September 9, 1976
Page 29460
Mr. BROOKE. My colleague, the distinguished senior Senator from Massachusetts, who is the chairman of the Senate Health Subcommittee, I believe, has sent a letter to the distinguished chairman of the Committee on the Budget and the ranking minority member. I ask unanimous consent that that letter be printed in the RECORD at this point.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
U.S. SENATE COMMITTEE ON LABOR AND PUBLIC WELFARE,
Washington, D.C.,
September 8, 1976.
Hon. EDMUND S. MUSKIE,
Chairman,
Committee on the Budget,
U.S. Senate,
Washington, D.C.
DEAR ED: I just wanted to drop you a note to express my appreciation for the Committee's action in increasing the ceiling for controllable health funds from $7.2 billion to $7.4 billion.
As you know, these additional funds will be used principally to support programs included in the new health manpower legislation. After two years' work, a good manpower bill has been agreed upon. A conference report is now being prepared and should be filed next week. This bill provides for a major expansion of the National Health Service Corps to provide physicians and dentists for rural and inner city areas. It also includes a provision to ensure that 50 percent of new physicians enter the primary care specialties.
The increase in the budget ceiling is necessary so that the manpower programs may be funded at a level based on the FY '75 appropriation level and not drastically reduced as proposed by the President in his FY '77 budget. Unless this new ceiling is adopted, much of the work of the Health Subcommittee over the last two years will be vitiated.
Again, I appreciate this increase. I hope you will be able to retain the Senate level in conference with the House. This level is crucial to the efforts to get more physicians and dentists into shortage areas and to the training of more primary care physicians,
Sincerely,
EDWARD M. KENNEDY,
Chairman, Senate Health Subcommittee.
Mr. BROOKE. Mr. President, I repeat to my chairman and distinguished ranking minority member, that I hope our conferees hold firm on the $7.4 billion figure. First I want to commend them on arriving at this figure. Of course we wanted $7.5, but their figure is realistic. It is one with which we can work and at the same time, it recognizes the constraints. I hope that they will not go to the conference with the House with the $7.2 billion because that figure, as I have said, is of such grave importance and I urge this upon the distinguished chairman.
Mr. MUSKIE Mr. President, I yield myself 5 minutes.
I appreciate the Senator's statement and his support. We really relied heavily upon the advice of Senator MAGNUSON, who has a longstanding interest in this field, and were inclined to support his $7.5 billion figure for budget authority, as well as $7 billion for outlays. As the Senator knows, what we do in functions is set the overall ceiling. The overall ceiling includes uncontrollables like medicare and medicaid. What we were trying to do is exert pressure to achieve some savings in the medicaid program in the light of the recent disclosures by the Moss subcommittee and others of waste and abuse in that program. So when we set a lower overall ceiling, what we are trying to do is exert pressure, not on the controllable health programs, but on the uncontrollable medicaid program. I wish to make that clear.
We are hoping that we can sustain the figure in conference. We think it is a reasonable figure, as does the Senator. I appreciate the support of the Senator and our distinguished colleague (Mr. KENNEDY) . I am grateful that the Senator put his letter in the RECORD.
We shall do our best.
Mr. BROOKE. I thank the Senator. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator from Massachusetts has 8 minutes remaining.
Mr. BROOKE. Mr. President, there is no question that our test flight of the new congressional budget process shows it can fly. We clearly have a viable system for establishing policy goals and controlling spending by the Congress.
We have established a realistic spending ceiling of $412 billion and a deficit large enough to provide a continuing stimulus for the rapidly recovering economy. And, although the rhetoric of this political season may obscure the reality, our overall totals for spending, debt and deficit are not that different from those of the administration. The larger deficit on which the Congress has settled is larger because we have established programs to meet our Nation's No. 1 need: new jobs.
I am deeply disappointed about the failure of the Congress to enact meaningful tax reform and to tighten up procedures in medicare and medicaid programs. And those failures are starkly evident in the reduced revenues on which we will be acting today. The inability of the majority of this great body to mobilize behind a fair and effective tax system will be a blot on the history of the 94th Congress, and this resolution contains the sad, official acknowledgment of that failure.
I do have at least one grave reservation about this budget resolution above and beyond the concerns regarding health program funding, which I have already discussed. I mentioned this very briefly to the chairman, and think, the ranking minority member. The ceilings simply do not allow us the flexibility we need to manage even our modest efforts in the production and management of subsidized housing. As I understand it, these totals will not allow us to make any supplemental appropriations at all. A major concern of mine is that we may not have enough money for operating subsidies for public housing and that there may be a desperate need for supplemental appropriations. In addition, the section 8 housing subsidy program is just beginning to show positive results across the Nation, and if these successes continue, it may also need expansion in the fall.
Furthermore, I have been working all year to get expanded support for such important housing assistance programs as new construction of public housing, public housing modernization and rehabilitation loan programs. I do continue to believe that, with the tough congressional oversight of the Federal housing effort provided by the Senate Banking Committee we can provide some effective housing assistance to low and moderate income families within these severe fiscal constraints. But the Congress must recognize that this level of program simply cannot meet the Nation's real and pressing housing needs.
When I first came to the Senate, the distinguished chairman of the Budget Committee was on the Banking, Housing and Urban Affairs Committee, which was then the Banking and Currency Committee, so he is personally well aware ofthe problems this country faces in dealing with the housing crisis that we have today.
I realize that my concern is simply one illustration of the basic problem of negotiating among competing priorities. And I do believe that, overall, this budget resolution indicates movement in appropriate directions. For instance, the first resolution provided for only a little more than 300,000 public service jobs. And my attempt last spring to increase significantly the totals for this vital purpose did not gain sufficient support to pass. So I am especially pleased that we will vote today to support at least 500,000 public service jobs in fiscal year 1977. Also, I think it appropriate that the priorities have been shifted to allow for more rapid development of alternative energy sources.
But the report of the Budget Committee establishes that there is no question that our fiscal future is going to be one of sharp competition for public resources which will not expand greatly. The Congressional Budget Act clearly gives us a rational framework within which to resolve our predictable differences. I hope we will be able to perfect the process; for example, I would like to see greater coordination between the standing committees which are expert on matters of legislative substance and the Budget Committee.
And I hope we can provide more time for Members to study the budget resolution and supporting documentation after each resolution is filed. But there is no question that the Budget Committee, under the skillful leadership of the distinguished Senator from Maine and the distinguished Senator from Oklahoma, has produced a monumental achievement beyond anything we could have hoped or expected 2 years ago. We have a way to balance congressional priorities, to order our choices about what is important, and to guide the growth of our Federal budgets. The legislative branch can now exercise its constitutional responsibilities with full information about the meaning and impact of its choices. I join my colleagues in congratulating the committee on its accomplishments, and I look forward with great relish to the cooperative, creative efforts and even to the inevitable battles that we can expect as a part of this new process.
Mr. MUSKIE. Mr. President, may I compliment the distinguished Senator from Massachusetts for his excellent statement. It reflects his always constructive approach to issues, including those on which we might disagree.
But I would like to underline his concern about our failure to provide — and by"our" I am not referring to the Budget Committee in its action on this particular resolution but I am speaking about the Government of the United States — a solution to the housing crisis which confronts this country.
I am terribly concerned about the inability of new families and disadvantaged families to find homes within their reach. It is a widespread problem in my own State. It is throughout the country.
The shortcomings of this resolution in this respect are not a reflection of the lack of concern on the part of members of the Budget Committee but they reflect the absence of a program capable of achieving the goals we accept as we work on this second concurrent resolution.
As the Senator knows, we assumed $3.6 billion more budget authority for housing subsidy programs in the first concurrent resolution than is provided in this one. This one reflects the action taken by the Appropriations Committee, and I suspect there is frustration in that committee also.
So I would hope that with the election behind us, whatever the result of that election, we can move more positively and more effectively in the area of housing. The Senator will find my sympathy with him and my support with him in meeting that very pressing national need.
Mr. BROOKE. I thank the Senator.
Mr. JAVITS addressed the Chair.
Mr. BELLMON. Mr. President, how much time does the Senator wish?
Mr. JAVITS. Mr. President, if the Senator will yield me 15 minutes to start with
Mr. BELLMON. I yield 15 minutes.
The PRESIDING OFFICER. The Senator from New York is recognized for a period of 15
minutes.
Mr. JAVITS. Mr. President, I wish to call the Senate's attention to a situation relating to unemployment which is of great importance in connection with the consideration of this budget resolution.
The fact is, Mr. President, that in the first concurrent budget resolution, budget authority and outlays were predicated on an extension of the Federal supplemental unemployment benefits program, the price tag of which on the present formula is in the area of $500 million. This resolution before us would not provide for an extension of that program which is now to expire on March 31, 1977. The question is, if it is continued or if it needs to be continued, will there be budget authority available for the purpose?
Now, in the first concurrent budget resolution that budget authority was provided for. In this resolution it is not provided for. That is the issue. In other words, shall we accept this budget resolution notwithstanding that it does not provide for the contingency that we may wish to continue legislatively the Federal supplemental unemployment benefits program.
Now, let us understand what is involved here. The FSB program is an additional unemployment compensation program providing a maximum 26 weeks of compensation for employees who have exhausted 39 weeks of unemployment compensation, the 39 weeks being accounted for by 26 weeks under the regular Federal-State UI program and 13 weeks under the Federal-State extended benefits program which, however, relies upon the unemployment trust fund account of the States and the Federal Government, so that it is paid for either out of unemployment insurance reserves or Federal borrowing.
But the additional 26 weeks of FSB is financed strictly from Federal appropriations.
There is an added program which fits in on the chart on the side. That is the program for those who are not covered under the applicable unemployment insurance program.
Those are largely Government workers at the State and local levels of Government. This program, the special unemployment assistance program expires on December 31, but the budget resolution does contemplate the continuance of that program.
So that what we are discussing now is solely the Federal supplemental benefits program, so-called FSB, and what to do with it in terms of budget provision beyond its expiration date of March 31, 1977. That is the narrow issue and that amounts to $500 million.
I find it very hard to understand how that reduction could have been made in view of our present situation. I am not going to speculate as to why it was made. I am drawing no invidious implications whatever. But I do think, whatever explanation my colleagues, the chairman and ranking member of the Budget Committee make, the Senate should know why they felt we should not include that half-billion dollars now.
The reasons for extension of this program are obvious and I will not belabor them.
The fact is that the unemployment picture has improved slightly. The total unemployment rate had gone down to 7.3 percent, but suddenly we find it climbed back to 7.9 percent unemployment, with 7.5 million American workers unemployed. If I had been on the Budget Committee I would want a very good reason why not to include a provision to allow the Federal supplemental benefits program to be continued.
It seems to me the unemployment level is now about as high as it was at the depths of this very serious recession.
Especially is that true when we remember that the depths of the recession only gave us a little over 8 percent unemployment. Here we are with very little material improvement at 7.9 percent unemployment, and the curve again rising.
Mr. President, I do not welcome that any more than Senator MUSKIE or Senator BELLMON.
We will do our utmost — and I have the temerity to speak for them — to bring that rate down again in other measures we adopt. But our job in achitecting budget resolutions is to look forward to dangerous contingencies which impend.
I have very seriously considered whether to offer an amendment today to this budget resolution to add the amount of money necessary for extension of theFSB program. The debate here regarding where we stand, and how the chairman and ranking members feel about it, is largely going to determine what, after all, we should do. Hence, my desire to state the case regarding this program and then to hear from my colleagues.
As to numbers, let us remember first that the figure of unemployed, roughly 7.5 million, does not include somewhere around 900,000 men and women who have become so discouraged that they have given up the search for work. Nor does it accurately reflect the situation in metropolitan areas around the country. I have at least two such in my own State, and others have the same, which continue to suffer double digit unemployment: in New York City, and in the Buffalo area of New York, two very large centers, unemployment continues to exceed 10 percent. Others, I am sure, have the same experience.
In addition, the very serious unemployment for blacks and for other minorities which, generally speaking, run about double the average national unemployment rate. Intolerable levels of unemployment also exist among young workers, with black teenagers running somewhere between 40 and 50 percent unemployment.
So the economy is by no means out ofthe woods. That is why this situation troubles me so deeply.
By way of a figure for the Senate to consider with regard to the FSB program, the best figure we can get is that there are 659,500 long term unemployed workers currently participating in the particular program which is under discussion. That number has been dropping slightly over the last few months because a number of States have been triggered off the program because their internal situation has improved. But it has not been dropping appreciably. The Department of Labor estimates that between 1.1 and 1.7 million additional unemployed workers would be eligible to participate in the FSB program if it were extended for an additional year.
As a matter of fact, the total unemployment curve, as I said a minute has gone up, rather than down.
The current authorization under this program expires as of March 31, 1977. However, unemployed workers who file initial claims for this type benefit by March 31, 1977, are entitled to continue to draw benefits for up to an additional 26 weeks.
So the first question I hope my colleagues have answered to themselves and will answer to the Senate regards budget authority to look after those claims, to wit, claims paid until March 31, and claims which, according to best anticipation, will be filed by that date, which will be entitled to up to 26 weeks of benefits under the program.
I hope that we are confined to the narrower question of what do we do afterMarch 31, 1977 about new claims under this program.
If that is the case, Mr. President, as I say, I would like to know, because that I think is a critical factor, why my colleagues felt we should take this money out of the budget, having had it in once before.
By the way, I will say to Senator MUSKIE that, affirmatively and positively, myself, I am sure that these two Senators are as sensitive and sympathetic to what I am talking about as I am. I have no doubt whatever. This is no hardheartedness about not spending the money for the unemployed. I wish to make that very clear.
What we are dealing with is a very pragmatic problem which I am sure all three of us recognize to be pertinent and critical.
I hope, Mr. President, that today some assurance can be given to the Senate that if substantive legislation to extend this particular program is determined upon before it expires March 31, 1977, that we will not be hung up on such an extension by the fact that it is not included in this budget resolution.
Mr. President, I am well aware of the criticisms of the unemployment compensation program generally.
I am well aware of the nature of the criticism of the FSB program. Some feel that all Federal expenditures related to combating the employment effects of this recession shoud be devoted entirely to job creation programs. Others believe that long term unemployment compensation benefits go mostly to job shirkers and those looking for a handout. While it is of course true that in this program, as in all programs designed to assist those suffering economic misfortune, some abuses do occur, the fact is that the unemployment insurance system, as it has for over 40 years, provides minimal income security for those American workers who have lost their jobs through no fault of their own.
Mr. President, it has been one of the great achievements of this recession, that the President and the Congress have determined together that they will not allow — where, because of a general economic situation, an undue amount of workers are unemployed — that situation to deteriorate into a welfare situation, with all of the inequities and the harm to the morale of the individual which that involves.
We spend the money anyhow. We pay 50 percent of the welfare costs. It may cost a little more this way, but it seems to me the President had decided with the Congress that we will not go the welfare route so long as this recession persists.
I say that, Mr. President, because I believe that we are together on the issueof policy. What we need to get together on is how is the most effective way to deal with the situation.
Mr. President, I believe we may, if we do consider the extension of this particular program, consider a new trigger for this particular program. The FSB program is currently triggered on and off solely on the basis of the statewide levelof insured unemployment. In order for unemployed workers in a State to be eligible to receive maximum entitlement under the FSB program of up to 26 weeks of additional benefits, the insured unemployment rate in the unemployed worker's State must equal or exceed 6 percent.The FSB trigger requirements were enacted in June, 1975, with an effective date of January, 1976. When these trigger provisions were adopted by the Congress, I expressed my reservations abouttheir potentially harsh and inequitable impact. At that time I said:
I am wary of the potential impact of the trigger requirements for the FSB program adopted by the Finance Committee and approved by the Senate and the conferees. There is, in my judgment, danger that certain states which have relatively low statewide unemployment, as compared to the rest of the nation, will trigger out some or all of the FSB program next January (1976). Some of those states may well contain large metropolitan areas suffering significant unemployment, and central city areas where unemployment overall may continue to run as high as 10 to 15 percent, even though unemployment in the State as a whole is much lower. To deprive unemployed workers in those areas of the benefits provided by this Act at a time when they may well be experiencing as much difficulty obtaining employment as similarly situated workers in states with higher overall unemployment concerns me deeply.
Now that the triggers adopted last year have been in place for 8 months, I am sorry to report that the fears I expressed then have come to fruition. No workers in the following 29 States and the District of Columbia are eligible to file new claims under the FSB program at all :
Colorado, Delaware, Florida, Georgia,Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota,Mississippi, Missouri, and Nebraska.
New Hampshire, New Mexico, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.
In the following five States, workers are entitled to receive only one-half of their full entitlement to FSB benefits because those States have statewide insured unemployment rates of between 5 and 6 percent:
Alabama, Arkansas, Arizona, Montana, and Oregon.
Many of these States may well contain metropolitan areas with very high unemployment rates.
Indeed, that is the fact, some rates are as high as 10 percent and up to 15 percent in local areas, even though unemployment in the whole State may be lower and, therefore, that State would be triggered out. That is exactly what has happened.
I believe the inequity of this particular type of triggering becomes important.
I would note that a 6 percent insured unemployment rate means about an 8 percent total unemployment rate, because the insured unemployment rate lags behind the actual unemployment because it takes account only of those workers covered by the regular unemployment compensation system.
As I have described, about 12 million of the American work force of roughly 89 million are not covered at all, and others may not be covered for other specialized reasons.
I advance the point, Mr. President, that we may have to substantively amend this program when we deal with it legislatively. We may decide that 26 weeks is too long under present conditions.
We may decide to cut it to 13. All of this will have an effect upon the amount of money which is required, which may or may not be included in this budget resolution. I advance that again to the managers of this bill so they may phrase their answer to my question. If we need to extend the program, will we or will we not have the budget authority?
The PRESIDING OFFICER. The Senator's time has expired.
Mr. JAVITS. Two additional minutes please.
Mr. BELLMON. I yield 2 additional minutes, Mr. President.
Mr. JAVITS. In sum, Mr. President, I am deeply concerned that the action of the Budget Committee, in reducing the amount allocated to income security in this resolution, may preclude the Congress from acting to extend the FSB program so as to continue to provide income maintenance assistance for the long term unemployed. We cannot permit our hopes for economic recovery to blind us to the harsh reality that millions of American working men and women continue to suffer the ravages of long term unemployment. We have accepted the responsibility for providing adequate unemployment compensation protection for such workers, and it is my fervent hope that we will be prepared to act quickly again.
Mr. President, I hope very much we may have the answer to the two questions: One, why did we leave the money out of this resolution, having included it in the former one? Second, if we should decide to extend this program, will we be able to do it or will we have precluded ourselves from such an extension by an improvident omission in this particular resolution?
I thank my colleague for yielding.
Mr. MUSKIE. Mr. President, I yield myself 5 minutes.
First of all, may I express my appreciation to the distinguished Senator from New York for raising this subject, which enables us to establish a legislative record which will be helpful to his objective as well as explaining the committee position, which I do not think is inconsistent with his position.
I think I might begin my response by saying definitely that claims filed before March 31, 1977, are assumed in this resolution. The one issue that remains is the one that the Senator identified, and that is the question of extending the program beyond March 31.
With respect to that, the committee report says this, and I believe this is the first point to be made:
The Committee does not assume extension of the emergency unemployment Federal supplemental benefits (FSB) program beyond its March 1977 expiration date. The Committee believes that the continued improvement in the economy, enhanced by the funding of approximately 500,000 jobs through the CETA program, may sufficiently relieve the problem of extended unemployment and render the extension of this emergency program unnecessary.
However, the Committee recognizes that an extension of this program may be necessary should the economic outlook worsen significantly, or should the CETA appropriations be too low to provide for the creation of the full 500,000 jobs. Under such circumstances, allowance for such an extension could be accommodated through a third budget resolution.
May I add to that my emphasis in my presentation earlier this morning of the uncertainty of the present economic outlook. There is no certainty of improvement. There is risk of deterioration that we hope will not take place. But the budget process should be flexible enough, and in our judgment is flexible enough, to respond to a deterioration which suggests action in this connection as well as in other connections.
The second point I would make, Mr. President, is that we received a letter from the chairman of the Finance Committee, which has jurisdiction over this program, dated August 30, 1976.
I ask unanimous consent that the letter be printed in the RECORD at this point.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
COMMITTEE ON FINANCE,
Washington, D.C.,
August 30,1976.
Hon. EDMUND S. MUSKIE,
Chairman,
Budget Committee,
U.S. Senate,
Washington, D.C.
DEAR Mr. CHAIRMAN: In view of the impending consideration of the Second Concurrent Resolution on the Budget for fiscal year 1977, the Committee on Finance has reviewed the probable legislative activity within its jurisdiction affecting the 1977 budget. The Committee has directed that I send you this letter so that the Committee on the Budget may have the benefit of our views and estimates.
Three bills with major revenue impact in fiscal year 1977 are expected to be enacted this session:
1. The Tax Reform Act, now in conference,which extends tax cuts of $17.3 billion and loses an additional $0.3 billion in the Senate version or gains $1.8 billion in the House version;
2. The energy tax bill reported last Friday which has no net revenue impact in fiscal year 1977 because its gains (from a ½ ¢ per gallon gasoline tax) match its losses; and
3. The unemployment compensation bill pending in Committee which would raise unemployment taxes $0.4 billion in fiscal year 1977.
Based on the status of the conference deliberations up to the present, the Finance Committee believes it would be reasonableto estimate that the net combined effect of all of these bills for fiscal year 1977 will be a revenue reduction of $16.0 billion as compared with present law.
In the case of legislation affecting Federal spending, the Committee expects to deal with revenue sharing legislation and legislation affecting the program of aid to families with dependent children in a manner consistent with the report submitted by the Committee on June 15, 1976 (Senate Report 94-949). This report indicated our intention of reporting legislation extending the general revenue sharing program with total budget authority and outlay levels of $6.9 billion for fiscal year 1977. Similarly, the Finance Committee indicated an expectation of reporting legislation reducing expenditures under the aid to families with dependent children program by $0.2 billion in fiscal year 1977 and increasing expenditures under the social services program by a like amount. The social services legislation has already been enacted by Congress and is awaiting Presidential approval. That bill (H.R. 12456) contains the estimated $0.2 billion increase in funding for social services and provides a portion (approximately $33 million) of the anticipated AFDC savings.
Thus, the Committee intends to report legislation extending the general revenue sharing program at a $6.9 billion level for fiscal 1977 and providing the additional estimated AFDC savings. As stated in our June 16 report, if the Committee should report any legislation providing for fiscal 1977 expenditures in addition to those described above, it will undertake to recommend at the same time offsetting reductions in the same or other programs under its jurisdiction.
With every good wish, I am
Sincerely,
RUSSEL. B. LONG, Chairman.
Mr. MUSKIE.That letter does not contemplate enactment of legislation extending this program beyond next March 31. It is not negative on the point. It simply does not address itself to the point. Given that attitude on the part of the authorizing committee, the Budget Committee was inclined to take the position which it did.
Finally, may I say, Mr. President, that what we set are overall totals for these functions, including income security, which is function 600. If we provide budget authority for a particular purpose which is not used for that purpose, it then becomes available for other purposes which we may not have anticipated.
One way that we try as a committee to exert pressure upon tendencies to expand spending is to hold those total numbers down to what we reasonably believe is going to happen. If we provided $500 million additional budget authority in this function, which is not taken up by legislation extending FSB, then there is a temptation on the part of committees to use it up for other purposes. We like to discourage that.
To sum up, what we have tried to do is leave the issue open and not close it. I think our action in the first concurrent resolution indicates our underlying intentions or goals with respect to this program. We will take a look at the economy as it develops in the next few months. We will take a look at the actions taken by other committees. We will check once again with other committees in the course of the next few months. If a third concurrent resolution is necessary for this purpose, the committee is prepared to take that action.
I would like to ask my distinguished colleague from Oklahoma to add whatever comments he might like to add.
Mr. BELLMON. I thank the chairman. Mr. President, I yield myself 2 minutes.
Mr. President, I thank the Senator from New York for calling this matter to our attention. I would like to call his attention to pages 5, 15, and 43 of the committee report. The Senator from Maine, the chairman of the Budget Committee, just read from page 43, but there is a similar statement on page 5, and again one on page 15, to the effect that the Budget Committee is prepared to consider a subsequent concurrent resolution early next year if the economic data received by then do not indicate that the recovery is proceeding satisfactorily.
The Budget Committee is well aware of the concerns the Senator from New York has so eloquently expressed. However, during the markup deliberations on the Second Concurrent Resolution, we felt we had no choice but to assume, for the purposes of compiling function 600 — income security, that the FSB program would not be extended beyond the March 31, 1977 expiration date.
Our decision was based on the anticipation that the funds would not be needed, given the analysis of continued economic recovery and given the anticipated funding levels of other unemployment benefit programs, including accelerated public works, countercyclical revenue sharing, supplemental revenue sharing assistance, and CETA.
Our report indicates, as I have said, that if these analyses prove to be erroneous, or should an extended slump materialize, then the committee is ready to reevaluate our budget authority and outlay totals, and consider a subsequent concurrent resolution to make sure that economic recovery does continue.
Mr. President, the Senator from New York has done us a service in bringing this matter to our attention, but I would like to assure him that we share his concern, and the Budget Committee does not intend to stand idly by and make unemployed Americans suffer because of the termination of programs that may still be needed.
Mr. JAVITS. I thank the Senator. Mr. President, I would like to ask both Senators some questions.
The PRESIDING OFFICER. Who yields time?
Mr. MUSKIE. Mr. President, I yield the Senator from New York 5 minutes.
Mr. JAVITS. Mr. President, I appreciate what the Senator has said, that if we add $500 million, the members are more than ready to spend it for something else; but is it not also true that this particular thing may be crowded out if we do not provide for it, because you are providing lots of other things within your budget ceiling, in order to maintain a deficit of $550 million?
In other words, is there not a danger in misleading Congress that it is not going to have to spend money which it may eventually find it is going to have to spend? Is that not dangerous? And why pick out this item?
Mr. MUSKIE. Mr. President, I do not think we necessarily picked this one out. It is an overall function total, which we do not mandate nor control. The priority for spending is claimed by spending programs. It is conceivable that in a given function, low priority programs may be funded first, and crowd out a high priority program. I do not know of any way to protect against it.
What we try to do in our committee reports, as a beginning, is try to identify the high priority programs which were assumed. We hope that is some protection. Second, as legislation comes to the floor, we try to flag items of low priority and those of higher priority, so Senators can make their choices. Third, if we find that any high priority program has been crowded out, Congress, of course, has the option at that point to approve another concurrent resolution. That is one of the tools available to us. We have not had to do that thus far. May I point out to the Senator that in the income security function, we were able to reduce the overall totals this year because the spending totals for entitlement programs have fallen below what was projected in the spring, and that may continue to happen, thus relieving some of the pressure on this function.
So all of these variants we try to project as precisely as we can, and we do not like to tighten it too much, but we like to rely somewhat on the flexibility built into the process in order to keep spending totals down as low as we can.
Mr. JAVITS. I point out to the Senator that this $500 million, interestingly enough, fits exactly the reduction in revenue estimates made by the Budget Committee, the revenue estimate on the first resolution having been $362.5 billion and the revenue estimate on this resolution having been $362 billion.
May I ask the Senator, suppose that I would submit an amendment costing $500 million to extend the program — and I will explain why it may be necessary — what would be the attitude of the manager? Here is the reason: There is a bill pending for permanent reform of the unemployment compensation system. That bill will come out of the Committee on Finance in about a week. The number is H.R. 10210. There are not too many vehicles upon which this matter can be dealt with, and I may choose to seek action to extend these benefits on that particular bill.
Now, there are two questions there. First, I realize that the committee has a letter from the chairman of the Finance Committee, but the chairman of the Finance Committee has not traditionally initiated these unemployment compensation provisions; I have. And so I must say that the committee is by no means the exclusive source, and the Senate has gone along with those provisions by a very large majority before, and we have pressed them through conference.
So I cannot simply say that because the chairman advised the Budget Committee he would not need the money, and that that is the end of the matter, because this particular chairman has not carried that ball before. I have, and I am frankly very much concerned about this omission, because it makes any amendment which may come between now and the end of this Congress subject to a point of order. If I am wrong about that, I hope I will be corrected by the manager of the bill, because win, lose, or draw, it seems to me essential that this matter be dealt with affirmatively now, if I am going to be faced with that kind of a situation.
Mr. MUSKIE. May I say, first of all, that this matter was rather thoroughly discussed in committee, and the resolution before the Senate represents the committee position, and so it is my responsibility to defend it.
I happen to believe that we have ample opportunity between now and next March 31 to review the decision. Second, in income security we did allow for three pending unemployment bills, two of which are under the Finance Committee. These two bills add $440 million in budget authority and $600 million in outlays. The third bill, to extend special unemployment assistance, or SUA benefits, adds $450 billion in budget authority and outlays.
That is what the function assumes. The Senator raises a question about our relying upon the letter of the chairman of the Senate Finance Committee. Well, we are being constantly criticized on this floor for appearing to tell legislative committees what to do. Now I gather the criticism is that we are doing what an authorizing committee recommends. It is not possible to win that ball game, and we try to strike a reasonable balance. I think we have in this case.
The letter from Senator LONG, let me make clear, simply does not touch this problem. Whether he is negative or positive on it I do not know, and I would not want to try to push him to a decision at this point; I would rather leave it open.
Second, I think the Budget Committee in its first concurrent resolution indicated its awareness of the importance of an extended unemployment benefits program.
So I think the Senator could be assured that we will watch developments with a very sensitive eye and, of course, we will have the Senator prod us if we do not, and I do not object to that. But our function as a Budget Committee is to try to reflect a consensus of the Senate on issues insofar as evidence of a consensus is available to us. We do have some responsibility, also, to exercise a positive influence on economic policy, and we try. We think we have struck a reasonable balance on this, that it is not negative on the extension, and that it is simply open minded on the extension awaiting further developments.
Mr. JAVITS. Could I have this assurance? I shall not offer the amendment. I do not wish to cross my friends and put them in any position where they are opposing something which they really do not oppose, and that is what I would be doing. I am fully cognizant of that. But I shall ask both Senators the following: Will their disposition — and I know they cannot control their committee either — be to deal seasonably with this problem? The crack I am concerned about being caught in is the budget resolution will, of course, not cover this sitnation, and the opportunity to deal with it, if the situation dictates that it should be dealt with, may very well not come until there is a squeeze in terms of the available vehicle in a legislative bill coming out of the Ways and Means Committee of the House of Representatives in order to add an amendment to extend the FSB program.
We may be caught in that situation. If I pass up this opportunity to propose an amendment on the bill to reform the permanent unemployment compensation system, there may not be another chance until February or March, if any, seasonably before this particular program runs out.
So my questions would be this: One, is the 600 category broad enough now so that if in the next few weeks it is decided that we should seek an extension on the reform of the unemployment compensation system it would not at this time be subject to a point of order? Is there plenty of money in 600 though it may not necessarily be allocated for this particular purpose?
Mr. MUSKIE. May I say, first of all, that the point of order does not lie to functional ceilings. It lies with the overall spending ceiling and we are not likely to be bumping up against that between now and October 1. We would, as a committee, resist a breaching of functional ceilings, because if we do not exercise that discipline we lose all fiscal discipline.
Mr. JAVITS. That is right.
Mr. MUSKIE. But I assure the Senator that we will watch it with a sensitive eye. May I say, in addition, we welcome the Senator's assistance and the assistance of the Committee on Labor and Public Welfare in getting us data on the makeup of the 7.5 million unemployed which would be very useful in this respect. We are interested in following what happens to long term unemployment as against short term unemployment.
The extended program, of course, is important for the long term unemployed and if that is changing, if those numbers are declining and unemployment increasingly is made up of people who are unemployed for shorter terms, we wish to know that.
Mr. JAVITS. That is exactly what I am getting to. If I may ask both Senators, would they act promptly, say, in January, even though it is a new Congress and committees will just be organized, upon this matter if the data is available? And we will see that it is available.
Mr. MUSKIE. We would welcome this, and we would certainly respond as quickly as we can.
Mr. JAVITS. All right. In other words,will the Senator act seasonably before March 31, at least on the budget side?
Mr. MUSKIE. If the data supports action, we would do our best on that.
Mr. JAVITS. Do I have the same assurance from Senator BELLMON?
Mr. BELLMON. Mr. President, I join the distinguished chairman of the Budget Committee in that position.
Mr. JAVITS. I thank my colleagues very much and on that basis I will not offer the amendment.
Mr. MUSKIE. I thank the Senator from New York again for raising the issue because I think the RECORD ought to be clear, and it ought to be made today, because we will be recessing or adjourning within another month, and we ought to lay the basis for that future action which we may need to take.
Mr. JAVITS. I thank my colleague.
Mr. TAFT. Mr. President, will the distinguished chairman yield me a couple minutes?
Mr. MUSKIE. Yes, I yield 2 minutes.
The PRESIDING OFFICER. The Senator from Ohio is recognized for 2 minutes.
Mr. TAFT. I thank the chairman for yielding, and I simply raise a question with the committee relating to the energy field and specifically to uranium enrichment.
In the committee report on the second concurrent resolution it states that no funds are provided for the Nuclear Fuel Assurance Act. I am not so much concerned about the loan guarantee section as I am about the authorization for the construction of the uranium enrichment plant in Portsmouth, Ohio. The ERDA authorization for fiscal year 1977, which is still in conference, contains an authorization for continued research and development and procurement of long lead time items for the add-on plant. There is also an item in the public works appropriation bill that contains appropriation of $178 million for this purpose.
I wish the assurances of the chairman of the committee that the congressional budget would mean that a point of order cannot be raised against the ERDA appropriations because of funds being made available for the Portsmouth add-on plant.
I also wish to inquire as to how much of the ERDA bill is allowed in the committee estimate for the function 300 — natural resources environment and energy?
Mr. MUSKIE. The Public Works/ Energy Research appropriation bill, may I say, has been enacted. The full amount provided in this appropriation bill, $178 million in budget authority, has been assumed in the second concurrent resolution for the add-on Federal enrichment facility.
Mr. TAFT. So the answer is that there would be no point of order that would lie against this appropriation.
Mr. MUSKIE. Exactly.
Mr. TAFT. I appreciate the chairman's response.
Mr. MUSKIE. I thank the Senator.
Mr. JAVITS. Mr. President, will the Senator yield on another question?
Mr. MUSKIE. I yield.
Mr. JAVITS. My staff points out to me that the provision respecting Ginnie Mae at page 35 again is based upon an assumption that the administration is not going to release some $2 billion or any part of it relating to the Ginnie Mae operation.
Now housing is, as the Senator I am sure knows, one of our hardest hit propositions. Many of us are piling in on the administration, as it were, to release some of that money. The House of Representatives does have a provision in its budget resolution different from that of the Senate, assuming this bill passes as it is. I only hope that the Senator, Senator BELLMON, and their conferee colleagues, will look at this thing also from the point of view of the developing economic situation and will not be, as it were, finally concluded on it because it is still going to be a few weeks before it is finally decided, and the housing situation could remain very sticky and the administration could have a different view upon any release. I simply lay that on the table for the very same reason I did with the unemployment situation so that the Senate and my colleagues may be informed on that situation.
Mr. MUSKIE. May I say to the Senator that when we considered this in committee we believed that release of the $2 billion would be a valuable step in helping the housing industry. We understood, however, that the administration was not planning to release these funds. We checked it out, and we were assured that the President had no intention of releasing those funds, and so we did not include them. If we had gotten a different reading of the President's intentions, I think the committee would have included room for these funds. As the Senator knows that money does not become budget authority until the President releases the funds.
Mr. JAVITS. That is right.
Mr. MUSKIE. So I think the Senator would find the committee flexible. If the administration has a change of position on this, I am sure the committee will respond.
Mr. JAVITS. I thank my colleague.
Mr. BELLMON. May I add that if the administration does release the funds it is possible they may be released before the end of the transition quarter which would not affect this second concurrent resolution. If they in fact released the funds, indicated, or gave a signal they are going to release the funds after the end of the transition quarter, we could take the matter up in conference with the House of Representatives. It is not our intention to foreclose any availability of money for housing but rather to try to keep the resolution in step with the intentions of the administration.
Mr. JAVITS. I thank my colleagues very much.
Mr. MUSKIE. Mr. President, I ask unanimous consent to have printed in the RECORD a statement by a valued member of the Budget Committee, the senior Senator from Florida (Mr. CHILES) . He has made solid contributions to the work of the committee. He is a conscientious, hardworking, and effective member, and I am delighted to have this opportunity to put his statement in the RECORD.
The PRESIDING OFFICER. Without objection it is so ordered.
STATEMENT BY Mr. CHILES
It is clear that a central issue for the American people is fiscal responsibility and control over Government spending. The binding budget resolution which the Senate is passing today does not fully achieve the goals of a balanced budget and complete fiscal restraint that we would all like to see. But without the new congressional budget process we would be even farther from these goals. I personally would like to see us with lower levels of federal spending and a lower deficit.
While we are still a long way from eliminating deficit spending, we are at last moving on the path toward a balanced budget. I think the weight of people's demand for fiscal responsibility in government can be seen in this resolution.
I was active in creating the new budget process and have been an active member of the Budget Committee because I think we need a mechanism to set a firm ceiling on total expenditures and to look at all our spending proposals at the same time. This lets the public know exactly what we propose to spend and for what purposes. This new method allows the public to give us direction with its opinions. It seems clear to me that the weight of this opinion has been felt in Congress and is evidenced by the new mood of fiscal responsibility. We have looked at the total level of spending and kept the public sector from growing at the expense of private enterprise.
It is necessary to have this discipline to offset the appeal of many individual spending proposals. We all feel the attraction to help deal with one or another problem by spending a little more money or cutting back on taxes. But when you put all those proposals together, they add up to big deficit spending.
I believe we are finally learning to pick and choose, to set priorities, and to stop our spending on old programs before we start new ones. Congress is at last beginning to say, as private citizens must say, "That would be nice, but we can't afford it right now."
We can be proud that we have used this new discipline in a balanced fashion. No group or program has been picked out as a scapegoat. No group has been given all the benefits or asked to bear all the burdens of recessions and inflation. We have provided tax cuts for individuals and corporations to offset the losses of recession. We have provided cost-of-living adjustments for veterans and the elderly living on fixed incomes to offset the effects of inflation. We have provided new military spending to maintain a strong defense and paid for cost increases in health and education programs. At the same time, we have said for each area of the budget, "This is the limit. You must choose what is most important and live within the ceilings."
The biggest success of the process can be seen in the new mood of Congress. Spending proposals no longer go through unquestioned. You hear it continually in other committees. Senators ask, "Does this bill fit within the budget ceilings?" We find that through the year Congress has held down its spending to fit the targets we set last spring. Budget Committee members have taken to the floor on many occasions to oppose measures that would increase the deficit. While we have not been successful in all cases, we have been successful in total.
The binding Second Concurrent Resolution, which the Senate is considering today, contains no change in the level of deficit spending which the Congress set last Spring. We were able to reduce outlays by $500 million. We were able to reduce Budget Authority — which affects the level of spending several years down the road — by $72 billion. The deficit is still too high, but it is $15 billion less than last year. By holding down the authority for future spending, we are ensuring that the deficit will continue to decline year by year.
The budgetary restraint reflected in this resolution does not just reflect the failure to undertake $27 billion of new spending programs which were proposed by various committees last spring. It reflects a reduction of about $9 billion from "current policy levels"— the amount of spending which would have occurred if Congress had not changed existing programs. I personally proposed over $10 billion of such restraints for a variety of programs, most of which were accepted by the Budget Committee. Not all of these savings have been achieved, but real progress has been made. The effect of these restraints is best seen by looking at their future impact. Government programs tend to start small, then grow large. The $9 billion of reductions we made for 1977 will reduce spending by $20 billion in 1980. This adds up to a cumulative savings of over $50 billion for the next four years, which means $50 billion less national debt.
At various points in its report on this Resolution, the Budget Committee reaffirms its commitment to hold down waste in government programs. Every day we learn about waste and mismanagement in a wide variety of programs. I have personally led investigations uncovering abuses in such areas as supply of meat to the military, home health care programs paid for by Medicare and administration of the Food Stamp program. Poor administration hurts the intended beneficiaries of the program at the same time it drives up costs and hurts the taxpayer. I have offered corrective legislation in each of these areas and it is anticipated that the resulting savings will be reflected in future budgets. Again, while we still have a long way to go, I am optimistic because Congress is beginning to pay attention and adopt legislation to cut paperwork, simplify procedures, rationalize grant and contract administration and tighten up on quality control.
The Budget Committee has played the lead role in relating federal spending to a responsible economic policy. We have tried to set a course of moderation that will stimulate recovery from recession without setting off a new round of inflation. By and large we have achieved these goals, though problems remain. Too many people are still unemployed, business investment is still too low and inflation remains a threat.
Government policy can avoid some dangers but it cannot solve all the problems. A central feature of our economic policy has been to channel recovery efforts through the private sector by cutting taxes. We have not allowed recession to be an excuse for new permanent spending programs. We have encouraged temporary tax cuts, but opposed permanent new tax breaks which would cause major revenue losses in the future and threaten our goal of a balanced budget by 1980 or 1981. I have worked for a monetary policy that would keep interest rates low enough to allow the housing industry and private capital investment to recover and grow.
We have learned that all these aspects of economic policy must work together. If the deficit gets too large, the Federal Reserve Board will feel it must tighten up on money supply to hold down inflation. The result would be higher interest rates and less economic growth than the deficit was expected to stimulate. Over the last year I have met several times with Chairman Burns, and I have urged my colleagues on the Budget Committee to seek a cooperative policy with the President and the Federal Reserve to better coordinate economic policy. I believe that
we are seeing the results of this coordination right now. Congress has moderated its demands for deficit spending, money supply has been allowed to grow at an accomodative rate and both interest rates and inflation have been held down. As recovery proceeds and private industry begins to compete with government borrowing in the credit markets, the task is going to be even more difficult. I am optimistic that we can meet the challenge if we hold to our course of steadily reducing deficit spending and keeping the new budget process on line toward a balanced budget in the near future.
ADDITIONAL STATEMENTS
Mr. TAFT. Mr. President, when the first concurrent resolution on the budget was adopted in March of this year, the country had completed a quarter of declining unemployment, low inflation, and solid economic growth. Since then, we have seen the economy enter a pause in the rate of recovery from the previous recession. Unemployment has risen, the real growth rate has leveled off, and inflation is picking up slightly.
Because of these changing economic conditions, I can no longer support a budget resolution which is as expensive and as dependent on public sector expansion as was the first resolution.
Moreover, the Tax Reform Act of 1976, assuming one ever gets passed, contains within it a hidden $5 billion a year tax increase, in real terms, over and above any increase in revenues which might be due to a genuine economic revival. I believe that recent events have clearly demonstrated that the economy is not in condition to pay such a hefty tax increase. This resolution, and its projections for the future, rely on these hidden tax increases, which are generated by the effects of inflation on our income tax structure, to produce the rosy picture of an improving Federal budget, and a declining deficit. In my opinion, these hopes are completely unfounded.
As we continue to sit back and reap the reward that inflation brings to the Federal Government, tax rates are going to rise all across the country. The increased tax rates will act as taxes always do — they will discourage output. Taxing output reduces output. Lowering taxes on output would increase output. This most elementary of economic principles seems to have escaped the attention of the Congress. Nonetheless, even in Washington, the real world will eventually make itself known.
It is my belief that Government taxation at these levels will retard, if not destroy, our economic recovery. During the debate on the tax bill, I suggested that the Senate vote to correct the personal exemption, the standard deduction,and each income tax bracket, for the effects of inflation, which is currently driving people into higher and higher tax brackets at the rate of $5 billion a year, even when there has been no increase in real income. The Senate declined, preferring to gather more and more of the Nation's income into its hands for disposition as the Senate sees fit. This practice is strangling the private sector under heavy tax burdens, and in a mass of red tape.
Every time those of us who believe in fiscal responsibility attempt to raise taxes to narrow the deficit, the Congress takes the added money and finds a way to spend it, leaving us with a deficit just as large as before the tax increase.
I have sadly come to the conclusion that the only way to stop this insane growth of taxes and spending is to call for tax cuts, and to vote against any budget resolution which does not provide them.
When we cut taxes, we both stimulate the economy and fight inflation. The added demand generated by the tax cut improves the market for products of all types. In addition, the lower tax rates permit our citizens to retain more of their earnings after taxes, thereby increasing the reward to labor and investment. This in turn will increase the supply of goods and services, helping it to meet the additional demand. With both the demand for, and the supply of goods and services on the upswing, we can have a genuine economic expansion with little danger of rekindling inflation. With an increase in taxing and spending, such as is provided for in this resolution, we shall get an increase in demand, and a reduction in supply as tax rates discourage effort, and reward leisure. This can only worsen inflation, and jeopardize the recovery.
It has become apparent over the last; few years that the old economic theories underlying the tax, tax, spend, spend philosophy of economic recovery are dangerously inaccurate, and completely discredited by actual events. The minority views of Senators BUCKLEY and McCLURE, and a Wall Street Journal article by Prof. Arthur Laffer, which I shall ask to have printed in the RECORD at the conclusion of my remarks, illustrate more modern economic thinking with regard to the only proper way to reduce our unemployment quickly, and in a permanent fashion, while simultaneously keeping prices in line. It is high time that the Senate took a fresh look at the theories of economics under which it operates, and for it to attempt to do a decent job on both the unemployment and inflation fronts simultaneously. It is not impossible. It simply requires that we be more honest and open concerning our taxing policies, and that we cease to draw the Nation's income further and further under our control. We can increase output without renewing inflation if we simply reward production and labor through lower tax rates, and defer expansion of our pet programs here in Washington until the economy is in shape. Premature budget and tax increases will simply retard the growth of real goods and services, and reduce Government revenues and our ability to provide the very services we are trying to increase.
I ask unanimous consent that the article from the Wall Street Journal, written by Arthur B. Laffer be printed in the RECORD.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
THE INIQUITOUS "WEDGE"
(By Arthur B. Laffer)
There is no economic issue more important than relieving unemployment. Unemployment and all the attendant side effects that word connotes have been millstones around the neck of our country. Unemployment, misemployment, underemployment and withdrawals from the labor force are all different facets of the common problem.
On strictly humanitarian grounds, the plight rendered by unemployment is abominable to the wage earner and his family. The market failure to make use of a perishable natural resource makes all of us poorer. Thelost value to the United States far exceeds any strict dollar measure. Part of our role as world leader is predicated upon our economic prowess. Our capacity to deter potential belligerents not only rests on our defense capabilities narrowly defined, but is further enhanced by our production base.
Perhaps no proposition is more obvious in economics than the proposition that if taxes on a product are raised there will be less of that product. Likewise, if subsidies for a product are increased, in general, there will be more of the now subsidized product.
In the United States today we tax employment through a multitude of taxes such as the personal and corporate income taxes. We also subsidize inefficiencies, nonwork, and the absence of production through a wide range of governmental programs.
It is no wonder that the United States today has fallen so short of its employment and output potentials and has so many inefficiencies and so much unemployment.
The Full Employment and Balanced Growth Act of 1976 would add to our economic and employment problems. The revenue for its expenditures can only come from current producers and employment. This act would add to the already onerous tax on employment and output. The expenditures themselves will be used to pay wages above what could be earned elsewhere. The value of the product the government extracts will also be of questionable marketability. It is inconceivable that such a program will do anything other than hurt workers, consumers, and the truly needy who rely on other government programs.
THE NUTS AND BOLTS OF HIRING
A firm's decision to hire is based, in part, upon the total cost to the firm of the employee's services. For most firms, the more it costs them to hire workers the fewer workers they will hire. Likewise, the less it costs firms to hire workers, the more they will hire.
Employees' decisions to work are also, in part, based upon the amount of earnings the employee himself gets. The more the employee gets, the more willing he is to work, and vice versa. Employees are not concerned with the total costs to the firm. All employees care about is how much they get net.
In sum, firms worry about the total wages they have to pay, while employees are concerned with the wages they receive. The difference between the wages firms pay and the wages employees receive is called the "wedge." This "wedge" consists of all taxes as well as such things as the market value of the accountants and lawyers firms hire in order to maintain compliance with government regulations.
If the "wedge" is increased, wages paid by firms must rise. Firms will hire fewer workers. Wages received by employees will fall. Employees will be less willing to work. Both the firm's desire to hire workers and the workers' willingness to work will be reduced as the "wedge" increases. Output unambiguously falls and the level of total employment falls as the "wedge" increases.
In the United States, the wedge can be represented by either total government spending or by the total of transfer payments. Basically, transfer payments are real resource transfers from producers and workers to people based upon some characteristic other than work or production. As such, transfer payments reduce the amount of goods and services available to the people who produced them. Transfer payments are simultaneously a tax on production and a payment based upon a charactertisic other than work. Transfers are often a payment explicitly for nonwork. Examples of this are agricultural subsidies, food stamps (income requirement), Social Security payments (retirement test), housing subsidies (means test) and, obviously, unemployment compensation itself.
The Full Employment and Balanced Growth Act of 1976 will increase the "wedge." In virtually every aspect, this act places additional burdens on producers and workers and simultaneously gives little in the way of final output in return. As such, this act would increase unemployment and reduce total employment.
Viewing the cyclical nature of the economy from this vantage point also gives us a slightly different perspective.
Let us imagine an economy that produces 1,000 real units of output and has government spending of 500 real units. The producers and workers who produce the 1,000 real units of output are allowed to keep 500 of those units. While these producers and workers are paid 1,000 units, they receive only 500 units and therefore have a "wedge" of 50%. For every two units someone produces, he gets to keep only one. Fifty percent is taxed away and given to someone else.
Viewing the current US. economy in this manner, let us see what happens if, for whatever reason, there is a shortfall of income or output down from the 1,000 level to say, 900 real units. In our economy, as output and employment fall, government spending rises, here almost entirely as a result of increased transfer payments. Increases occur across a whole range of categories. Let's imagine government spending rises by 40 real units.
Therefore, while output falls from 1,000 to 900, government spending rises from 500 to 540. The "wedge" in the economy rises from 50% to 60%. Now producers and workers receive only 4/5 of one one unit for every two they produce, as opposed to receiving the one units for every two produced previously.
By increasing spending during a recession, the. government reduces the incentives to produce and work. Far from stabilizing the economy, such countercyclical spending, will, in fact, accentuate the cyclical aspects of the economy. The greater government spending is, and the more closely tied to the level of unemployment it is, the more cyclical will be the economy.
Several features of the Full Employment and Balanced Growth Act of 1976 impact directly on the cyclicality of the economy. By having a permanent countercyclical grant program to state and local governments, this act would increase the severity of recessions and heighten excessively expansionary booms. The employment program will do the same. This program raises the tax "wedge" during recessions and lowers the tax "wedge" during booms. As a consequence, the economy would become more unstable.
To achieve more employment and greater output we should make employment more profitable and make it more profitable to employ. An economy does not reduce unemployment and increase output by taxing work and employment. To see this clearly one need only imagine how much would be produced if all output were taxed away from those who produced it. Production would cease.
TAX REDUCTIONS NEEDED
If we are ever to achieve a sustainable high level of output, the tax "wedge" on producers and workers must be reduced. It is especially important for the reductions to be on marginal rate of taxation. In addition to reducing tax rates on production and work, inequitable and distortive spending must also be restrained.
At present, corporate-held capital is taxed at exceptionally high rates on the margin. Workers work better with capital. To induce people to save in order to provide the capital to employ workers, there must be higher after tax "wedge" yield. Reducing tax rates, especially the high marginal tax rates on capital, will reduce unemployment, increase employment, and attract potential workers back into the labor force.
Another tax drastically in need of reduction is the personal income tax. Here again the "wedge" is apparent. By cutting personal income tax rates, employees' after tax wages rise while the pretax cost to employers falls. More people will be hired.
Cutting personal income taxes is especially appropriate seeing that a substantial portion of the current rise in tax rates results from the effects of inflation on progressive tax schedules. Perhaps the best measure would be to index the personal income tax.
The taxes on the less educated and more disadvantaged potential employes and workers are unbelievably high. If a minority youth in a poor neighborhood would like to work for $1.50 an hour and a small minority-run business would like to hire him at that wage rate, he still can't legally work because of the minimum wage law. After being unemployed for several years, the person becomes close to, if not literally, unemployable.
While complicated tax schedules and arcane building codes, along with other modern bureaucratic developments, can be coped with by college graduate entrepreneurs, they present a serious impediment to the economic development of the poor and less educated neighborhoods.
As if there already weren't enough difficulties inherent in starting a successful business in poor neighborhoods, the government-imposed tax "wedge" is probably at its highest there. It is precisely in these neighborhoods where the Full Employment and Balanced Growth Act of 1976 will be used the most. It is rather ironic that one massive government program is proposed to undo the damaging effects of others. It is tragic that this new program would result in further deteriorations in areas already heavily deteriorated.
I doubt very much whether the United States can maintain peace time full employment without a substantial reduction in the level of government spending as a share of GNP. At the very least, this spending must be redirected in such a way as to reduce the direct incentives for nonproduction and nonemployment.
Mr. PELL. Will the Senator yield for a question?
Mr. MUSKIE. I yield to the Senator from Rhode Island.
Mr. PELL. The budget resolution is premised on an assumption, in function 500 that the participation rate in the BEOG's program would be 74 percent; is that not correct?
Mr. MUSKIE. That is correct.
Mr. PELL. We are now given to understand that the participation rate under that program may well be 83 percent. Would that not require an increase in the functional totals for function 500?
Mr. MUSKIE. As of now, the 74 percent assumption is official, and we have no other information. In the event that OMB should advise us that the participation rate is greater, then we will have to take that into account as we would any other reestimate. If there is no additional room at that time within the budget, then rising the functional totals to accommodate the reestimate becomes a compelling alternative, and we would have to consider it if a third budget resolution were considered next year.
Mr. PELL. I thank the Senator.
Mr. GLENN. Mr. President, I would like to determine if the distinguished Senator from Maine can assure me that under a reasonable set of circumstances full funding of the energy conservation and utilities programs contained in the recently enacted FEA extension legislation would be consistent with the second concurrent resolution on the budget.
Mr. MUSKIE. Mr. President, let me say first that I share the Senator's concern for funding energy conservation programs.
In constructing the function 300 ceilings, in which these programs are classified, the Budget Committee anticipated that funds would be appropriated in fiscal year 1977 for the new energy conservation programs authorized in the FEA extension bill. We estimated that $150 million in budget authority with resulting outlays of $50 million would be provided. This is an estimate, of course. It was too early to obtain a precise number from FEA or the Appropriations Committee. We asked FEA and the committee to provide us with a number but they were understandably reluctant to do so. So we estimated as best we could.
Additional funds could be assumed for these new energy conservation programs, if other programs for which the Budget Committee assumed funds in the resolution are not passed or are not appropriated at levels we anticipated.
But I do want to emphasize that we did assume some funding in the resolution for these new programs.