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Sep 30 2003

Bennett Hosts Leading Economic Experts at Hearing on How to Transform Iraq

Private Property Rights and Entrepreneurship Critical to Long-term Economic Prosperity

Washington, D.C. – Senator Bob Bennett (R-Utah), chairman of the Joint Economic Committee (JEC), held a hearing today to discuss key economic principles for “Transforming Iraq’s Economy.” The hearing served to push the focus of the debate away from the short-term management of Baghdad and towards the implementation of policies that can ensure a long-run and prosperous free-market economy in Iraq and for the Iraqi people.

“The desire to replace a brutal tyranny and harsh dictatorship with a functioning, stable government that is ready to join the world and participate as a true partner in the world economic structure has enormous implications for the United States and our economy – even bigger for the world at large,” said Bennett. “A peaceful, stable, economically viable Iraq will transform the Middle East, if we are successful. If not, we will pay a price that is almost incalculable at this point.”

Bennett welcomed witnesses to the hearing who each have a unique perspective on building struggling economies and encouraging entrepreneurship. Documented property rights, a growing entrepreneurial class, a stable financial system and trade with other countries is the foundation to achieving these goals. Currently, Iraq does not have the legal framework to recognize private property rights and therefore its citizens do not have the ability to build personal capital and can not adequately participate in a market economy.

According to Hernando de Soto, President of Peru’s Institute for Liberty and Democracy, “Creating a property system is more than just building a system to record ownership; it is the cornerstone of the rule of law and the market economy. A property system has to be designed so that it can integrate all of a nation’s assets and provides the framework of rules that allow people to exchange goods and services in the expanded market.”

Bennett pointed out that most discussion on rebuilding Iraq’s economy is focused on oil wealth and that any future discussion should recognize that there are many other opportunities. For instance, Iraq has a great deal of water and fertile land that has a promising potential for agricultural use. He added that the United States’ efforts to assist the development of an economically stable Iraq is “timely, dangerous, expensive, but overwhelmingly worth all the challenges.”
Washington, DC – Senator Bob Bennett (R-Utah), chairman of the Joint Economic Committee (JEC), released a report today showing dividend tax relief helps everybody, not just taxpayers who currently receive taxable dividends.

“Ending the double taxation of dividends will help anybody who benefits from faster economic growth and higher stock prices. Simply looking at those who receive taxable dividends doesn’t reveal the whole picture,” Bennett said.

The report argues “static” analyses are flawed because they only account for how tax payments are currently distributed across income levels. “The taxpayer actually writing the check to the I.R.S. doesn’t always bear the economic burden of the tax,” Bennett explained.

For example, Congress currently exempts from income taxes the interest of many bonds issued by state and local governments. Since mostly high-income people buy the bonds, a static analysis would show the tax relief going to them. However, the JEC report shows the real winners are state and local governments that can finance their building projects cheaper because the bond market responds to the tax relief with lower interest rates for their bonds.

Ending the double taxation of dividends will work much the same way. Among other things, it will reduce the cost of capital, making it cheaper and easier for companies to raise money for new investments and new employees.

"Few people complain about tax-exempt bonds as only helping the rich," Bennett remarked. "Ending the double taxation of dividends takes advantage of the same economic phenomenon to benefit investors and the entire economy."

JEC is a unique joint Senate-House committee created by the Employment Act of 1946 to study and advise Congress on economic policy.

To view the executive summary and the full report, visit https://www.jec.senate.gov.
Washington, DC – Senator Bob Bennett (R-Utah), chairman of the Joint Economic Committee, made the following comments at the committee’s employment hearing today.

Regarding the February 2003 employment report:

“The economy has been growing, but too slowly to help many of our nation’s workers.”

“Today’s numbers reinforce the need for a bold economic growth package.”

“Congress should enact a plan that helps create jobs for those who are out of work today and strengthens the economy for years to come. A quick, temporary fix is not in order. We would fail our responsibilities if we adopt a limited package only to find ourselves in the same situation a year or two down the road.”

Regarding the president’s proposal for new personal re-employment accounts:

“Obviously the best remedy for the unemployed is a job. Most of us would much rather earn a paycheck than be given an unemployment check.”

“The basic structure of our unemployment insurance program has not appreciably changed for many years, and economists tell us that there is much room for improvement. The administration has made an innovative attempt along these lines with its proposal to create personal re-employment accounts. They would focus on the most important need – supporting efforts to find a new job.”

The Joint Economic Committee is a unique joint Senate-House committee created to study and advise Congress on economic policy. For copies of today’s testimony or for other information, visit the JEC online at https://www.jec.senate.gov.
Washington, DC – The Joint Economic Committee, chaired by Senator Bob Bennett (R-Utah), today issued “10 Facts About Oil Prices,” a report which puts into perspective the current volatility of the U.S. oil markets.

“We’ve experienced the first recession of the information age, not the last recession of the industrial age,” Bennett said. “While no one can dispute that high oil prices have been bad news for consumers and raise significant concerns for our economy, oil does not play the role it once did in terms of economic impact.”

Among other issues, the report reviews the following points:

• Oil prices are currently about $30 per barrel. However, for a past comparison, oil prices in the late 1970s reached $60 per barrel (adjusted for inflation).

• While “spot” oil prices increased yesterday for oil delivered now, “futures” decreased by nearly $1 per barrel of oil. The latter suggests the market believes oil prices will fall to more reasonable levels in the near future.

• Of the last nine recessions, oil price spikes have preceded or accompanied eight of the recessions. However, other negative factors collaborated with the price spikes.

• The U.S. economy has become more fuel efficient. For example, consumers spend less money on fuel as a percentage of wage and salary income.

• A large factor in how oil markets would respond to any major Iraqi oil disruption is the ability and willingness of Saudi Arabia to increase its production.

The Joint Economic Committee is a unique joint Senate-House committee created to study the economy and advise Congress on economic policy. For copies of today’s report or for other information, visit the JEC online at https://www.jec.senate.gov.

Sep 30 2003

Bennett Seeks Answers from Chairman Greenspan on Current Economic Condition

Questions Fed Chairman on post-war economy, specter of deflation

Washington, DC– Senator Bob Bennett (R-Utah), Chairman of the Joint Economic Committee (JEC), welcomed Federal Reserve Chairman Alan Greenspan to testify today at a hearing on the future of the U.S. economy. Today’s hearing brought the first testimony from Chairman Greenspan since the most recent meeting of the Federal Open Market Committee of the Federal Reserve and his first appearance before the committee under Bennett’s chairmanship.

In his remarks, Bennett sought clarification of recent Fed statements on the economy. Specifically, Bennett pressed Greenspan to clarify recent comments on the probability of deflation and what the consequences would be.

“The United States’ economy is fundamentally different and far more resilient that economies currently facing deflation, such as Japan,” said Bennett. “We don’t face the same risks; but we shouldn’t take any chances.”

Chairman Greenspan concurred and pointed out that “the risk of the U.S. entering into deflation is minor, but the consequences would be substantial.” He highlighted how the cultural differences in Japan’s economy have influenced the current economic situation, but cautioned the U.S. must identify what tools are necessary to fend off deflation and to attack any underlying forces that lead to deflation.

Bennett later asked Greenspan about his view of the effectiveness of jobs and growth legislation currently under consideration in Congress and what economic policy should be enacted to spur long-term economic growth. According to the Fed Chairman, “The taxation of capital is misguided. Removing the taxation of capital will enhance the revenue base.”

“We are near an agreement on a bold jobs and growth package. We need to act quickly to give it final approval and send it to the president for signature,” said Bennett. “But beyond tax cuts, it is time to begin work on what tools we must use to grow our economy and prepare for the future.”

The Joint Economic Committee is a unique joint Senate-House committee created in 1946 to study and
advise Congress on economic policy. For copies of today’s testimony or for other information, visit the
JEC online at https://www.jec.senate.gov.

Sep 30 2003

Prescription Drugs Are Only One Reason Why Medicare Needs Reform

Improved Efficiency, More Choice Necessary to Protect Medicare for Future Generations

Washington, DC— According to a report released today by the Joint Economic Committee, Medicare faces enormous fiscal challenges as the “Baby Boom” generation retires and as the program expands to cover prescription drugs. Congress is now focused on the need to extend prescription drug coverage to Medicare beneficiaries. That need is certainly important, but it is not the only reason that Medicare needs reform.

“Medicare is an incredibly inflexible program that is unable to adapt to rapid advances in modern health care,” said Chairman Bennett. “As we debate how to provide a prescription drug benefit to the program, we must keep an eye on the end goal -- to make Medicare more efficient, more flexible, and more responsive to the needs of all Americans.”

The Joint Economic Committee report highlights three key areas that must be addressed to ensure that Medicare will be able to serve an aging population and future generations: improving the long-term financial viability of the program, making Medicare more responsive to health care advances, and introducing choice and competition.

Medicare lags far behind other insurers in providing prescription drug coverage, disease management programs, and a host of other advances. Reforming Medicare to create a more selfadjusting, innovative structure could improve both the efficiency and quality of the medical care provided. That can be accomplished partly by allowing beneficiaries greater choice and introduce greater competition between plans. Giving Medicare beneficiaries greater choice has
at least two key advantages: It allows the beneficiaries to be the primary customer, rather than the government or a former employer. It also creates powerful incentives for all Medicare plans, public or private, to provide the highest quality health care and the most competitive price.
Washington, DC – The Joint Economic Committee, chaired by Senator Bob Bennett (R-Utah), released a new report today, “Medicare Beneficiaries’ Links to Drug Coverage.”

“Make no mistake, too many seniors are without adequate prescription drug coverage, or worse, any coverage at all. Congress needs to act,” Bennett said. “However, as we work to create a new Medicare drug benefit, we must pay attention to the coverage that already exists.”

The Joint Economic Committee’s report shows 78 percent of Medicare beneficiaries already have some drug coverage. Unfortunately, reliable data on the generosity of the drug benefit packages are scarce. The report is based on new data from the Centers for Medicare and Medicaid Services (CMS).

“We must be careful not to disrupt the coverage people already have,” Bennett remarked. “Congress should work with CMS and other agencies to gather better information on the value and quality of existing prescription drug coverage. We should learn from the experiences of the various organizations that already deliver drug benefits, such as employers and state governments.”

The report was issued today at a hearing of the Joint Economic Committee on “Medicare’s Financial Crisis,” which discussed how Medicare’s promised benefits already exceed the program’s financial resources by more than $13 trillion.

“We don’t practice medicine the way we did in the 1960s; we shouldn’t deliver and finance medicine the same way either. Any successful reform must begin with respect for the power of the market,” Bennett said.

“We need to be careful how we design prescription drug coverage in Medicare,” Bennett explained. “The combination of today’s hearing and the committee’s new report makes it clear that we can’t afford to ignore the experience or funding supplied by existing providers of prescription drug coverage. We need to avoid significant reductions to their ability and incentive to continue drug coverage.”

The Joint Economic Committee is a unique joint Senate-House committee created to study and advise Congress on economic policy. For copies of today’s report or for other information, visit the committee online at jec.senate.gov.
Washington, DC—Senator Bennett, Chairman of the Joint Economic Committee, held a hearing today on how technology and innovation affect health care costs. In other sectors, new technologies usually lead to greater efficiency and lower costs in goods and services, yet it is unclear whether the same is true for health care. Bennett welcomed witnesses from the Administration and leading medical research institutions to explore the various ways that technology influences health care costs. Panelists included Dr. Mark McClellan, Commissioner of the Food and Drug Administration, and Dr. Carolyn Clancy, Director of the Agency for Healthcare Research and Quality (AHRQ).

“We have a health care financing problem that goes well beyond the budget challenges posed by Medicare,” said Chairman Bennett. “For many years, the nation’s health care spending has grown at a significantly faster rate than the economy, and projections indicate that this will continue. Advances in medical technology are contributing to this rise in health care costs, but the problem is compounded by the way we pay for technology.”

During the hearing, Bennett pointed to the need to examine whether new technologies are used in an efficient and effective manner, and if there are areas where they are being overused or underused. For example, if a new advanced imaging device becomes available, will every hospital in a city decide to purchase it, or can the hospitals share the expensive equipment? At the same time, some new technologies may be underused such as those related to preventative medicine.

“Advances in the medical field are leading to the enjoyment of longer, more fulfilling lives for millions of Americans,” said Chairman Bennett. “We need to make sure that medical technology remains accessible to those who need it by keeping costs at a reasonable level.”

Among the issues that surfaced during the hearing was that the gap between best practices and practices actually in use is substantial. The panel found that it would be beneficial to investigate the actual use and efficacy of different treatments once they have been approved and how much time it takes for medical knowledge to be disseminated throughout the medical community. A study published by the Agency for Healthcare Research and Quality (AHRQ) pointed out that it can take 17 years from discovery of a new medical product or procedure until it is widely used in
practice.

In addition, the panel concluded that incentives – financial and otherwise – do indeed matter in health care. Consumers, providers, and payers all react to incentives, so policymakers should take care to understand how those incentives operate and, where possible, to harness those incentives for the social good. Medical payment systems should encourage good health outcomes and quality treatment, not billable procedures.
Washington, DC—The Joint Economic Committee (JEC) released a report today that puts current deficits into historical perspective and discusses how spending restraint and a growing economy are critical to reducing future deficits.

“The current deficits reflect a near ‘perfect storm’ that has rocked government finances in recent years,” said JEC Chairman Bob Bennett. “Revenues plummeted due to a weak economy and a sharp drop in the stock market. At the same time spending has increased because of terrorism, new homeland security requirements, and two wars. Our economy is large enough to recover from these events, but only if we can practice fiscal restraint.”

Recent projections by the Office of Management and Budget (OMB) show a potential budget deficit of $455 billion this year. Although the current deficit is large in nominal dollars, today’s JEC report points out that in order to have an accurate picture, deficits should be measured relative to the size of the economy. It is important to account for the economy’s capacity to absorb the deficits and the government’s ability to finance them. Both of these factors depend on
the size of the economy. When measured as a percentage of the gross domestic product (GDP), today’s deficits are still below the peaks of the 1980s and 1990s.

“Continued increases in the deficit could pose significant economic problems if they persist,” said Bennett. “It is important to have an understanding of how these deficits arose and to put them in proper perspective. In doing so, we can more effectively implement policies to rebound from current deficits. The reason for the deficits prescribes their solution.”

Fifty-three percent – the largest chunk – of the budget deterioration in fiscal year 2003 has been due to overall economic weakness, declines in the tax base, and other technical estimate changes. Spending increases account for 24 percent of the deterioration. Tax relief and economic growth legislation of the last two years have contributed only 23 percent of declines in projected surpluses. In fact, the economy has fared much better than it would have because of these progrowth actions.

“The economy is beginning to show signs of renewed growth,” said Bennett. “Congress has enacted timely pro-growth legislation. Now is the time for a renewed commitment to spending restraint.”
Washington, DC – Senator Bob Bennett (R-Utah), chairman of the Joint Economic Committee, said today dynamic analyses by the Congressional Budget Office (CBO) confirm pro-growth tax relief – such as ending the double taxation of dividends – will help the economy.

“CBO analyzed the entire budget, rather than only the economic growth package,” said Bennett. “A fair reading of CBO’s report shows spending and some tax reductions can negate the economic benefits of pro-growth tax relief.”

Bennett based his remarks on a new examination of the CBO report released today by the Joint Economic Committee (JEC). Among other things, JEC’s examination of the CBO report reveals:

• In the short-run, the president’s budget would increase real gross domestic product by 1.3 percent in 2004.

• In the long-run, negative effects of spending and some tax reductions would offset the positive effects of pro-growth tax relief like ending the double taxation of dividends.

• If Congress significantly cut back the president’s economic growth package, the remaining spending increases in the budget might actually hurt the economy in the long-run.

“The last thing we should do is reduce the pro-growth tax relief in the president’s budget and increase the spending, yet many in Congress propose doing exactly that,” Bennett explained.

The Congressional Budget Office released the dynamic analyses last week as part of a final version of their report, “An Analysis of the President’s Budgetary Proposals for Fiscal Year 2004.”

The Joint Economic Committee is a unique joint Senate-House committee created to study the economy and advise Congress on economic policy. To view JEC’s 3-page examination of the CBO report, visit the committee’s website at https://www.jec.senate.gov.