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c. Defects

Contains arbitrary limitations of 1 deficit in 4 years, or 3 deficits in 8 yearsthe state of the economy may require anywhere from 0 to 4 to 8 deficit pears in a particular time period, and there is no way of knowing for sure in advance.

Imposes an arbitrary spending limit, constraining outlays without considera. tion of economic and social needs.

Has a perverse cyclical impact, allowing outlays to rise rapidly in infiationary periods and holding down outlay growth when economy has just experienced a recession.

6. SURTAX FORMULA

a. State applications

None. b. Legislation introduced in the Senate

1. Two joint resolutions (DeConcini, Stennis) require the President to determine the amount by which outlays exceeded receipts at the close of each fiscal year, and to then impose an income tax surtax that would produce the amount. The two resolutions are identical except that one requires a 33 vote for suspension, the other a 34 vote. c. Defects

Places a heavy burden on the economy-if a deficit was experienced one year because the economy experienced a recession, the combined effect of a balanced budget and the surtax the following year might plunge the economy into an even deeper recession.

Promotes a spend now, pay later mentality-spend this year, taxes rise automatically next year.

Limits the ability of the federal government to respond quickly and fexibly to changing economic conditions, particularly in periods of recession and high unemployment.

May be absolutely impossible to achieve in periods of steep economic downturn which, though severe, would be difficult to characterize as a “national emergency.

Does not define "national emergency” thus causing the likelihood of prolonged debate which would likely go on until a deep recession or depression had already occurred, thus rendering any timely fecleral budget response impossible.

Could lead to higher future taxes and higher future spending, since the simplest way to balance the budget in periods of economic growth is to refrain from cutting taxes.

7. PERCENT OF NATIONAL INCOME FORMULA

a. State applications

None. b. Legislation introduced in the Senate

1. One joint resolution (McClure) restricts outlays to not more than 33 percent of the average national income for the 3 prior calendar years. A vote of * from both Houses may approve expenditures in excess of 3373 percent in case of war or emergency. c. Defects

Imposes an arbitrary spending limit, constraining outlays without consideration of economic and social needs.

Averages 2 years of actual data with 1 year of projection, forcing us to base a spending limit on a forecast of national income that is uncertain and subject to change.

Has a perverse cyclical impact, al.owing outlays to rise rapidly in inflationary periods and holding down outlay growth when economy has just experienced a recession.

Promotes the idea that this is how fast spending should grow—the specific d ceiling might become a floor.

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8. SPENDING LIMIT TIED TO PRIOR YEAR'S GROWTH FORMULA

a. State applications

None.

b. Legislation introduced in the Senate

1. Within the next two weeks a joint resolution is expected to be introduced (Stone and Heinz) that incorporates the Friedman formula. It would hold the growth of federal spending in any year to the rate at which the economy grew the year before. Restrictions would be even tighter if inflation exceeded 3 percent. Any surpluses would be used to reduce the national debt. The spending limits could be lifted in times of national emergency by a ?: vote of Congress. The limits could be lifted permanently only with a 34 vote of Congress and approval of 26 state legislatures. c. Defects

Imposes an arbitrary spending limit, constraining outlays without consideration of economic and social needs.

Estimates of GNP represent the "best guess" of a group of Bureau of Economic Analysis experts—their judgment would be the basis for a limit on federal spending.

Holds down outlay growth when the economy has just experienced a recession, which could hinder progress of an economic recovery.

9. DEFICIT SPENDING PROHIBITION FORMULA

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a. State applications

1. Colorado passed a convention call only, for the specific and exclusive purpose of proposing an amendment which would prohibit deficit spending. The application would be void if the convention was not so limited. b. Legislation introduced in the Senate

None. c. Defects

Limits the ability of the federal government to respond quickly and flexibly to changing economic conditions, particuarly in periods of recession and high unemployment.

May be absolutely impossible to achieve in periods of steep economic downturn which, though severe, would be difficult to characterize as a “national emergency."

Does not define “national emergency" thus causing the likelihood of prolonged debate which would likely go on until a deep recession or depression had already occurred, thus rendering any timely federal budget response impossible.

Could lead to higher future taxes and higher future spending, since the simplest way to balance the budget in periods of economic growth is to refrain from cutting taxes.

10. LIMITED FEDERAL DEBT FORMULA a. State applications

1. Arkansas passed a convention call only to consider an amendment that would require no debt above the national debt ceiling existing at the date of ratification, unless voted by 33 of Congress, or unless to repel invasion, supress insurrection, defend the United States in war or to pay the existing debt. b. Legislation introduced in the Senate

None. c. Defects

Would require afbudget surplus of $31.3 billion in fiscal year 1980, which would seriously slow economic growth.

Limits the ability of the federal government to respond quickly and flexibly to changing economic conditions, particuarly in periods of recession and high unemployment.

May be absolutely impossible to achieve in periods of steep economic downturn which, though severe, would be difficult to characterize as a “national emergency.

Does not define "national emergency” thus causing the likelihood of prolonged debate which would likely go on until a deep recession or depression had alrearly ocurreri, thus rendering any timely federal budget response iinpossible.

Could lead to higher future taxes and higher future spending, since the simplest way to balance the budget in periods of economic growth is to refrain from cutting tuxes.

11. BALANCED BUDGET IN YEARS OF STRONG ECONOMIC GROWTH FORMULA

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a. State applications

None. b. Legislation introduced in the Senate

1. A bill (Proxmire) would amend the Employment Act of 1946 to require the President to submit a budget which would be in balance based upon an assumption of 3 percent real economic growth. Should the President and 2/3 of Congress determine that a national emergency exists, the President may submit an alternative budget, in addition to the balanced" budget. c. Defects

Imposes rigid formula as substitute for careful budget decisions in light of each year's economic circumstances.

Imposes a restrictive budget in the typically high growth years immediately following a recession; this could abort the recovery or lead to quite weak recoveries.

Woula require the use of an uncertain forecast of inflation in order to determine whether the budget would be in balance given 3 percent real growth.

12. FEDERAL SPENDING FREEZE FORMULA

a. State applications

None. b. Legislation introduced in the Senate

1. A resolution (Stone) requires the Budget Committee to include in the concurrent resolutions for fiscal year 1980, fiscal yaer 1981, and fiscal year 1982 levels of outlays and budget authority which are not greater than 98 percent of the levels contained in the final concurrent budget resolution for fiscal year 1979. c. Defects

Freezes outlays at $447.8 billion through fiscal year 1982, resulting in cuts from current policy of $73 billion in fiscal year 1980 and $177 billion by fiscal year 1982.

Ignores growth in outlays required by current law, including effects of inflation adjustment and demographic changes on Social Security.

Means that by fiscal year 1982, we would have to abolish all Federal welfare, transportation, housing, agriculture education, community development, employment and training, and energy programs and still fall short of cuts required to hold outlays to this level.

13. UNALLOCATED $10 BILLION OUTLAY CUT FORMULA

a. State applications

None. b. Legislation introduced in the Senate

1. A resolution (Roth) expresses the sense of the Senate that the first concurrent resolution for fiscal year 1980 should recommend a level of outlays at least $10 billion lower than the level recommended by the President. c. Defects

Imposes an arbitrary spending cut that has no rational basis and no analysis of economic and social needs or specific program areas to be cut.

Would require significant spending cuts below current law-something the Budget Committee expects to do this year, but which will be very difficult.

Falls heavily on outlays from new budget authority-26 percent of outlays are from prior year budget authority.

14. BALANCED 2-YEAR BUDGET FORMULA

a. State applications

1. North Dakota's application calls upon “the people of the several states for a convention” to propese the following amendment:

The President shall submit a budget at the beginning of each new Congress.

Expenditures for each 2 year period shall not exceed estimated revenues except during war or national emergency declared by Congress.

6. Legislation introduced in the Senate

None. c. Defects

Limits the ability of the federal government to respond quickly and flexibly to changing economic conditions, particularly in periods of recession and high unemployment.

May be absolutely impossible to achieve in periods of steep economic downturn which, though severe, would be difficult to characterize as a "national emergency."

Does not define "national emergency” thus causing the likelihood of prolonged debate which would likely go on until a deep recession or depression had already occurred, thus rendering any timely federal budget response impossible.

Could lead to higher future taxes and higher future spending, since the simplest way to balance the budget in periods of economic growth is to refrain from cutting taxes.

15. SEPARATE FEDERAL CAPITAL AND OPERATING BUDGET FORMULA

a. State Applications

None. b. Legislation introduced in the Senate

1. A resolution (Hart) expresses the sense of the Senate that both the President's Budget and the Congressional Budget should divide proposed outlays between those for capital items and investment-type programs, and those for operating or current programs or purposes. c. Defects

Promotes false sense of budgetary balance and masks the impact of the federal budget on the economy.

Weakens the budget as a control mechanism-could lead to higher federal spending for programs included in the capital budget and higher total federal spending.

Fails to define capital and operating programs; capital programs for the Federal government are not the same as for private business, and the definitions could cause extended controversy, particularly if the capital portion gets less scrutiny.

Changes accounting without any change in Treasury financing needs or the impact of the budget on the economy.

16. ESTABLISHMENT OF A REGULATORY BUDGET FORMULA

4. State applications

None. b. Legislation introduced in the Senate

1. A bill (Bentsen) to amend the Congressional Budget Act, calling for new procedures aimed at producing a regulatory budget which would set maximum costs of compliance with rules and regulations promulgated by every federal agency. c. Defects

Imposes an unwieldy layer of procedural requirements on top of a very tight Congressional budget timetable.

Duplicates existing requirements for regulation impact analysis, focuses on costs rather than a balancing of costs and benefits, and fails to put information to use to review and possibly alter current laws and regulations. (Sharp contrast to Sunset, which would use existing analysis and provide a review process for evaluating each program's costs and benefits and terininating those which are no longer productive.)

Suffers from the problem that we could never measure private sector "costs of compliance” with the certainty implied by a regulatory budget, and those private sector expenditures would be beyond direct federal control.

Senator Hatch. Could I add one thing, Mr. Chairman. I would just like to point out that some form of institutional budget restraint may be necessary because of the environment of the budget process itself. Pressures by special interests for increased spending are direct and intense, while pressures in opposition to such spending are indirect and dispersed.

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Spending limitations, by creating a fixed amount of spending, would reorient the budget process so that the special interests would be competing against themselves for a share of the fixed ante, rather than against the taxpayer for an increasingly large ante.

I would also like to point out, with respect to whether or not we have the discretion in the Congress to stop the Constitutional Convention that Hamilton in the Federalist Paper No. 85 said that the Congress shall be "obliged” to call a Convention, once two-thirds of the States call for it. So we may not have any alternative other than to call it, although there are issues involved as well.

Senator Bayh. Let me just point out, in response to that concern that you expressed here earlier, that there are about eight of the petitions that we have received from the legislatures that do not specifically call for a National Convention, but call for this as an alternative if Congress refuses to act itself.

Senator Thurmond, we appreciate your patience and are anxious to have a chance to hear what you have to say. It's good to have you with us.

TESTIMONY OF HON. STROM THURMOND, A U.S. SENATOR FROM

THE STATE OF SOUTH CAROLINA

Senator THURMOND. Mr. Chairman, I have a statement here that will run about 9 minutes. As ranking member of the Antitrust Subcommittee, I'm in a hearing there today also. I left that subcommittee to come and testify here. I wish I could be here for the entire hearing, since I am a member of this subcommittee, but it's my duty to be at the other place since I'm the ranking member. But I will șead the entire record.

Mr. Chairman, I am pleased to be here today to offer my testimony in support of Senate Joint Resolution 18, but, more importantly, in support of a constitutional amendment to require a balanced budget.

Almost every witness who will testify today has introduced a proposed constitutional amendment requiring a balanced budget. Buit I am sure all will agree that obtaining the goal of a balanced budget is much more important than which of our proposa's is successful in Congress.

It is also important to point out that this is a bipartisan effort, with Members of every party in Congress sponsoring balanced budget proposals. Therefore, let's examine the need for a balanced budget amendment, not with politics in mind, but with the awareness that it is essential that this country get back on the track of sound fiscal responsibility.

In 1965, I introduced my first resolution calling for an amendment to balance the budget. The Federal Government had just experienced deficits in 6 of the prior 7 years, and I could see the writing on the wall. Many in Congress at that time argued that a constitutional amendment was too harsh a step to take, and that we could regain our fiscal responsibility through voluntary efforts. Consequently, my proposal and similar ones in succeeding Congresses have virtually gone nowhere.

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