And I had to take the case across the State, and I did, and I continue to do it, as to the positive things that would come from this. And you mentioned people being afraid of losing their jobs if you cut taxes, in New York, people were losing their jobs because we didn't cut taxes. And we had to point that out and go to the floors of the factories and say, we want your factory to grow here, and not in some other State. And if we can cut taxes, we can convince your employers to do that.

So sometimes you have to think outside of just the legislature and outside of those groups that come to the legislature. And if you do that, I think, make the case to the people, there is an overwhelming recognition, I believe, that taxes are still too high, in Washington, in the States, in New York. And when you look at a family of four's budget, the largest single expenditure is in taxes. It is not in housing, it is not for food, it is not for transportation or to send your kid to school, it is in the taxes you pay.

When we make the case, I think the American people say, yes, we have earned the money that has created that surplus, let us give it back to the people.

Mrs. CHENOWETH. Thank you.

Mr. BURTON. Thank you, Čongresswoman Chenoweth.
Congressman Ryan.

Mr. RYAN. Thank you. I just have to share with you, Governor. I, too, am just simply astounded at how well you have done to cut taxes in New York, I did not know this. I am from Wisconsin, and we have some relatively high taxes there. We used to say they are not as bad as they have in New York. I don't know if we can say that any longer.

I wanted to ask you, you know, you had 13 different tax cuts that were enacted under your leadership. Have you analyzed the dif ferent growth components of these tax cuts, which tax cuts created and incentivized more economic growth among the other ones? Governor PATAKI. Well, it is 36 tax cuts.

Mr. RYAN. I just have a page of 13, I guess they couldn't fit them all on here.

Governor PATAKI. And some of them were targeted at specific industries, and they worked. As Congressman Lazio pointed out in his introduction, we made the State an Internet tax-free zone. The prior administration, by regulations, imposed the telephone taxes on the Internet. We by administrative ruling, said, no, we are not going to do that. And we repealed those aimed at website designers, new media.

And in lower Manhattan, they now refer to it as Silicon Alley as opposed to Silicon Valley, because so many new media companies have come, more than 100,000 jobs in new media, because of the targeted tax cuts. We also looked at things like the alternate minimum tax that had a negative impact on manufacturing. And I can't we still, last year, had a very small loss in manufacturing jobs, but 5 years ago, we were hemorrhaging.

We were losing tens of thousands every single year. And I can point to specific plants and companies that have said, because you lowered the alternate minimum tax, we will keep a plant here; or we will invest more. The income tax across the board income tax cuts

Mr. RYAN. Was that a rate cut?

Governor PATAKI. That was a rate cut. And for the lower income payers, it was significantly more than 25 percent. And at the top rate, it went from like 8.75 to 6.8, something like that, a very dramatic reduction. That has had a huge impact on our ability to keep high-wage earners in New York State and not locate their businesses and move themselves, again not just to the Sun Belt but to New Jersey or Connecticut. So we have over 450,000 more private sector jobs than we did in.January 1995.

And in all areas, we are just seeing a greater, greater confidence in the future of the State and a willingness to invest and continue that economic expansion.

Mr. RYAN. So all of the different 36 cuts you did, you thought the marginal cuts, the cuts that gave you a marginal incentive to produce, save, invest, keep more of your own money when you cut income tax rates, when you cut the alternative minimum tax rate, you thought those had the strongest growth?

Governor PATAKI. Cutting rates, the marginal rates was absolutely critical. Lowering that marginal income tax rate is something that Congress should do. With all due respect, I would recommend lowering those rates. Getting rid of the estate's added-on estate tax.

We were losing people to Florida and not just because of the weather, but because they couldn't-I used to say you couldn't—not only you can't afford to live in New York, you can't afford to die in New York. And it was true, because of the estate tax.

By repealing that we are getting entrepreneurs who maybe they are ready to give up a 9 to 5 job, but they still have ideas, they still want to go into the office, to stay in New York. So marginal rates, critical. Some targeted cuts, like our new media-targeted tax cuts have been very important, and the estate tax has been very, very important.

Mr. RYAN. When you pushed the estate tax reform, the marginal rate tax cut reform, did you experience a lot of class warfare type of arguments?

Governor PATAKI. Sure.

Mr. RYAN. Did you experience a lot a demagogues suggesting you were giving tax cuts to the rich and things like that all?

Governor PATAKI. Absolutely.

Mr. RYAN. How did you defeat these arguments?

Governor PATAKI. Absolutely. The argument was exactly that, the counterargument was that well you are talking about a person earning more. The counterargument to that is jobs. What it comes down to is if you are a low-income person and if you were a lowincome person in the mid-'90's in New York State, you were the one that was trapped there. You couldn't afford to simply pick up the newspaper and go buy a house in North Carolina or follow an IBM plant to North Carolina. It was the low-income New Yorkers, or the senior citizens, the ones who didn't have the economic ability to move, who were trapped where there were no jobs.

College graduates, engineers, they could follow the jobs. They could go out to California and go down to Florida. But it was all about jobs, because if you taxed that entrepreneur out of the State, he is going to take his company, or she is going to take her com

pany, and all the jobs with them. And the low-income people are the ones who are left with no opportunity, no jobs, no ability to see their dreams for their children come true. So it was about jobs.

Mr. RYAN. In the face of this evidence, now that this has been resolved, that the rate cuts took place, that jobs did grow, that actually revenues did increase, were those people who were the opponents of these tax cuts on the grounds of getting tax cuts to the rich, are they all new converts now?

Governor PATAKI. No. I wish, Congressman, that I could say that it is true; but it simply doesn't work that way. As you know, too often, if the political rhetoric seems to work, people are inclined to use it. But what we have to do is just point out the facts, and the facts are that tax cuts create jobs, they expand opportunities, they give people more chance for the future, and, particularly, the lowest income are the ones who can't buy a house in the Silicon Valley to follow a company there. We have to have jobs across this country, and lowering taxes allows us to do that.

Mr. RYAN. Thank you for your intellectual fortitude.
Governor PATAKI. Thank you.

Mr. BURTON. Thank you, Congressman Ryan.
Congressman Horn.

Mr. HORN. Thank you very much Mr. Chairman. Governor, you are truly impressive in your record, and the fact that you would have Mr. Lazio sitting beside you is another example of your good decisionmaking. He is a very constructive Member of this body. Yesterday Governor Whitman, who has done very much like you have in this regard and takes on all adversaries with a smile as you have, made this comment that if we were to use the surplus, if it really ends up to be a surplus after what is going on in Yugoslavia, that she expended for Social Security and education.

Now a lot of us believe in that and a lot of us also want to give tax cuts and the one that concerns me the most that we ought to be talking about, and some of us did in the last 4 years. Mr. Neumann and myself and Mr. Nick Smith of Michigan talked about the unfunded liability of the Federal Government which are into the billions over the next 30 to 50 or 70 years.

And we would like to know to what degree do you think we should cut a lot of the National debt over the next 20 years at least. And we could get rid of that debt, which is costing us hundreds of billions of dollars in interest that could be used for other purposes, further tax cuts, further support for some programs. I would just wonder how you would advise us to balance the Social Security, the education, the tax cuts and the retirement of the National debt which we are talking about $5.3 to $5.5 trillion.

Governor PATAKI. That shouldn't take more than 30 seconds to balance the budget, take care of the debt, Social Security, education and all the other needs of the Federal Government.

Mr. HORN. What priorities should we give it?

Governor PATAKI. First of all, I think Congress deserves enormous credit for finally achieving a balanced budget. And we have to make sure that, as we go forward, whether it is new programs, debt reduction or whatever, that that balanced budget continues, it is the right thing for our children, and for the future generations.

Former President Bush made what I thought was a very interesting suggestion with respect to the debt, and that was to allow people on April 15, when they file their tax returns, to have a debtreduction checkoff, where they could allocate a portion of their taxes, to voluntarily help reduce the Federal debt, I think that is an interesting idea that should be looked at.

Obviously, preserving Social Security is not just critical, it is something that is a matter of faith with the American people. When people have worked all their lives and paid the payroll taxes and paid into it, to tell them that their security in their old age might be in jeopardy is unconscionable. So the highest priority has to be to make sure that Social Security is protected and preserved for future Americans. I believe there is a growing consensus on an allocation. I believe the President proposed 62 percent of the Federal surplus for Social Security, and there is a growing consensus that that percent should be appropriate.

What we have done in New York is both. We are continuing as we go forward to cut taxes, but I have also proposed over that period of time a capital program that will reduce State debt, and in our upcoming State budget I propose a quarter of a billion dollars in cash to begin debt reduction.

So certainly, if you can reduce the unfunded mandates and the debt into the future, it not only allows you to build on the tax cuts to create the economic expansion, but it lowers the cost of government in the future so you can do it again.

So Social Security has got to be the priority. The budget should remain balanced. I will absolutely look to continue cutting taxes so that we will continue to see economic expansion in this country, and cutting taxes would help to do that; and beyond that, whether it is additional funds for defense, which are obviously necessary, or additional support for education, which is desirable and we would love to see in the State, we would be very pleased.

Mr. HORN. Thank you. Keep up the good work.

Governor PATAKI. Thank you.

Mr. BURTON. Thank you, Mr. Horn.

Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman.

Let me add my congratulations to what you have been able to accomplish in New York, Governor Pataki. I am sorry I missed Mr. Lazio's opening statement from all the praise that he has garnered here, I guess I missed something that was spectacular. I will have to read it.

I am from the State of Illinois and have been in the Illinois State Legislature and was active in our school reform in trying to work out how we were going to fund our schools. We have a State constitution to provide the preponderance of aid to schools by the State, which is assumed to be about 51 percent, which we cannot match. And so it makes our property taxes high because of the State not being able to fund all of it, and as the property taxes go up, then that really does increase our liability. But you have been able to cut the school taxes by 27 percent, and then by seniors of 45 percent. I am amazed. I would love to know how you did that without raising other taxes. And we considered income taxes, we

went to some of the service taxes and used part of our surplus, but could not come up with just having the money available.

Governor PATAKI. Well, from the beginning, I realized that one of the most destructive taxes was the school property tax, particularly for senior citizens. Too many New Yorkers worked all their lives, lived in their homes, sent their children to school, and then had to give up their house because of the school taxes. We would have budget votes and, Congressman Lazio knows, on Long Island you would have battles between senior citizens and advocates for education over whether or not to approve the school budget. It wasn't that the seniors didn't want their grandchildren to get a good education, it was they didn't want to get taxed out of their homes. It was a completely unfair proposition.

So that is why our STAR Program, our school tax reduction program was so important. What we did is discipline the government. We said, as the economy grows, as additional revenues come in, we are going to put them into a program that is going to be focused on education and on relieving the school tax burden. We passed the STAR Program, it is going to save homeowners in excess of $2.5 billion a year off their school property taxes. But at the same time, we expanded State aid to local education. And the way you do it is simply by looking at areas that should not be as high a priority. We have reduced the State bureaucracy by about 20,000 workers. That is saving us hundreds of millions of dollars a year. And not only is it saving us money, it is allowing the government to function more effectively, because you don't have people tripping over each other trying to force somebody to file another form that they are going to go then read and send a letter about.

So if you can control spending in the areas such as the State bureaucracy, and again, let me thank the Congress, because one of the reasons we have been able to make this type of investment in tax relief and in education is because of the historic welfare reforms; 650,000-plus fewer people on welfare, that is saving us $153 million a month. It is an astounding number. Workfare works, requiring able-bodied people to participate in order to get a check works.

So if you can control spending, reduce the costs in other areas like the State bureaucracy, and then allocate it to something like school tax reduction and education, you can end this battle of neighbor against neighbor when it comes time to approve a school budget.

Mrs. BIGGERT. So was there a big increase in the amount that you then put into education?

Governor PATAKI. Yes. Not only-as Congressman Lazio pointed out, when we did the STAR Program, in the past, the State government would pass an exemption and then let the local government or the school district figure out how to pay for it, so that the State politicians would be the heroes and the local ones would be the ones who are left holding the bag.

What we have done with our STAR Program is we created an exemption for the average senior citizen. That exemption is a $50,000 exemption on the value of their home, for which no school tax is paid. But to prevent the school district from losing the money, the State pays that amount directly to the school district, so that the