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When confronted by a decision of whether or not to support a higher authorization of appropriation, or whether or not to support continuation of some spending program, the legislator is normally beset by special interest groups who have an immediate, an intense, and a focused concern for that program or that level of funding. These groups are visible, articulate, and able to reward or punish legislators with their support or nonsupport in congressional elections. It is only natural that the legislator should be sensitive and responsive to their concerns.

There is normally no similar constituency in behalf of reduced authorizations or appropriations, or for program retrenchment. Those who would logically be most concerned about such expenditures—the taxpayers—are diffuse, unorganized, and politically inarticulate. Even if they are able to perceive the nature of their self-interest, it is impossible for them to focus on any given program with the same intensity and passion of a beneficiary special interest group. While such group may stand to gain millions or billions of dollars for their relatively narrow constituency, the taxpayer stands to lose nothing more than a few cents or a few dollars apiece on any single program. It is only when these programs are aggregated that the taxpayer begins to feel the impact of such spending.

The great virtue in a mandated balanced budget is that it alters completely the psychology of the congressional spending process. Under the present system, each of the special interest competes with the taxpayers to raise the total ante in the Federal Treasury. Under a system in which a balanced budget is compulsory, these same interests suddenly are competing with each other in order to insure themselves a certain proportion of a fixed ante in the Federal Treasury. The spending interests must not only convince Congress that their own particular program merits funding at a certain level. But, for the first time, must convince Congress that their program is more deserving than some other program. By establishing a fixed spending ceiling, a balanced budget constitutional amendment requires that Congress think in order of budget priorities. For the first time, an element of competition would be introduced into the budgetary process.

Because I believe that at least some of our difficulties in curbing fiscal profligacy ale of an institutional nature, I am convinced that a permanent constitutional ceiling is warranted. I have heard it remarked that a balanced budget, or spending livnitation amendment, would “trivialize” the Constitution, and that economic policy should not be written into the permanent law of the land. I emphatically disagree with this view. Our Founding Fathers conceived what was to be a limited Government, one whose activities were to be sharply contained and circumscribed. The 10th amendment of the Constitution states it well:

“The powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved to the States respectively, or to the people."

It is the opinion of many in this country, including myself, that we have strayed a great deal further from this conception of national government than necessary or desirable. In my mind, a balanced budget or spending limitation amendment offers the potential to impose new limits upon the National Government, replacing those that have largely been eroded over the years. It has the potential to recreate a measure of the balance conceived by the Founding Fathers between the National Government, the States, and the people. This is certainly not a trivial objective. Rather, it goes to the heart of what our system of Government is going to be in the future.

Section 1 of the proposed amendment states simply that Congress shall insure the achievement of a balanced budget on an annual basis. Such a budget has been achieved by the Federal Government only eight times in the past 50 years, and only twice in the past 23 years. What is currently considered off-budget spending is to be included in this calculation.

With Federal outlays prohibited from exceeding Federal receipts or revenues, there will no longer be a need for Washington to monetize its debt-at the expense of the soundness of the currency, or a need to borrow from the capital marketsat the expense of the investment needs of the private sector.

Section 2 fuses onto the balanced budget requirement what is, in effect, a requirement that this balance not be achieved through heavy increases in the amount of revenues taken in by the Federal Government. Equally serious to the deficits incurred by the country in recent years has been the increased weight of Federal taxation. Since the beginning of the congressional budget process, the tax burden as a percent of GNP has increased from 18.4 percent in fiscal year 1976 to 20.1 percent projected for fiscal year 1980 and 20.6 percent for fiscal year 1981, It is the objective of section 2 to insure that a balanced budget is not achieved in the manner that the Carter administration proposes-through 14 to 15 percent annual increases in revenue. Such a balanced budget might represent a cure worse than the illness itself.

Mr. President, the language in section 2 is borrowed heavily from that proposed by Nobel prize winning economist Milton Friedman and the National Tax Limitation Committee. It specifies that increases in total Federal outlays from one year to the next shall not exceed the percentage increase in the nominal gross national product. Thus, Federal spending as a proportion of the economy will not rise in order to achieve a balanced budget.

Further, this language ensures that the Federal Government will not continue to enjoy the benefits of the inflation dividend that it accrues under our progressive income tax system. Under the present system, the Federal Government reaps financial rewards through inflation since taxpayers are artificially pushed into higher and higher marginal brackets as their nominal income increases in the meantime, their real income remains the same, or less. As a result of this phenomenon, it has been estimated that Federal tax revenues increase by approximately 1.65 percent for each 1 percent of inflation.

An increasing proportion of the national income is consumed by the public sector. Thus, the very economic policy that has led to the impoverishment of the productive sector has also led to the unjust enrichment of the public sector.

Section 2 specifies that, to the extent inflation exceeds 3 percent in a given year, the permissible percentage increase in total outlayş during that year shall be limited to three-fourths of the excess. If, for example, the rate of inflation is 11 percent in a year, the permissible rate of outlay increase for the corresponding fiscal year would only be 9 percent. In this manner, the proposed amendment would eliminate any incentives for the Federal Government to promote relatively high levels of inflation.

Section 3 seeks to inject an element of flexibility into the economic requirements of the proposed amendment, although not the sort of flexibility that balanced budget opponents find achievable only in the absence of any economic requirements. It specifies that no more than once per fiscal year, a resolution may be offered to waive the requirements of this amendment by a vote of 60 percent of the Members of each House of Congress. Such a numerical majority is a relatively easily achievable one compared to those contained in the exception provisions of other proposed amendments. It is accompanied, however, by the requirement that such a resolution, which must specify newly permissible levels of outlays and receipts, shall be placed on the calendar of each House for at least 7 calendar days prior to consideration. The purpose is simply to draw the maximum amount of attention each year to a single vote in which the balanced budget is at stake.

Instead of the public having to sift through countless votes in order to determine which Members were "budgetbusters,” everything would boil down to one simply-understood vote. In the event that "emergency” conditions required further exceptions to the balanced budget and spending limitation requirements of the amendment, a far more difficult three-fourths vote would be necessary in each House of Congress. Section 4 deals with one of the most difficult problems inherent in any

balanced budget consititutional amendment—the need to avoid relatively easy circumvention of its terms. The section states simply that:

"Budgetary terms used in this article shall be construed in such manner as to substantially accord with their meanings on the day on which this article was submitted to the States for ratification.”

There is a need, in my opinion, to strike a proper balance between elegance of constitutional language, and precision of constitutional language. This becomes a particularly difficult task with respect to the articulation of relatively complex economic concepts. While a number of critics have ridiculed the economic textbook” language of the Friedman amendment (section 2), I am convinced that such language (albeit slightly modified) is necessitated by the fact that so many of the politicians supported by these critics have circumvented previous efforts at fiscal restraint at the Federal and State level through resort to various budgetary contrivances. These include increased reliance upon off-budget programs, Government sponsored enterprises, guaranteed loans, and new regulatory efforts shifting costs from the public to the private sectors.

The relatively precise language of section 2 and the relatively concise language of section 1 is thus combined with the broad policy of section 4. While I frankly have some concerns about any provision that might invest decision-making authority in the hands of the Federal courts, I believe that the effect of this provision will primarily be to deter subsequent Congresses from eroding or undermining the spirit of this amendment through manipulation and redefinition of such terms as outlays, receipts, inflation, et cetera.

The criticism is nevertheless raised that a balanced budget amendment could relatively easily be circumvented, if necessary. In response, I would suggest that most amendments or statutes, of human contrivance, can also be undermined or distorted by human contrivance. Some of us might suggest that this has already occurred with respect to earlier amendments that were probably considered airtight by their drafters. If the will is there to ignore a balanced budget amendment, or any other amendment, I have little doubt that an ingenious Congress or an ingenious administration can probably do this. The value of a constitutional amendment, despite this fact, is that it elevates to constitutional status a broad principle of government, the principle of fiscal responsibility. It thereby serves as a permanent beacon by which Congress and the Executive can—and must judge their programs and policies.

Congress, it seems to me, is expected always to act in accordance with both the terms of the Constitution and the spirit of the Constitution. While it is not always, of course, easy to enforce this responsibility against Congress, it nevertheless remains their duty. It is not simply the judicial branch under our system of Government that has responsibility for interpreting the Constitution: The legislative branch has a concurrent responsibility to do this. In the case of political questions, the legislative branch stands in the place of the judiciary.

I am frankly uncomfortable with the attitude that we ought not to propose a constitutional amendment because it is capable of circumvention. I am sure that the people are capable of identifying those Members of Congress who will perpetually be looking for ways to circumvent. If circumvented, it will certainly not be the first constitutional amendment ever to be circumvented. If circumvented, it will still be justified as an exercise in placing in the organic law of our land an enduring and permanent principle of sound economic policy.

Section 5 provides the effective date for the amendment, while section 6 imposes a 7-year time limit for ratification by three-fourths of the States.

Mr. President, there are a number of good constitutional amendments that have been proposed during this session to impose some much needed fiscal restraint upon the Federal Government. I believe that the immediate amendment offers one approach to the problem, but recognize the overwhelming need for Members who have sponsored or cosponsored some type of amendment to join together ultimately in behalf of a single amendment.

The momentum for such an amendment has been created at the grassroots and has been preserved by the legislatures of 30 States that have petitioned Congress to assemble a constitutional convention to consider an amendment. I hope that my colleagues will recognize that the issue before us is not simply whether or not an amendment will be proposed to limit Federal spending and balance the budget. Just as critical is the issue of which body will ultimately propose this amendment-Congress or the constitutional convention. If this body continues to act intransigently, and resist the strongly felt will of the people, then the people are constitutionally capable of taking this matter in their own hands. Congress can continue its wishful thinking that it can avoid confronting a constitutional amendment indefinitely. If so, it will soon be dealt a harsh lesson on the source of its own power. It will soon learn that there are higher authorities to whom it is accountable.

Senator METZENBAUM. Senator Bayh asked me to start the hearing, and we're certainly very pleased to hear from you this morning, Senator Stennis.



Senator STENNIS. Senator Metzenbaum and members of the committee, I want to first emphasize that it's really a privilege to me to be here this morning. I frankly think this proposal to amend the Constitution to require a balanced budget is perhaps the most important matter pending before the Congress.

Whatever is done about it will turn out to be the most important thing that happens on Capitol Hill this year. Now, I do want to ask unanimous consent that I might offer this statement for the record as I have it prepared.

Senator METZENBAUM. Without objection it will be included in the record.

Senator STENNIS. I will then use my time to summarize and emphasize as best I can. I don't expect to take over 30 minutes at most.

Senator METZENBAUM. May I say to the distinguished witness that the Chair will be able to remain until 9:30. I assume that by that time Senator Bayh will be here.

Senator STENNIS. I'm very glad you're here. I know that you're very busy indeed. I do want the privilege of revising these remarks before they are printed and also perhaps put the revised remarks in the Congressional Record within the next few days. That would be a little ahead of your printed record being available but it's just to emphasize the issue in the Congressional Record.

May I be understood on that point?

Senator METZENBAUM. No objection; and certainly we respect the right of the speaker to revise his statement.

Senator STENNIS. Well, I thank you.

Now, members of the committee, I hate to start with a personal reference, but it's only to make a point. I've been on the Senate Appropriations Committee now for 25 years as an active member, and I'm fully satisfied from that experience that Senate Joint Resolution No. 6 that I'm offering, or something closely akin to it, is highly important and that we should adopt a proposal of this type this year before the situation gets worse.

I want to emphasize that I'm not just worried so much about the level of the national debt now, even though I'm concerned. I believe the problem goes far deeper than that because if America can make up its mind, it can wipe out the national debt in a few years, if that should become necessary.

But I am satisfied that some reasonable and workable limitation must be put on the legislative branch of our constitutional system to help the Members of the Congress to withstand the demands and pressures for more programs and more funds for existing programs.

Otherwise, I really greatly fear that our system of self-government through elected officials can be greatly impaired or can even be destroyed at some point in the future through the breakdown of the financial affairs of our Nation. I believe that the best way for relief is through a constitutional amendment of the type that is proposed by Senate Joint Resolution 6.

I'll briefly discuss that amendment now. I'll briefly outline the proposal, give some supporting figures, and then outline my reasons for proposing it. The operational date of this amendment would be several years away, so it would not be rushing into something. The main substance is that at the end of the fiscal year the total outlays and the total receipts would be determined, and if those outlays exceed the income, then a calculation would be made and a surtax on corporate and individual income would be levied. An additional tax would be levied for the amount estimated to be necessary to balance the budget.

There is an escape clause to the requirement for balancing the budget to the effect that it could be waived by a three-fourths vote of each House, and I would change that to two-thirds if it's thought to be better; two-thirds vote of each House for emergencies like war or a serious depression.

We have now, Mr. Chairman, the Congressional Budget Act of 1974. No one could have been more pleased than I at the progress it's made.

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Each member of the Budget Committee has, I think, been outstanding in their contributions. This is particularly true of the chairman, Mr. Muskie, and Mr. Bellmon, the ranking minority member. Certainly the Budget Act had my support in its inception.

I was appointed on the original committee but was unable physically to serve. I didn't do any work on it, but it certainly needs the effort of all of us all the way. But I am satisfied that still in the years ahead we need a wall, more or less, not an absolute wall, but a wall of scme kind of protection between the special interest groups and the elected officials.

I speak respectfully of these groups, and I don't blame them one bit. It's natural that everyone would look after themselves and their future, particularly in financial matters, so I speak with respect of them. I've supported many of their programs. I'm not trying to abolish any of them. I'm not trying to reform them. I'm thinking about future protection for our legislative system.

By the way, let me say, with the greatest deference, that it seems to me that if we should call a convention for the purpose of amending the Constitution of the United States, that it is impossible to do so without taking a grave chance of imperiling everything that we have in the Constitution now, regardless of whether Congress intends to do so or not.

If we should call a constitutional convention we would put in issue every provision of our present Constitution. A big contest could well develop over the power of the Congress and the power of the convention. The convention would most likely decide the question in favor of greater power and authority for the convention. The only outstanding precedent I know anything about was the Constitutional Convention called back in 1787 when our present Constitution was written.

George Washington labored long to get a convention called. That made all the difference in getting it, but without any idea of writing a new constitution, as I've understood it. But he yielded when he found the real situation was much worse than he thought, and they rewrote the Constitution, as we all know. I think it was justified at that time.

However, I believe if we go that route now, it could get away from us, and we'd be in the hands of whatever the majority of that convention might conclude was 'their privileges, their responsibilities and their powers.

I want to anticipate some criticism now of the amendment that I've proposed. It's said that it would freeze the Congress, and we'd no longer have the power to appropriate; I don't think so at all, Mr. Chairman. The Congress will go right on appropriating as it does now without any fixed ceiling. If, however, they voted appropriations in excess of the available income, they would automatically and on the same vote be voting the added taxes necessary to balance the budget. So that would bring in lineand I speak with great deference—those who vote for appropriations but against tax increases. I've been knocked about a good deal in that field. There were a whole lot of social security benefits that I didn't vote in favor of because I didn't think it was financially sound. Nevertheless, when we got in a hole in here last year, I thought it was up to me to knuckle under and bite the bullet. I voted for the increase in taxes to save the financial integrity of the system.


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