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of that group for a particular program and the same pressures that cone when a program is proposed for a cut.
It is our belief that the percent of gross national product now consumed by Federal expenditures or obligations is excessive. Instead of over 22 percent of GNP, we believe the maximum should be 18 percent. Similarly, tax revenues which are 19.5 percent of GNP are excessive, despite the fact that they are not sufficient to meet present spending obligations. Taxes should also be reduced to 18 percent of GXP. Across-the-board budget cuts of less than 2.5 percent annually over the next 3 years could bring the budget into balance.
In fact, the very process of standing still on Federal expenditures actually allows taxes to catch up with expenditures because, as you know, taxes move up rapidly in an inflationary economy.
In expressing our views on budgetary restraint before this committee, we recognize that responsibility for certain changes in the budgetary process is shared by several committees. However, we believe that this committee should draft specific proposals within its jurisdiction, together with a critique, so as to facilitate timely consideration by both Houses of measures to improve fiscal policy.
We remain convinced that budget balancing is the single most substantive act the Congress can perform to eliminate the cancer of inilation. However, simply balancing the budget at a constantly escalating expenditure level is not enough. The balance must take place at a limited level of spending. Such an action would immediately restore worldwide confidence in the value of the dollar as a nondepreciating currency. The salutary effects on both the domestic and world economy of that action are almost beyond measure.
Some will argue that there are some occasions when red ink is desirable, but experience has shown that deficits have been “desirable” to too many Government leaders for too many of the last 45 years. Therefore, we think that philosophy must be rejected if inflation is to be brought under control.
Despite the strength and length of the 1975–79 economic recovery, the budget has continued to be in heavy deficit. Moreover, during the past 12 months Federal spending growth has risen faster than the rowth of workers' income, and taxes have outpaced such income.
We think this experience clearly demonstrates that the Budget Control Act and the budgetary procedures developed in Congress under the act have not been effective. Clearly, a more effective ogtrol system must be devised.
Advocates of a constitutional amendment are convinced that Conreas over the long run cannot limit spending and taxing and eliminate undesirable deficits. In addition, advocates of a constitutional convention have no confidence in the ability of Congress to act either by statutory means or by submitting an amendment to the States.
In any event, getting a constitutional amendment will be timeconsuming and therefore not helpful in the near term. However, the Budget Committees have before them proposed amendments to the 1974 Budget Control Act--and there are a number of them--and we think Congress is going to have to address statutory means of further degree in order to speed up the process to bring the present inslation curve under control.
We urge that this committee make no recommendation which would preclude a constitutional amendment for spending and taxing restraint. Instead the committee should recognize that the Budget Control Act is not working as intended and call for action by cognizant committees to address the best possible statutory remedies. In the meantime, we believe this committee should continue active consideration of the best specific constitutional provisions to use either in the event that another solution is not achieved, or for long term reinforcement of statutory action.
In esect, we believe statutory action at this time plus constitutional action would be the best combination.
The root cause of our persistent inflation is the continual Federal deficit. Inflation is slowly eating away at the vitals of our free society. Uncontrolled, it will ultimately destroy our economy as well as our governmental system. Too long the political expediency of today has put off until tomorrow the battle to eliminate inflation. But we are running out of tomorrows. The Congress—and only the Congresshas the power to eradicate inflation. So far the Congress has not had the collective will to do so. Time is running out. If the Congress cannot balance the budget now, with everything in its favor, then when can it ever do so? And if it can never do so, then the constitutional convention may be the only desperate hope left to those who want to preserve the value of our currency, and the life of our Government.
Thank you, Mr. Chairman.
Senator Bayh. Mr. VanAndel, I read the statement, and you have added additional thoughts. Does the Chamber of Commerce at this time specifically support a constitutional amendment to limit spending!
Mr. VANANDEL. Yes, but the chamber does not have a particular proposal that it is supporting.
Senator Bayh. That is not what your statement says. That is the reason I asked.
Mr. VANANDEL. Our statement says that we think the Congress can best get control of inflation by statutory action, that, however, in the long run such control will best be exercised by constitutional language. Therefore, we believe it would be best for Congress to proceed in both directions at the present time.
Senator BAYH. Yes, I note what your statement says. You make no recommendation which would preclude a constitutional amandment; and instead recognize that the Budget Control Act is not working and trying to solve it that way, but consider specific constitutional provisions to use in the event other solutions are not achieved in the Tong term to reinforce statutory action. Is that what the chamber believes or what you state?
Mr. VANANDEL. The chamber remains pessimistic about the capability of solving the problem in the long run with the statutory means alone.
Senator Bayh. What I am trying to do is to determine for our record and those who read it, are we listening to Van Andel's or the chamber's position, which is usually considered and goes through a certain process which members have access to?
Mr. VANANDEL. That is what you are listening to, the chamber's position.
Senator Bayh. The words I read are the chamber's position?
Mr. VANANDEL. The words that are in the testimony are the chamber's words.
Senator Bays. Thank you. Each of us is entitled to our own opinion. I appreciate your clarification. It is for those who read it so they know when Bayh says something it is Bayh and when Hatch says something it is Hatch. God knows he wouldn't want to be crossfertilized,
Mr. VANANDEL. I have read into the record the chamber's testimony and some comments.
Senator Bays. I appreciate it. I don't want to make an issue out of it.
Senator Hatch. Mr. VanAndel, many efforts have been made to equate the burgeoning Federal deficit with the growing level of corporate and private debt. How does the chamber respond to this comparison?
Mr. VANANDEL. In this particular instance, we are looking in this testimony purely to the problem of inflation, and we believe that inflation, in its purest form, is caused by the fiscal actions of the Federal Government in diluting the value of the dollar, and that there are many other economic activities that create one action or another in the economic system that are not necessarily inflationary. So our testimony today has to do with the means that we think are available to the Federal Government to control inflation, and the corporate debt problem does not enter into that picture.
Senator HATCH. Would you not agree with me, that as a result of the borrowing activities of the Federal government itself, that the cost of equity capital is increased such that corporations are forced to rely upon debt rather than equity?
Mr. VANANDEL. Certainly the burgeoning private debt and consumer debt and corporate debt in many ways can be related to the escalatirg inflation and the desire of consumers to buy ahead of inflation, the desire of consumers to bry homes when available before they escalate still higher and that type of thing. All of these are the undesirable side effects of inflation and are somewhat the reason we believe the Congress must direct itself to taking care of inflation and eradicatirg inflation. We believe, as pointed out in the testimony, that this can be done, at least theoretically, by statutory means and must be done quickly, but probably in the long-run will be most effective on a constitutional basis.
Senator Hatch. You state that if the Congress cannot balance the budget now with "everything in its favor ... then when can it ever do so?" Could you tell us what exactly you mean by that statement?
Mr. VANANDEL. Congress has had 5 years of good economic times. It has accumulated in these 5 years $225 billion in deficit. You have to look at history and say that under these conditions, these would have seemed to be the most favorable conditions to balance the budget. The Congress also had the act of 1974 which was intended to help the process. This was on the books. With that combination, it still hasn't succeeded in doing so. That question follows from that situation. Look at history and look at the present situation, it says that theoretically if what you are doing is the product of existing conditions, then perhaps we have to change existing conditions still more.
Senator HATCH. As a member of the Budget Committee I have to confess that the committee generally relies on neo-Keynesian ideas. Lord Keynes himself said however that during times of prosperity there should be budget surpluses. We haven't had a real budget surplus in more than 7 or 8 of the last 50 years. Yet the CBO and other Federal budget analysts continue to rely on Keynesian econometric models suggesting that still more deficits are necessary.
I think you have made some very good points here today. I appreciate it. Thank you for being with us.
Jr. VANANDEL. I would like to make one last point, if I may. We would like to say on the matter of budget balancing versus the matter of limiting expenditures, we don't necessarily think those two have to be tied together in the same amendment or they both necessarily would have to be in constitutional language. They are two different issues, even though they address the same subject.
Senator BAYI. Thank you. We appreciate your being here.
Our final witness was to be Mr. Louis Maisel, national board member of the Americans for Democratic Action. We will insert Mr. Maisel's statement in the record and also the prepared statement of Congressman Dan Quayle we received today. [The statements and questions referred to follow: CHAMBER OF COMMERCE OF THE UNITED STATES,
Washington, D.C., October 16, 1979. Hon. STROM THURMOND, U.S. Senate, Washington, D.C.
DEAR Senator THURMOND: I regret that we were not able to converse on October 11 when I testified before the Senate Judiciary Subcommittee on the Constitution.
I am happy, however, to send you my answers to the three questions that you submitted to me in writing.
Question. “You noted that the Budget Control Act has not been effective so far. Do you foresee the budget process being the answer to the pressing problem of inflation?
Answer. As stated in my written testimony, the U.S. Chamber firmly believes that the basic cause of inflation is deficit spending accompanied by Federal Reserve monetization of the deficit thereby overexpanding the money supply. The budget process should be improved as as to provide limitations on both spending and taxation and balance at a lower percentage level of GNP. This would not be the only necessary corrective action to combat inflation. For example, lightening the large and growing regulatory burden on business could do much to boost productivity. But eliminating large and continuous deficits would do much toward reducing inflation.
Question. “Do you feel the American people will turn to a Constitutional Convention if the Congress refuses to act in a responsible manner to limit deficit spending?”
Answer. Yes, especially if inflation and escalating taxes continue unabated.
Question. “You have mentioned that a Constitutional Amendment may be somewhat time-consuming. However, do you think favorable action on such an amendment hy Congress will be, in itself, salutary for the economy?".
Answer. Yes, but only if Congress does not devise methods of escaping the limitations that would be imposed by such an amendment. Cordially,
PREPARED STATEMENT BY JAY VANANDEL I am Jay VanAndel, Chairman of the Board of Directors of the Chamber of Commerce of the United States and Chairman of the Board of Amway Corporation, U.S.A. I am accompanied by Richard Landry, Deputy Chief Economist of the Chamber. On behalf of the U.S. Chamber's 88,000 members, who produce most of America's goods and services, we greatly appreciato the opportunity to present, our views on proposals for constitutional amendments to restrain the growth of the federal budget.
The U.S. Chamber has long advocated legislation similar to the Budget and Impoundment Control Act of 1974, in order to establish an orderly means hy which Congress could participate in the budgetary process. To date, however, the experience under that 1974 Act has been disappointing. There has yet to be a balanced budget, and inflation—the result of deficit spending—is still out of control.
Mr. Chairman, the American economy is in trouble because our government has too long operated in a fiscally reckless fashion-ignoring basic economic principles in favor of short term political goals. The Congress acted in 1974 to assert its Constitutional authority in determining the course of fiscal policy for this country, rather than rely on the piecemeal appropriation and authorization process of the past. It was a noble attempt, but it has not succeeded.
I suggest that this is the opportunity to make the necessary changes in the law and the revisions in procedures of the Congress to insure that the budget process next year will reflect the will of the people for responsible spending and taxation policies. Inflation may be eased somewhat if, in fact, there is a recossion, but as the economy recovers, inflation will rise at an even more rapid rate than before, unless expenditures and revenues are brought into balance. When this occurs, the clamor for the Constitutional limits on federal taxing and spending will be even greater than that which you are now experiencing.
For, opinion polls now show that the public realizes that it is neither business nor labor which causes inflation. They now know that it is caused by their central government, and they expect their elected representatives to act responsibly to
The record of the last five years and the mood of the people of this country indicate clearly that it is time to critique the performance of Congress under the 1974 Act and to make remedial changes in the Act--and in the procedures of the Congress under the Act. The need for full Congressional involvement in the budget process is as great or greater than it was at the time the 1974 Act became law. Yet, in the five years which have elapsed since passage of the Budget Act, there have been five budget deficits totaling more than $225 billion dollars. The purchasing power of the dollar continues to decline. Worst of all, this has occurred during a period of overall economic growth.
Among the most important modifications to the current law, there must be enacted a limit on the authority of the Congress to spend and tax. The U.S. Chamber endorses the concept of limits on both federal taxes and spending. A statutory limit can be accomplished in a relatively short period of time. A constitutional amendment to impose such limitations, could give longer term results, but would take longer to implement. A statutory limitation followed by a constitutional limitation would combine quick results with long-term benefits.
It is not only the business community which is calling for reforms in the budget process. The Chamber jointly, with the Gallup organization, sponsors surveys of consumers. In such a survey conducted last December, seventy-six percent of those questioned supported a constitutional amendment to limit growth of federal spending and taxes to no more than the growth of peoples' income. In the same survey, congumer support for limiting budgetary growth was so strong that seventy-seven percent favored reducing federal services and spending if taxes declined by the same amount.
It has been argued—and probably with justification—that those same people are unwilling to sanction cuts of the magnitude indicated in the survey whenthe result is to deny them some particular government service or benefit. Never theless, the support is there for spending limitation and tax cuts, and it will be the responsibility of the elected
representatives to mete out those cuts. The popular mood suggests to think otherwise is foolhardy.