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On January 15, Mr. Chairman, I introduced Senate Joint Resolution 2, a constitutional amendment prohibiting deficit spending on the part of the Federal Government except in situations for the calendar year following any fiscal year in which outlays exceeded revenues unless the Congress, by a two-thirds vote of those present and voting, declares a state of national emergency and suspends it in whole or in part. It would, thus, provide an uncomplicated and eminently practicable procedure for restoring responsible fiscal management to the Federal system.

It is becoming abundantly clear that we cannot continue to live beyond our means as a Nation. The old maxim, “There is no such thing as a free lunch,” is as fundamentally valid for Government as it is for any other institution or group. At some point, the laws of economics demand a settling of accounts. The costs of providing goods and services, whether in the private or public sector, may be temporarily postponed, but they cannot be avoided forever.

For too long the Federal Government has been operating as if it were exempt from the basic economic relationship. Deficit has been piled upon deficit, and in the process, the national debt has reached astronomical, indeed, almost incomprehensible magnitudes.

At the end of fiscal year 1977 'the gross Federal debt stood at $785,583 million, which equals $3,571 for each man, woman, and child in this country. Yet, as astounding as these figures are, they understate the volume of public indebtedness in the United States.

Thus, in 1976, the net Federal debt amounted to $515.8 billion. Ofsbudget, but federally sponsored credit agencies had outstanding obligations of another $81.4 billion. At the same time, State and local governments were liable for $236.3 billion. Thus, 2 years ago, aggregate public debt in the United States came to a monumental $833.5 billion. The entire gross national product for that year was only slightly more than double this amount, that is $1,750 billion and the interest on the Federal debt for that year was $27.2 billion, which was 7 percent of total outlays and a little over half of the deficit for that year.

The intervening biennium has brought over $200 billion in additional Federal deficits alone.

We cannot afford to continue mortgaging the future in this manner. It is time to call a halt and bring this Nation's fiscal affairs back under some semblance of control. That is what the amendment intends to accomplish. It is imperative that we act promptly and expeditiously on this matter. Further delay can only worsen the economic and financial disarray with which we are confronted.

No one, to be sure, favors deficit financing as a matter of principle. Just the opposite is usually the case. I am sure that none of my colleagues think that deficits are desirable per se. At most, some may consider budgetary unbalances a necessary evil under certain economic conditions.

Indeed, there is general agreement among my colleagues, and for that matter, most public officials from the President on down, as to the need for a balanced Federal budget. Yet, despite this seemingly overwhelming consensus, a consensus that I believe has been forming for some time, we have been unable to achieve it. In fact, deficit financing has become a virtual addition in the Federal sector.

In only 9 of the last 31 years has the Federal budget been in the black. Worse still, outlays have exceeded receipts in every budget in this decade and the gap has widened dramatically since fiscal year 1974. In that year, the Federal deficit was $4.7 billion. In fiscal year 1975, it jumped to $45 billion and then shot to $65 billion in 1976. It has since hovered in the range between $40 and $55 billion.

The economic consequences have been as disruptive as they should have been predictable. Inflationary pressures have sharply intensified, compounding economic uncertainties, exacerbating social conflict and unrest, and raising the specter of coercive governmental interference in the private enterprise system. This instability in turn has discouraged capital formation and stunted the growth of productivity in American industry.

The consequences have been sluggish domestic growth coupled with chronically unfavorable trade balances and a dangerously weakened dollar.

The reason it has proved so difficult to accommodate the Federal budget to these economic realities, in my judgment, has less to do with ideology or political chicanery than is commonly supposed. They inhere, instead, in certain characteristics of the institutional system through which the budget is formulated.

Let me elaborate briefly. The focus in the existing budgetary process is almost exclusively on expenditures. We estimate revenues and try to adjust outlays accordingly. But there is no direct and explicit mechanism for coordinating revenue decisions with particular authorization and funding decisions.

To be sure, the congressional budget process directs attention in a general sort of way to these relationships. But, to all intents and purposes, the process of forming tax policy still involves a different set of actors, roles, and interests than do the budgetary and appropriations processes.

Moreover, even when tax policy remains relatively consistent, revenues may fluctuate owing to economic circumstances. The upshot is that the revenue side of the budget is, as a practical matter, uncontrollable. And, if budget receipts cannot be definitely known, they can, in a sense, be ignored, for recourse can always be had to additional borrowing to cover the costs of expanding existing programs or instituting new ones.

This temptation to resort to the easy expedient of deficit financing is rendered all the more appealing by the fact that, at any given time, approximately 80 percent of the Government's expenditures are uncontrollable.

It is, of course, always difficult to reach agreement as to where the requisite changes and reductions should be made. Reasonable people may well disagree as to the merits of this or that program or agency. Moreover, every program has its clients, supporters, and advocates

. Taken in combination, these factors mean that a strategy which relies solely on reducing Government spending to achieve a balanced budget suffers from severe handicaps.

The amendment would establish a procedure for coordinating tax and spending decisions and thus serve to make the real costs of governmental programs unmistakably clear. It would, therefore, create a direct and compelling incentive for keeping a much tighter rein on Federal expenditures.

It would, I believe, help to insure the kind of touch discipline that will be necessary to get Federal overspending under control and reverse the tendency toward unlimited growth in the public sector.

My good friend and colleague, Senator Long, has jokingly proposed that if my amendment were to be adopted and the tax imposed, the tax should be dubbed the "DeConcini tax.” He was quite correct in stating that this would be an honor I would rather forgo. However, in a sense Senator Long has made the exact point I intend to make by the amendment. A tax of that nature would be so universally politically unpopular that we in Congress would go to any length to avoid its imposition.

We might even go to the extreme of saying "no" to our constituents and colleagues when they ask for our votes or support for another program paid for by the taxpayer.

Everyone, as I stated, is for a balanced budget. When those of us in the Senate are asked to translate that abstract proposition into concrete refusals to spend for specific programs, my experience has been that this institution has failed. The purpose of my amendment is simply to increase the political pressure on the other side of the equation.

As you know, Mr. Chairman, the balanced budget issue is bringing us closer to a Constitutional Convention than has any other issue in recent history. We are rapidly being brought under the gun to perform our duties as elected officials in a fiscally responsible manner. My 2 years on the Senate, and the experience of my senior colleagues with whom I have discussed this issue convince me that unless there is a legal mechanism to force the Congress to suffer the consequences of its own fiscal irresponsibility, it is unlikely this Nation will return to the era when the Federal revenues consistently matched Federal expenditures.

I realize the subcommittee is on a tight schedule. Mr. Chairman, so I will only make this final point. There are several proposed mechanisms for bringing about a balanced budget before the subcommittee. While I have a natural pride of authorship, I believe it is more important that the Congress act upon some form on constitutional amendment to balance the budget rather than become paralyzed in disagreement over how to accomplish the result we all agree is desirable.

Thank you, Mr. Chairman, for allowing me to testify on this legislation. That concludes my written remarks.

Senator Bays. Thank you, Senator. Just as an observation, I know you are busy, so I don't want to take a lot of time

Senator DECONCINI. I will stay as long as you like.

Senator Bayh. Have you observed that there has been an improvement, a higher degree of sensitivity in budget matters over the past couple of years as far as our colleagues are concerned.

Senator DECONCINI. Being a relatively new member, I ran in 1976 for the U.S. Senate and that is one of the things I ran on. It is time to balance the budget, if necessary, a constitutional amendment.

When I got here there was, I would say, a smaller corps and maybe it was the fact that it was not of great public pressure at the time. I'don't think there is any question that the awareness has arisen in

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the last 2 years, but I believe from talking to so many of our colleagues here, Senator Bayh, that people realize it. It just has not been on the front burner.

Now, thanks to you, and the efforts of this subcommittee, by bringing it out on the front burner, you are addressing a very important problem. People continuously tell us that inflation can be cured by or reduced substantially by balancing the budget. I am not sure that would solve our inflation problem.

But because inflation has gone up, and that rhetoric has been continously expanded, the answer to your question, as I see of an arising awareness, I believe it was there in a more dormant way even before I came to the Senate.

Senator BAYH. I appreciate your observation. I must say I share Secretary Blumenthal's attitudes about the work that Senator Muskie and Senator Bellmon have done. We have all been sort of advocates I think to one degree or another of balancing the budget. But I want to balance it by using my set of priorities and you might want to use your set of priorities and Senator Hatch would use another set of priorities. The fact of the matter is we have not been able to get 51 Members of the Senate to agree to one particular set of priorities.

I appreciate your concern, your interest and your contribution this morning.

Senator DECONCINI. Thank you, Mr. Chairman, very much.

Senator Bayh. We will have a short recess until Senator Levin gets here.

[Recess.)

Senator Bayh. The next witness is our distinguished colleague from Michigan, Senator Levin. We appreciate your being here this morning.

TESTIMONY OF HON. CARL LEVIN, A U.S. SENATOR FROM THE

STATE OF MICHIGAN

Senator LEVIN. I am afraid I held up the committee.
Senator Bayh. Not at all.
Senator Levin. Thank you, Mr. Chairman.

I am pleased to be here today to voice my opposition to the resolutions which are now pending before this committee which would amend the Constitution to require a balanced Federal budget. At the outset, I want to make clear that my opposition is to a constitutionally mandated balanced budget and not to congressional attempts to balance the budget in any given year.

I voted for the amendment to the debt ceiling bill which directed the Budget Committee to report a balanced budget to the Congress for our consideration. But I will vote against any resolution which would bind Congress to adopt a balanced budget.

Others are probably more qualified to discuss the economic implications of a balanced budget, and I will leave that task to them. I would rather spend these few minutes talking with you about the procedural problems which abound in this area.

As I understand the proposals calling for a balanced Federal budget, most of them recognize that while a balanced budget, in general, is a good idea, there may be specific situations in which it makes sense to have an unbalanced budget. So, for example, Senator Lugar would

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allow the budget to fall out of balance if two-thirds of both Houses of Congress agree; Senator Helms would allow an unbalanced budget if three-fourths of both Houses agree.

These exceptions exist because people recognize that varying events may make it desirable to have an unbalanced budget. For example, if we should have a war, we might need to spend in excess of revenues in order to pay for the conflict. Likewise, if we have a depres

a sion, we may need to spend our way out of it. Both of these situations would require an unbalanced budget. Clearly, as the authors of these budget proposals recognize, there are times in which an unbalanced budget is desirable.

But, Mr. Chairman, the proposals that they advance do not allow a majority of the Congress to make such an adjustment. In fact, the bulk of the proposals mandate that two-thirds of the Congress or more must agree to modify the ban on an unbalanced or deficit budget. I simply do not see why, in a time of national urgency, where a deficit budget would be highly desirable and justifiable, that this country should be restrained from acting because a minority of the Members. of the Congress choose not to approve a deficit budget.

One of the painful lessons we have learned in this century is that we should not wait until the economy has swung from peak to valley before we act to moderate its movement. As a downturn begins to develop, we have learned that modest alterations in fiscal policy can be used to slow the movement and reverse the direction. Even former President Nixon, not known for his fiscal liberalism, recommended a deficit budget in 1970 and 1971 in an effort to halt another recession. He said at that time:

This is strong medicine, and I do not propose to continue to use it, but we have taken it in order to give powerful stimulus to employment.

My question is: Will we still have the freedom we need to act under the terms of these proposed resolutions? The Joint Economic Committee reported, for example, that if we had a mandated balanced budget between 1969 and 1972, the sluggish economy and the declining level of economic activity which we experienced then would have been accelerated. Their study predicts that instead of having an unemploy

ent rate of 3.6 percent to 6 percent, we would have seen levels clos to 10 percent.

There are also problems of definition which need to be considered. In theory everyone is for a balanced budget, but in reality it is not easy to define what one means by a balanced budget. Can we achieve a balanced budget, as many States do, simply by declaring capital expenditures off-budget items?

There is one proposal to this effect before the Senate now. By adopting it we would alter the way in which the Federal Government keeps its books. That feat of legerdemain would result in a balanced budget, but it wouldn't really alter the behavior patterns which concern so many Americans.

There are also problems of enforcement. What happens if the economic assumptions upon which we build the budget turn out to be incorrect? How do we modify the balanced budget to meet those new constraints? Must we keep amending the budget during the year to keep it in balance? And, what happens, Mr. Chairman, if, despite our best efforts, we end the fiscal year in the red? Do we declare the entire

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