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tive branch of State government as Governor. You articulate very well the case for some renewed sense of fiscal responsibility within Congress:
The explosion in budgetary outlays, bloated tax revenues, increases in the debt limitation ceiling, the increase in inflation, and so forth. Do you think that, as some people have suggested, a constitutional amendment mandating a balanced budget would hamstring the Congress dangerously?
What is your opinion of those hamstrings? Senator PRYOR. I think that those hamstrings are necessary, Senator Hatch. I think we must have an outside force that is larger than us, and the only force I know other than the good Lord is the Constitution of the United States. There must be a restraining order placed in the Constitution, in the body of the document, in order that we will know our limitations. We must be limited in our authority to spend, and the only way that I know to do it effectively is via the process of a constitutional amendment.
Senator Hatch. You know a lot of people have testified that they simply don't trust the Congess any more to reduce spending or to balance the budget. It hasn't been balanced in at least 23 of the last 29 years so that I guess there is some justification for that. You seem to suggest that many of the difficulties in promoting a balanced budget are "institutional.” Is this why you believe that a constitutional amendment is necessary?
Senator PRYOR. Well, I think the greatest fear is the fear of the unknown, and to launch out trying to establish a new process of budgeting for the legislative branch of Government would be stepping off into new territory for us. Therefore, there is always resistance to any change of this magnitude. I believe, however, that our system is flexible enough and has sufficient safeguards to accommodate effectively and efficiently a balanced budget proposal, especially one including a twothirds suspension provision. Our action will indicate to the American people that we are serious about doing something about the state of our economy.
I know that there are legal scholars who argue on the other side, Senator Hatch. I know that there are great constitutional scholars who say this will not work. It is my humble belief, after serving many years in the vineyards as a public official, as a State legislator, as a Congress
an, as a Governor, and now as a Senator, that this is the only way remaining that we are going to be effectively restrained and effectively made to spend the taxpayers' money more efficiently.
Senator Hatch. Senator, what are your feelings with regard to a tax limitation or spending limitation amendment? Do you think that might be helpful in conjunction with a mandated balanced budget?
Senator PRYOR. Senator Hatch, first, I always have a strong reservation about amending the Constitution. I think that it cannot become cluttered up. We must not legislate within the framework of the Constitution. I don't think that is the purpose of the Constitution. I do not believe that we should place into a constitutional amendment any more complications than we already have. I think that we should set a basic broad guideline such as I have respectfully proposed.
Senator Hatch. Your amendment basically reads that you can't spend more than you take in?
Senator PRYOR. Unless otherwise voted by two-thirds of the Members of each House of Congress. It is not tied in any way to the GNP or tax cuts or tax increases.
Senator Hatch. It has been suggested to us that one of the problems with a simple balanced budget amendment is that, in the absence of a spending límitation, Congress can always balance the budget through increasing revenues. That is why some have suggested a spending limit as a percentage of gross national product or of the national income, in addition to a mandated balanced budget. That is why I was interested in your viewpoint.
Senator PRYOR. Senator Hatch, you have done a great deal of work in this field, and I don't know if you are a proponent of that proposition.
Senator Hatch. I would be.
Senator Pryor. I am not here to argue that case with you, but I am here simply to say that we must propose a constitutional amendment to balance the budget. I think that for implementing legislation we could basically take the language, for example, of section V of the 14th amendment, which I think clearly breathes into Congress the necessary authority to implement that particular legislation.
Senator Hatch. Your amendment intrigues me. I like the concept very much. It is an inclusive yet simple amendment. By that, I mean of course easy to understand.
Senator BAYH. I am glad the Senator clarified the record on that.
Senator Hatch. I know better. I have been around the Senator from Arkansas. He is anything but simple. He is a very intelligent Senator. Some people however, feel that if you go with a very simple and easy-to-understand amendment, you may be allowing budgetary sleight-of-hand in various ways. For instance, in the budget in our country today, you have at least $12 billion in so-called off-budget items. Do you feel, in light of your experience, that your amendment, would be sufficient to prevent efforts at circumvention by technically proficient and creative Congress?
Senator Pryor. Senator Hatch, I think if the Congress intentionally circumvented the amendment or intentionally tried to pull the wool over the eyes of the people, if you will, after such an amendment passed three-fourths of the State legislatures and became a part of the Federal Constitution, it would be certainly engaging in what I would call electoral brinkmanship, because we would be subjecting ourselves, I think, to the wrath of the voters in the next election. Sometimes that is the only restraint that we in politics know and understand. And I think that any one of us who engaged in that would be walking off into some very, very deep and murky waters.
Senator Hatch. With your amendment we certainly would have some ammunition to direct at budgetary hocus pocus-off-budget spending, federally sponsored corporations, increased regulatory activities, and Federal credit allocations.
I have enjoyed listening to your testimony, Senator. You have articulated it well. I have read your statement and it is very thoughtful.
Senator PRYOR. Senator Hatch, if I may say one other thing. I have always been a proponent of a balanced budget amendment but never as strongly until I became Governor of our State. Our State does have such a provision in our constitution, although it is not exactly this same language and does not have a two-thirds clause, for example. I believe many of the States in our country do have such a provision.
Senator Hatch. Mine does likewise.
Senator PRYOR. I think it serves our States well. I am not in any way trying to compare the way the States run their business with the way the Federal Government runs its business. In principle, I believe it has served the States well, and we should attempt this for our own Federal system. You know we are a government that experiments and we are a government that is a government of trial and error.
If it doesn't work, then we might say, well, it doesn't work and we are going to try to repeal it. Until that time I think it deserves a try.
Senator Hatch. One thing that I think is important about a balanced budget amendment or a spending limitation, or both, is that special interest groups will no longer be competing with the taxpayers, as far as I am concerned, to raise the total budget ante, but in essence would be competing with each other for their share of a fixed budget ante. There will be a substantially different emphasis and psychology to the budget process.
Thank you again.
Senator Bayn. Senator Pryor, I appreciate your being here. I know how sensitive you are to the question of fiscal responsibility since being a colleague here and when you were in the executive branch in the beautiful and friendly State of Arkansas.
Senator PRYOR. You were down in Arkansas the other night, and I understand the people of Jonesboro loved you.
Senator Hatch. You mean the State is still standing?
Senator Bayn. I spent a lot of money down there to stimulate the economy. If I was well received, it is because I mentioned your name in a very favorable fashion.
This committee, I might just say, has done more than all other committees of the Congress to try to explore the question of spending and fiscal responsibility. There has been a good deal of talk about it but not a whole lot of action. We have tried, and are trying, to find a way in which we can reach the goal of balancing the budget without passing something that has a good deal of political appeal to it and has the opposite impact. It is a very delicate process. You have added to our base of expertise here, and I appreciate your taking the time to do so.
Senator PRYOR. Senator Bayh, thank you very much.
Senator Bayh. Our next witness is Alice Rivlin, the Director of the Congressional Budget Office. Good to have you with us this morning.
TESTIMONY OF ALICE RIVLIN, DIRECTOR, CONGRESSIONAL
Ms. Rivlin. Thank you, Mr. Chairman.
Mr. Chairman, I welcome this opportunity to comment on proposals for amending the Constitution to require balance in the Federal budget or to restrict the size of Federal spending. I do not question the legitimacy of these objectives—the Federal budget has been in deficit far too frequently in recent years and strong arguments can be made for lower levels of Federal expenditures. Nevertheless, I believe it would be a mistake to attempt to reach these objectives by writing a formula into the Constitution.
The Congressional Budget Act of 1974 provides the Congress with its first workable procedure for debating and deciding the overall size of Federal spending and the magnitude of the deficit or surplus. Using this procedure to formulate and execute a multiyear budget plan holds more promise of reducing Federal spending intelligently than does introducing an inflexible constitutional formula.
Although a balanced or surplus budget would often be appropriate policy, requiring balance every year would deprive the Government of a useful tool for reducing the length and severity of recessions and would shift the full burden of stabilizing the economy onto monetary policy and the Federal Reserve Board.
Moreover, a constitutional spending limit or balanced budget requirement would provide incentives for carrying out national objectives through creation of off-budget agencies, allocation of private credit, and increased Federal regulation. Such developments would probably reduce, rather than enhance, the ability of the public and its elected representatives to monitor and control the activities of the Federal Government.
CAUSE FOR CONCERN
There is plenty of cause for concern. The relative size of the Federal sector has grown substantially over the last 30 years as a result of increased benefit payments to individuals—especially social security, food stamps, medical payments, public assistance, student aid, and housing subsidies-along with rising Federal grants to finance a wide variety of State and local government services. Federal outlays rose from an average of 18.2 percent of the gross national product during the 1950's, to 19.5 percent during the 1960's, to 21.2 percent during the 1970's.
Many believe that this growth in Federal spending is wasteful or even harmful and should be reduced to leave more room for private spending. Moreover, concern with the growth of Federal spending serves as a proxy for a more general concern with the growth of Government power and the pervasiveness of Government regulations.
Rising Federal spending has been financed partly by increased Federal revenues and partly by persistent Federal deficits. In fiscal year 1980, the Federal budget will be in deficit for the 11th straight year, the 19th time in the last 20 years, the 42d time in 50 years. The size of deficits has also increased during the postwar period. As a percent of the GNP, the average Federal deficit during the 1970's was about double the average during the previous decade.
To many people, persistent deficits symbolize a lack of discipline that enables the Congress to enact programs without simultaneously increasing taxes. Moreover, many people believe that Federal deficits cause inflation, either by "crowding out” the private sector investment that would increase the supply of goods and services and the level of productivity or, more directly, by forcing the Federal Reserve to increase the money supply in order to buy up the new Federal debt. Recent escalation in inflation-even though it is largely associated with world oil prices and other events outside the control of the Federal Government-has focused attention on the inflation-creating potential of Federal deficits.
The case for a constitutional amendment rests on the contention that our present political system is biased in favor of increased spending and deficits-a bias that was well articulated by Senator Pryor. The benefits of a particular Federal program tend to be concentrated on a small group each member of which stands to gain substantially from the program, while the costs are spread over a large number of taxpayers-or victims of inflation-each of whom will lose only a little.
Hence, elected officials are in a very difficult position: If they vote against a program increase or champion a cut, they will encounter the vocal and well-organized opposition of the program's beneficiaries without earning more than a weak nod of approval from those who see their share of total taxes reduced by some small amount. Thus, it is argued, the political pressures on the Congress do not reflect the real desires of the electorate, and a constitutional amendment is necessary to redress the balance in favor of reduced spending and budget discipline.
THE NEW BUDGET PROCESS
This allegation of spending bias had much validity as long as spending and tax bills were voted on one at a time and the Congress had no opportunity at all to debate or vote on the overall size of the budget or the magnitude of the deficit. But since the implementation of the Congressional Budget Act of 1974, the Congress has required itself to consider and adopt overall spending totals and to vote explicitly on the planned deficit or surplus. Under the new procedures, those who would add to spending must visibly add to the total of expenditures and the deficit or must propose compensating cuts.
This process is new, and it is really too early to tell what effect this new process will have on spending and deficits. The process was implemented during the most severe recession since the 1930's. Much of the expenditure growth and deficits of the past 4 years can be attributed to the effect of the recession on the budget and the planned fiscal policy that the Congress adopted to speed the recovery.
The key test of the new process, therefore, is before us. There are signs that the process will provide the tools for achieving a balanced budget and controlling expenditure growth. This year the Senate adopted a plan that would lead to a balanced budget in fiscal year 1981. So far, that plan has been observed. Just last month, for the first time, the Senate voted to invoke the budget process reconciliation procedure by requiring six committees to cut outlays by $3.6 billion.
As long as the budget process operates one year at a time, however, it will be difficult to achieve significant cutbacks without causing major hardships, leaving projects unfinished, and creating disappointed expectations. If the Congress is to cut spending in an orderly way, it must plan at least 3 years ahead and must seriously consider phasing out and restructuring programs and reducing the rate of growth of entitlements. The Long amendment to the debt limit bill earlier this year was a first step in multiyear planning, but the Congress has yet to adopt an organized and coordinated plan for making cuts in the budget over several years.
Although a multiyear approach would allow the Congress to plan cuts, a constitutional formula requiring annual balance or restricting overall growth would force last minute, unplanned cuts as changing economic conditions caused Federal outlays to rise and revenues to fall. It seems sensible to me, therefore, that before moving to a constitutional amendment the Congress should give its new process & chance.