I endorsed the Congressional Budget Act of 1974. It was a great step forward and it has worked well. I applaud it. With it the Congress at last broke into the clear in reasserting its constitutional control of the purse strings and entering the field of Federal fiscal policymaking in a really meaningful way. However, it is apparent from recent history that the budget act alone will not stop deficit spending. We need the discipline and even the compulsion which this constitutional amendment would provide if we are to reach that goal. This, in my opinion, is the only way to proceed if we are to bring about the fiscal responsibility and budgetary control which is absolutely indispensable to the economic well-being of our country.

My amendment involves no disruption of established and recognized constitutional procedures. It would not deprive the Congress of its constitutional power to appropriate funds as it deems appropriate. The power of the Congress to make appropriations is whatever amounts and for whatever purposes it sees fit is not restricted by the proposed amendment. It does provide, however, that if Congress should appropriate a total amount for any fiscal year which exceeds the available revenue then it would be mandatory that a surtax be levied in the succeeding calendar year in an amount necessary to overcome the deficit. In short, any Member of Congress who voted to spend more money than was available would, at the same time, automatically be voting to impose an additional income tax. Thus when a tax is levied the taxpayers could readily see who imposed it on them.

Neither is it true that my amendment, if adopted, would put the country in an economic straitjacket. It would not require a balanced budget even in the face of an economic depression. Section 4 of the proposed amendment provides that in case of a grave national emergency declared by Congress the required income tax surtax may be suspended. This escape clause could be invoked by a vote of three-fourths of all members of each House of Congress. Possibly a two-thirds vote would be better. In any event, the details of the escape provision can be worked out as the concept is defined and developed.

Let me stress that this proposed constitutional amendment would have a clear, obvious, and almost immediate beneficial result. It would eliminate, or at least reduce, the extravagant waste of the financial resources of the government. It would absolutely force the Congress to make hard and difficult fiscal choices during each and every session. No longer would the Congress have the liberty and the leeway to appropriate large sums of money for so many programs that have some real or imaginary social, economic or political appeal and to fund such programs by deficit financing. A constitutional amendment requiring a balanced budget would serve as a check and constraint on Federal expenditures by compelling the Congress to select and fund only those programs which are the most necessary and desirable from the standpoint of good government and the best interests and welfare of the taxpayers. If the Congress recognizes that it will be compelled to levy added taxes to pay for questionable and excessive programs, there is a much greater likelihood that the proposed expenditures will be carefully scrutinized and restricted.

Beyond all other considerations is the generally recognized fact that elimination of deficits and the reduction in Federal spending would have the very desirable effect of slowing or reducing inflation. This is something that must be accomplished if this nation is to continue to exist in the form we know it now. We simply cannot maintain our democratic and free enterprise system of government if the existing raging inflation continues over an extended period. The history of other countries which have seen their economic and governmental systems collapse under the weight and burden of uncontrolled inflation should be evidence enough of this. I know that there are those who say that a $30-billion deficit can have little impact on inflation in a nation with a two-trillion dollar economy. These are the same people, however, who also say that pump-priming by deficit spending will work wonders in curing a recession or depression. It seems more than a little contradictory and inconsistent to maintain that deficit spending is so overwhelmingly effective in combating economic downturns and, at the same time, to assert that a balanced budget and prudent economic restraint has little or no impact on soaring inflation.

Let me mention one other matter. I understand that almost 30 of the required 34 States have taken some form of action asking for the calling of a constitutional convention to consider a mandatory balanced budget amendment. As strongly as I favor a pay-as-you-go constitutional amendment, I cannot support this drive for a constitutional convention. As a matter of fact, I am both alarmed and frightened by the very prospect.

I have researched the precedents and guidance for a constitutional convention and have found very little. That fact alone warns me against marching off into this legal no-man's land. We have not held a constitutional convention for 192 years since 1787, to be exact and that one literally wiped out the Articles of Confederation.

A constitutional convention, if called, would present us with new and dangerous legal questions. There are few, if any clear and unequivocal answers to these questions and the myriad problems which would inevitably arise. The legal guidance on both procedural and substantive matters is virtually nonexistent, as I have already indicated.

The most debated question surrounding the calling of a constitutional convention is whether Congress has the power to define and limit the scope of a constitutional convention called by the States. It is also the most dangerous question and the one having the greatest potential for mischief and legal confusion.

I know that there are respected legal scholars who assert that Congress has the power to place limits and restrictions on the matters to be considered at a constitutional convention. There is also a respected body of legal opinion on the other side. Even assuming, as an abstract legal question, that Congress has this power, the question is: How is it to be enforced? What is there to insure that the convention would not become a "runaway" assembly which would try to rewrite our basic law in numerous particulars? There are too many unanswered and unanswerable legal questions and problems involved to make the convention procedure worthy of the risk involved.

Let me say again, Mr. President, that I believe that calling a constitutional convention would require us to embark on unknown, uncharted and highly perilous legal waters. The result could be confusion and chaos or, and the very least, legal doubt and question as to the status of some of our most cherished constitutional precedents. I do not know of any one who has a ready answer for the numerous and vexing legal questions that would inevitably arise if such a convention was called. I agree with the Chairman of this Subcommittee, Senator Bayh, in his statement that the drive for a constitutional convention to balance the budget threatens a constitutional crisis. It should be avoided at almost any cost.

While I realize that there is no easy answer to the problem, I am convinced that the best answer lies in the adoption of a direct constitutional amendment such as I am advocating today. I know that other proposed amendments are pending which have merit. I have no pride of authoriship and will certainly be glad to support any amendment which is reported to the Senate floor which will provide an effective answer and remedy. I hope this Subcommittee will act expeditiously and effectively to prevent the Congress from continuing to mortgage the nation's future so extravagantly. I hope there will be early and affirmative action so that the matter can be considered and acted on by the Senate at an early date.

One of the most cogent arguments in favor of a balanced budget constitutional amendment is the tremendous pressure put on Members of the Congress by special interest groups and others to increase appropriations for existing programs and to fund new programs. My conservative estimate is that since last October I have been urged to vote for increased appropriations for new and existing programs above the proposed budget of at least $100 billion on an annual basis. In view of this, and as a guage for the future, I believe it would be helpful to look at the past growth of a few of the existing programs.

The food stamp program was started as a pilot or experiment in 1961. The cost was less than $6 million. The estimated cost for fiscal year 1980 is $6.9 billion, in spite of repeated attempts to curb and hold down the program.

Medicare and Medicaid combined expenditures in fiscal year 1970 were about $10 billion. This is an area of need, but the growth is too rapid. This budget for fiscal year 1980 calls for $32.1 billion for Medicare and $12.5 billion for Medicaid, for a combined cost of almost $45 billion.

Youth training and employment programs have grown from slightly more than $1 billion in fiscal year 1970 to about $4.5 billion in fiscal year 1980. This includes Summer Youth Employment, Jobs Corps, Youth Employment and Demonstration Act, and other programs for the training and employment of youths.

Outlays for veterans benefits and services have increased from about $9-billion in fiscal year 1970 to an estimated $20.5-billion in fiscal year 1980. This category includes such services and benefits as education, pension and other income security, compensation and hospital and medical care.

Expenditures for all forms of transportation systems was about $7-billion in fiscal year 1970. The budget calls for $17.6-billion in fiscal year 1980.

Outlays for natural resources and environment, including pollution control, water resources, conservation, recreation and other programs, were approximately $3-billion in fiscal year 1970. The budget estimate for fiscal year 1980 is $11.5billion.

In fiscal year 1970 our outlays for energy were about $1 billion. The estimated expenditure for fiscal year 1980 is $7.9 billion. This total includes emergency preparedness, conservation, energy information, policy and regulation, energy supply and other energy programs.

General purpose fiscal assistance to states and local jurisdictions, including general revenue sharing and antirecession financial assistance, involved expenditures of less than $1 billion in fiscal year 1970. The amount budgeted for fiscal year 1980 is $8.8 billion.

In fiscal year 1956, the Defense budget included payments of $477 million to some 192,000 retired military personnel. For fiscal year 1980, the budget includes $11.4 billion for an estimated 1.3 million recipients. I have seen a projection that estimates that the annual cost of military retired pay under this system could reach over $36 billion by the year 2000. I have proposed that we put in an additional system, but I merely point to the problem now.

Outlays for training, employment and social services were less than $4 billion in fiscal year 1970. The amount budgeted for fiscal year 1980 is about $17 billion. This includes CETA and other public service employment and training, social services, and a number of other programs. This problem will continue but it must be met in a more realistic way.

I do not mean to imply or suggest that I am opposed to all of the programs I have mentioned. Indeed I am not. I cite them only to show the tremendous escalation of cost in the past few years and as evidence of what we can expect in the future unless we adopt some strict and binding fiscal restraint such as would be provided by the constitutional amendment I am advocating.

My principal point is that the demand and the political pressure will not only continue but will increase. I actually believe that we are putting in jeopardy the basic principle of the popular election of our legislative bodies. We must not let this happen. Before it is too late, we must put restraints and limits, with proper escape clauses of course, in the form of a ceiling on the power to tax. This is what the amendment I propose is designed to do. This will bring about a definite establishment of priorities, and the entire question will come under review from time to time.

As I view conditions among our people today there is another challenge to our system of self-government. Joe Doak and his wife have too many obstacles thrown in front of them and are thus unable to get ahead. They are representative of that group in America who have tried hard and made ends meet. They have paid their bills. They have saved for a rainy day; they paid their taxes and supported all worthy casuses. They kept their children in school and made special savings to educate the children beyond high school and also, perhaps, give them as tart as they started on their own. In addition, they saved for their own future. Thus, Joe and Mary Doak have been a major part of the hard core strength of America.

Now, they have greatly increased cost of food, of clothing, of medical care, of utilities, of total taxes, of all living expenses. Often they are having to spend their savings to pay current bills. There is nothing left for savings. Tersely, they cannot get ahead; instead they fall behind. Thus, America is losing a major inner strength of our system that cannot be readily replaced.

Senator BAYH. Senator Byrd, it's a pleasure, your being with us this morning. I understand you have to testify elsewhere shortly, a problem all of us have here, I think, this morning.

TESTIMONY OF HON. HARRY F. BYRD, JR., A U.S. SENATOR FROM THE STATE OF VIRGINIA

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

Gentlemen of the committee, I shall try to be brief. I shall try to hold my statement to 12 to 14 minutes.

Let me begin by commending the subcommittee and its distinguished chairman for calling these very significant hearings. I would like to say

at the outset that I am, in fact, a reluctant sponsor of a constitutional amendment to require a balanced budget. This is my 14th year in the Senate, but it was not until May 10, 1977, less than 2 years ago, that I first introduced a balanced-budget amendment. Nor did I previously cosponsor any of the balanced-budget resolutions introduced by other Senators. I have consistently, since I have been here, favored a balanced budget, but I have had great reluctance to advocate a constitutional amendment.

My reluctance stems from the fact that I was concerned as to whether one could be drafted with sufficient flexibility to deal with genuine emergency situations.

Today, I am appearing on behalf of Senate Joint Resolution 45, a slightly modified version of the resolution which I presented in 1977. It requires a balanced budget, but it provides that this requirement may be set aside by a two-thirds vote of both Houses declaring a national emergency to exist.

Always in the history of our Nation has a genuine emergency produced overwhelming votes from both Houses approaching unanimity. So, the two-thirds provision does, in my judgment, give adequate flexibility.

I have become an advocate of a balanced-budget constitutional amendment for one simple reason, may I say to the gentlemen of the committee, and that reason is this: I see no other way to achieve fiscal responsibility in the Federal Government. Recent years have shown that there is a total lack of fiscal discipline in Washington.

For example, during the past 15 quarters, the economy has been a period of strong recovery. Yet, huge deficits in the budget have continued, contrary to the teachings of nearly every school of economic thought, including the writing of Keynes himself. During the past 5 years, the Government has accumulated $242 billion in deficits, with at least $29 billion-probably more to be added in the forthcoming fiscal year. Accumulated deficits have pushed the national debt close to $800 billion, and Treasury Secretary Blumenthal says it will rise by another $98 billion in the next 18 months.

The interest charges on this debt, just the interest, will cost American taxpayers $67 billion next year. That amounts to 22 percent of all individual and corporate income taxes paid into the Treasury.

As I see it and I realize that my view, up to the present, at least, has been a minority one-it is the accelerated spending and the accumulated deficits which comprise a major cause, if not the chief cause, of the chronic high inflation which is eroding the value of the paycheck of every American working man and woman.

Those who oppose a balanced budget requirement in the Constitution, of course, deny the central role of deficit financing in fueling inflation. They also maintain that a balanced budget amendment won't work because it cannot be administered.

I deal at some length with these objections in the full statement I am submitting for the record, but let me touch briefly upon them now. First: What do big deficits, with the resultant large Federal public debt and heavy Government borrowing, have to do with inflation? I believe a good answer can be found by looking at some of the other causes for inflation which are cited by many analysts. Among the leading ones are excessive growth of the money supply, the lack of capital investment, low productivity, and inflationary psychology.

I don't for a moment deny that these factors exist and contribute to inflation, but, as I see it, continued deficit spending contributes to all of them. It faces the Federal Reserve Board with a severe policy dilemma which usually results in a rapid boost in the money stock.

Two: It reduces capital investment, both by the heavy Government borrowing which competes for funds with the requirements of private firms, and by confronting investors with the discouraging prospect of devalued returns on their investments. This discouragement of investment, in turn, holds down productivity gains.

Finally: It contributes heavily to inflationary psychology by convincing businessmen, workers, and consumers that they must act to shield themselves against coming price increases. If the Government is spending like a drunken sailor, why should business or consumers show restraint?

Now, as to the second objection, the claim that a balanced-budget requirement won't work. This argument, Mr. Chairman and gentlemen of the committee, overlooks the fact that during most of the nearly 200 years of our existence, the Federal Government operated with its budget in balance. Until quite recently, the only significant exceptions were years of war and the Great Depression.

What has been lacking in the Federal Government in recent years. has been the will, the discipline to keep our Government finances on a sound basis. It's been too easy for us in the Congress to plunge into new spending programs and to expand existing programs without considering the real consequences. The tendency has been to say, "Don't worry about the deficit. We will just add it to the debt." As a result of this psychology, this philosophy, the budget has been balanced only once since President Eisenhower left office nearly 20 years

ago.

Looking at this long string of deficits, we find that they have accelerated in this decade. To me, an astonishing figure is this: Well over one-half of our entire national debt has been accumulated since 1970. This imposes a heavy burden in interest payments. The interest on the debt exceeds one-half of the total amount spent on all of our national defense.

The interest charges in the new budget are more than one-half of the total amount which will be spent on national defense for fiscal 1980.

The laws of economics dictate that Federal spending must be paid for by the working men and women and businesses of our Nation. Either it is paid for by direct taxation-which many citizens feel is already burdensome or by an indirect tax, the cruel and hidden tax of inflation, which hits hardest those on fixed incomes and those in the lower and middle economic brackets.

Actually, today Federal spending is being paid for by a combination of high direct taxes and high inflation.

The Congress and five successive administrations, of both political parties, have shown themselves unwilling to do what is necessary to put the Government's financial house in order.

As a result of this failure to exercise fiscal discipline, we find ourselves in a situation where there are no easy solutions to our economic problems. Yet some firm action, in my judgment, must be taken.

And so, reluctantly, as I have said, I urge that the Congress submit to the States for ratification an amendment to the Constitution requiring a balaced budget.