April 29, 1975
Page 12340
Mr. MUSKIE. Mr. President, I wish to make a few observations on the amendment of the distinguished Senator from New York, if I may. I wish to make the point – at the outset – that, until a few moments ago, there was very little evidence as to precisely where the distinguished Senator proposed to make his cut in outlays with respect to the 16 functional categories of the Federal budget. The only clue we had, until we received a one-page chart – which, presumably, is the Senator's proposal – is language in the additional views of the Senator on the committee report on page 148, where he said this:
We recommend a budget with a maximum spending level of $340 billion, a figure which represents an 8.5 percent increase over the current fiscal year.
Actually, given the updated figures on the current fiscal year, the figure which the Senator has attributed to current spending is now at an annual rate of $322 billion. The $340 billion figure is only a 5.5 percent increase, and not an 8.5 percent increase.
The Senator goes on, in his individual views in the report:
It is not a stingy budget. We dare say it represents an increase in real spending which will be denied most Americans. But it is not a reckless budget, and it cuts where we feel the Nation can absorb the cuts without undue dislocations: in foreign aid, subsidies to businesses, and placing a 5-percent cap on automatic pay increases to Government employees. It does not deny us a reasonable national security budget as some would do, and it provides for the full cost of living increase promised to social security recipients.
I would just like to add those two or three numbers together. If I am not in error, I think the Senator's mathematics are off.
We begin with the $322 billion in current spending which the Senator used as his basis. Interest paid by the Federal Government adds $4 billion more this year, which takes it to $326 billion.
Increases in the income security function totaled $16.3 billion. That takes us to $340.3 billion. The President's proposed budget adds $8.8 billion above the current level of spending for defense. That makes the total $348.8 billion.
If my figures are correct, the Senator cannot get down to his $340 billion without cutting Federal obligations to pay interest, which is impossible, or cutting defense and social security, which the Senator says is not his intent.
Of course, I leave it to the Senator to respond to that in due course. But without knowing what his proposed functional cuts might be, those conclusions seem to be rather irresistible. As a matter of fact, Mr. President, a $340 billion spending ceiling is almost impossible to achieve, if one is concerned at all with what happens to programs. Cuts like the following would appear to be required, at the very least:
Ending economic assistance programs designed to foster peace in the Middle East.
Terminating the space shuttle.
No new starts in energy.
Cuts in environmental and conservation programs.
Deep cuts in agricultural research.
No funds for loans.
Reimpoundment of highway money.
Cutting community and regional development programs beyond current levels.
No increases in social services to cover inflation.
Greater burdens on State and local governments.
Increasing medicare and medicaid costs to recipients.
No inflation adjustment for veterans.
I am not suggesting that these are all the programs which the Senator would target on, but in trying to estimate in advance where the Senator could find $25 billion in cuts, in examining the issues that were discussed in the Budget Committee markups, it seemed to me that in talking about cuts of that magnitude, one must have those effects on some of these programs, if not all of them, and I think that we ought to have the benefit of that analysis.
Let me make another point with all respect to the Senator: in the Budget Committee, no one, at the outset of the markup, offered an outlay ceiling or a deficit figure. That was the last decision that the committee made. We began by going through these 16 functional categories, examining each of them, entertaining motions to increase or decrease the amounts to be spent under each, voting on them up or down, and then moving on to the next. In some cases the more conservative members prevailed; in some cases the less conservative members prevailed. But when we were through, we added up the total, and it came to $365 billion. I do not recall the Senator from New York, or any Senator in the markup sessions offering a program of $25 billion in cuts distributed through the 16 functional areas for the purpose of achieving the kind of cuts which the Senator is suggesting to the Senate today.
It is all well and good to say, "Well, somewhere we will find it," but I think the Senator will agree that we in the Budget Committee felt that our responsibility required that we be more precise in dealing with the expenditures of Government than utilizing across-the-board cuts.
It seems to me that if I had thought in advance that Government spending should be no more than $340 billion, I would have regarded it as my responsibility to put together 16 functional categories, with the numbers indicating where the cuts would come and what programs would be terminated. To do otherwise, I think, is to impose the possibility of unconscionable damage to programs or people dependent upon programs.
I suggested earlier that using the Senator's own figures – beginning with $322 billion and just adding defense, interest, and income security – requires a cut in those programs, in those functions, of something like $7 or $8 billion, notwithstanding the Senator's very clear expression of intention not to cut those areas. That may be an inadvertent result of the Senator's amendment. He apparently had not focused on the $322 billion figure before today, but was using a $313 billion figure as the level of current spending in the Federal Government.
This illustrates my point that just throwing an arbitrary number like $340 billion into a budget of this kind can do unintended damage to people who ought to be protected rather than hurt.
Now let me turn to another implication of the Senator's amendment. The Senator will recall, I think, that I asked several witnesses with respect to the President's original deficit of $52 billion:
The President obviously does not like to present this kind of a deficit. Why do we have to have it? Why do we not eliminate it? I hear administration witnesses saying it is a horrible figure. If it is so horrible, then it cannot possibly be sound economic policy. Why do we not cut Federal spending to eliminate it or raise Federal taxes to pay for it?
I asked that question over and over again. On one particular morning we had two witnesses who gave us the classic answer that was never challenged by other witnesses, to the best of my recollection, in the budget hearings. We had as witnesses that morning Mr. Joseph Pechman, who is director of economics at the Brooking's Institution, and Mr. Charls Walker, who was Deputy Assistant Secretary of the Treasury in the Nixon administration.
One is regarded as a liberal economist; the other is regarded as a conservative.
When I put that question to Mr. Pechman he said:
If we were to cut $52 billion from Federal spending, the result would be a further decline in gross national product, a further shrinkage in Federal revenues of up to $25 billion, so after you were cutting $52 billion there would be another $25 billion to go, and an unemployment rate in excess of 10 percent.
That was Mr. Pechman's answer.
I asked Mr. Walker if he agreed, and he said yes. He said:
A deficit of this magnitude is unavoidable.
I asked Secretary of Treasury Simon whether he agreed with this judgment. He said:
Of course I do. This kind of a deficit is unavoidable when you are trying to stimulate the economy.
So this is not just the judgment of a majority of the Budget Committee. This is the judgment of these estimable economists – from liberal to conservative – that was offered to us in our hearings.
Now, what the Senator proposes is to reduce the deficit to $34.7 billion, with a spending ceiling set at $340 billion and revenues at $305.3 billion. The Senator has suggested that the revenue target can be achieved by foregoing the extension of the recently legislated tax reductions into the second half of fiscal year 1976, and by imposing an energy conservation tax of $7.5 billion to be put into effect on July 1, 1975.
In my judgment, this cannot be accomplished because reducing outlays by $25 billion and increasing taxes will increase automatic spending for unemployment compensation, for food stamps, and for other costs related to rising unemployment, and would decrease revenues, as a result, by at least another $12 billion, thus requiring a further tax increase of about $15 billion.
Now the probable effect of this policy on the economy is as follows: The swing in the budget implied by those policy changes would represent a deflationary impact of about $52 billion, $25 billion in spending, and $27 billion in taxes. This would lower GNP within the fiscal year by at least $100 billion below the committee's forecast and would raise unemployment to 11 or 12 percent of the labor force.
That is not my judgment as an economist – I am not an economist – but it is a judgment based upon the testimony which this committee received.
I am interested in some of the charts which the Senator has mounted at the rear of the Senate Chamber. I am looking at the one entitled "U.S. Government Borrowing as a Percent of Total Funds Raised."
I must say that the Senator acts as if the number of houses sold, for example, depends only on the money that the banks have to lend. But my builder friends tell me that you need customers as well.
Over 2 million family heads are unemployed. These families are not in the market for new homes. More importantly, our report calls for fiscal and monetary policies that will support expansion and increased employment.
The Buckley-McClure amendment, in contrast, calls for tighter money, less spending, and more taxes. Their policy means less employment and less housing. This always means less investment and lower economic growth.
I rely on the recent data. In years of tight money but high employment investment goes forward. During recessions, investments fall. This year investments and interest rates are both falling, and I think those data run counter to the conclusion which the Senator would have us draw from his fifth chart.
With respect to the chart next to that, which undertakes to draw upon our experience in the thirties and our experience postwar, let me point out that the Senator ignores the years in between during which unemployment in this country dropped from 17 percent to 2 percent.
The Senator will point out that that was war spending. Well, the dollars did not know whether they were being spent for war or for other things. No one would advocate a war to drive us to the economic policies that will cure this recession, but the fact is, it was the expenditure of Government money in those years, for a purpose that I hope will not be repeated, that brought the unemployment rate down from 17 percent to 2 percent.
What we are proposing in this budget is that those kinds of Government expenditures shall be used for constructive, socially useful purposes, and that the results economically can be similar to
what they were in that period which the Senator left off his chart.
Then, there is that interesting chart to the left on real spendable earnings or take-home pay. Now, real take-home pay increased between 1958 and 1965 by 14.4 percent as unemployment fell from 6.8 percent to 4.5 percent, and Government spending rose from $82.6 billion to $118.4 billion.
Last year's 5-percent reduction in real spendable earnings came while fiscal policy was restrictive, while interest rates were rising, and while national production was falling.
The Senator's evidence, I suggest, indicates conclusions contrary to those which he would ask the Senate to accept.
Mr. President, I yield the floor.
Mr. BUCKLEY. Mr. President, I would like to take up one or two little items.
No. 1, the continuation of the tax cuts into the next fiscal year would not involve $24 billion but $4.4 billion.
No. 2, when administration witnesses talked about the impossibility of reducing the debt below $52 billion or, later, $60 billion, whatever the figure is, they were talking about uncontrollables.
The obligation of a President is to project the expenses of the Federal Government on the basis of the laws then in effect. It would seem to me that one of the challenges to which the Budget Committee is supposed to address itself is bringing uncontrollable expenditures back within control. Now this is something we must get on top of because we cannot plan intelligently as long as three-quarters of the budget remains beyond our control.
Now, I described our proposal as a compromise. I believe that it does represent targets, target levels of spending that can be accommodated within the time we have without the devastation suggested by the distinguished Senator from Maine.
He was correct, incidentally, in saying that our proposal would affect one of the uncontrollables; namely, debt service. Of course it would, because it would clearly not be inflationary. It would thereby reduce interest rates in the longer term; and because the Federal Government would not be competing to the tune of $40 billion with the private sector, there would be less competition to force up interest rates.
Therefore, I think that, whereas we reflect a $2 billion decrease, the actual figure would be substantially lower.
The distinguished Senator from Maine says that if we reduce Government spending by $25 billion, we are not really reducing by $25 billion. Rather, we are failing to raise it by $50 billion.
There is a distinction there and it is not semantics.
Second, we are talking about a fiscal year in which we have already begun to turn the corner in the productive sector of our economy.
So, although we can dip into the capital markets today and borrow large sums of money without inhibiting investment, without affecting short-term interest rates too much, that is not true of what we will be expecting and anticipating next year.
At that point, if we are going to have recovery – and I am talking about a sustained recovery, not the kind that comes from hiring people to count dogs in a dog pound; I am talking about jobs in the productive private sector – the $25 billion that the distinguished Senator from Maine is talking about, money that would otherwise be spent in the private sector, is not going to cause a tremendous void.
As a matter of fact, if that $25 billion all went into housing, we would be solving our housing problems overnight.
The fact is, the strength of our economy is in the private sector. It comes when people can afford to borrow in order to build houses, in order to buy cars, to buy major appliances, or when a small businessman who wants to expand his capacity or modernize his plant is able to go out into the money market and borrow the funds with which to do so.
Increasingly, we are crowding the private investment factor out of our economy with the result that today we have a scandalously low rate of reinvestment in this country. We are near the bottom of the pile of industrial nations in carrying forward the vital work of expanding our productive base in order to maintain a growing standard of living.
The Senator from Maine complains that, in the charts we have presented, I have failed to reflect the war years.
Well, I have never heard it stated that one can analyze a wartime economic situation, in which much of the able manpower has been conscripted for military service, with the same sort of diagram that makes sense in terms of peacetime.
I am suggesting that, in these two periods of peace and war, the trends of employment and Government spending have been in directions in which they should not have moved.
I also remind the Senator from Maine, Mr. President, that over the past 5 years we have suffered deficits of $150 billion. And what has happened? We have had inflation, we have had high interest rates, we have had high unemployment.
It is now proposed that in order to stay on top of inflation, in order to bring down interest rates, in order to decrease unemployment, we spend still more money and incur still larger deficits, thereby placing still greater pressures on the money markets in competition with the private sector.
As I said at the outset, Mr. President, what is important about this debate is, I think, not the final figures we come up with. We in the Budget Committee are all conscious that, because of startup staffing, the minority side did not really get its staff underway until well into the session, because we do not have the facilities of the Congressional Budget Office available to us.
This is a dry run. It is a dry run, but it is an important dry run, not so much because of the figures we use but because we can reexamine and debate an alternative understanding of how our economy works, how it best functions, how we can maintain the extraordinary productive capacity that has given us such a high standard of living.
Most importantly, we have the opportunity to discuss how we can restore stability to a system that has grown more and more erratic in recent years.
I suggest that it is precisely the kind of budget we are talking about now that has caused the erratic movement from inflation to recession. I predict, if this budget is adopted, we will see in 1977 a return to the kind of interest rates that crucify precisely the people for whom the Senator from Maine is concerned. We crucify the prudent, we crucify the American middle class, we crucify the people who have retired, who can no longer go back into the labor market and restore the depleted value of their savings.
I believe, Mr. President, that this argument is an extraordinarily important one. I only wish there were more of our colleagues here to participate in it because we are plowing new ground with this budgetary process, I believe. For the first time in my 4 years here, we have had a chance to debate the crucial issues now under discussion; and I value the opportunity to do so with my friend from Maine.