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Farm Bureau policies for 1979 call for constitutional amendments, both to require the Congress to operate on a balanced budget each year and to restrict the spending authority of the Federal Government to a realistic percentage of the gross national product. We interpret

a this to mean that Farm Bureau can support either a balanced budget amendment, a spending limitation amendment, or some combination of these two alternatives. Our objective is greater fiscal responsibility, and we will support any proposal that moves toward this objective.

If a choice has to be made between a balanced budget and a spending limitation amendment, we prefer a spending limitation such as that proposed by Senate Joint Resolution 56, and introduced by Senators John Heinz of Pennsylvania and Richard Stone of Florida. While a balanced budget is a highly desirable objective, which the Congress and the administration should seek to achieve as often as possible, we recognize that an amendment which required the Congress to balance the budget without observing a limit on spending would not necessarily slow the growth of the Federal Government. The budget could be balanced by increasing taxes. There is also a possibility that a balanced budget amendment could be evaded by changes in congressional procedures and bookkeeping practices. The spending limitation approach recognizes the need to encourage private incentives by putting a ceiling on the percentage of our gross national product that can be spent by the Federal Government. If this can be done, it will be much easier to balance the budget in future years than it has been in the recent past.

The provisions of Senate Joint Resolution 56 have been carefully designed to establish a meaningful limit on Federal spending without either disrupting existing Federal programs or penalizing State and local governments. This resolution is the outgrowth of the work of a group of citizens known as the National Tax Limitation Committee. As president of the American Farm Bureau Federation, I served as a member of this committee, along with the eminent economist, Dr. Milton Friedman, and a number of other individuals who are concerned about the integrity of our economy and Government.

The consensus of the committee was that the proposed amendment should Jimit Federal expenditures-more specifically, total Federal outlays which are generally defined as payments made by the issuance of checks or the disbursement of cash.

The proposed amendment would not require cutbacks in existing Federal programs. Under the committee's proposal, and Senate Joint Resolution 56, total outlays of the Federal Government each fiscal year would be limited to the amount spent in the previous fiscal year plus the percentage increase in gross national product in the most recent calendar year. This formula would not require an immediate reduction in the percentage of GNP that can be spent by the Federal Government. It would, however, make it possible for the Congress to reduce this percentage on a gradual basis. For example, if Congress held Federal spending below the applicable limit for a fiscal year,

this lower level of spending would become the base for determining the spending ceiling for the next fiscal year.

The proposed amendment would encourage Congress to balance the budget. If the inflation rate in any calendar year was more than 3 percent, the permissible percentage increase in total outlays would be

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have fought against deficits all my public life. But unless our economy revives rapidly, federal tax revenues will shrink so much that future deficits will be even larger.” The actual cut came too late to prevent a substantial increase in unemployment-but, the economy turned around and a full-scale depression was prevented.

Senator Bayh. Our next witness is Mr. Allan Grant, president of the American Farm Bureau Federation.

Mr. Grant, it is good to have you with us this morning.

TESTIMONY OF ALLAN GRANT, PRESIDENT, AMERICAN

FARM BUREAU FEDERATION

Mr. GRANT. Thank you, Mr. Chairman. My name is Allan Grant. I ain a farmer from California and president of the American Farm Bureau Federation.

The American Farm Bureau Federation is the Nation's largest general farm organization, and we appreciate the opportunity to present our views on proposals for constitutional amendments to limit Federal spending and balance the Federal budget. We can think of no issue that is more important to the average citizen or to the future growth of this Nation.

Federal spending has been growing at a rate which, in our opinion, is clearly excessive in terms of the taxpayers' ability to pay. This excessive growth has had, and is continuing to have, adverse consequences for our economy and for individuals. This is particularly true for farmers and ranchers who are faced with rising costs of production and relatively low rates of return for their labor, management, and invested capital. Federal spending has financed the overregulation of business activities, reduced individual work incentives and productivity, increased the real burden of Federal taxes, and lel to continuing Federal deficits which have fueled an inflation that threatens the future of our private enterprise system.

The Federal budget was last balanced in fiscal 1969. The cumulative Federal deficit for the fiscal years 1970-79 is currently estimated at $320.6 billion. This is a record of fiscal irresponsibility, and the result has been a serious inflation which is getting worse.

Quite aside from the fact that deficit spending has fueled a rate of inflation which is now approaching 14 percent annually, we think that the Federal Government is preempting too much of our gross national product. Federal expenditures rose from 20.1 percent of GNP in calendar 1969 to 23.3 percent in 1975, and then fell back to 21.9 percent in 1978. While the fact that there has been a reduction in the Federal share of GNP since 1975 is encouraging, we think that the Federal share is still too high.

Farm Bureau has long been on record in favor of fiscal response bility. We supported the Congressional Budget and Impoundment Control Act of 1974. This act has had a constructive effect on congressional consideration of the President's budget, but it has not forced the Congress to face up to the fundamental fact that the ability and willingness of the taxpayers to finance Federal expenditures is not unlimited. Something more is needed. As a minimum, effective action should be taken as soon as possible to prevent the Federal share of GNP from rising above its present level at some future time.

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Farm Bureau policies for 1979 call for constitutional amendments, both to require the Congress to operate on a balanced budget each year and to restrict the spending authority of the Federal Government to a realistic percentage of the gross national product. We interpret this to mean that Farm Bureau can support either a balanced budget amendment, a spending limitation amendment, or some combination of these two alternatives. Our objective is greater fiscal responsibility, and we will support any proposal that moves toward this objective. If a choice has to be made between a balanced budget and a spend

а ing limitation amendment, we prefer a spending limitation such as that proposed by Senate Joint Resolution 56, and introduced by Senators John Heinz of Pennsylvania and Richard Stone of Florida. While a balanced budget is a highly desirable objective, which the Congress and the administration should seek to achieve as often as possible, we recognize that an amendment which required the Congress to balance the budget without observing a limit on spending would not necessarily slow the growth of the Federal Government. The budget could be balanced by increasing taxes. There is also a possibility that a balanced budget amendment could be evaded by changes in congressional procedures and bookkeeping practices. The spending limitation approach recognizes the need to encourage private incentives by putting a ceiling on the percentage of our gross national product that can be spent by the Federal Government. If this can be done, it will be much easier to balance the budget in future years than it has been in the recent past.

The provisions of Senate Joint Resolution 56 have been carefully designed to establish a meaningful limit on Federal spending without either disrupting existing Federal programs or penalizing State and local governments. This resolution is the outgrowth of the work of a group of citizens known as the National Tax Limitation Committee. As president of the American Farm Bureau Federation, I served as a member of this committee, along with the eminent economist, Dr. Milton Friedman, and a number of other individuals who are concerned about the integrity of our economy and Government.

The consensus of the committee was that the proposed amendment should Jimit Federal expenditures--more specifically, total Federal outlays which are generally defined as payments made by the issuance of checks or the disbursement of cash.

The proposed amendment would not require cutbacks in existing Federal programs. Under the committee's proposal, and Senate Joint Resolution 56, total outlays of the Federal Government each fiscal year would be limited to the amount spent in the previous fiscal year plus the percentage increase in gross national product in the most recent calendar year. This formula would not require an immediate reduction in the percentage of GNP that can be spent by the Federal Government. It would, however, make it possible for the Congress to reduce this percentage on a gradual basis. For example, if Congress held Federal spending below the applicable limit for a fiscal year, this lower level of spending would become the base for determining the spending ceiling for the next fiscal year.

The proposed amendment would encourage Congress to balance the bulget. If the inflation rate in any calendar year was more than 3 percent, the permissible percentage increase in total outlays would be reduced by one-fourth of the excess of the inflation rate over 3 percent. The purpose of this provision is to encourage the Congress to bring inflation under control by imposing a penalty if it fails to do so.

The proposed amendment would not impair the ability of the Federal Government to deal with emergencies. Following the declaration of an emergency by the President, the Congress, by a two-thirds vote of both Houses, would be permitted to authorize a specified amount of emergency outlays in excess of the limit for the then current fiscal year. Emergency outlays authorized under this procedure would be excluded from the base figures used to determine future limitations on spending; however, the limitation on total outlays could be changed by a three-fourths vote of both Houses of the Congress.

Total outlays, as defined in Senate Joint Resolution 56, include both budget and off-budget outlays but do not include redemptions of the Federal debt of emergency outlays. If total revenues received by the Federal Government exceed total outlays during any fiscal year the surplus would be used to reduce the Federal debt until it is eliminated.

The proposed amendment would not penalize State and local governments. Total grants to State and local governments in each of the first 6 fiscal years after ratification of the proposed amendment are not to be a smaller fraction of total outlays than in the 3 fiscal years prior to ratification. Thereafter, if grants are less than that fraction of total outlays the limitation on total outlays is to be reduced by an equivalent amount. In addition, the Federal Government would be prohibited from requiring, directly or indirectly, that the State or local governments engage in additional programs or services without compensation for additional costs.

Approximately 200 proposals designed to restore fiscal responsibility in Government are now before the Congress, Farm Bureau believes that the proposal offered by Senator Heinz and Senator Stone, Senate Joint Resolution 56, represents a practical and workable solution to a very serious problem. We commend it to your favorable consideration.

Senator Bayh. Thank you very much, Mr. Grant. I appreciate your testimony and your being here.

Senator Thurmond has a conflict requiring him to leave shortly. If there is no objection from my colleague, I will yield to Senator Thurmond.

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

Mr. Grant, we are very pleased to have you here. I have a very high regard for the Farm Bureau. In fact, I have been a member of it for about 27 years, and I think they do great work.

I believe you stated that the Farm Bureau has called for both s balanced budget amendment and a limitation on Federal spending. Although you suggest a spending limitation, I presume the Farm Bureau will still support a balanced budget amendment.

Mr. GRANT. Yes, we will. We have been in that position for years.

Senator THURMOND. If we were to apply a sponding limitation instead of pursuing the balanced budget procedure, do you think we would have a balanced budget?

Mr. Grant. Eventually the Congress would bring that about by the formula.

Senator THURMOND. If Federal spending could grow at the same rate of gross national product and the base year was a year of deficit spending, why wouldn't we continue to have a deficit in each continuing year? In other words, we are running deficits now, and if the Federal spending grows in each year at the same rate as the GNP, wouldn't we continue to have deficits?

Mr. GRANT. Except the formula calls for cutback in spending depending on how much inflation there is in any given year.

Senator THURMOND. While it is true that the deficits for the next succeeding year would be the current year's expenditures, what makes you think the Congress could approve less than annual outlays viable under this approach? The pressures to spend everything available would be the same pressures which cause deficit spending now. Would you balance the budget simply because the rates of inflation push up revenues faster than the GNP growth?

Mr. GRANT. That is part of the reason. We have two alternatives, either continue excessive spending as we are and/or cut back on expenditures. With the total amount of taxes being taken from the producers of this Nation at the present time, if we continue that excessive spending, we go beyond the point—that is local, State and Federal taxes—that we don't have the same system.

Senator THURMOND. Mr. Grant, do you foresee any problem with drafting a constitutional amendment which is very intricate and technical, and do you think this kind of complexity would slow down the momentum for control over the Federal budget ?

Mr. Grant. Of course, this is a time of complexity but we always have a time of complexity. But the demand on the part of the general public is for this to be done. I find this throughout the Nation. As was mentioned by one of the former witnesses here, in some other nations in the world their inflation is far, far less than ours and because of the fact that they have realistically looked at the situation and we have not. Therefore, I think, complexity or not, this is the time to do it.

I would like to say one other thing, and that is the Farm Bureau wholeheartedly supports the recent policy by Chairman Volker and the Federal Reserve Board to reduce the rate of growth by raising the cliscount rate. This decision was long overdue. We hope the Fed will stick to this monetary policy and not abandon it when political pressures mount. As painful as the initial consequences of this policy may Le results will be even more painful for the entire economy if inflation is allowed to worsen. This is a central first step in checking inflation. The next step is for Congress to demonstrate its intention to move toward fiscal responsibility by balancing the Federal budget and limiting the amount of Federal spending to a fixed percent of national productivity. Yes, it can be a serious, traumatic situation if both steps are taken. But it will be much worse if both those steps are not taken.

Senator THURMOND. I have been in the Senate now for about 25 Fears, and we have balanced the budget in the last 19 years only one time. We can't keep on going like this. No individual and no corporation can stay in business when it operates in such a manner and no government can, either. We know what happened to New York City when it kept spending more than it took in. The same thing is going to happen here in Washington unless we take more steps. We can't keep spending more than we take in.

I am delighted the Farm Bureau is interested in this question of the balanced budget amendment. I think that might be the preferable

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