September 22, 1976
Page 31767
CONGRESS: A SUMMARY OF FISCAL DISCIPLINE AND ECONOMIC RESPONSIBILITY
Mr. MUSKIE. Mr. President, President Ford, on a recent "Today Show," told the American people that he was afraid to leave Washington while Congress was in session. He said it was his responsibility to "be in the Nation's Capital to make sure that the Congress doesn't go off the deep end."
May I reassure both President Ford and the American people that they need not be afraid of the 94th Congress. It has demonstrated that it is fiscally disciplined and that it can manage economic policy.
I remind President Ford that Congress now has a budget process, that we set our own spending limits, and that we live within them. The Congress will monitor and control its own budget.
Spending and the deficit in fiscal 1976 were less than Congress had budgeted for itself a year and a half ago. Our second concurrent resolution, passed just last week for fiscal 1977, reduced the targets for spending and the deficit that we have set this spring. I ask unanimous consent that a table showing the 94th Congress record of adhering to its budget targets be printed at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. MUSKIE. Moreover, Mr. President, Congress does not need help from the President's vetoes to stick to its targets. Sustained vetoes did reduce fiscal 1976 outlays by $4 billion. But $2.4 billion of that was for jobs — a top congressional priority which was fully accommodated within our budget. I ask unanimous consent that a memorandum concerning the effect of the Presidential vetoes be also printed at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 2.)
Mr. MUSKIE. Mr. President, the 94th Congress also demonstrated that it had a better understanding than the administration of the economic problems facing the country in the last 2 years. The fiscal and energy policies proposed by the administration were dangerous and inappropriate to the situation we faced during the last 2 years. It was Congress, not the administration, that put this country on the road to economic recovery.
The Congress wisely rejected the administration's proposed tax increase offered in the fall of 1974 while the Nation was in the midst of its worst postwar recession. The Congress wisely rejected the administration's proposed drastic increase in energy prices, offered in the winter of 1975 when the Nation had just gotten through the most inflation-ridden year in recent history.
And the Congress wisely rejected the administration's plan to allow unemployment to remain at terribly high levels for an intolerably long period.
Congressional economic policy in fiscal 1976 deserves the credit for the current recovery and lower inflation rates. The important elements of Congress policies vis-a-vis those of the President in the last fiscal year were:
First. Rejection of drastic cutbacks in social security and other programs that protect the old and poor from the worst effect of recession and inflation;
Second. More spending for countercyclical and jobs programs;
Third. Larger and more permanent tax reductions than the President had originally proposed; and
Fourth. An energy policy that did not do further damage to an already weakened economy.
I ask unanimous consent that a longer statement documenting the congressional responsibility for the economic recovery in fiscal 1976 also be printed at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 3.)
Mr. MUSKIE. Mr. President, the congressional budget for fiscal 1977 is designed to continue the less inflationary economic recovery that we enjoyed during fiscal 1976. If the goals are met, they will be a second step on the long road back to full employment and reasonably stable prices.
The Congress provided more money for temporary job creating programs than the administration proposed. It also avoided a large increase in social security taxes and trimmed back the President's request for a large increase in the unemployment insurance taxes. These taxes are inflationary because they add to employers' costs, and they also discourage employment. If the congressional budget is fully enacted, it will both provide more jobs and less inflation than the President proposed. Partially because of our success with tax reform, our deficit is only $3 billion greater than the President's, a difference entirely accounted for by job creating programs.
The report accompanying our second concurrent resolution directed Congress' and the Nation's attention to goals from 1980 and 1981. The time perspective of the Congress must be extended if we are ever to succeed in balancing the budget.
We estimate that if economic recovery continues as planned, there will be a fiscal margin of $30 billion by fiscal 1980 and $50 billion by fiscal 1981. This is a considerable sum, but it can easily be absorbed by new programs and/or tax cuts along the way. The margin can also be increased by reducing or at least slowing the projected increase in existing programs. This year, for example, the Congress cut $9 billion from the current services budget. If we continue to be that successful, the margin will be significantly greater by 1980 and 1981.
In this context, I want to point out that much of the fiscal margin projected for the beginning of the next decade has already been spoken for. Either party's platform already lays claim to a substantial part of the margin estimated for 1981.
I ask unanimous consent that a memorandum be printed at the end of my remarks which shows that the Democratic platform would require $40 billion and the Republican platform $50 billion by 1981. I submit this analysis in an effort to combat the wildly exaggerated and misleading claims made yesterday by the Republican House leadership about the Democratic platform. I also ask unanimous consent that a memorandum analyzing those remarkable claims be printed at the end of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibits 4 and 5.)
Mr. MUSKIE. Mr. President, the estimates I submit today are very approximate because platforms are subject to interpretation. The numbers are based on a series of reasonable assumptions which could, of course, be altered. Moreover, both candidates are redefining their respective platforms. Governor Carter has promised to phase in the Democratic programs so that the budget can be balanced in his first term. President Ford, in his speech at Michigan last week, restricted the catastrophic health insurance programs promised in the Republican platform only to those on medicare.
Despite these modifications, the essential point remains valid. The budget margin for fiscal 1981 is already spoken for, and the evidence suggests that the congressional budget process is capable of holding either administration to its discipline irrespective of who will be President next year.
The major difference between the two parties is not in the magnitude of their promises — the cost is probably about the same — but, rather, to whom the promises are made. The Democratic platform pledges welfare reform, national health insurance, and equalizing education support among communities. These are promises to lighten the load on working class Americans and on State and local governments. The Republican platform promises to lower the taxes on corporate profits and dividends. The difference between the parties has not changed. The Democrats believe in helping the average American, the Republicans in "trickle-down" economics.
Clearly, the next Congress will have to look at the promises and the fiscal resources that will be available if we are to balance the budget before the Presidential election of 1980 and achieve a spendable dividend thereafter.
The next Congress will also have to remember the lessons learned in the last 2 years if it is to be an equal partner with the President in setting national priorities.
We will have to remember the relationship between economic recovery and the budget. Fiscal and monetary policy must support a continuing economic recovery; otherwise, the budget will not be balanced no matter how hard we try. The Congress must also refrain from actions that directly increase costs or prices, such as abruptly raising energy prices or payroll taxes. We must recognize the trade-off between unemployment and income maintenance, as the new CETA bill does by targeting public sector jobs on heads of needy households. We must look for fiscal stimulus programs that disappear automatically when recovery is obtained, such as countercyclical revenue sharing. The Congress must also extend its time perspective, beyond the next year or two, when it evaluates spending or tax legislation, or we will mortgage the 1981 fiscal dividend many times over.
The next Congress and the next administration will face a complicated set of problems. We will have to be more successful than anyone has ever been before if we are to prolong the economic recovery until full employment is regained. We will have to find structural policies that will reconcile full employment with less inflation.
If the country is to achieve these goals, the budget process will have to continue to improve. We are only beginning to learn how to balance priorities among the 16 budget functions. The relation between the Federal sector and the other sectors of the economy is yet to be adequately explored. Connections between defense policy, international economics, and foreign policy are not well understood. The art of long range planning remains to be mastered.
The Congress was successful with its new budget process during the Nation's worst recession since the 1930's. The economic recovery is as healthy as it is because Congress rejected the fiscal and energy policies of the administration and substituted its own. It was not a victory for the Congress or the Democratic Party, but a battle that the country has won.
EXHIBIT 1
During the past two years, Congress has amply demonstrated its ability to set budget targets and stick to them. In fiscal 1976 — the first year of the Congressional budget process — the Federal government actually ended up with more revenues, less spending, and a lower deficit than the targets established by Congress in May 1975. We are now about to enter fiscal 1977 and the prospects are equally bright. The Congress has just completed action on the Second Budget Resolution for fiscal 1977 which sets a revenue floor equal to and a spending ceiling lower than the targets established last May. The result is a deficit lower than predicted last spring. The pertinent numbers are as follows:
[In billions of dollars]
Revenues Outlays Deficit
Fiscal Year 1976:
First Budget Resolution Target (May 1975) 298.2 367.0 68.8
Preliminary Actual 299.2 364.8 65.6
Fiscal Year 1977:
First Budget Resolution Target (May 1976) 362.5 413.3 50.8
Second Budget Resolution floor/ceiling 362.5 413.1 50.6
EXHIBIT 2
U.S. SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
MEMORANDUM
To Senator Muskie.
From Doug Bennet.
Subject: Savings from Presidential vetoes.
Date September 15, 1976.
Pursuant to your request, we have analyzed the bills vetoed by President Ford to ascertain the amount of savings that might be attributed to such vetoes.
In cases where the President vetoed a bill but the veto was subsequently overridden by the Congress, the only savings that have been assumed are those that result from the delay in time between the original date of passage and the date of the veto override. Similarly, if a veto was sustained but a portion of the vetoed total was subsequently included in another bill which was not vetoed, no savings have been assumed other than for the delay in enactment. We understand that this approach has also been used by the Administration in making its calculations.
The Administration has used different estimates at different times for the savings attributable to Presidential vetoes. One recent table prepared by the Office of Management and Budget lists $9.2 billion in outlay savings as a result of vetoes. We have found, however, that this table includes different assumptions for different bills which renders the total meaningless. For bills that authorized a specific amount of funds, including authorizations for several years, the OMB table lists the full authorized amount as savings. For bills involving permanent increases in entitlements, the OMB table lists savings accruing from the point of the veto through fiscal year 1977. For bills that provide adjustments in entitlements for a specific time period, the OMB table lists the savings attributable to that period of time only. Thus, the OMB table provides no useful information based on a consistent set of assumptions.
We understand that Budget Director James Lynn has publicly stated a savings figure of $5 billion in outlays for fiscal year 1976. It is impossible to tell whether this number is based on the table described above since no backup detail has been made public. The Lynn figure, however, was attributed to a specific time period — fiscal 1976.
Our staff has extensively analyzed the Presidential vetoes, and, based in this detailed examination, estimates outlay savings in fiscal year 1976 of $4 billion. Because we cannot obtain the backup data for the Lynn figure, it is not possible to compare our number to his. Some of the difference may be due to differing assumptions as to the likely funding of authorizations. It appears that all of the Administration figures, contrary to actual experience and practice, assume that authorizations would be fully funded, whereas we have assumed an appropriate discount in cases where full funding of authorizations would be unlikely, based on actual congressional practice.
The difference between Lynn's $5 billion figure and our $4 billion figure is not the significant issue — we know there are savings as a result of vetoes and they fall somewhere in the $4 – 5 billion range in fiscal 1976. That can and should be acknowledged. The significant and striking fact is the degree to which the dollar savings occur in programs that had been aimed at job creation. Within our $4 billion estimate, a minimum of $2.4 billion would have gone to provide jobs in either the public or the private sector.
It should also be noted that the above "savings" figures for jobs programs do not take account of the loss in revenues to the Federal budget or the increase in Federal unemployment compensation and welfare costs that are likely to result from the failure to provide these jobs. Perhaps as much as 30 to 40 percent of the socalled "savings" due to vetoed jobs programs may be lost through the resulting lower revenues and higher unemployment compensation and welfare costs.
EXHIBIT 3
CONGRESS AND RECOVERY
Last week the Senate passed the second concurrent resolution on the budget for fiscal year 1977. As I noted on that occasion, this was an historic event, marking the conclusion of a two-year effort to reform the federal budget process.
Today, I want to discuss fiscal policy, and especially congressional fiscal policy.
The 94th Congress did not merely modify the fiscal program of the executive branch. It fashioned and substituted a complete policy of its own making. Moreover, the policies worked. Congressional fiscal and energy policies successfully met the most serious challenge to the economy of the United States since the depression of the 1930s.
The recession put fiscal policy to a severe test in FY 1976. It is difficult now to recall just how grave the situation was only a year and a half ago: economic conditions were bad and getting worse; the expert advice was unconvincing and contradictory; the executive was in disarray and Congress had not yet demonstrated its ability to initiate a comprehensive response.
In December of 1974, the unemployment rate crossed the 7 percent mark and real GNP was falling at a 7.5 percent rate. Despite this evidence of a worsening recession, the administration was still on record for a tax increase. The nation was clamoring for a solution to the energy crisis although the memories of the previous year's gasoline lines were fading.
Congress was receiving a wide range of conflicting advice. The chairman cf the federal reserve was saying that keynesian economics no longer worked He said that efforts to stimulate the economy would have a perverse effect because the fear of inflation would frighten consumers and investors. Efforts to stimulate demand would diminish it. The secretary of the treasury agreed. He warned that fiscal stimulus would be inflationary and therefore prevent recovery.
Paradoxically, he proposed an energy program that would add 3 to 5 percent to the price level.
In January, the administration submitted a budget for fiscal 1976 which was inadequate to meet the challenge of recession. The President's budget belatedly recognized the economic downturn and sought to deal simultaneously with recession, inflation and the energy problem. The President recommended that Congress cut $17 billion from ongoing social spending and add back $7 billion in energy equalization payments. A one-time $16 billion tax reduction — $12 billion in personal tax rebates and $4 billion to corporations — was the prescribed antirecession medicine. This much fiscal stimulus — but no more — was offered out of an unjustified belief that doing more would accelerate inflation.
In December, the administration had still been talking about a balanced budget for fiscal 1976.
Then, as the economic situation worsened, President Ford first acknowledged the possibility of a $45 billion deficit in his State of the Union message. Two weeks later his budget proposed a $52 billion deficit which was understated by gimmicks such as overestimating the revenues expected from the sale of offshore oil leases. By this time, Secretary Simon was supporting a deficit of $52 billion, but warning that any further fiscal stimulation would be inflationary and "crowd out" necessary investment before fiscal 1976 was over. The Secretary also warned that a spendthrift Congress was likely to produce a deficit of $100 billion. In fact, the deficit for the fiscal year which ended on June 30 was $65.6 billion and no signs of crowding out have yet appeared.
The administration's stated energy objective was to reduce oil imports by one million barrels per day from "what they would otherwise be" by the end of 1976 and 2 million barrels per day by the end of 1977. To accomplish this, the President proposed a package of energy taxes and immediate decontrol of oil and natural gas prices.
The taxes — $2 a barrel on domestic oil, an equivalent tax on natural gas, and a $2 tariff on imported oil — were estimated to raise $35 billion in Federal revenues. The $35 billion was to be rebated in a complicated series of corporate and personal income tax reductions. These rebates were presumed to neutralize the effect of the entire energy program on the economy.
The policy ignored the impact that decontrolling energy prices would have had on the recession. Decontrol would have caused substantial additional inflation, redistributed income from consumers to the oil companies, reduced aggregate demand, and increased unemployment. Decontrol alone would have more than offset the antirecession effect of the administration's proposed tax reduction.
Congress found both the President's economic goals and energy policies unacceptable. His budget projected high rates of unemployment and inflation throughout the decade, while cutting back on programs which gave some protection to the elderly and other disadvantaged groups.
Moreover, the employment situation in early 1975 was even worse than the administration recognized. By the time fiscal 1976 began, unemployment had hit 8.9 percent. If the President's program had been adopted, 1975 would have probably ended with both double-digit unemployment and inflation rates. As it was, unemployment averaged 8.5 percent and inflation 7 percent in the last quarter of 1975. The Congress, therefore, sought an alternative.
Congress, not the President, made economic policy in fiscal 1976. Congress rejected the administration's goals, concluding that such a deep and extended recession was unnecessary. Our first priority was to return to full employment as soon as possible. Our goal was to reduce the unemployment rate to 8 percent by the end of 1975 and reduce the rate further by 1 percent annually. By this formula the unemployment rate was to fall to 6 percent by the end of 1977. This goal is still within reach although the President's vetoes have made it more difficult. Achieving these goals, instead of the President's, will add $335 billion (in 1974 prices) to national output over the 1975 to 1980 period. That is almost $5,000 per household.
On March 27, the Congress sent President Ford a tax bill to reduce 1975 taxes by $23 billion. The economy touched bottom just after that bill was signed. About $13 billion of that tax reduction was a reduction in 1975 tax rates and $10 billion was a retroactive rebate on 1974 taxes (including a rebate to recipients of social security). The $13 billion reduction was expanded to $17 billion in December when the tax cut was extended through calendar 1976. That reduction will continue through 1977 under the terms of the tax bill just passed by the Congress.
The deficit was a major issue before the Congress. How could Congress reconcile concern over the budget deficit with the necessity for fiscal stimulus? The solution was to separate the temporary deficit increases — both discretionary and automatic — from the permanent programs.
The committee called for a "two-budget" strategy. It recommended policy restraint in those areas which would commit the nation to new permanent spending programs and a continuing higher deficit. It concentrated on the immediate task of fighting the recession and creating new jobs through temporary measures. This "two-budget" strategy was a sophisticated application of the full employment budget concept.
In April, the Senate passed a first concurrent resolution calling for spending of $365 billion and revenue of $298 billion. $348 billion was allocated to the fiscal base for permanent programs. The remaining $17 billion was budgeted for the built-in stabilizers, such as unemployment compensation, and a package of temporary spending programs that included public employment, countercyclical revenue sharing and public works.
This strategy and the numbers have held up well. The deficit estimate was raised to $74 billion in the second concurrent resolution passed in December 1975. But the final numbers for the fiscal year show that the deficit was $2 less than originally approved by the Senate for fiscal 1976. The President's vetoes had only a minor impact on the outcome.
The relation between this fiscal policy and the economic outcome was no accident. The Senate focused on numerical economic goals: It called for reducing unemployment below 7.5 percent and getting inflation down to 5 percent by the end of this year. The goals are being achieved with the recommended fiscal policy. The accuracy of the general economic forecast — which was made before the recovery began — is reflected in the accuracy of the revenue forecast. Clearly we cannot expect to be so accurate every year, but it was gratifying to do so well during the first year of the new congressional process.
As part of its overall economic recovery plan, Congress rejected the administration's energy program and fashioned its own. Congress returned from its Christmas recess on January 14, 1975. By the end of January, the democratic leadership of the House and Senate had established task forces, under Senator Pastore and Congressman Wright, to produce alternatives to the President's proposed legislation.
In February, the congressional task force issued its report, "The congressional program of economic recovery and energy sufficiency," which became the framework for a congressional energy policy. We concluded that the potential short term benefits of the administration's proposal to raise energy prices were not worth the cost.
Our energy objectives were to end U.S. vulnerability to an embargo as quickly as possible and to limit the increase in the world price of oil. Reducing U.S. imports by 2 million barrels per day would not have had much impact on these objectives because it was too small a fraction of U.S. imports and of OPEC exports.
Our emphasis was on longer range results.The report of the congressional task force called for an energy policy that would reduce import dependence "without aggravating the ... economic crisis."
Gradualism and an integration of energy and economic policies was the congressional alternative.
Developing more efficient energy using equipment or new energy sources takes time and creates employment. Therefore, efforts to improve auto efficiency or insulate buildings or drill for oil were encouraged. In contrast, actions to reduce the use of existing equipment could be done quickly but would reduce employment. Therefore, rationing was undesirable but standby plans were made ready for use in the event of a second embargo. The congressional task force sought a policy of gradually increasing energy prices. Future prices are important to investors in energy production or energy-using equipment. Reducing the use of existing equipment by immediate decontrol would gain nothing of value.
The importance of the congressional energy program is often overlooked in debates over which branch of government deserves credit for the recovery with declining inflation. Yet energy policy was at least as important as the normal fiscal policy instruments of spending and taxes.
The effect of the President's program was conservatively estimated to add 2 to 3 percent to inflation in 1975. As it turned out, inflation in 1975 was 4 percentage points less than projected in the administration's fiscal 1976 budget.
While the congressional committees were shaping legislation during the summer of 1975, the full Congress and the President were having a series of confrontations on oil pricing policies.
Controls were due to expire on August 31, 1975. On August 28, a six-month extension was sent to the President, who vetoed the bill on September 9, leaving the country without controls.
By this time, most observers were convinced that immediate decontrol would abort the recovery, and no one wished to be responsible for this. The President had already substantially changed his earlier position. The administration had dropped the excise taxes, was reserving removal of the tariff as a negotiating weapon, and had proposed decontrol over a 30-month period. The President vetoed congressional bills while the Congress rejected Presidential decontrol ideas. In the middle of September, a 60-day extension of controls was enacted. Finally, after a long and large House-Senate conference and a suspenseful period of veto threats, the President signed the Energy Policy and Conservation Act into law on December 22, 1975.
The result for energy pricing policies was not far from the recommendations of the congressional task forces and the budget committee. Oil prices are to be decontrolled over an extended period ending in mid-1979. The initial price rollback gave the country an inflation rate of only 3.5 percent in the first quarter of this year and kept the recovery on track.
Although natural gas pricing policy is still unresolved at this time, the chances are that the solution will be close to the task force recommendation, whether the pricing policy is achieved legislatively or through federal power commission regulation.
In summary, the important elements of Congress' policies vis-a-vis those of the President were:
(1) rejection of drastic cutbacks in social security and other programs that protect the old and poor from the worst effect of recession and inflation;
(2) more spending for countercyclical and jobs programs;
(3) larger and more permanent tax reductions than the President had originally proposed; and
(4) an energy policy that did not do further damage to an already weakened economy.
EXHIBIT 4
U.S. SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
MEMORANDUM
For Senator MUSKIE.
From Doug Bennet.
Subject 1981 projections — the platform.
Date September 16, 1976.
In an effort to get a bearing on where the platforms of the respective parties might take the budget by 1981 we have done some cost estimates to determine possible deflections from current policy. As statements of broad policy, party platforms are necessarily difficult to cost out with precision. A great many assumptions must be supplied in the process of analysis. The resulting figures, despite an appearance of precision, can not be regarded as any better than ballpark estimates.
The overall conclusion is that both platforms are affordable without increasing the present Federal share of GNP. Neither platform pledges universal, Federally-funded national health insurance, and these figures assume that any such program would not be financed entirely through the Federal budget.
The Democratic platform can be implemented at a cost lower than the Republican platform, based on reasonable economic and program funding assumptions. The principal reason for this difference is that the Republican platform envisions very substantial new tax expenditures while the Democratic platform promises to close tax loopholes. In addition, the Republican platform would increase defense spending over current policy levels while the Democratic platform would make some savings.
While the costs of both platforms would probably be roughly the same from a budgetary point of view by 1981, the distribution of benefits would be very different. The minimum of thirty billion dollars in new tax expenditures envisioned in the Republican platform would mean substantial benefits for high-income individuals. The heavier emphasis on human resources programs in the Democratic platform and closing tax loopholes would mean a greater share of benefits for low and middle income taxpayers.
Below is a table summarizing the results of our estimates. Please remember that these are ballpark estimates. Please also remember that, particularly in the case of tax expenditures, there are interrelationships among possible packages of programs which can substantially affect the outcome. With these caveats, here is what the two platforms might add to current policy:
Changes in current policy outlays in fiscal year 1981
[In billions of dollars]
Democratic Republican
Defense and international affairs
Physical resources and general government 0 0
Human resources 50 15
Tax expenditures 5 80
Net addition 40 50
I am attaching memoranda detailing the basis of our estimates for the three most salient areas — Defense, Human Resources and Tax Expenditures.
Defense: Estimated proposed budgets fiscal year 1981
[In billions]
Democratic Republican
platformplatform
Budget authority $144 $155
Outlays 185 145
I. MANPOWER AND OPERATIONS AND MAINTENANCE
Democratic
More tail-to-teeth adjustment in active forces; increase officer to enlisted ratio; create efficiencies in support activities.
Require greater training program efficiencies; reorganize DOD headquarters responsibilities and decisionmaking process.
Revise selected Reserve and Guard Policies. Stress management efficiency in all manpower and O&M areas.
Savings: $4.0 billion, in both BA and outlays, less than projected Republican policies.
Republican
Continue current Defense personnel and O&M policies with primary changes aimed at miscellaneous revisions in Reserve and Guard policies.
II. RESEARCH AND DEVELOPMENT
Democratic
Reduce duplication and waste in R&D activities, thereby preventing unneeded and costly weapons development and production.
Savings: $2.0 billion, in both BA and outlays, less than the Republican policies.
Republican
Continue current R&D policies and activities, unabated in introducing very costly, duplicative, sophisticated weapon systems.
III FORCES
Democratic
Sustain strong strategic deterrent capability.
Modernize tactical aircraft and land forces capabilities; evaluate need for revisions in air wing and Army division structures.
Create a modern Navy stressing survivability, smaller, less vulnerable, and less costly naval vessels.
Maintain realistic mix of nuclear and conventionalpowered ships to meet cost and increased forcelevel goals.
Reduce duplication and waste in weapon systems procurement activities.
Defer decision on production of B–1 until more is known about its performance and utility.
Savings: $5.0 billion in BA and $4.0 billion in outlays less than the Republican policies.
Republican
Continue large, sustained real growth in defense expenditures.
Modernize missile and bomber forces.
Increase ship force structure, continuing heavy emphasis on a naval force projection capability and on a nuclear-powered Navy.
Belgian production of the B–1 aircraft.
Sustain strong strategic deterrent capability.
PLATFORM COMPARISONS: HUMAN RESOURCES BUDGET TRENDS
The following tables show projected current policy outlays for selected years for the human resources sector of the federal budget. The tables classify expenditures by budget function and major program area, by type of expenditure, and by type of recipient:
Between 1976 and 1981, spending on human resource programs is expected to rise by 53 percent, from $260 billion to $315 billion. If adjusted for inflation, this increase amounts to a real growth of 15 percent, resulting from rising beneficiary populations and benefit levels in certain income security programs. Of the $109 billion increase, all but $8 billion is accounted for by income security and health programs. In fact, $78 billion of the $109 billion is due to growth in retirement programs and the medicare program.
NEW INITIATIVES PROPOSED IN DEMOCRATIC PLATFORM
A number of initiatives in the human resources area are described in the 1976 Democratic Party Platform. Many of these items are already built into current congressional budget policy. Others are minor in nature, in that they could be satisfied by a shifting of funds among programs with little additional spending.
However, there are 13 proposals that would likely require significant budget increases. These planks are discussed below:
PROPOSAL
Net cost range fiscal 1981 ($ billions)
1. Welfare reform 10 to 20
COMMENTS
The cost shown assumes a comprehensive reform such as the Griffiths bill. The net cost could be a tax expenditure if handled through the tax system instead of as a spending program.
PROPOSAL
2. National health insurance 23 to 95
COMMENTS
These estimates were prepared by CBO and assume effective cost controls. The lower estimate is for a system that relies heavily on private insurance and mandatory coverage by employers. The higher figure represents the budget impact of the Kennedy-Corman bill.
PROPOSAL
3. Full employment 5
COMMENTS
This estimate assumes that macroeconomic policy reduces the unemployment rate to 5 percent. The rate is then reduced to 4 percent by hiring 1 million people in public service jobs at a net cost of $5,000 per job. This low unit cost would result from targeting jobs on persons otherwise eligible for welfare or unemployment benefits.
PROPOSAL
4. Social security — liberalize the retirement test 1 to 6
COMMENTS
Complete elimination of the retirement test would cost $6 billion.
PROPOSAL
5. Social security — treat men and women equitably .04 to .4
COMMENTS
Treating women on the same basis as men reduces benefits slightly. Treating men as women are now treated increases benefits by $0.4 billion.
PROPOSAL
6. Federal standards for unemployment compensation .8
COMMENTS
This estimate is the added cost to current policy of the AFL-CIO proposal defeated in the Ways and Means Committee this year.
PROPOSAL
7. Equalization of education funding 4 to 11
COMMENTS
The lower figure assumes federal aid raises all school districts to the current median for classroom funding. The higher figure is the cost of the Perkins bill (H.R. 16). Raising all school districts to the level of the highest State would cost $30 billion.
PROPOSAL
8. Cost of education payments to institutions of higher education .8
COMMENTS
This estimate assumes a federal payment of $100 per student.
PROPOSAL
9. Expand child care through school systems and other agencies 1 to 10
COMMENTS
The lower figure is the authorization in Senator Mondale's Child and Family Services Act. The higher figure is an estimate of the cost if child care were furnished to all who want it.
PROPOSAL
10. Higher funding for Title XX grants to States for social services .5 to 1.0
COMMENTS
Increases would cover inflation effects and permit expansion of services to moderate-income families.
PROPOSAL
11. Medicare — reduce cost to beneficiaries . 3
COMMENTS
This estimate assumes the Part A deductible is frozen at the present level.
PROPOSAL
12. Medicare — cover Americans living abroad .2
PROPOSAL
13. Extend G.I. bill delimiting period for 2 years . 8
PROPOSAL
1. Catastrophic health insurance 13
COMMENTS
Six billion would be in the form of tax expenditures.
PROPOSAL
2. Improve welfare programs 0 to 15
COMMENTS
If the States were to carry the burden for improvements, there should be negligible federal cost. The upper end of the range assumes eradication of poverty with federal dollars.
PROPOSAL
3. Correct social security inequities for women, married couples 0. 1 to 0.5
PROPOSAL
4. Liberalize social security retirement test 1 to 6
COMMENTS
Complete elimination of the retirement test would cost $6 billion.
PROPOSAL
5. Redesign unemployment compensation system 2 to 2
COMMENTS
The platform calls for better work incentives. Benefits could be reduced for savings, or beneficiaries could keep part-time earnings, which would increase costs.
PROPOSAL
6. Block grants for child nutrition, social services, health services, elementary and secondary education 6 to 0
COMMENTS
Grant consolidation as proposed by President Ford would reduce Federal grants to States and localities by $6 billion.
PROPOSAL
7. Home health care and domiciliary care for aged 0.5
PROPOSAL
8. Comprehensive mental health care 3.5 to 6
COMMENTS
This estimate nets out existing federal payments for mental health services. No induced demand is included in the estimate.
PROPOSAL
9. More emphasis on alcohol and drug abuse treatment 0.2
PROPOSAL
10. Control health care costs and abuse of medicare and medicaid 0.5
COMMENTS
The savings come from control of fraud and abuse. It was assumed that no other net savings could be realized by fiscal 1981, given the proposal in the platform.
PROPOSAL
11. Provide greater benefits to SSI recipients who also receive family support 0.2
PROPOSAL
12. Establish employment services for women heads of households 0.1
PROPOSAL
13. Enact tax credits to offset costs to parents of private school tuition 2
COMMENTS
This proposal applies to elementary and secondary school tuition only.
PROPOSAL
14. Reduce federal role in housing ____
COMMENTS
Housing commitments are made for long time periods, so any reductions in outlays in the short run would be minimal
The total net federal cost for these proposals ranges from $14 to $45 billion. The lower figure assumes a cutback in grants to State and local governments of $6 billion, an amount State and local taxpayers would have to assume unless they were willing to reduce health care, child nutrition, education, and social services by that amount.
GOALS AND IMPLICATIONS OF PARTY PLATFORMS
DEMOCRATIC PLATFORM
Calls for comprehensive health insurance for all Americans;
Would gradually federalize welfare programs and restructure them to improve equity and incentives;
Would ensure full employment through both macroeconomic policy and job creation efforts;
Calls for increase in the wage base subject to the social security tax, equitable treatment for working women under social security, and a liberalized retirement test;
Would establish federal standards for State unemployment compensation systems;
Would use federal aid to bring about more financial equality among the Nation's school districts;
Would expand child care and other social services;
Would extend the GI bill delimiting period for 2 years;
Calls for reform of the VA pension program;
Would maintain or strengthen most other existing federal programs, with increases for higher education funding and medicare coverage;
Would provide fiscal relief to State and local governments through welfare reform, health insurance, education funding and other initiatives.
REPUBLICAN PLATFORM
Would broaden health insurance to cover all Americans for catastrophic expenses;
Would emphasize control of health care costs and fraud and abuse of the medicare and medicaid programs;
Would improve welfare programs within the existing program structure without federalization;
Would rely on the private sector for increasing employment, but would provide employment services for women household heads;
Would consolidate grants to States for child nutrition, health services, social services, and elementary-secondary education;
Would improve the unemployment compensation system;
Would reduce the federal role in housing;
Would provide tax credits to offset parents' expenses for private school tuition;
Would improve funding of social security, correct inequities for working women and married couples, liberalize the retirement test, and help SSI recipients who also receive support from relatives;
Would continue most federal programs, emphasizing selected areas such as mental health care, alcohol and drug abuse treatment, alternatives to institutional care for the aged;
Would place increased demands on State and local tax sources if block grants were funded at levels proposed by the President this year.
REPUBLICAN AND DEMOCRATIC PLATFORM TAX INITIATIVES
The Democratic platform only mentions tax reform. The platform suggests that $5 billion can be raised in this fashion. Tax credits could be used in achieving some of the other platform pledges such as welfare reform and health insurance. The cost of these pledges have been estimated previously without distinguishing whether they would be achieved by spending or tax credits; therefore, they have already been counted.
The attached pages covers the Republican platform tax initiatives. It is even more difficult to place numbers on these vague tax proposals than it is on spending commitments. It would be fair, in our judgment however, to use a range of $27 to $55 billion as the cost of the tax initiatives in the Republican platform.
REPUBLICAN PARTY PLATFORM TAX INITIATIVES
The 1976 Republican platform recommended eight tax initiatives. Some are specific but most are stated in somewhat vague terms. In these latter cases, revenue estimates can only be provided for recent representative legislative initiatives that appear to incorporate the concepts supported in these platform elements. In addition, two of the initiatives (#3 and #4) are so vague they cannot fairly be associated with specific legislative proposals. In these two cases, only a range of estimates can be provided. The first full year revenue costs of the various tax initiatives in the platform as thus interpreted are as follows:
SUMMARY TABLE OF REPUBLICAN TAX PLANKS AS EXTRAPOLATED
[In billions]
Provisions:
1. College tuition credit 1.1
2. Child care credit 0.4
3. Accelerated depreciation 2.5/25.0
4. Dividend reinvestment deferral 0.8/15.0
5. Corporate integration 13.0
6. Broadened stock ownership plans 0.6
7. Personal exemption increase 10.0*
8. Estate and gift tax revision 2.0
____
**
*Include only if matched by equivalent spending reductions.
**No figure accurately could be cited as the total revenue cost of the package of proposals because each of these items has been estimated without taking into account the impact it might have upon the other plank elements. This is especially significant in the case of the relationship of #3 to #5, #4 to #5, and #4 to #6.
(1) "Tax credits for college tuition and post-secondary technical training." During the recent tax reform bill debate, the Senate adopted an amendment proposed by Senator Roth to provide a 100% tax credit for up to $250 of the tuition costs for each student enrolled in college or a post-secondary technical training program. The amendment was deleted in the tax bill conference. When fully effective in 1981, the Roth amendment would have reduced annual revenue collections by an estimated $1.1 billion.
(2) "Tax credits for child care expenses incurred by working parents." The tax bill conferees have agreed to convert to a credit and expand the coverage of the current child care deduction. The new law will provide maximum tax relief of $400 per year for taxpayers with child care expenses for a single child and $800 for two or more children. The new credit will reduce annual revenue collections by approximately $400 million over the revenue loss associated with the current deduction.
(3) "New systems of accelerated depreciation." No generally applicable new system of accelerated depreciation was seriously considered in the development of the recent tax bill. However, a general "new system of accelerated depreciation" recently proposed by the NAM and several Members of the House including Congressmen Kemp, Frenzel, and Waggonner would provide a maximum 5-year depreciation schedule for all machinery and equipment and a 10-year schedule for industrial structures. According to preliminary revenue estimates, this new system would reduce tax collections by approximately $25 billion after five years. Obviously, alternative "new systems" of accelerated depreciation could be constructed with longer depreciation schedules and revenue losses as low as one-tenth of the NAM program.
(4) "Removing the tax burden on equity financing to encourage more capital investment." The phrase is too general to be adequately linked with any specific legislative proposals. However, one possible interpretation is that this plank supports the Administration's 1974 proposal to allow a corporate tax deduction for preferred stock dividends. This would cost $800 million by the fifth year after enactment. Another more costly interpretation could be allowing a corporate tax deduction for all distributed dividends. This latter interpretation would overlap No. 5 below. The revenue loss range for proposals that could meet this broad plank language is extremely large.
(5) "Ending ... double taxation of dividends." A representative proposal for integration of the corporate and individual income taxes was made by the Administration as part of its FY 1977 budget presentation. The Administration proposal would combine an approximate 50% corporate deduction for distributed dividends with a 50% stockholders' credit. The Administration estimated the revenue loss associated with its proposal at $13 billion in FY 1981.
(6) "Proposals to enhance the ability of our working and other citizens to own 'a piece of the action' through stock ownership." This is a reference to the Administration sponsored "Broadened Stock Ownership Plan" (BSOP) that was tabled during the recent Senate tax reform debate on August 4 by a vote of 57-31. BSOP would allow an annual deduction of the lesser of $1.500 or 15% of personal service income that is used to purchase common stock. It would be available only to persons with annual income no greater than $40,000. When fully implemented, the program would cost $600 million annually.
(7) "When balanced by expenditure reductions, the personal exemption should be raised to $1,000." An amendment by Senator Dole to increase the personal exemption to $1,000 was tabled on August 6 by a Senate vote of 57-29. This increase would have cost approximately $10 billion in the first full year of enactment.
(8) Estate and Gift Tax Reform: Increase the estate tax exemption to $200,000; ... allow valuation of farm property [and family businesses] on a current use basis; ... provide for extension of the time of payment in the case of farms and small businesses; [and] a liberalized marital deduction." The 850,000 credit passed by the Senate, which is roughly equivalent to a $200,000 exemption, would reduce revenues in 1981 by $1.775 billion; current use basis for farm and small business property would reduce revenues by roughly $20 million; extension of estate tax payment periods for farm and small business estates would cost approximately $30 million annually; and a liberalized marital deduction equal to the greater of $250,000 or half the decedent's adjusted gross estate (as recently approved by both the Senate and the Ways and Means Committee) would reduce annual revenue collections by $170 million. The combined revenue loss associated with this package is approximately $2.0 billion in 1981.
EXHIBIT 5
U.S. SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
MEMORANDUM
To: Senator Muskie.
From: Doug Bennet.
Date: September 21, 1976.
Subject: Comment on House Republican Policy Committee press release.
On September 21, 1976, the House Republican Policy Committee issued a press release that claims the Democratic Party Platform proposes new government initiatives that will add $217.1 billion a year to the Federal budget by fiscal 1980. They claim that a 64-percent tax increase will be required to finance these cost increases.
The Policy Committee's fiscal 1980 figure consists of the following items:
[In billions]
Proposal: Fiscal 1980 Cost
National health insurance $101.6
Humphrey-Hawkins bill 21.8
Educational finance equalization 22.0
Child development 14.2
Welfare reform 18.9
Federal takeover of local welfare costs 5.2
Liberalization of social security earnings test 4.6
Loan subsidies for low and moderate-income housing5.5
Farm price support programs 4.9
All other proposals 18.4
The nine proposals itemized above account for $198.7 billion, or 92 percent of the total of $217.1 billion.
This Republican presentation is very misleading, and even incomplete. It ignores two planks in the Democratic Platform that reduce the federal budget deficit: tax reforms to close $5 billion in loopholes; and defense efficiencies to save $5 billion from current policy spending levels.
What the Policy Committee does choose to talk about misrepresents the Platform in a way that exaggerates its cost. Consider the following examples:
(1) The Platform calls for full employment but makes no mention of the Humphrey-Hawkins bill. The Budget Committee's chief economist estimates that macroeconomic policies now in place will bring us within one percentage point of full employment by fiscal 1981. Hiring 1 million people in public service jobs to reach full employment could cost as little as $5 billion if the jobs were targeted on people receiving federal income assistance, or $17 billion less than the Policy Committee asserts;
(2) The Policy Committee's estimates assume the Kennedy-Corman health insurance bill would be enacted, yet the Democratic Platform makes no such claim. A health insurance system relying on existing private insurance plans would have a budget cost $79 billion less than the Policy Committee's estimate;
(3) The Policy Committee's figure for education finance equalization must assume that all school districts are subsidized to the financing level in one of the wealthier States. In fact, no one has ever seriously proposed doing that. A more reasonable assumption of federal aid to raise all school districts to the current national median would cost $4 billion, or $18 billion less than the Policy Committee's figure;
(4) The Policy Committee's figure for child development program expansion is $13 billion more than the cost of Senator Mondale's own bill would be if fully funded;
(5) The Policy Committee attributes $24 billion to changes in welfare programs, although they have double-counted by assuming welfare reform would not include a $5 billion takeover of local welfare costs. No specific welfare reform plan is now under serious consideration, but $10 billion would be a more realistic estimate for welfare reform, or $14 billion less than the Republicans assert.
The items discussed above reduce the Policy Committee's total of $217.1 billion by about $150 billion, and many of the smaller items in their tabulation such as the $4.9 billion for farm price support increases are similarly overstated. Thus, it is safe to say that a realistic interpretation of the Democratic Party Platform would result in new initiatives totaling no more than $40–50 billion in fiscal 1980, especially if allowance is made for the time required to enact and implement new legislation.
A $50 billion addition to the current policy budget would be feasible by fiscal 1981 with no additional taxes, given current projections of revenues and expenditures. Of course, this projection assumes continued economic recovery and continued fiscal restraint by Congress. As Governor Carter has already indicated, he plans to pursue the goals of the Platform as the budget and the economy permit. Given the facts presented above and Governor Carter's own declaration of his priorities, the Republican Policy Committee's claims are totally off base and cannot be treated seriously.