for the citizens of |