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It should be noted that the amendment we propose has built-in spending limitations. The Government could not spend more than it takes in and, with the indexing of the tax codes and the limitation on raising taxes, we would find that Federal tax revenues would increase only through real economic growth.

Thus, we should be able to achieve a necessary goal; namely, balance the Federal budget at a limited level of spending and not by an increase in taxes.

Constitutional restraints on spending should be comforting to Members of Congress. It would offer them an easy way to resist the insistence of pressure groups for pet programs by responding, “We simply don't have the money and the Constitution prohibits going further into debt."

It is a foregone conclusion that ratification of an amendment by the necessary number of States would take a little time, but once ratified, we would have the long-term protection that we feel is vitally necessary.

In the meantime, to establish quick results and short-term benefits, we urge the Congress to take the necessary statutory steps to balance the Federal budget at a limited level of spending which would mean the provisions of the amendment would virtually be in effect upon ratification.

We emphasize that it is imperative for the Congress to act immediately to provide both the short-term and long-term protection of our economy and of our national well-being.

So express our thanks to the chairman and the committee for the privilege of testifying here today and for the audience we have been accorded. We would

be glad to respond to any questions by members of the committee. Thank you.

Senator HErlin. Mr. Carlson, I am interested in your second provision by which expenditures shall not include outlays for redemption of obligations and revenues shall not include money derived from the issuance of obligations.

I wonder whether or not, let's say, if a constitutional amendment passed 5 years afterward, there wouldn't be an effort being made to go through obligations to exceed, get around the constitutional prohibition against a balanced budget.

Do you foresee any dangers by making the exception from the word "expenditures," the failure to include outlays for redemption of obligations?

Mr. Carlson. Mr. Heflin, could I refer the question to my associate here, please?

Mr. MAGDANZ. I don't think so, Mr. Heflin.

Perhaps we use the term, "expenditures," and "outlays" in a very loose way. To us, and as far as our presentation is concerned, they mean the same. I don't believe we would get into that.

Senator HEFLIN. Of course, I wonder whether or not you could get into a situation many States are in by which they have balanced budget requirements, but they will issue revenue bonds, raise money through bonds, and this sort of thing, which gets a little shaky.

Perhaps the marketplace takes care of it by having increased interest rates, but I just wondered whether there is any danger that you would have to have some sort of a restriction on that type of obligations and also that type of revenue.

Mr. MAGDANZ. We wouldn't think so because I believe you have answered it, the marketplace would take care of that.

If there are undesirable revenue bonds issued, they have to find buyers, and people would not be inclined to buy them.

Senator HEFLIN. There have been some measures that are introduced that allow for the escape clause rather than just being suspended, that it would require a declaration of a national emergency and that those people who advocate that feel that in itself provides a discipline that they would have to face up to explanations of what is a national emergency

I notice that your proposal rather is that you would just suspend it. Is there any merit in saying that if you do suspend it, that you are required to declare a national emergency and, as a result of that, Congressmen and Senators would have to explain why they think it is a national emergency?

The advocates of this say that it provides an additional restraint as well as, of course, the increased vote that would be required over a majority.

Do you have any thoughts on this?

Mr. MagdaNZ. We think that the requirement we suggest of a i three-fifths majority vote in order to suspend would take care of the

problem because it avoids the necessity of describing and determining a national emergency which may become very difficult under certain circumstances, and perhaps even too easy under other circumstances. We feel that the best thing to do is merely set up a standard for voting rather than go through the definition, and so forth, of a national emergency

There is some argument that three-fifths majority to suspend or three-fifths majority to raise taxes is not enough, and perhaps it ought to be two-thirds. But, on the other hand, we don't think it is wise to tie up the Congress too tight. We think there has to be some leeway.

After all, we elect the people to come back here to manage the affairs of the Government and an increase to three-fifths majority votes of this kind should be sufficient to accomplish what we think is necessary

Senator HErlin. I am interested in your comment, to declare a state of national emergency might be too easy.

Mr. MAGDANZ. It could be.

Senator HEFLIN. Would you elaborate on how—say we agree on a three-fifths vote of the Members, which is the same amount to invoke cloture to date, but if they had to also have a resolution requiring a declaration of a national emergency along with the three-fifths vote how would that make it easier than if you just had the three-fifths vote?

Mr. MAGDANZ. I am not sure that it would, Senator. I merely said it might be. We would have no objection to including a declaration of & national emergency, along with a three-fifths majority vote in order to raise taxes.

Senator HEFLIN. Well, a national emergency, of course, many people think of it as in the concept of relationship with foreign countries, brink of war, something like that. But, on the other hand, a




national emergency could be an energy crisis, it could be a recession, it could be inclusive of almost any type of things.

There are those who feel that a declaration of a national emergency, along with a less than two-thirds, something in the neighborhood of 60 votes out of the 100 in the Senate, three-fifths, that that provides a deterrent because I, as a Senator, have to explain why I think it is a national emergency, that that is a reason for having that additional requirement to have less than something like two-thirds or threefourths, but to reduce it down to three-fifths.

Of course, that is a matter of, really, I suppose, it is a deterrence of public opinion. If you come up with a frivolous, unnecessary declaration of national emergency, you would receive a lot of criticism in regards to that.

Mr. MAGDANZ. I think that is true, Senator, and I am not thoroughly familiar with the conditions for a declaration of a national emergency.

My recollection is that it is somewhat of a complicated process. Also, a national emergency-and please correct me if I am wrongmight be declared for a period of time. It might be several years, and then would have to be rescinded. I am not sure that is correct. It would be our opinion that any suspension of the requirements that we propose should be on an annual basis.

Senator Herlin. Well, there are proposals, pending bills that are introduced that have language in effect somewhat defining national emergency, not related to present statutory law, and then seeing the national emergency can exist only for a limited period of time, I think some of them have 1 year, some have 2 years, without a renewal by a resolution or act of Congress. Those are methods of trying to keep it from the statutory language that may exist on what a national emergency is at the present time. Well

, thank you, gentlemen. Does counsel have any questions?

Senator Hatch has a matter he would like to submit for the record on the National Cattlemen's Association. He said, "I would like to congratulate you for an outstanding statement on the need for some type of fiscal responsibility agreement." He says he is in agreement with you basically as to the need and we will submit the remaining portion of that for the record.

Thank you, gentlemen, we appreciate your interest.

Mr. CARLSON. Thank you very much and would you thank Senator Hatch?

[The prepared statement of the National Cattlemen's Association follows:)

PREPARED STATEMENT OF THE NATIONAL CATTLEMEN'S ASSOCIATION! On behalf of the National Cattlemen's Association, I sincerely appreciate the opportunity to present our views and comments on the issues of Federal fiscal responsibility, the relationship of Federal income and expenses, and the need to balance the Federal budget. These matters are of great concern to the members of the NCA, and the attainment of satisfactory solutions to the problems involved have high priority status within the Association.

1 The National Cattlemen's Association is the national spokesman for all segments of the Nation's beef cattle industry-including cattle breeders, producers, and feeders. The NCĂ represents approximately 280,000 professional cattlemen throughout the country. Membership includes individual members as well as 51 affiliated State cattle associations and 15 affiliated national breed organizations.

I cannot over-emphasize the fact that we firmly support a joint Congressional resolution to propose an amendment to the Constitution of the United States, which resolution, when ratified by three-fourths of the States, will change the Federal fiscal ground rules in order to restore fiscal responsibility on the part of the Federal Government and bring about the following:

1. Restraints on the total of Federal spending.
2. Restraints on taxes and tax rate increase.
3. A balanced Federal budget each fiscal year.
4. A substantial reduction in inflation at the earliest possible date.

We have some very valid reasons for going the route of a Constitutional Amendment. The public has lost faith in the possibility that the Congress may consistently balance the Federal budget, reduce expenditures, and bring inflation under control. People are not convinced that the liberal philosophies in the Congress are going to change very quickly. We already have a Constitutional Budget Act, passed in 1974, which sets up an elaborate system and procedure pertaining to the budget. The only problem is it doesn't work.

Inherent in our political system is a tendency on the part of elected officials to try and satisfy the most vocal and active pressure groups and go along with, if not initiate, programs promoted by special interest constituencies instead of opposing them for the benefit of the country. Also, the feeling still exists that the Federal Government must spend additional money beyond what it receives in revenue whenever it appears we are slipping into a recession in order to stimulate the economy. Then when we do see some recovery, there is a disinclination to cut back on those programs and expenditures for fear any reduction in Federal spending will jeopardize the recovery.

We have also watched while the President has made token overtures toward reducing Federal deficits and balancing the Federal budget. He suggests a voluntary program to hold down prices and wages and is now promoting a second approach when the first produced no results whatsoever. However, we must point out that rising prices and wages are not the causes of inflation. They are the results. In order to arrive at a meaningful solution to the inflation problem, it is necessary for government officials and leaders to identify the causes of inflation, to face up to them, and to treat the real causes instead of attempting to deal with the results.

Before going further, let's look at the record of government spending and Federal budget deficits. By 1979, Federal outlays, including off-budget expenses, totalled about $500 billion, which was a little over twice the Federal outlay of $247 billion in 1973. Total budget receipts in 1973 were $232 billion and receipts in 1979 came to $456 billion. But what happened to the Federal debt figure.

In 1973, the Federal debt outstanding was $468.4 billion, which is the figure at the end of the Vietnam War. By 1979, this figure rose to $839.2 billion, an increase in six peacetime year of $370.8 billion. This is a shocking development, and something this country cannot afford to continue.

It is literally stunning to point out what has happened to our Federal debt since 1918, the year in which the first World War ended. In such a comparison, though, we hasten to acknowledge that the value of the dollar in previous years was decidedly different than it is today. In 1918, our Federal debt stood at $12.5 billion. In 61 years, through 1979, the Federal debt increased $826.7 billion. Of this increase, $455.9 billion, or 55.1%, came from 1918 through 1973, a total of 55 years during which we were engaged in three wars. As indicated, from 1973 to 1979, the debt incurred amounted to an additional $370.8 billion, or 44.9% of the 61-year total in six peacetime years. Is it any wonder the people are losing faith in the budget mechanisms that we have employed up to this time.

Various arguments against amending the Constitution have been advanced. One we hear frequently suggests we should not clutter up the Constitution, and since there are no limitations on fiscal matters and Federal spending in the Constitution, we should not insert such limitations now.

We have two comments about this argument. First, while our Constitution is a remarkable document and should not be treated lightly, it has already been amended 25 times. It is only logical that a document of such importance be kept reasonably up to date according to circumstances and conditions.

Second, while there is not any limitations on financial matters and economics in the Constitution, there are various powers granted the Congress to lay and collect taxes, to borrow money on the credit of the United States, to coin money and regulate the value thereof. Also, there are further fiscal authorities contained in the amendments. The Seventeenth Amendment, ratified in 1913, gave the

Congress power to lay and collect taxes on incomes. It is a pity that no restraints were put on any fiscal powers at the time of ratification. Had that been done, we might not be arguing that issue today.

The real issue involved in the public unrest and demands for government rugality is spiralling inflation. There is widespread concern about what it does to the country and what it will do if we don't stop it. Continued deficit spending by the Federal Government is a main cause-though not the only one-of uncontrollable inflation. Inflation is clearly public enemy No. 1.

We don't need to tell the people in the cattle business what inflation has done to their costs of production and costs of living. But they are not alone in their concern. The results of various surveys attest to the fact that an overwhelming number of people feel inflation is our most critical problem.

The record of inflation can be expressed in numerous ways including the decline in the value of the currency; the rise in the Consumer Price Index (CPI); or the difference in the Gross National Product (GNP) as expressed in current dollars and in constant dollars.

It is well known that the value of the U.S. dollar (purchasing power) has declined substantially. The 1939 dollar was worth only 49.4¢ by 1957, in terms of what it would buy. By 1968 the value was down to 39.36; by 1973, 31.3é; and by July 1978, 21.24. Today it would be worth no more than about 20é compared to 1939. At this rate, it is only a matter of time until the dollar will be virtually worthless,

Looking at the CPI, we find that from 1967 to October 1978 the index of consumer prices rose 100%, or just doubled. At our present double-digit rate of inflation, prices will double again in about six years, or by January 1, 1985, by which date they will average four times the price level in 1967.

Turning now to the GNP we find an increase from 1967 through 1978 of 167.2%, as expressed in current dollars. In constant dollars (1972) the increase came to only 38.8%. A comparison of the ratio of current to constant GNP from 1967 through 1978, using the implicit price deflator, shows an increase of 67.7% in eleven years, or an average of 6.15%.

In the first two quarters of 1979, the implicit price deflator stood at 9.3%, about the same as in 1974 and 1975. The consequences and impact of inflation are numerous and painful. They go way beyond just the injury inflicted on certain industries, like agriculture, whose prices go both up and down while the industry cannot “pass on the higher costs it must sustain. At the rate and for the time we have experienced inflation in recent years, we can look for an eventual collapse of our economic system as we know it today.

Here in somewhat summary form, is what inflation does :

1. Inflation threatens our society and personal freedoms. Continued inflation will further erode our individual freedoms and discourage individual initiative. As the government feebly attempts to correct inflation, or adjust for it without taking the bull by the horns and treating the causes instead of the results, we will see more encroachment on our freedoms through government controls or regulations, or both. History suggests that if a free society is to remain free it must accept the cost of halting inflation and restoring economic stability.

2. Inflation erodes the value of and confidence in our currency. We have already examined what has happened to the value of the U.S. dollar and the great decline in its purchasing power. Furthermore there is convincing evidence of the lack of confidence other nations have in the U.S. currency since inflation has been eroding its value so severely for so long a time.

3. Impact on fixed incomes. Inflation imposes a real handicap and inflicts a tragic blow to persons on fixed incomes who find themselves defenseless when their incomes change little and their living costs go up 50% or more. Many have no recourse, unless the children are willing to help out, but to accept government 'assistance through some form of welfare.

Here is further entry of the Federal government into the private affairs of citizens and a corresponding loss of individual freedom.

4. Inflation nurtures inflation. Inflation tends to feed on itself. As persons become convinced that nothing but further inflation lies ahead, they tend to buy now and pay later, thinking they are going to save some money. Such personal projection increases demand, triggering higher prices and tends to make their prophecies come true.

5. Inflation imposes a cruel tax through our progressive rate system. In all the rhetoric and written language about tax reform and inflation, not enough has been said about the part inflation plays in raising taxes and increasing the assessments on taxpayers. An increase in current dollar income, due to inflation, pushes

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