It is easy to see that efforts at voluntary restraint have not been successful. The role of the Federal Government has increased, causing high spending levels and rising deficits. Since 1965, when a deficit had occurred in 6 of the previous 7 years, we have experienced deficits in every year except 1969, when we were able to salvage a $3.2 billion surplus after a $25.2 billion deficit in 1968. Moreover, we are no longer looking at deficits of $5, $10, or even $25 billion, but at resounding and tragic figures of over $60 billion.

Over the years, economists have told us that these high deficits contribute to inflation and unnecessarily divert capital from more productive uses to paying interest charges. Inflation has plagued the United States for some time now, and while we try to find the answers to this problem, we continue to maintain high deficits.

I am no economist, but it is not difficult to see that we are never going to conquer inflation without some spending restraints. In addition, over $40 billion annually is wasted by being withheld from more productive uses to pay interest on our national debt, which now totals over $800 billion.

On many occasions, States follow the lead of the Federal Government in ideas of better and more efficient government. However, in this area, the Federal Government can learn a great lesson from the States. Presently, 26 of the 50 States have requirements of a balanced budget in their constitutions. I am proud to say that my State of South Carolina is among these. In 38 States, the legislatures are completely limited or severely restricted from incurring a debt to cover deficiencies in revenue. These States realize the necessity of a constitutional restraint to prevent careless spending and high deficits. It is an awareness that should be realized by the Federal Government before the mounting deficits completely destroy our fiscal structure.

Mr. Chairman, the efforts of many of us in Congress are not without substantial backing and support from the American people. Recent polls show that a vast majority of the American people support a balanced budget amendment. In fact, a poll taken by Mr. Gallup just several months ago showed that 84 percent of the people favored a Constitutional Convention to balance the budget.

At this point, 28 States have petitioned Congress to call a Constitutional Convention to propose constitutional spending restraints. I might add that both the house and the senate in the State of Indiana have recently passed such resolutions. The matter in that State, I understand, is now in conference.

Therefore, the time is getting close when the Congress will lose the opportunity to act and the people, who demand action, will do so through a Constitutional Convention.

I would now like to make a few comments concerning Senate Joint Resolution 18, my proposal for a balanced budget amendment, cosponsored by Senators Goldwater, Wallop, and Hollings. The action I am recommending is simple and straightforward: The Government is not allowed to spend more than it receives in revenue.

It does not take a professional economist to realize that this is sound fiscal policy. Every year, after Congress receives a report of our estimated receipts for the upcoming year, the outlays are established within those bounds. The result will be balanced budgets and may even result in surpluses in some years.

Senate Joint Resolution 18 also provides a means to virtually eliminate our Federal debt. However, realizing the cuts and restraints required to attain a balanced budget, this provision does not become active until 5 fiscal years after we have obtained a balanced budget. At that point, 5 percent of receipts for the next 20 years will be applied toward the Federal debt.

I am aware that this percentage may seem high, but it is not, when compared to the extremely high Federal debt. Using current figures on receipts, this would require about $22 billion per year to apply toward the principal of a present debt of almost $800 billion.

Even this will not completely eliminate the debt, but once a balanced budget is obtained and the Government is more fiscally responsible, it is hoped that more money could be applied toward the debt. In addition, as the debt decreases, so will the interest payments, thereby freeing funds to be diverted from payments on interest to the much more desirable function of a payment on principal.

Finally, this proposed amendment provides that, in the event of war or other grave national emergency, the restraints may be removed by a vote of three-fourths of both Houses of Congress. Therefore, this amendment will not-I repeat, will not-tie the hands of Government if a legitimate need arises requiring additional expenditures.

In summary, Mr. Chairman, let me reiterate that proposals for constitutional requirements of a balanced budget are not new. In the past, however, the public and the Congress have shunned these proposals in support of voluntary restraint. Today we realize that this is not working and that a constitutional restraint is necessary.

The public and States have recognized this through overwhelming support for a Constitutional Convention. The Congress has illustrated its concern by an unprecedented amount of proposals for a balanced budget. The awareness of this need is more prevalent today than ever before in our history. I feel that my proposal can best meet this need, but I am not as concerned with my proposal as I am with the ultimate goal.

It is you, Mr. Chairman, who now has a great responsibility. I urge you to conduct further hearings on this subject which will help formulate a proposal to obtain this goal. As a member of this subcommittee, I can assure you of my support and willingness to assist you in this important endeavor.

Thank you, Mr. Chairman.

Mr. Chairman, if there's no objection, I would ask that a layout of budget receipts from 1789 to 1979, in millions of dollars, just on one sheet, be included in the record following my remarks.

Senator BAYH. Without objection.

Senator THURMOND. I might state that for the last 49 years, it shows that the budget has been balanced only eight times. In the last 19 years, the budget has been balanced only one time.

I would also ask unanimous consent, Mr. Chairman, that a compilation of the States that have enacted resolutions requesting a Constitutional Convention-and the record shows that 28 have now made such requests-be included in the record following my remarks. I have also added here that it will not be but a few days, I understand, before Indiana will enact such a resolution, since the house and the

senate both have passed it and it's now in conference to resolve their differences.

Senator BAYH. I appreciate the fact that the Senator from South Carolina shows such deep personal and abiding interest in the State of Indiana.

Senator THURMOND. I imagine people there think like the other 28 that have adopted it, and they have shown that by both bodies passing it.

Senator BAYH. I appreciate the Senator reminding me. I am very much aware of what's happening in Indiana.

Senator THURMOND. That's the Senator's home State, and I'm not saying that for his benefit necessarily, although it won't hurt, but I'm saying it for the benefit of the full subcommittee and also the public, who would be interested in that statement.

Senator BAYH. I'm sure that's a matter of great public interest. It certainly is to me. I know what happens at home.

I appreciate your taking the time from a very busy schedule to be here. You mentioned the State of Indiana. You've been Governor as well as a distinguished colleague from South Carolina. I don't know whether South Carolina has done this, as many other States have. We have created in Indiana a toll road commission, a port commission, a State office building commission, just to name three vehicles which can borrow money based on the full faith and credit of the State, in apparent contravention of the State's prohibition in the constitution to going into debt.

Do you do anything like that in South Carolina?

Senator THURMOND. No. In our State we have a constitutional amendment. We also have a statute that requires a balanced budget. If it's anticipated that the expenditures will exceed the receipts, then it's the duty of the officials to take steps to prevent the expenditures exceeding the receipts.

Senator BAYH. We have a constitutional provision prohibiting us from going into debt, but the ingenuity of our State legislators and Governors in the past has made it possible to create vehicles that are really debt-creating entities-I don't know whether you did that in South Carolina or not. I wanted to ask you.

Senator THURMOND. We don't run deficits in South Carolina. We have a three-star rating. We can borrow money cheaper than the Federal Government, and we keep our finances in good shape.

Senator BAYH. From whom do you borrow money, if you don't have to go into debt? That's what I'm trying to find out.

Senator THURMOND. We borrow money temporarily.

Senator BAYH. I want to do something about Federal deficit spending, but I'd like for us to do it in a way in which we don't set up ways to end run what we might put in our Constitution. In our Indiana constitution and in many other States' constitution, we have a specific prohibition to going into debt. Yet, the ingenuity of the government has made it possible to create these other debt-holding vehicles.

You don't have any vehicles, any commissions or anything like that, in South Carolina that is permitted to borrow money?

Senator THURMOND. That's correct; and it suits me if we could include such as that in a constitutional amendment that the Congress might submit.

Senator BAYH. Does the State of South Carolina distinguish between operating and capital budgets?

Senator THURMOND. Yes, we distinguish between operating and capital budgets. The operating budget is always within the estimated revenues. As I stated, if it turns out it's short, the State legislature is either called into session or the budget control board cuts down on the expenditures.

Incidentally, I believe that was done last year.

Senator BAYH. Would you suggest that as a way in which the Government of the United States could reach the same goal that the government of South Carolina has reached?

Senator THURMOND. It would suit me if the Government of the United States followed the pattern of the State of South Carolina, because we have operated well and we have a three-star rating, and we're in good shape financially.

Senator BAYH. So you would favor, then, dividing Federal expenditure between capital and operating expenditures, like you do in South Carolina?

Senator THURMOND. So far as the State is concerned, we are well satisfied with our operation. So far as the Federal Government, of course, we get Federal money down there too, as all the other States do, and if the Federal Government wants to cut off their funds-and it may have to do it-to the States, or a portion of it, we stand ready to bear our share of such a cut.

Senator BAYH. I guess we all have to sort of tighten up our belts in a situation like this. I appreciate your assessment there.

Senator THURMOND. I'm convinced-and I intend to introduce a bill on this. I've been talking to many people about it, and I'm convinced, further, that if we would turn over to the States, turn over to the States the amount of money that we're now giving to the States, say for education-not even bring it to Washington-you'd save a 20-percent toll from what it takes to come up here and go back. That would save hundreds of millions of dollars.

In other words, the people who handle all the funds up here for that purpose mostly could be eliminated. The same thing we might say for welfare, and the same thing for health, except health research, which I think ought to be nationwide. I'm convinced that States would handle the projects more economically and more efficiently than the Federal Government. The Federal Government has gotten too big, and if we give the States the same amount of money that they are getting now, in effect, we won't have to give them as much. I'm convinced that would save the Federal Government.

We could save office building after office building up here if we did that. The State and Federal Governments, I say, would save hundreds of millions of dollars.

And why can't we do that? What's the sense in taking the money away from the people of Indiana and South Carolina, and Utah. and other States, and bring it to Washington; then it goes through the hands of a lot of bureaucrats, costs a 20-percent toll, and then sends the money back to the people?

Why not just turn it over to the people in the States, to your State treasurers, right down at the State level, the same amount?

If they want to turn half as much as they're giving now, or threefourths as much, then we wouldn't have to have all the people up

here on the payroll, which costs hundreds of millions, and later retirements. We can do this job if we have got the courage to do that. But I am not too sure that Congress has the fortitude to act on this matter of balancing the budgets every year, because they haven't done it but eight times in 49 years. They haven't done it but one time in 19 years. That's the reason I favor a constitutional amendment.

I think it is much better if the Congress submits a constitutional amendment than for it to arise from the States, but the people are demanding action, and that is the reason that 28 States have already submitted, and it will not be long-it is estimated within 60 to 90 days-that they will probably have 34 States that will make that request.

If we are going to follow that route, I do think it would be better if we had a bill setting out guidelines for a constitutional convention that was passed unanimously through the Senate about 1971.

It should be passed again. It has been introduced in the Senate this year. It is now before the subcommittee. I hope this subcommittee will see fit to pass guidelines for a constitutional convention in the event the required 34 States request such a convention.

In that event, then we could probably limit it to balanced budgets, and not just open it up to everything that might be considered, which might be the case if we don't pass this bill on guidelines.

Senator BAYH. You mentioned, as part of your amendment, a payback to reduce the Federal debt by 5 percent per year after the balance of budget.

Do you have any expert testimony from any economists as to what the impact of that payback would be when we accomplish our goal of successive balanced budgets?

Senator THURMOND. First, I think, Mr. Chairman, we have got to balance the budget. Then 5 years after we do that, I think we could begin to pay 5 percent on the debt. I think we ought to pay the debt, because the quicker you pay it, the more interest you save the tax

payers.

Senator BAYH. I understand that. I just wondered, do we have any other thoughts as to what the economic impact would be?

Senator THURMOND. This would be about $22 billion a year to apply to the principal on the debt of over $800 billion.

Senator BAYH. Do we have any thoughts from anybody-Greenspan, Friedman, or anybody-as to what the impact would be on the economy if we did this?

Senator THURMOND. No, I don't have any thoughts on that. If you want some testimony on that point, I would be glad to bring some economists who are experts on that point.

Senator BAYH. Fine. I think we would like to have that.

Senator Hatch?

Senator HATCH. Thank you, Mr. Chairman. Perhaps we ought to call some of the economists and ask them what the impact might be, because it is an important issue.

Senator THURMOND. This amendment that I have, the reason I think this is a good amendment, I have no pride of authorship. I will go with any other amendment. I want to see the job done.

The reason I think it is a good amendment, it accomplishes a dual purpose.