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year null and void? Do we arrest the Congress for violating the lawto the cheers of many of our constituents, I might add?

Mr. Chairman, I understand very well the fear and frustration which has led to this call for a balanced budget. I know that people are concerned about the economic health of the country and the economic well-being of their own families. I know that we are all threatened by an inflation rate which seems to grow no matter what we do and by unemployment that remains depressingly high.

If I thought that these proposals could solve these problems, I probably would support them. But the truth is that they cannot solve our problems. They offer us no panacea. They lead to no fiscal paradise. As the Joint Economic Committee concluded after examining the impact that balanced budgets would have had during the period 1969 to 1972, balancing the Federal budget would have been a very poor policy to follow, one that would have produced little, if any, improvement in inflation.

This policy, Mr. Chairman, would cause us serious problems and produce for us very little benefit. Yet the issue still remains alive because, for many, a balanced budget has become a symbol of our ability to restrain the growth of Government and to assure a stable economic future.

I think, however, that the focus, here may just be a little confused. I think what we are really concerned about is not a balanced Federal budget but a balanced economy: One that is somewhat inflation-proof, that is somewhat predictable, one that can be trusted. Instead of looking at a balanced Federal budget as the objective of our fiscal policy, we should see it as a tool for achieving our objective. It has historically been used as an important tool in staving off inflation, unemployment, and economic disaster.

The Federal budget is like a valve. It can be turned on or off, released with full force, or only slightly, depending upon the needs in the economy. What these resolutions before this committee propose, is that we afix that valve in a permanent position, that we turn it to "off," whether or not the economy needs it.

I refer the members of this committee to an article in Sunday's Washington Post in which Bernard Nossiter made a strong case for the fact that today's best social thinkers and economists are at a loss to understand just what public policy works any more in our society. He quoted Danial Bell of Harvard in reference to our domestic policy as saying, "Nobody has any answers he is confident of. If he does, he is a fool." And yet, by passing any one of these resolutions, we would be in essence warranting to the people of this country that the Federal budget should at all times in all fiscal years be in balance, save for periods of grave national crisis. I believe that would be a gross misrepresentation.

I believe, Mr. Chairman, that more than symbols are available to us in this area. There are concrete actions we can take which will make Government work, which will deal with the underlying resentment and insecurity which leads people to want to restrain Government's growth.

I believe that as this Congress addresses the issue of regulatory reform we will tap the raw nerve which has led people to say that Government has become too big and wasteful. I believe that as Congress pursues its legitimate oversight function, we can respond to the charges

of our constituents that we just pass laws and then ignore how those laws work.

There are meaningful directions that we can take to make Government work for people. Adopting any of these balanced budget resolutions may be a nice act of symbolism, but it will not be helpful in this task. I think it is time we got on with the task and left the symbolism to others.

Mr. Chairman, I support efforts to fight inflation and to restore the economy to health. I, too, want to continue to move toward a balanced budget. I, too, want to see our deficits continue to shrink and our sense of fiscal responsibility grow. But this approach of mandating a balanced Federal budget just does not help us achieve those goals. I hope that we can reject these proposals and move ahead with the real efforts to make this Government more effective and society more humane.

Thank you, Mr. Chairman.

Senator BAYH. Thank you very much, Senator Levin. I appreciate your situation and the fact that you would take the time from a very busy schedule to appear here today. Thank you.

Before we recess our hearings today I would like to submit the prepared statement of Senator Hart.

[The statement of Senator Gary Hart submitted to the subcommittee follows:]


Mr. Chairman, I appreciate this opportunity to comment on the various proposals that have been introduced to provide for a balanced budget amendment to the United States Constitution. I believe in a balanced budget. And I believe the need to balance the budget is both real and urgent. However, amending the Constitution to require a balanced budget is both unnecessary and unwise.

A Constitution is meant to encompass fundamental law and lasting values, not social or economic theories. As Justice Oliver Wendall Holmes wrote, "A Constitution is not intended to embody a particular economic theory." Decisions on the Federal budget and whether to incur a deficit are best handled through statute rather than constitutional means. A Constitution, unlike a statute, is intended not merely to meet existing conditions, but also to govern for the future.

To recognize new economic realities, one need not discard old values. To embrace fiscal responsibility, one need not alter a tried and true framework. A Constitution, to quote Justice Holmes once more, is a frame of government for men of opposite opinions. The genius of our Constitution has been continually demonstrated by the diverse and occasionally opposite doctrines that have emerged from the processes it establishes.

Political, historical, and constitutional factors all caution us against a Constitutional amendment to balance the budget. The economic consequences, however, are most persuasive.

The debate here does not revolve around overriding objectives or ultimate goals. I know of no men or women in government who do not support sound fiscal management and more responsible Federal spending levels. And many of us were exploring this issue before it became fashionable to do so. The question is simply how to achieve such an end.

Let's take a closer look at the implications of the balanced budget amendment to the Constitution.

Many of the balanced budget amendments that have been proposed would outlaw deficits except in an emergency. If an emergency could be declared easily, the amendment would have little impact. But if an emergency could not be found to exist in the early stages of an economic downturn, the result would be economic disaster. A strict prohibition of deficit spending would lock Congress into sound fiscal management. But it would also lock us out of a storehouse of economic tools with which we are now able to respond to a recession.

Under certain conditions the balanced budget amendment would make a bad recession worse. In the beginning of a recession, as incomes fall, tax revenues also start to drop.

A mandated balance in the Federal budget would not allow Federal spending to increase to provide more unemployment compensation, job opportunities and so forth. Instead, Federal spending would have to be cut to match the decline in tax revenues. The result would be, quite simply, more loss of income, and even more lost tax revenues. Successive rounds of less spending, lower incomes, and further unemployment would become part of an inescapable cycle under a balanced budget amendment.

A Constitutional amendment requiring a balanced budget does not tell us how to balance the budget. Nor do its proponents confront the issues in these terms. If the balance-the-budget bandwagon were to reach its goal, Congress must still adjust taxes and spending to achieve that goal. Wouldn't it be more efficient and productive if we simply dispensed with this symbolic effort and got on with the tough decisions on how to balance the budget?

The driving force behind the balanced budget movement is a public distrust of Congressional will. People simply don't believe we are serious about this issue. But as our most political branch of government, Congress must be both responsive and responsible. In the end, Congress does bear the responsibility for balancing the budget. And I believe a consensus has formed in Congress to act on this issue. Few members of Congress can or would ingnore the tremendous public sentiment and enormous good sense behind the desire for a tighter budget.

The American people have a right to expect Congress to balance the budget. But I believe that it can be done in a thoughtful, fair and reasonable way. Congress can reduce the deficit, and it has been moving in this direction, but not fast enough. The new budget process has increased our control over government spending. But we still need to work harder at making tough choices, saying "no," and managing public money with the discipline of most private businesses.

Last year the Senate overwhelmingly passed a measure to provide that discipline the Sunset Act, requiring nothing less than a systematic re-examination of the Federal structure. Unfortunately, this legislation was not approved by the full Congress last year.

A massive amount of Federal spending is not even included in the Federal budget. Many Federal spending programs, such as tax credits, deductions, exclusions, and other loopholes, are arbitrarily exempted from budget review. Such tax expenditure programs represent the missing ingredient in our budget process. For fiscal year 1980, Federal revenue spent through the tax laws will cost the Federal treasury $150 billion, compared to the total Federal budget of $550 billion. Tax spending is rising more rapidly than any other type of Federal program. Between 1971 and 1978, the total revenues spent through tax expenditures increased from $51 billion to $112 billion, an increase of 41 percent.

Tax expenditures should be periodically reviewed under a sunset process and the Treasury Department should be required to justify each dollar spent through the tax expenditure budget. The time has come to revoke the blank check for all spending programs contained in the Internal Revenue Code.

So, we can achieve a balanced budget by adopting the reforms I have discussed. But I don't believe that is all the American people want. People really want more effective government, not necessarily less government services. Government is becoming more effective, but not fast enough. There are several avenues we

can pursue.

First, we should adopt sunset legislation to terminate programs when they have run their course.

Second, we are going to overhaul the entire regulatory process to reduce the burden of government regulation, particularly on business. We should ensure regulations are tailored to the size of those being regulated. We should combine the regulatory requirements of all levels of government. We must encourage regulatory flexibility and allow government agencies to issue different sets of rules with varying informational demands and compliance requirements for different segments of the regulated public.

Third, we should consider alternatives to regulation wherever possible. In many areas, economic incentives would work just as well and rely on sound business ideas. For those of us in Congress, this year will be an important watershed. Although the Congressional Budget Committee's proposed deficit of $23 billion for 1980

is nearly half of what it is this fiscal year, we must reexamine every area of Federal spending more closely. And we must do it humanely. The Congressional budget process will help, but each of us must be prepared to make difficult choices. As Senator Muskie, the distinguished Chairman of the Senate Budget Committee, said with regard to the deficit and a balanced budget amendment:

"We don't need fiscal handcuffs to wipe the deficit out. We need fiscal discipline. We need to make informed, prudent judgments about hundreds of separate spending choices. We need the will to make those judgments stick. If we have that will, no formula is necessary. If we don't, no formula will work."

[Whereupon, at 12 noon, the subcommittee was recessed, to reconvene subject to the call of the Chair.]

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