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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 GNP. Across-the-board budget cuts of less than 242 % annually over the next three years could bring the budget into balance.
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 jursidiction, 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 inflation. But 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 im. mediately restore worldwide confidence in the value of the dollar as a non-depreciating currency. The salutary effects on both the domestic and world economy 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. 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 growth of worker's income, and taxes have outpaced such income.
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 control system must be devised.
CHAMBER PROPOSALS FOR BUDGETARY IMPROVEMENT
Advocates of a constitutional amendment are convinced that Congress over the long term can not 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 time consuming and therefore not helpful in the near term. However, the budget committees have before them proposed amendments to the 1974 Budget Control Act which would require a substantial majority vote to exceed specified spending or tax levels. We believe such proposals deserve careful and prompt consideration by the committees and Congress with the understanding that the goal of such statutory amendments should be deceleration in the growth of both spending and taxes, resulting in a shrinkage of the relative size of the federal sector in the economy. Spending and taxes must also be brought into balance during this deceleration period.
In addition, the Chamber has several specific proposals to make for improvement in the congressional budgetary process.
First, the upward bias toward higher spending in the congressional budget than in the Administration's budget must be removed. This upward bias results from the absence of a mechanism for joint consideration by the budget committees and the other committees involved to develop appropriate program spending levels. To fill this gap we suggest that Congress tentatively set overall dollar levels in the first resolution lower than the President's, together with amounts for each function. The appropriations committees would then be required to develop their spending plans within such limits. This procedure would not rule out additional proposals from the appropriations committees. But it could provide budget program alternatives among which Congress could choose.
Second, rules changes in the House have made more difficult or impossible proposals to amend the budget resolutions to make proportionate, across-theboard reductions in all budget categories. We believe such amendments should not be prohibited or discriminated against by the rules, but should be judged on their merits. In the absence of procedures in the congressional budget-making process for developing lower spending options, across-the-board reductions may be the only available technique.
Third, the legislative committees can make major contributions to efficiency and economy in government through "legislative savings.” We would favor increased attention to this in the decision-making on budget resolutions. We applaud efforts to better coordinate and harmonize the roles of the affected committees in more aggressive pursuit of legislative savings. In this connection the vast resources of audit and other reports by the General Accounting Office have great potential value.
Fourth, Congress must use the reconciliation process of the 1974 Act. Unless it does so, Congress cannot play a co-equal role with the President in setting national fiscal policy. To date the actual use of that process falls short of both the goals and intent of the 1974 Budget Control Act. We believe dedicated willingness to use this Act is of fundamental importance. We are encouraged by the Senate's action this year to use the reconciliation process to assure the priority of its own fiscal policy in its various legislative and appropriations actions. But the Senate action is only a start.
Furthermore, 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, 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.
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 Congress-has 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 over do so? And if it can never do so, then the constitutional convention may be the only lesperate hope left to those who want to preserve the value of our currency, and the life of our government.
PasPARED STATEMENT OF LOUIS "SANDY" Maisel, Associate Professor of
GOVERNMENT, COLBY COLLEGE, WATERVILLE, MAINE, SPEAKING ON BEHALF OF AMERICANS FOR DEMOCRATIC ACTION
Mr. Chairman, my name is Sandy Maisel. I am an at-large member of the national board of the Americans for Democratic Action. I want to thank you for this opportunity to present the views of the ADA on the various proposals to constitutionally mandate a balanced budget. As you know, the ADA is one of the leading liberal political organizations in the country. Geographically, we have active members in every state. Substantively, we try to voice the liberal position op most important issues. This issue seems to be one, however, on which liberals and conservatives from every state in the union should be able to reach fundamental agreement.
I will be arguing against a change in our Constitution which would mandate a balanced federal budget on four separate grounds. I will briefly state first why I feel it is bad fiscal policy, and second, why such a change would not be responsive to the political mood of the nation. Then I will turn in some greater detail more basic questions. What would such an amendment imply in terms of delegation of decision-making powers? Related to that is the question of enforceability. And finally, most important in my view, is the constitutional remedy appropriate in this case?
First then, in terms of fiscal policy: It is easy for a doctrinaire liberal to argue against a balanced budget, period, in any situation. However, I confessed to my colleagues at ADA and to the people of Maine when I ran for office that I am not that kind of doctrinaire liberal, nor am I so certain of the appropriate economic policy under any particular set of circumstances as to make such a blanket statement. I frankly am uneasy about today's economic situation; I am uncertain, as is the senior Senator from my state, Ed Muskie, as to what policies would be necessary to reach a balanced budget, how quickly we can or should do what, and what the costs and benefits of such a policy would be.
But I do know that the use of fiscal policy is the most important tool government has in managing the nation's economy. And I do feel very strongly that removing the flexibility of fiscal policy which is inherent in having the option of running a deficit is a bad mistake to make. One example will support that point. Leave today's economic situation for a moment, remembering that a constitutional amendment should not be just a response to one situation but rather a solution to the ages ahead. Assume a full employment economy and a balanced budget, a goal on which we can all agree. Then assume that the economy shifts into a slight recession because of changes in the international economic picture. In the United States, personal income and corporate income would decline and consequently tax receipts to the federal government would decline. Furthermore, all government payments connected with a recessionary period-unemployment payments, agricultural subsidies, and the like—would rise. Government spending increases; government income decreases; the budget is out of balance.
If the Constitution required action to rebalance the budget, two avenues would be open—to increase taxes and/or to cut government spending. In 1931 Presiden: Hoover faced this same dilemma. The largest tax increase in our nation's history actually led to a decrease in total tax receipts, because it only served to deepen further the depressionary cycle. The medicine was wrong then and it is wrong now We certainly do not want to mandate it in the Constitution.
Why then is this solution being debated? I would argue that you—as elected representatives—and your counterparts throughout the nation at the state level are responding to an expressed dissatisfaction by many of your constituents. Proposition 13 in California and state legislatures' calls for a constitutional convention to deal with this issue-which I shall allude to again in a minute-are all well-meaning attempts to respond to the will of the people.
But the people will not be satisfied with seemingly simple, magical answers to complex problems. I feel this can be seen clearly in a state as conservative as my own state of Maine where in the last month three separate communities have voted down Proposition 13 type ceilings on taxes and government spending. Your constituents are concerned about the amount they are being taxed, about the cost of government, about inefficiency and waste in government, but the hard politic..! questions asked and answered are these: What will you cut? What will it cost? Who won't get what they are getting now? It stark political terms, the age of the Proposition 13 mentality-if it ever existed-has passed.
Let me take a brief step aside at this point to state clearly that I feel that preposals for a constitutional convention, the momentum for which, fortunately, seems to have been slowed-represent the most dangerous step we could take. Despite assurance from the supporters of such a plan, we would be diving into perilous uncharted waters. Who could guarantee that such a convention woului be limited by its original mandate? It could eventually vote to control all guns or not, to forbid all abortions—or to permit abortion on demand, or to take action on many other controversial matters. Our only experience with such a convention is nearly two hundred years old, when delegates were called to Philadelphia to revise the Articles of Confederation. Most of us are satistied with the results of our current Constitution. But how can we know what direction another such convention would take? There are no controls. We should not allow a herd which potentially could stampede to get loose.
Let me turn now to the two basic arguments against a constitutional ban on an unbalanced budget. For the first argument I am indebted to my favorite economist, former Federal Reserve Board Governor Sherman J. Maišel, who happens to be my uncle. Testifying on a similar proposal, as an amendment to the California state constitution, Professor Maisel questioned whether it would be workable and most importantly, who would be making the decisions. Converted to national terms, he asked how much power would the Congress and the President be giving up to unelected computer specialists?
Again, an example will show how power would flow from the hands of those elected to make policy decisions-people like yourselves to technicians electent by no one. President Carter's projected FY 1980 budget called for a deficit of approximately $29 billion. Using the same spending figure's but certain difieren: assumptions on the movement of the economy, the Congressional Budget Office projected a deficit of $41 billion. Who was right? Who knows? Even sophisticateci economists now admit that their "science" is less exact than they once thought. If the inflation rate goes up, the cost of running the government will go up. If unemployment goes up by only 1%, the deficit will increase by approximately $20 billion, even if no new spending programs are added. That $20 billion is a
lot of money and we are rightly concerned about the increased size of the national debt. But ours is now a huge economy, approximately a 2.5 trillion economy, and even an amount as large as $20 million represents only a very small share of it. I don't think that the Congress and the President should willingly surrender the most important decision-making power they have, that of control over the budget, to faceless technocrats, computer specialists, and economists practicing an inexact art-not a science in the name of a seemingly simple solution to a very complex problem. Yet that is exactly what will happen because technicians not politicians will make the final judgments about whether a budget is in balance or not.
Finally, I feel that you should examine the role of the U.S. Constitution in our nation's history before you tamper with it. The proposal you are considering amounts to writing an economic policy into the Constitution. It is mandating in the Constitution a policy which could be carried out through less far-reaching action. What are the historical precedents?
As a good political scientist, I turned first to the Founding Fathers. There is little in their writings, in the Federalist Papers for instance, which projects what kinds of amendments they felt would be appropriate. But the actions of the First Congress are instructive. That Congress wrestled with many proposed amendments to the new Constitution. Some even favored policy oriented amendments such as the one we are discussing. Some dealt with economic policies. These were all rejected. Instead the Bill of Rights, our first ten amendments, were passed. And they set the tone for the future, a tone as appropriate now as it was two centuries &go.
The Constitution is a document which deals with basic rights of people and their government. Ours is not a Constitution carved in stone. It is amendable as the times change; it is flexible in terms of interpretation as well as actual language. But it is a document which deals with fundamental questions, not with the passions of the moment, with basic relationships, not with particular policies.
There are exceptions and they merit attention. Three amendments deal with policy-type questions, even economic policy-the 13th, the 16th and the 18th. The 13th amendment prohibited slavery. It dealt with a basic human right, reflected in changing social circumstance. To take this action a constitutional amendment was required because Article 1, Section 2, Clause 3 of the original Constitution had acknowledged the existence of slavery.
The 16th Amendment established the income tax. It clearly dealt with economic policy, but more fundmentally it recognized the changing relationship between the federal government and the states. The Constitution had mandated that federal taxes be apportioned among the States with regard to population. An income tax in 1894 had been ruled to be unconstitutional in the case of Pollack v. Farmer's Trust, 158 U.S. 601 (1895) based on the fact that it violated the constitutional prohibition against direct taxes. Thus, the amendment process was the only one opened if the graduated personal income tax was to be imposed.
The 18th Amendment is most instructive. The prohibition amendment attempted to impose policy, which could have been imposed by law, through an amendment. It is the closest parallel we have to the budget balancing amendment, in terms of substance, law and probably origin as well. It passed the Congress and was ratified in 1919. It was repealed in 1933. It was poor policy and poor constitution writing, a mistake which should not be repeated.
All of the arguments I have mentioned lead to the inevitable conclusion that the balance the budget amendment should not be passed. However, one feels we should respond to the present economic situation, we should not put that solution into the Constitution. This is a position taken not only by ADA but hy economists who span the entire ideological spectrum, individuals as divergent in their views as Alan Greenspan, Walter Heller and Michael Evans.
It would be more than slightly presumptuous for me to remind you of the magnitude of the step you would be taking by amending the Constitution in this way. But as a professor I cannot resist reminding you of one instructive anecdote from American history. The Constitutional Convention, of course, met in secret. The citizens knew Ittle of the proceedings, except for rumors wh'ch inevitably circulated. After the Convention adjourned, a citizen came up to Benjamin Franklin and asked, “Dr. Franklin, what form of government have you given us?”
Franklin is said to have responded, “A republic, if you can keep it.” The form of government is still intact. You need not change it. Rather, it is necessary to make the hard decisions in order for us to keep it.
ADDITIONAL QUESTIONS BY SENATOR BAyh With RESPONSES BY PROFESSOR
SANDY MAISEL, AMERICANS FOR DEMOCRATIC ACTION Question. What would the effect of constitutional restrictions be on the Federal Government's ability to cope with recessions? In an economic crises, would it be possible to provide timely stimulus while limiting the budgetary powers of the government?
Answer. If a constitutional amendment mandated a balanced budget and the economy fell into a recession, the Federal government would be totally ill-prepared to cope. In fact, the necessary actions, e.g., raising taxes, in order to rebalance the budget would further depress rather than stimulate the economy. This is one of the biggest flaws in the proposed amendment.
Question. The latest unemployment statistics indicate that 5.8% of all Americans looking for work have not been able to get jobs. By historical standards, isn't this a very high unemployment rate? Yet somehow we hear that the Federal Government should withdraw from aiding the millions of jobless citizens.
Answer. Obviously the unemployment rate is unacceptably high. We have a terrible progression whereby "full employment” keeps being redefined, each time with more and more Americans out of work. In times such as these the Federal government cannot withdraw from aiding jobless citizens; yet again, that is one remedy suggested to balance the budget. That is the Hoover approach and must be avoided.
Question. What kinds of economic conditions would be needed to assure a balanced budget. What can be done by Congress to achieve this kind of vigorous economy?
Answer. If anyone had a sure answer to the second part of this question we would all grab at it. In my view we must control prices as effectively as wages. We must have leadership from the White House and confidence in the steady course of that leadership by business and labor. We don't have that with this President. To balance the budget we need a full employment economy and steady growth but not inflation. We are not there yet.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., October 11, 1979. Senator Birch BAYA, Chairman, Subcommittee on the Constitution, Senate Judiciary Committee, Russell
Building, Washington, D.C. DEAR Birch: I am enclosing my testimony concerning a Constitutional Amend. ment to require a balanced Federal Budget for your Subcommittee's hearings on this issue held today.
I ask that my statement be included in the Senate Judiciary Committee's Subcommittee on the Constitution report on a Constitutional Amendment to Balance the Federal Budget. Sincerely,
Member of Congress. PREPARED STATEMENT BY CONGRESSMAN DAN QUAYLE Mr. Chairman, you have undertaken an important assignment in your consideration of a constitutional amendment requiring a balanced federal budget.
Both Congress and the White House have joined the public now and see inflation as the number one problem facing this country. Tuesday, October 9, President Carter, admitted this stating, “There is no doubt in my mind ... that the No. 1 threat to our national economy is inflation. And I intend to maintain it as a top priority and continue to work against inflation."
No less an authority than Arthur Burns, former Chairman of the Federal Reserve Board has indicated that strong indicators of the inflationary spiral show the need for “legislative revision of the federal budgetary process to make it more difficult to run budget deficits."
According to Burns, this would serve as the "initial step toward a constitutional amendment” to limit deficit spending.