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about this. He said we might reduce the Federal deficit by $5, $10 or even $15 billion this year, by means of budget cuts here and there, and by greater revenues deriving from a higher than anticipated raté of inflation. But what effect would this have on inflation or upon the expectations of the American people?

Chairman Burns has suggested it would have a very small effect on inflation. The Government must demonstrate a willingness to combat vigorously the problem of inflation.

As I suggested to then Secretary Blumenthal several months ago, we have reached the point where a blockbuster approach-analogous to the dollar rescue last November-is necessary.

As we failed to act decisively to combat inflation, we have gradually slipped into the trap of pervasive public and private indexing. Pervasive private and public indexing is a trap for two reasons.

First, it destroys the incentive to save and to engage in long-term planning based on expectations of stability. We have witnessed in recent years a significant decline in capital formation, a decline which threatens the long-run capacity of our economy to provide meaningful employment for our citizens. This tendency must be arrested and reversed.

Second, indexing works against those who are neither clever enough nor powerful enough to insulate themselves against the ravages of inflation. It works specifically against the poor and those workers who are at the lower end of the salary scale. As a practical matter, there is no possibility of achieving a uniform and general indexing across all wages, salaries, and profits.

To this point I have spoken of the reasons for action on the balanced budget now. But an amendment to the Constitution is not for one time only. It is hopefully for all time and with this in mind let me turn to the underlying and political and structural realities of our system, which demand a balanced budget amendment.

Congress has an endemic tendency to spend in excess of revenues. Spending in excess of revenues is the course of least resistance. Each day a congressional office must confront many well-organized interests demanding consideration for their programs. These programs are not unworthy ones, and the members of these groups are not evil men and women. The pressures to spend are simply not counterbalanced by pressures for restraint, which are very diffuse, with the result that Congress says "yes" to almost everyone.

Legislative rules frequently apply a procedural device to situations in which restraint is difficult, pressure intense, and in which the subject matter involves departure from an important norm. The device is the supermajority—the requirement of more than a mere 50 percent plus one vote and it is ideally suited to the most crucial single decision made by the Congress each year, the passage of the Federal budget.

I propose that the Constitution of the United States prohibit an unbalanced budget, except by a two-thirds vote of those present and voting in both Houses of Congress. I submit that this amendment would address effectively the principal crisis confronting American Government in the modern era, and would do so with the dignity, clarity, and flexibility befitting any change in the basic charter of our democracy.

The Constitution abounds with precedent for such a supermajority requirement. Mr. Chairman, I have outlined a number of these examples in my longer statement and I will not list them here.

I would support any reasonable and thoughtful balanced budget amendment. I have specifically favored a two-thirds requirement for the adoption of deficit budgets because I believe that it best combines the virtues of simplicity, dignity, practicality, and enforceability.

It is clear and straightforward; it employs no technical language; it writes into the Constitution no numbers or economic concepts such as the gross national product; and it invites no discussions of natural emergencies or other exemptions. By requiring two-thirds to adopt deficit budgets, it circumvents the problem of enforcement.

It is true that we may miss the mark of perfect balance in our projections of spending and of revenues. But the point is surely not to require a balance down to the last dollar, but to restore the idea of balance as a norm from which deviations require an extraordinary burden of proof.

In closing, let me address the main objection raised again and again by those who oppose a balanced budget amendment, namely that it takes away from Congress budgetary flexibility. Such "flexibility" as we have seen simply means more spending. I submit that the Congress would enjoy more, rather than less flexibility under a balanced budget requirement. We are presently on a course in which larger and larger portions of the budget are thought of as uncontrollable and therefore beyond the reach of serious scrutiny.

This bizarre notion has vitality only because no binding limit on spending forces a reexamination of these spending programs or their automatic increases. A two-thirds requirement would liberate the budget process from the psychology of uncontrollability, and provide some muscle for the concepts of "sunset legislation" and "zero-based budgeting.”

What a balanced budget amendment will take from Congress is one of its powers, specifically the power of simple majorities to vote huge budget deficits with impunity.

Perhaps the prospective loss of some congressional power is why this amendment has found so many opponents in the Congress. Other amendments with less popular support such as the Equal Rights Amendment, or the District of Columbia representation amendment, have been passed in this Congress and sent into the land of uncertainty, but the balanced budget amendment has found its most widespread support in the States and with the people.

I urge the subcommittee to be responsive to this sentiment and to report a balanced budget amendment during 1979.

I thank you very much for your consideration.

Senator Bayh. Thank you very much. We appreciate your taking the time to be with us. Majority factor we will consider as we continue our studies.

Senator Simpson, do you have any questions?

Senator Simpson. I think not, Mr. Chairman. Thank you very much, and you, Senator Lugar for your testimony.

[Senator Lugar's prepared statement follows:)

PREPARED STATEMENT OF SENATOR RICHARD G. LUGAR Mr. Chairman, it is a pleasure to be here today to testify on behalf of a balanced hudget amendment to the Constitution. I appreciate the efforts which you and the other members of the subcommittee have made in scheduling hearings on such an amendment. I am especially heartened by your recent commitment to Senator Byrd of Virginia to bring a balanced budget amendment to a vote in this subcommittee. I urge you to do so with all deliberate speed.

It is important that the subcommittee consider and vote out such an amendment for reasons that transcend the balanced budget issue, as important as this isuse is. Respect for the leadership of the American Government is at an all-time low. Specifically, respect for the Congress is lower than for any other major institution in our society. I think that the American people have the impression that we go about our business as usual, and that our business does nothing to affect or improve the daily lives of most Americans. The Congress appears either unwilling or unable to act upon what concerns the American people escalating inflation, real or prospective energy shortages, and so forth.

Mr. Chairman, the American people overwhelmingly desire a balanced budget amendment to the Constitution. Thirty States have called for a second constitutional convention if the Congress does not submit such an amendment to the States. Over 35 States have urged the Congress to propose an amendment to the States. In poll after poll, approximately 80 percent of the American public has consistently favored the adoption of a balanced budget amendment. The Gallup poll of March of this year reports that 78 percent of all Americans support a balanced budget amendment, while only 12 percent are opposed. When an escape clause" is added to the amendment, half of those opposed would support it, bringing the total to 84 percent.

We are at a point in time whcn decisive action by this subcommittee would be a tremendous encouragement to the American people. The rate of inflation has Dow climbed to double-digits, and shows no sign of abating. We may all disagree about the relative weights of different factors in causing inflation in the first place; hut I think that we all agree that once inflation has begun, it assumes a life of its own. Virtually all thoughtful observers, including administration spokesmen such as Charles Schultze, have spoken of an "inflationary psychology.” We need action now to counter this psychology and to prevent inflation from feeding on itself. Arthur Burns has spoken most clearly about this. He has said that we might reduce the Federal deficit by $5 billion, or $10 billion, or even $15 billion this year, by means of some budget cuts here and there, and by greater revenues deriving from a higher-than-anticipated rate of inflation. But what effect

would his have on inflation, or upon the expectations of the American people? Chairman Burns has suggested that it would have a very small effect on inflation. The Government must demonstrate a willingness to combat vigorously the problem of inflation. As I suggested to then-Secretary Blumenthal several months ago, we have reached the point where a "blockbuster" approach-analogous to the rescue of the dollar last November—is necessary.

As we have failed to act decisively to combat inflation, we have gradually slipped into the trap of pervasive public and private indexing. The Congress has in recent years increasingly indexed spending programs to the cost of living. Indexing and quasi-indexing of Federal programs adds many billions of dollars to the budget each vear. A Library of Congress study has found that 27.6 percent of Federal spending is explicitly indexed to the cost of living, and that another 35 percent is implicitly indexed. Thus, over 60 percent of all Federal spending is tied to increases in the cost of living. For every 10-percent increase in the Consumer Price Index, then, Federal spending increases by at least 6 percent. This amounts to well over $30 billion in our current budget. The practice of indexing has fostered the expectation that such increases will exist forever, and that they are a matter of right.

Pervasive public and private indexing is a trap for two reasons. First, it destroys the incentive to save and to engage in long-term planning based on expectations of stability. We have witnessed in recent years à significant decline in capital formation, a decline which threatens the long-run capacity of our economy to provide meaningful employment for our citizens. This tendency must be arrested and reversed.

Second, indexing works against those who are neither clever enough nor powerful enough to be able to insulate themselves against the ravages of inflation. It works specifically against the poor and those workers who are at the lower end of the salary scale. As a practical matter, there is no possibility of achieving a uniform and general indexing across all wages, salaries, and profits. A balanced budget requirement will free the budgetary process from the rigidity and inflexibility of indexed increases.

To this point, I have spoken of the reasons for action on the balanced budget now. But an amendment to the Constitution is not for one time only; it is hope fully for all time. With this in mind, let me turn to the underlying political and structural realities of our system which demand a balanced budget amendmeni.

Congress has an endemic tendency to spend in excess of revenues. Spending in excess of revenues is the course of least resistance. Each day congressional office must confront many well-organized interests demanding consideration for their programs. These programs are not unworthy ones, and the members of these groups are not evil men and women. The pressures to spend are simply not counterbalanced by pressures for restraint, which are very diffuse, with the result that the Congress says "yes" to almost everyone.

Legislative rules frequently apply a familiar procedural device to situations in which restraint is difficult, pressures intense, and in which the subject matter involves departure from an important norm. The device is the supermajoritythe requirement of more than a mere 50 percent plus one vote--and it is ideally suited to the most crucial single decision made by Congress each year, the passage of the Federal budget. I propose that the Constitution of the United States prohibit an unbalanced Federal budget, except by a two-thirds vote of those present and voting in both Houses of Congress. I submit that this amendment would address effectively the principal crisis confronting American Government in the modern era, and would do so with the dignity, clarity, and flexibility befitting any change in the basic charter of our democracy.

The Constitution abounds with precedent for such a "supermajority" requirement. Two-thirds majorities of both Houses are currently required to override a Presidential veto of a bill, or to propose a constitutional amendment to the State legislatures. A two-thirds vote of both Houses was required by the 14th amendment to admit to Congress any individual who had participated in the Civil War on the Confederate side. The votes of a four-fifths majority are required to block a listing of the yeas and nays on a congressional vote.

A two-thirds vote of the Senate is constitutionally required to convict a Federal official upon impeachment. Two-thirds of the Senate must approve any treatv. Two-thirds of either House must concur before a Member can be expelled, ani, at the subconstitutional level, the Senate rules are filled with supermajority requirements for such issues as cloture of debate or the designation of a special order.

The framers of our Constitution knew well enough the truth that men often require institutions to help shape decisions in ways which enable them to do collectively what they cannot do as individuals. Indeed, there is every reason to believe that if the framers of our Constitution and envisioned our current budgetary policies, they would have written into the Constitution a special form of restraint.

I would support any reasonable and thoughtful balanced budget amendment. I have specifically favored a two-thirds requirement for the adoption of deficit budgets because I believe that it best combines the virtues of simplicity, dignity, practicality, and enforceability. It is clear and straightforward, and employs no technical language; it writes into the Constitution no numbers or economie concepts such as the gross national product; it invites no discussions of national emergencies or other exemptions. By requiring two-thirds to adopt deficit budgets, it circumvents the problem of enforcement. It is true that we may miss the mark of perfect balance in our projections of spending and of revenues. But the point is surely not to require balance down to the last dollar, but to restore the idea of balance as a norm from which deviations require an extraordinary burden of proof,

In closing, let me address the main objection raised again and again by those who oppose a balanced budget amendment: That it takes from the Congress budgetary "flexibility." Such "flexibility” as we have seen, however, simply means "more spending." I submit that the Congress would enjoy more, rather than less, flexibility under a balanced budget requirement. We are presently on a course in which larger and larger portions of the budget are thought of as "uncontrollable,” and therefore beyond the reach of serious scrutiny. This bizarre notion has vitality only because no binding limit on spending forces a reexamination of these spending programs or their automatic increases. A two-thirds requirement would liberate the budget process from the psychology of "uncontrollability," and provide some muscle for the concepts of ''sunset legislation" and "zerobased budgeting."

What a balanced budget amendment will take from Congress is some of its power, specifically the power of simple majorities to vote huge budget deficits with impunity. Perhaps the prospective loss of some congressional power is why this amendment has found so many opponents in the Congress. Other amendments with less popular support, such as the equal rights amendment or the District of Columbia representation amendment, have been passed in the Congress and sent into the land to uncertain fates. The balanced budget amendment has found its most widespread support in the States and among the people.

The essence of a limited constitutional government is the restriction of the powers of that government. Constitutional government specifies in advance what the government may and what it may not do, and what are the prescribed modes in which it must do what it may do. In this sense, an amendment circumscribing the power of the Congress to adopt deficit budgets is in the best tradition of free and responsible government. Thank you, Mr. Chairman.

Senator Bayh. The next witness is our colleague from Wyoming, Mr. Wallop.

TESTIMONY OF HON. MALCOLM WALLOP, A U.S. SENATOR

FROM WYOMING

Senator WALLOP. Thank you Mr. Chairman. I did not mean to intrude on your lunch hour.

Senator Bays. You are not intruding at all. Please feel free to take as much time as you want.

Senator Wallop. I want to begin by thanking you, Mr. Chairman, for offering me this opportunity and for even moving it up a little bit.

To begin my statement I would like to make a standard commendation of you, Mr. Chairman, for holding these hearings.

Senator Bay. I suggest there is no such thing as a standard commendation.

Senator WALLOP. There is a standard one and all of us utilize it. I just want to make it clear that I meant it in more than just an ongoing way, because I think it is a matter of considerable importance and I compliment you. Senator Bayh. Thank you. I appreciate that.

I Senator Wallop. It seems that if our Nation is to regain its economic strength in the coming decade we must begin to examine the underlying causes of inflation and adopt measures that will call for sound fiscal management in the years ahead.

Parenthetically, I am not one who believes that balancing the budget will provide the panacea for all of our problems.

When I first came to the Senate and introduced a balanced budget amendment to the Constitution, balancing the budget was a fiscal conservative's pipedream. But over the past 2 years we have seen a tremendous public groundswell for a balanced budget amendment to the Constitution.

The reasons the American people have come to support this means of fiscal accountability stem from the growing economic and social menace of inflation and mainly from the recognition of its causes.

As we approach a new decade, our people seem to have learned the obvious lesson of the 1970's and that is that our economy cannot tolerate the accumulated deficits of the past 8 years. In the brief period, as I am sure you know, between 1970 and 1979, national debt

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