September 9, 1976
Page 29433
SECOND CONCURRENT RESOLUTION ON THE BUDGET, 1977
The ACTING PRESIDENT pro tempore Under the previous order, the Senate will now resume consideration of Senate Concurrent Resolution 139, which will be stated by title.
The assistant legislative clerk read as follows :
A concurrent resolution (S. Con. Res. 139) revising the congressional budget for the U.S. Government for the fiscal year 1977.
The ACTING PRESIDENT pro tempore The time for debate on this resolution is limited to 3½ hours, with 1 hour on any amendment in the first degree and with one-half hour on any amendment in the second degree, debatable motion, or appeal.
Who yields time?
Mr. MUSKIE. I yield myself 10 minutes, to begin.
Mr. President, I ask unanimous consent that the following members of the staff of the Committee on the Budget have the privilege of the floor during the consideration of and votes on Senate
Concurrent Resolution 139: Douglas Bennet, John McEvoy, Sid Brown, Arnold Packer, Jim Storey, Dan Twomey, Tom Dine, Nancy Haslinger, Bob Sneed, Charles Flickner, Terry Finn, John Giles, Rodger Schlickeisen, Tony Carnevale, Karen Schubeck, Becky Beauregard, Mike West, Ira Tannenbaum, Chris Matthews, Don Campbell, Marc Lackritz, Faye Hewlett, Mike Joy, on behalf of Senator HOLLINGS, Hal Gross on behalf of Senator CRANSTON, Rick Brandon, on behalf of Senator CHILES, George Rucker, on behalf of Senator ABOUREZK, Dick Andrews, on behalf of Senator BIDEN, and Bill King, on behalf of Senator NUNN.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. BELLMON. Mr. President, will the Senator yield for a unanimous consent request?
Mr. MUSKIE. I yield.
Mr. BELLMON. Mr. President, I ask unanimous consent that the following members of the staff of the Committee on the Budget have the privilege of the floor during the consideration of and votes on this measure: Robert S. Boyd, Hayden Bryan, Letitia Chambers, Edmond Q. "Ted" Haggart, Franklin Jones, Gary Kuzina, Charles McQuillin, Reid Nagle, David Shilling, Frank G. Steindl, William L. Stringer, and John Walker.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. DOMENICI. Mr. President, will the Senator yield for a unanimous consent request?
Mr. MUSKIE. I yield.
Mr. DOMENICI. Mr. President, I ask unanimous consent that Franklin Jones, of my staff, have the privilege of the floor during the consideration of this measure.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, I also ask unanimous consent that the presence and use of small electronic calculators be permitted on the floor of the Senate during the consideration of this matter.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
Mr. MUSKIE. I do not have enough fingers to deal with these numbers.
Mr. President, this year's second budget resolution is almost identical to the first. Congress made a budget plan in May. We have stuck to it. We have done just about what we set out to do, and even cut spending a little more than we expected.
Our spending bills have been not only on target, but on time. For the first time in a quarter century, it is likely that every regular appropriation bill will have been passed before the fiscal year begins. This means not only that our own procedures are becoming more orderly and disciplined, but that every agency and State and local government can operate more efficiently. I want to express my deep appreciation particularly to Chairman MCCLELLAN of the Senate Appropriations Committee and to all its members for helping Congress achieve this success.
I also express my appreciation to the distinguished ranking Republican member of the Budget Committee and all his colleagues on his side of the aisle for their cooperation in making this success possible.
In 1950, Congress undertook a budget reform similar to this one. By 1951, it was dead. The budget reform of 1974 is now exactly 2 years old and thriving.
Mr. President, I ask unanimous consent that a table summarizing the congressional budget for fiscal 1977 be printed in the RECORD at this point.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. MUSKIE. Mr. President, my colleagues will note that we have pared a half-billion dollars net from the first budget resolution outlay target. This saving results from a combination of increases and decreases throughout the various budget functions.
At the same time, we are projecting revenues at $362 billion — half a billion dollars less than the first budget resolution target. While the projection of revenues which would be collected under current law has not changed since the first budget resolution, Congress has not succeeded in raising the targeted $2 billion in net revenue increases through tax reform. The resolution before you anticipates that the revenue conference now under way will raise at least $1.1 billion in revenues through loophole closing and that another $400 million will be realized through a pending increase in the unemployment compensation tax or additional tax expenditure savings.
The net result of a $0.5 billion spending reduction and a $0.5 billion revenue reduction is that the deficit projection is unchanged — $50.8 billion. This is almost 25 percent less than the fiscal 1976 deficit — evidence both of spending restraint and of the fact that the costs of unemployment are less as the economy begins to recover. Now that the administration has corrected some of the unrealistic estimates in the President's original budget proposal, the difference between his deficit and the one which will result from this second resolution is $3.3 billion — an amount attributable to our recommendations for public works and public employment outlays designed to combat joblessness.
JOBS AND THE ECONOMY
Putting people back to work remains the central priority in the fiscal 1977 budget.
When the budget process started 2 years ago, the challenge was to reverse the downward spiral of recession. We succeeded. The congressional budget for fiscal 1976 brought unemployment down from 8.7 percent in the second quarter of 1975 to 7.4 percent a year later, while employment increased by 2.4 million.
The budget resolution we are recommending is designed to provide jobs in both the private and public sectors. During the last fiscal year, 74 percent of this increase in employment took place in the private sector. But private nonfarm payrolls are still smaller than before the recession.
Moreover, unemployment has increased in the last 3 months and now stands at an unconscionable 7.9 percent of the work force or 7.5 million people.
We expect unemployment to decline substantially in coming months if the jobs provided for in this budget are funded and filled on schedule. These job programs include the Public Works Employment Act and the extension and expansion of the Comprehensive Employment and Training Act — CETA.
The Public Works Employment Act, which also includes countercyclical revenues for hardhit State and local governments, is designed to create 300,000 jobs in the public and private sectors together. The proposed CETA bill will fund 500,000 positions, with most of the new jobs reserved for the heads of needy households who have been unemployed for an extended period. These bills, along with the stimulus to the private sector provided by the overall fiscal policy of the second budget resolution, should put 1.5 million Americans back to work in fiscal 1977.
The fiscal 1977 jobs program is designed as a second step on the road to full employment by 1980. The step will not be taken unless the Public Works Employment Act and the CETA bill are funded and implemented. The job creating programs contained in the 1976 budget were reduced and delayed when vetoes were sustained. Those vetoes are part of the reason for the 640,000 person increase in unemployment that has been recorded in the last 3 months. I urge my colleagues to prevent a second unnecessary detour on the road to full employment during fiscal 1977.
Let us remember that joblessness not only hurts families and wastes resources. It also costs budget dollars. Each 1 percent increase in the unemployment rate will cost the Federal Treasury $19.5 billion in fiscal 1977 — $15 billion due to lost revenues because people who are not working do not pay taxes, and $4.5 billion in increased costs for unemployment compensation and other benefits.
The current increase in the unemployment rate is part of a general "lull" in the recovery. Just how serious this "lull" may turn out to be is open to question. What is clear, however, is that we will require extraordinarily successful economic management if we are to avoid having this recovery peter out.
There have been six prior periods of rapid growth since World War II. In three of those periods, the rapid growth ended after four quarters. In two others, rapid growth was maintained for more than four quarters, because of wartime spending. The remaining period of rapid growth — from the third quarter of 1971 to the first quarter of 1973 — followed the extraordinary policy moves of August 1971, when devaluation, price controls, and the investment tax credit were imposed simultaneously.
Each of these periods of falling unemployment rates was followed by a period of slower growth in which the unemployment rate stayed relatively constant. Each of these six slowdowns, with one exception, was in turn followed by a recession. The single exception was in 1964,when a large tax cut — about 1.5 percent of GNP — and rapid monetary growth initiated another period of rapid economic growth, which was extended further by spending on the Vietnam war.
The present recovery has thus far conformed quite closely to the pattern of previous recoveries. It has already proceeded for four quarters, which is the typical length when the economy is not aided by extraordinary fiscal measures such as wartime spending, tax cuts or other expansionary policies. The second and, it now appears, the third quarter of this year conform to the pause periods of the earlier economic cycles. Industrial production, business fixed investment, and private employment have not yet reached their prior peaks. Unemployment still exceeds the worst level reached in previous recessions.
INFLATION
This budget, like last year's, is designed to keep inflation under control. Inflation fell from a 12 percent annual rate at the end of 1974 to less than 5 percent in July of this year. The committee believes that Congress fiscal 1977 budget will reduce inflationary expectations and avoid any pressure on prices due to excess demand. The American economy continues to operate far below its potential capacity; therefore, there should be little, if any, demand-related inflation. The projected deficit for fiscal 1977 is itself the direct result of the revenue losses and unemployment costs of an economy operating well below its full potential. Our goal is steadily to squeeze the effects of the 1974 inflation out of the American economy.
So this is an economic recovery budget. It is designed to produce jobs. It is designed to restrain inflation. Your committee believes it is consistent with a steady economic recovery. That recovery, however, is clouded with uncertainty today. It is not at all clear that private demand will be strong enough to maintain the 5.5 to 6 percent rate of economic growth which a steady return to full employment demands. It is particularly critical that private investment demand grow rapidly.
If it appears over the next few months that Congress' target of bringing the present 7.9 percent unemployment rate to 6 percent by the end of 1977 is in jeopardy, the Budget Committee is prepared to consider another concurrent resolution to alter recovery policy while fiscal 1977 is in progress.
The observation made by the committee in the first budget resolution report last spring applies to both the immediate future and the next several years:
The most tragic mistake the Nation could make at this point would be to repeat old errors of fiscal and monetary judgment that would choke off the hard won recovery we are now experiencing.
Mr. President, let me now run through some of the major priority decisions — other than job creation — reflected in the functional totals recommended for fiscal year 1977.
In "Function 050: National Defense," the first budget resolution totals were virtually the same as the President's budget request and allowed an increase of more than 10 percent over levels for fiscal 1976. Congressional reductions in the Department of Defense authorization and appropriation request permit these targets to be reduced by $400 million in budget authority and $100 million in outlays. The second budget resolution totals do not, however, allow room for the President's recent additional supplemental request for weapons systems which have not been authorized by the Congress.
The defense ceiling assumes a minimum of $550 million in sales of materials from the strategic stockpile, a 15 percent absorption by the Defense Department of all pay raises included in any pay supplemental, and elimination of the 1 percent kicker for military retirees. Stockpile sales and eliminating the 1 percent kicker were part of the saving of $5.4 billion in budget authority and $4.5 billion in outlays due to administrative and legislative economies which we contemplated at the time the first budget resolution was adopted. I am happy to say that all but approximately $800 million of these savings have either been achieved or seem likely enough to be assumed in the second budget resolution. The Armed Services Committee has acted vigorously and courageously on those savings within its jurisdiction. One of them, the 1 percent kicker, will not be realized, however, unless comparable treatment is provided on the civilian side of the budget. The second budget resolution assumes such action.
In "Function 300: Natural Resources, Environment & Energy," an increase of $1.2 billion in budget authority since the first budget resolution is due largely to an allowance for a default reserve for a synthetic fuels program and to allow for full funding of title III of the Public Works Employment Act.
The Senate, just last week, considered the important issue of continued funding for EPA water pollution construction grants, which fall into Function 300. There was support for the commitment in fiscal year 1977 of an additional $5 billion in budget authority. This funding has been assumed by the Budget Committee in the second budget resolution. While the outlays from this program are less than $100 million in the first year, the additional budget authority will prevent many States from exhausting their current share of construction funds and permits continuation of the national effort to provide clean water while the Congress comprehensively reviews the Water Pollution Control Act next year.
Virtually all funding for Federal energy programs — $5.5 billion in budget authority and $4.4 billion in outlays — is included in Function 300. No budget authority has been assumed for one major program, the Nuclear Fuel Assurance Act, because the committee, without deciding on the merits of the specific legislation, accepted the OMB and GAO opinion that no budget authority would be required if the Nuclear Fuel Assurance Act were passed and implemented. Based upon the information currently available — and I note that the Senate has not yet begun its consideration of this bill — the $8 billion in project guarantees to build uranium enrichment plants is strictly a contingent liability and therefore does not require budget authority.
In "Function 550: Health," my colleagues will note substantial upward reestimates for Medicare and medicaid. Pressure on this function is increased because savings of $0.3 billion in budget authority and $0.6 billion in outlays in medicare and medicaid which were assumed in the first budget resolution have not been realized. The committee is disappointed that legislation to achieve these savings has not yet been reported. The second budget resolution does, however, assume savings of $0.2 billion in medicaid which, we hope, will result from initiatives to control fraud and abuse.
Similarly, in "Function 600: Income Security," the first budget resolution assumed legislative savings in such programs as food stamps, AFDC, and social security which now do not appear achievable. While the function is under target due to substantial program reestimates, I know I speak for the Budget Committee when I say that we are very anxious to see these and other savings achieved as soon as possible.
For "Function 700: Veterans Benefits and Services," the committee recommends an increase of $200 million in budget authority and the same level of outlays compared to the first budget resolution. The budget authority ceiling is $2.4 billion more than the President's budget request.
Mr. President, the most important part of the Budget Committee's report is about 1980.
It will be 1980 — a full Presidential term from now — three elections from now — only slightly less than half a decade from now — before America can once again have full employment.
It will be 1980 at best before economic recovery will be sufficient to give us a balanced budget.
And, at best, those twin goals of full employment and a balanced budget by 1980 will be very, very hard to reach.
We can not allow economic recovery to falter between now and then, although historically it nearly always has.
Except for recovery related expenditures, we can afford new permanent Federal programs only if we can find money for them through savings in other areas.
We must undertake structural changes in our economy which will enable us to escape renewed inflation once unemployment reaches the 5 to 5.5 percent range, which is simply not full employment.
I ask unanimous consent that the portion of the Budget Committee's report — pages 15 through 23 — dealing with the 1980 outlook be printed in the RECORD at the conclusion of my remarks.
The PRESIDING OFFICER (Mr. LEAHY) . Without objection, it is so ordered.
(See exhibit 1.)
Mr. MUSKIE. Mr. President, the budget we put before you today for fiscal year 1977 is consistent with achieving full employment and a balanced budget by 1980. I wish we could do better. Because the recession was so deep, we cannot. And even these not too distant goals will be beyond reach unless we have more than our normal share of wisdom and good luck.
But this resolution represents a clear commitment to recovery. It represents determined fiscal discipline. I urge my colleagues to support it.
EXHIBIT 1
THE LONG RANGE
Despite the recovery of the last 15 months, the condition of the U.S. economy is far from satisfactory. Unemployment and inflation must be reduced further and the deficit — although it results from the depressed state of the economy — should be eliminated. While economists differ over which goals can be achieved and how soon, there is general agreement that a full recovery will take several years. Because each year's budget decisions affect the speed and success of the recovery, the Committee believes that it is necessary that Congress make these annual decisions in the context of long range recovery targets.
What are reasonable long range targets?
UNEMPLOYMENT TARGET
There is widespread agreement that relatively full employment should be achieved by about 1980. No one, however, wishes to overheat the economy to the point of accelerating wage-price increases. A view among many economists is that 5.0 to 5.5 percent for unemployment is the inflationary danger zone given our present economic structure.
Full employment has traditionally been defined as 4 percent unemployment, and economists felt that this could be reached without generating inflation. In the 1960's this rate seemed to provide enough slack to accommodate the inevitable frictional unemployment without causing accelerating inflation. During 1973, however, inflation jumped to 8.8 percent even though unemployment averaged 4.9 percent. Although currency devaluations, a simultaneous worldwide economic boom, a 20 percent increase in food prices, capacity bottlenecks in key industries, and the oil price increase in the last quarter cloud the issue, the 1973 experience made economists reevaluate the inflationary danger zone for unemployment.
There are several reasons why the rate of unemployment at which inflation accelerates is higher than it used to be. First, teenagers and females have sought work in increasing numbers and now form a larger proportion of the total labor force. Members of these groups traditionally have higher unemployment rates than adult males; they have higher turnover rates and more frequently are new entrants or re-entrants to the labor force who search more often for new jobs. Second, changes in unemployment compensation and welfare regulations may have caused some people to register as being unemployed when in the past they would not have been included in the labor force. The Senate has recently passed a bill that would establish a National Commission on Employment and Unemployment Statistics to consider these problems. This Commission should provide a better understanding of the implications of the changing composition of the labor force.
The Committee believes that a return to a 4 percent level of full employment by 1980 may be possible. But successful structural policies, both in product and labor markets will have to be designed if Congress wishes to reduce unemployment below 5.0 to 5.5 percent without accelerating inflation. As Federal Reserve Chairman Arthur Burns, in his testimony to this Committee, states, "Our Nation would benefit, however, if the traditional tools of economic management were supplemented by structural policies designed to enhance the prospects for returning to full employment without releasing a new wave of inflation."
INFLATION TARGET
Inflation in the 4 to 6 percent range seems inevitable in the next few years if the economic recovery continues. Multi-year labor contracts with cost-of-living escalators promise continued wage increases, and energy costs will assuredly rise. Good luck on these factors and on food prices will be needed to stay near the bottom end of the 4 to 6 percent range. Structural policies, including regulatory reforms and workable incomes policies, may be needed if inflation is to be brought below 4 percent by 1980.
PRODUCTIVITY TARGET
Productivity increases cushion the effect of wage increases on prices and provide the high real wages and profits accompanying economic growth. Productivity growth of 2.5 to 3.0 percent in the private sector is an important requirement if a balanced budget and an acceptable rate of inflation are to be reached by 1980. These rates are consistent with historical experience, but may not be achievable in the future.
BALANCED BUDGET TARGET
Recent experience has clearly shown that economic conditions have at least as much influence on the deficit as do Congressional decisions on spending or taxes. Both budget discipline and high employment are needed to balance the budget.
The current services projections of OMB indicate that current legislation does not foreclose a balanced budget in 1980 or 1981.
The fiscal margin indicated above measures what the surplus would be if economic growth brought unemployment to 4.8 percent — 5 percent for all practical purposes — by 1980 without any further fiscal stimulus. The revenues and unemployment compensation estimates, for example, are based on the assumption that unemployment will be 4.8 percent by 1980. These estimates of the fiscal margin, which are produced by projecting outlays and revenues on a current services basis, are not forecasts of actual surpluses. The actual budgetary position in 1980 will depend upon the amount of additional fiscal stimulus (if any) required actually to produce unemployment below 5 percent at that time. The fiscal margin calculation does, however, provide a measure of the amount of permanent fiscal stimulus which can be used in the interim without causing the budget to go into deficit when the 5 percent unemployment rate is attained.
THE SIZE OF GOVERNMENT
Revenues in fiscal 1977 are estimated to be 19.6 percent of GNP. Because the progressive income tax raises the tax share as incomes grow, this share would increase each year unless tax rates were reduced. By 1980 the revenues would be 21 percent of GNP, assuming that the current tax reduction became permanent and that no other tax changes were made.
Historically, the Federal Government has spent about 20 percent of GNP when measured on a full employment basis. If this share is taken as a target, the fiscal margin indicated in table 5 can be divided between revenues and outlays. This division, based on projections consistent with the First Budget Resolution, is shown below in table 6. Like the other goals this can serve as a rough guide to current and future action, it indicates that fiscal stimulus, if and when needed, must be generally limited either to tax reductions or to spending measures that are temporary rather than permanent. Otherwise, either the goal of balancing the budget or the goal of limiting the Federal Government to one-fifth of GNP will have to be sacrificed.
[Table omitted]
The five targets described above are all related. A failure to achieve any one will mean that some of the others will also have to be sacrificed. The following section describes the nature of the policies that may be required if these goals are to be attained.
POLICIES TO ACHIEVE THE LONG RANGE RECOVERY TARGETS
The targets outlined above will be difficult to achieve. Achieving the unemployment goal will require an average GNP growth of 5.5 to 6 percent over the next 3 years. The country has never sustained above-trend growth for that many years. It is not inevitable that history be repeated. But the long run objectives can be attained only if the following conditions are met.
MAINTAINING ABOVE-TREND GROWTH
A recession, or even a sustained slowdown in which output growth falls well below 4 percent for a year or more, would put the achievement of even a 5 percent unemployment goal beyond 1980.
If we experience several quarters of stagnation, the amount of stimulus needed to get the average growth rate back on track coupled with the loss of revenues, might bring about increasing, rather than decreasing, budget deficits. It would also increase the cost of lost output in an under-employed economy. This cost is running at about $125 billion per year.
As shown in chart 1, there have been six periods of rapid growth since World War II before the present recovery. In three of those periods, the rapid growth ended after four quarters. In two of the other periods, rapid growth was maintained for more than four quarters because of wartime spending. The remaining period of rapid growth from the third quarter of 1971 to the first quarter of 1973 followed the extraordinary policy moves of August, 1971, when devaluation, price controls, and the investment tax credit were imposed simultaneously. Rapid growth continued for six quarters, aided by the addition of $18.5 billion of Federal expenditures between the second and fourth quarters of 1972.
Each of these periods of falling unemployment rates was followed by a period of slower growth in which the unemployment rate stayed relatively constant. Note that 3.5 to 4 percent real growth results in a stable unemployment rate. Therefore, the difference between, say, 5.75 and 4.75 percent real growth in 1977 is not as small as it might appear. The 1 percent reduction in the growth rate would halve the improvement in the unemployment rate from 0.8 to 0.4 percentage points annually.
Each of these six slowdowns, with one exception, was in turn followed by a recession. The single exception was in 1964, when a large tax cut (about 1.5 percent of GNP) and rapid monetary growth initiated another period of rapid economic growth, which was extended further by spending on the Vietnam War.
The present recovery has thus far conformed quite closely to this pattern. It has already proceeded for four quarters, which is the typical life of cycles that are unaided by extraordinary fiscal measures such as wartime spending, tax cuts or other expansionary policies. The second and, it now appears, the third quarter of this year conform to the pause periods of earlier economic cycles. As table 7 shows, industrial production, business fixed investment, and private employment have not yet reached their prior peaks. Unemployment still exceeds the worst level reached in previous recessions.
[Table omitted]
The observation made by the Committee in the First Budget Resolution Report applies to both the immediate future and the next several years: "... the most tragic mistake the Nation could make at this point would be to repeat old errors of fiscal and monetary judgment that would choke off the hard won recovery we are now experiencing."
The 1975 tax cut (about 1 percent of GNP) may extend the recovery for several quarters, but the fiscal stimulus provided by that tax cut will have been largely eroded by the extra tax revenues created by growth in money incomes by the end of 1977. For this reason, more stimulus than that contained in a continued current services budget may eventually be required if even modest growth and employment targets for 1980 are to be met.
It is impossible to know now whether the rest of the economy will be strong enough in 1980 to create full employment without a deficit in the Federal budget. Some economists, foreseeing unusually large investment demands, think a budget balance or surplus is possible if monetary policy is accommodative. This was the general opinion of the economists polled by the Committee staff (see footnote 1) . Those who rely upon computerized econometric models think the economy will be weaker and expect a growth recession before then. (This forecast is due, in some models, to a forecast of tight money, and not to a forecast of inherent weakness in the private economy.) Although the evidence is mixed, a balanced budget at relatively full employment is generally thought to be a reasonable goal to guide current budget decisions. This goal is conservative and provides discipline for current budget decisions. A lack of discipline will assuredly make a balanced budget impossible to attain.
AVOIDING AN INFLATIONARY SURGE
Inflation is a lingering disease because each year's price change is incorporated into next year's wage and price behavior. The moderate 5.5 to 6 percent growth path projected here is consistent with a gradual reduction in the wage-price spiral. But this steady growth can be achieved only if we maintain fiscal and monetary policies which avoid inflationary surges in private or public expenditure, which have sometimes occurred in the past.
External shocks of embargoes, cartel agreements, or crop failures that substantially increase oil, raw material, or food prices could put the inflation target out of reach. Congress may have to consider stockpile programs to prevent shortages in particular commodities from being transformed into general inflation.
MAINTAINING INVESTMENT AND PRODUCTIVITY GROWTH
Adequate productivity growth requires a trained labor force working with technologically efficient plant and equipment and with efficient work rules. If investment is inadequate, bottlenecks will develop, growth will slow, and the resulting unemployment may force an increase in less productive public employment jobs.
Achieving the 1980 goals requires that fiscal and monetary policies produce enough demand and low enough interest rates to generate the required capital formation. It is possible, however, that macroeconomic policies alone will not produce enough investment, or enough investment in the right sectors, to avoid inflationary bottlenecks. In this case targeted incentives may be required to direct investment into bottleneck industries.
STRUCTURAL POLICIES
Structural policies — provided they are made to work — make more ambitious goals attainable and modest goals more secure. Targeted investment incentives are one type of structural policy.
As noted previously, the Federal Reserve Board's Chairman called the Committee's attention to the benefits of supplementing the traditional tools of economic management with structural policies which improve the tradeoff between unemployment and inflation. Structural policies can be directed at the improvement of the labor market. Examples are youth training and job placement programs, targeted public employment, more effective job banks, improvements in the unemployment insurance system, easing restrictions on entry into jobs and professions, and generally removing impediments to the operation of free markets.
Other structural policies could improve the way in which product markets function. Regulatory reform, vigorous antitrust enforcement, and the creation of strategic materials and food reserves could help in the pursuit of several of our goals. Reforming the regulations which now force some trucks to return empty from their destinations will clearly reduce inflation and improve productivity simultaneously. Still other structural policies can be used to reduce inflation directly by keeping down costs and prices. Unnecessary payroll tax increases, excessively rapid deregulation of energy prices, and additional sales and excise taxation should be avoided. Policies to control costs and restrain inflation in the health sector can be pursued. And eventually it may be necessary to consider some form of incomes policy to reconcile price and wage changes with long run productivity growth.
Disagreement is, of course, inevitable on precisely which, if any, policies would be effective. Careful study will be necessary, since experience with many of them is limited and too little is known of their effects. But, if coherent structural policies are to exist by 1980, efforts to design them must begin now. As Chairman Burns has written to the Committee: "Progress in this field is ... a matter of urgency. Our nation has tolerated high rates of unemployment and of inflation much too long."
MAINTAINING SPENDING DISCIPLINE
Excessive Federal spending will produce an historically oversized share of the Federal Government in the economy and either a heavier tax burden or more inflation, accompanied by the "crowding out" of needed private investment. Therefore, the Congress must discipline expenditure growth.
If the Committee and the Congress had satisfied the requests of all the authorizing committees last April, these limits would have been breached. Current policy expenditures are now within $5 billion of the 20 percent limit for fiscal 1980 and $20 billion for fiscal 1981. (These current policy outlays and revenue projections were shown in table 6.)
Achieving the long term targets presents a severe challenge for fiscal and budgetary policy. The challenge is to maintain a fiscal stimulus which will hold the economy in a moderate, steady, and prolonged recovery to 1980. This will require both patience and flexibility because the stimulus will have to be adjusted if the private economy proves to be exceptionally weak or exceptionally strong. Success will require both budgetary discipline for permanent programs and budgetary imagination, as was shown in 1975, using temporary fiscal measures to complement private sector demand. Finally, successful implementation of imaginative structural policies will be required if the economy is to return to what used to be thought of as full employment and a low rate of inflation.
Mr. MUSKIE. I am happy to yield to my distinguished friend from Oklahoma, who has been such a strong partner in this effort to impose the budget discipline upon Congress, such time as he may wish to take.
Mr. BELLMON. Mr. President, I thank my distinguished chairman for his comments and also for the very fine explanation he has just made to the Senate of the substance of the budget resolution now before us.
Mr. President, before presenting my brief remarks, I would like to acknowledge that the distinguished Senator from Maryland (Mr. BEALL) who is a most valued member of the Committee on the Budget, has asked that I indicate that, if he were here, he would speak out and vote in favor of the budget resolution now before us. Senator BEALL's support has been invaluable throughout the budget process. His understanding of the functions of government and his support for a responsible fiscal policy have been essential to the success of the budget process: I want to take note of that in his absence.
Mr. President, today the Senate considers the second concurrent resolution on the budget for fiscal year 1977. The budget process is now in its second year, and as Members know, the resolution on which we hopefully will soon agree contains binding spending ceilings and a revenue floor. The decisions we make in considering this resolution are, therefore, of immense importance.
The budget process, both last year in its infancy and this year through the first concurrent resolution for fiscal year1977, can be judged alive and well. Because of the general support of Senators the process is now working successfully.
A major reason for the success of the process is the dedication and hard work of the chairman of the Senate Budget Committee, the distinguished senior Senator from Maine. The remarkable program of the budget process which is vital to the economic health of our Nation is due in large part to the leadership and guidance of Senator MUSKIE. It has been a pleasure and an honor to be associated with him in this task.
Much can also be said for the conscientious, professional, dedicated manner in which other committee members and staff have met their individual responsibilities. Much hard work and many difficult choices lie behind the resolution and the committee report now before the Senate.
Last spring, the first budget resolution set targets for the guidance of the Senate and the Congress. These have been reviewed in light of congressional actions and economic developments since the adoption of the first concurrent resolution. The committee's recommendations for the second concurrent resolution ceiling are:
[Table omitted]
Budget authority is $6.7 billion less than in the first concurrent resolution. Both outlays and revenues are $0.5 billion less and, consequently, the deficit is the same as in the first concurrent resolution.
With three exceptions, the outlay figures for the 17 individual functional categories are right at or near their levels in the first concurrent resolution. The three areas of substantial change are function 450 — community and regional development; function 550 — health, and function 600 — income security.
Community and regional development outlays increased $1.2 billion. The major reasons for the increased spending are program reestimates — by the Congressional Budget Office — of community development block grants and spending delays from fiscal year 1976 and the transitional quarter to fiscal year 1977.
Outlays for health are up by $0.9 billion, due principally to the failure to realize savings in the medicare and medicaid programs.
In the area of income security, outlays are down by $2 billion. The two main reasons for the decline are improved economic conditions and changing program trends.
In the Budget Act, the Budget Committee was charged with recommending budget priorities and fiscal policy. The first concurrent resolution singled out four areas of pressing national importance, these were: National defense; jobs; energy research, conservation and development; and social security. These areas of importance are affirmed in the committee's recommendations for the second concurrent budget resolution.
In the important area of national defense, this resolution provides an increase of almost 13 percent over the functional total in fiscal year 1976 and allows for at least 8.7 percent real growth in Defense Department programs. It meets the country's need for a strong national defense. The ceilings in the second concurrent resolution are below the targets set in May for the national defense function by $0.4 billion in BA and $0.1 billion in outlays. Mr. President, these reductions reflect congressional action taken under the guidance of the Armed Services and Appropriations Committees.
This year, the administration's defense budget request included a number of economies, some of which could be achieved at Presidential initiative and others which required legislative action.
Most of these savings have been, or are well on their way to being achieved. A few have been rejected by the Congress. Two key economies, however, remain to be confirmed: The Senate has voted elimination of the 1 percent kicker for retired pay increases but the House has not acted.
Action is pending on the requested stockpile sales. I feel duty bound, Mr. President, to remind my colleagues that the national defense function ceiling contained in this resolution assumes the 1 percent kicker is eliminated and that most of the stockpile sales are authorized for fiscal year 1977. I urge Senators to support the expected bill authorizing these sales. We need to confirm both of these remaining economies before our October 2 adjournment.
In the area of jobs, the Public Works Employment Act, which includes countercyclical revenue sharing, EPA construction grants and accelerated public works is included. So also is the CETA title VI public service employment program.
The legislation reauthorizing CETA title VI passed the Senate less than a month ago, and the bill has not yet come out of conference. The current level of jobs has been funded through the first of next year and it appears unlikely that a supplemental appropriation for the additional jobs will be made this late in the session. Assuming full funding of the program for only part of the fiscal year, allows reduction of the function 500 target without changing the basic policy toward public service jobs. This recommended reduction does not change the Senate's employment policy. It simply recognizes the reality that because of the late authorization, a lesser amount of money will be needed in fiscal 1977.
Energy research, conservation, and development is another priority clearly singled out. The importance of energy and the environment is reflected by the recommendation that such outlays be 37 percent greater than in fiscal year 1976.
Finally, there is the issue of social security. The budget resolution report does not include an increase in the social security tax. It also continues to recommend that "decoupling" legislation be enacted. The longer such legislation is delayed, the greater the cost of the program in both current and future years.
In terms of fiscal policy, the economy is moving along a healthy path of rising total employment and declining inflation. The fiscal recommendations of the budget resolution should carry us further along that path.
The reduction in the deficit from $65.6 billion to the still high level of $50.8 billion between fiscal year 1976 and fiscal year 1977 is most welcome. We must continue moving in the direction of balancing expenses with income. With continued economic advances, and continued expenditure restraints, we hope to have a balanced budget by fiscal year 1980. Although many would wish to have the budget balance earlier, it seems not to be judicious to raise expectations for such early budget balance. If, in fact, the budget comes to be balanced by fiscal year 1979, so much the better. But, we must avoid sharp shifts in fiscal, as well as monetary policy if we wish to have a continued balanced recovery and sustained economic growth.
On the whole, the new congressional budget process is working. This augurs well for the future. But to have the process working well does not imply that it could not be improved.
Two of the main areas in which the budget process needs further involvement and consideration are, first, in tax expenditures and, second, in establishing spending levels for off-budget agencies.
The recent tax reform act debate stands as eloquent testimony to the need for serious attention to the impact, desirability, equity, and revenue effects of tax expenditures.
Off-budget agencies similarly require serious study. Administrative or "budget"convenience is certainly not a satisfactory reason for moving agencies off budget. The resolution now before the Senate, by explicitly acknowledging the Postal Service subsidy goes part way toward facing the problem of off-budget agency spending.
Mr. President, the budget resolution now before the Senate is one which is substantially the same as the first concurrent resolution. It reflects the priorities and fiscal policy then deemed necessary. Little has happened since then to indicate the need for dramatic changes.
Mr. President, again I compliment and commend our chairman, Senator MUSKIE for the firm, fair, strong leadership he has provided. He has toiled tirelessly and worked patiently with committee members and staff to bring together divergent views. His leadership has made possible the assimilation of the enormous quantity of information that serves as a basis for the budget resolution now before the Senate.
I urge approval of the second concurrent resolution on the budget for fiscal year 1977.
Mr. MUSKIE. Mr. President, I yield myself 2 minutes.
The PRESIDING OFFICER. The Senator from Maine.
Mr. MUSKIE. I am most appreciative of those kind remarks by my good friend from Oklahoma.
I cannot stress strongly enough the importance of the contribution he has made in the success of this process.
There is, I suppose, a temptation if one is in the minority to simply stand firm against initiatives taken by the majority.
That has not been the inclination of the Senator from Oklahoma. His inclination has been to make a positive, creative contribution to the success of this project. I am not sure I could have done it as well if our roles had been reversed and he had been the chairman and I had been the ranking member.
In any case, I will be forever grateful and will always remember his role in this whole process this year.
I say that not in the sense of the customary way in which Senators gild each other's lilies on the floor of the Senate; I say it man to man and I mean it.
At this point I ask unanimous consent to include in the RECORD a statement by the youngest member of the Budget Committee Senator BIDEN of Delaware. Senator BIDEN has been a very important member of the committee. He has done his homework, has taken initiatives, been creative and positive, and I am delighted to ask unanimous consent that his statement be printed in the RECORD at this point.
The PRESIDING OFFICER. Without objection, it is so ordered.
STATEMENT BY SENATOR BIDEN
I rise today to urge the adoption of the Second Concurrent Resolution on the Budget. This resolution sets forth Congressional budget policy for the 1977 Fiscal Year. All Senators can be pleased with the results this year of our second effort to fashion a Congressional budget. I believe the Congress has done well, considering the odds we faced.
Last year, our so-called "dry run" for the new process started off amid double digit inflation and the worst recession since the 1930's. However, we fashioned a budget and lived well within it.
The bad economic times inevitably meant a deficit — revenues were down and recession related expenditures were up. However, there were no new massive spending programs to make the recession caused deficit even worse.
As a result, this year we find the deficit decreasing by about 25 percent. That is, of course, still higher than any of us would like. But we are still in difficult economic times which influence both our revenues and our spending. However, again this year, we have successfully avoided enacting new major spending programs that would build in a deficit for years to come.
In fact, many already see a time on the horizon when the budget can be back in balance. The time is somewhere around 1980 or 1981. That is a long time away — and it is dangerous to predict anything so far in advance. Obviously a reversal in our economic recovery could severely damage our chances of balancing the budget. So, as the Committee's report says, we must monitor the economy carefully. We must be sure that the recession is receding and that unemployment goes down, reversing the recent three-month upward trend. We must also watch the fragile ceiling on inflation because we cannot allow that to get out of control again.
If we wish to see a balanced budget, we must not allow our success with the new Congressional budget policy to go to our heads. During the past two years, we have been successful in avoiding big new spending programs. Perhaps that was made a little easier by the already massive recession caused deficits which certainly no one wanted to increase. I am afraid that, as our deficit grows smaller, our self-restraint on new spending may grow weaker. One of the prime concerns of the Budget Committee must be to work with all the other Committees of the Senate to control any new spending surge that may occur. We should also cooperate with those other Committees — which have primary responsibility — in looking for places to save money in existing programs.
It is good to be able to say that we come to this time of the year — when we set the final Congressional budget — and find the deficit no greater than the targets we set in May. In fact, our estimates of spending are down slightly. I am pleased, as we all can be, at the achievements of the new Congressional budget process. We should use this occasion to rededicate ourselves to keeping a firm grip on Congressional spending.
Mr. MUSKIE: I ask unanimous consent, Mr. President, to insert in the RECORD a statement by Senator Moss, a member of the Budget Committee. Senator Moss would have preferred to have presented this statement today himself in support of the Second Concurrent Budget Resolution. However, he is necessarily absent in Utah and, therefore, requested his statement be made a part of the RECORD.
I am pleased to honor his request. And I want to take this opportunity to express my appreciation to Senator Moss for his significant contribution to the Budget Committee and the budget process.
Apart from supporting the legislation which culminated in the Budget Reform Act in1974, Senator Moss has worked assiduously to make the new congressional budget process function effectively. His efforts exemplify the kind of activities that have made possible the success of the congressional budget process to date.
Besides his participation in the full committee activities, Senator Moss served as chairman of the committee's energy task force. Last summer the task force made recommendations on oil and gas pricing that helped lead to the compromise energy legislation enacted last December and to the pending natural gas bill. The task force recommended measures that would balance economic and energy needs and help us move toward both goals without offsetting the gains made in economic recovery. This summer the task force has explored a different kind of energy legislation — bills designed to assist in financing energy production and developing new energy technologies.The task force has examined the use, financial and budgetary implications of the various energy related Government guarantees, contributed importantly to the committee's better understanding of such incentives, and provided options as a basis for the committee's actions in developing the second resolution. The results will also be of assistance to the entire Congress in reaching a decision on the pending major energy legislation.
Stepped in without notice and in my absence chaired the Senate conferees in the budget conference with the House on the first budget resolution last spring. As my colleagues know, that conference involved many tough issues and substantive differences between the House and the Senate. Under Senator Moss' leadership those issues were handled with dispatch and effectiveness and as a result the conference report which emerged was much closer to the Senate position than the House.
Acted to improve budget control and fiscal responsibility in an impressive way. For example: the outstanding work that he has done in the aging committee in shedding light on the abuse and fraud and highlighting the bureaucratic indifference in the medicaid program. The resolution before us reflects a savings of $200 million in the medicaid program for fiscal 1977 largely as a result of his efforts; and as a cosponsor of S. 2925, the Government Economy and Spending Reform Act he has offered some amendments which have strengthened the bill and will reinforce a major aim of the bill — to eliminate unnecessary Government programs and improve the management of those which remain.
A long list of Senator Moss' related accomplishments could be cited but that was not my purpose. However, I did not want to let pass this opportunity to express appreciation for his dedicated service and contribution to the Budget Committee.
The PRESIDING OFFICER. Without objection, it is so ordered.
STATEMENT BY SENATOR MOSS
I support the Second Concurrent Budget Resolution. However, before speaking to that I want to add my word of commendation to the distinguished Chairman, Senator Muskie from Maine and to the ranking Republican member, Senator Bellmon from Oklahoma for the skillful leadership and direction which they have given the Budget Committee. Both deserve the gratitude of the Senate for their tireless efforts. I would also like to express appreciation to the members of the Committee whose dedication and sincere efforts, under the leadership of the Chairman and the ranking minority member have contributed immeasurably to the success of the new budget process.
In May, Congress approved overall targets on outlays, budget authority, revenues and the deficit by enacting the First Concurrent Resolution for fiscal 1977 to guide legislative action on the various spending and revenue measures affecting that period. The Second Resolution before us today revises and reaffirms those earlier totals and will establish them as binding ceilings which become applicable to all subsequent legislation affecting fiscal 1977. This budget results from extensive hearings, studies and consideration of views from people of disciplines and persuasions across the spectrum.
The primary goal of this budget is to maintain the economic recovery, at reduced rates of inflation, that began in the spring of 1975. To do this, this resolution recommends the Senate reaffirm the budget and fiscal policies it established as targets when Congress adopted the First Resolution in May, because the economy has generally followed the path projected in the spring and because the Congress has been able generally to meet its own targets.
The Resolution proposes no significant shift in budgetary priorities from that which Congress approved in May, but reduces the totals for both outlays and budget authority from those of the earlier resolution.
This year, for the first time, Congress will vote not only on the overall budget but on figures for each budget function. These functional totals are generally intended to represent broad priorities and not to imply judgments as to the exact mix of programs which are left to the authorizing and Appropriations Committees.
In developing this Resolution the Budget Committee again adopted priorities which differ from those of the Administration although the pattern of spending does not differ substantially in defense. Support is provided for high priority programs in employment, defense, energy, education, health and other areas of need while restraining the overall growth of the Federal government's share of the economy. The Committee felt that the interests of the people of the U.S. would best be served in fiscal 1977 by a budget which continues the economic recovery and avoids actions that will increase the rate of inflation. The most important of the broad priority judgments recommended are summarized as follows:
"Substantial growth in Federal spending for national defense to assure the resources necessary for ... fulfillment of U.S. commitments."
"A major attack on unemployment by public service jobs — an increase in funds for State and local public works projects which are ready to go and antirecession assistance to State and local governments."
"Selected increases in funds for energy, recognizing that greater efforts in the areas of energy conservation, supply, and research are essential to our nation's progress and well being."
"Continuation and expansion of Federal efforts in the areas of education and health."
"Continued strong support for programs — such as unemployment compensation, food stamps, veterans benefits and social security — to assist those hardest hit by the recent recession and protect those on fixed incomes."
"Continued strong support of efforts to improve the environment consistent with economic recovery."
How the Resolution proposes to do this can best be indicated by listing in more detail some of the key features of the Resolution which:
Provides a budget designed to bring unemployment down close to 6% by the end of 1977.
Achievement of this objective will add 1.5 million jobs to the U.S. economy in fiscal 1977, 700,000 of which are expcted to be in the private sector.
Rejects any increase in social security taxes not already mandated by existing law. The tax increase proposed by the Administration would lead to an increase in prices and bring additional and unnecessary inflation in 1977 thus posing new problems to an economy which is not fully recovered.
Accords energy a high priority. The Committee reaffirms its belief that energy conservation and supply efforts are important. The amounts assumed for energy include funds for major Congressional initiatives in solar energy research, fossil fuel development, synthetic fuels, energy conservation and energy research related to automobiles. This means we can accelerate research on new sources of energy, and promote development of domestic energy resources such as synthetic fuels and nuclear power.
Recommends extension of the 1975 tax reduction. This is designed to offset the loss of consumer purchasing power and assist the recovery.
Assumes enactment of tax reform legislation which would result in a net increase of $1.1 billion in fiscal year 1977 revenues.
Rejects the President's proposal for phasing out public service jobs in 1977 while unemployment is still expected to be high by historic standards.
Provides cost-of-living increases in veterans benefits and rejects the President's recommendations for cutbacks in veterans programs.
Provides fiscal recommendations consistent with a real economic growth rate of 6% which would assure continued reduction in the unemployment rate without aggravating inflationary pressures.
Assumes budget savings in a number of functional areas; e.g., administrative and legislative economies in national defense, sales of materials from the strategic stockpiles and savings in Medicaid of $200 million in fiscal 1977 through anticipated initiatives to control fraud and abuse. I believe we should crack down hard on fraud and abuse and work as a matter of priority to improve the management of the program. Apparently HEW Secretary Mathews agrees. He was quoted in a news item the last weekend as indicating that officials are going to have to go beyond looking at fraud and abuse and are "going to have to deal with the question of the management of the system". I think savings greater than $200 million in this program are eventually possible.
However, short run savings are more limited. We need to make a start on getting this program under effective control. But we should strive to do it in a way that does not make the cure worse than the ailment. I do not want to deny sick and needy persons medical care. But I am concerned about bureaucratic indifference in the administration of Medicaid. And I want to stop the hemorrhage of government funds and resources so that we can provide better care with less of the nation's budget resources which are also sorely required in many other activities. We should not project "paper" savings. Rather we should set an initial target as to what we can realistically expect to achieve without denying eligible persons needed medical care and that is what the Committee has done in setting this $200 million figure for next year. It represents what I believe can be realistically saved in the short run. After all the fiscal year is less than a month away.
Assumes increased support for State and local governments through revenue sharing and grants at a higher level in budget authority over the previous fiscal year to prevent a reduction in funding that would have resulted under the President's proposal. The recommended total also assumes increases in payments to States and local governments derived from mineral and timbering receipts.
Avoids actions that would unnecessarily increase inflation. This Resolution continues the two track strategy which the Congress adopted in the spring of 1975. Permanent Federal programs are held down to levels consistent with current needs. Congress has largely deferred implementing major new spending programs and has instead relied on temporary antirecession programs to aid the automatic stabilizers and provide fiscal stimulus without overheating the economy.
To obtain these goals, the Committee recommends a spending ceiling of $412.8 billion which is a half billion below the First Budget Resolution target. This figure:
is over $9 billion below the level estimated in April as necessary to continue Congress' fiscal 1976 budget programs for another year; and
is nearly $27 billion lower than the spending proposals for fiscal 1977 submitted by the various Senate authorizing Committees in connection with the First Resolution. In short, the Budget recommended in this resolution shows a marked degree of spending restraint.
The estimated deficit for fiscal 1977 is nearly $51 billion. That is awfully high. However, it is about one-fourth less than fiscal 1976 and it is clear the deficit would have been much larger but for the new budget process. The deficit is the direct result of revenue losses and unemployment costs of an economy operating far below its potential. After all each one percent increase in the unemployment rate will cost the Federal Treasury $19.5 billion in fiscal 1977. If the unemployment rate averaged 4% we would have a budget surplus in 1977 rather than a deficit. And, using comparable assumptions and forecasts the deficit resulting from this spending ceiling does not differ substantially from that projected by the President.
Overall the budget process over these last two years must be judged to be greatly successful.
After all it was through the budget process that Congress acted to turn the nation's economy around last year and move it toward recovery. It was through the Congressional Budget process last year which Congress expanded the President's proposed tax reduction, which altered priorities and channeled additional funds into antirecession programs and deferred new long range programs in order to stimulate employment and ease the burden of recession on those most affected by it and to reduce unemployment at a faster pace without rekindling double digit inflation. It was the Congressional Budget process which for the first time in history Congress not only set a spending ceiling but remained well within it.
While the economy has been turned around, the nation's jobless rate has fallen from 8.9% in May 1975 to 7.9% last month. There has been an increase in employment over the same period.
However, there are still too many people out of work and unemployment remains a national problem. Unemployment not only entails great human costs but it also means increased budget costs. Inflation has improved. Inflation fell from an annual rate of over 12% at the end of 1974 to less than 5% in July of this year. But it continues to be a matter of concern and we have not regained economic prosperity. Thus we must continue to focus our efforts on these important areas and toward full recovery of the economy.
The activities of the Congress this year show continued progress and solid gains on many fronts. However, as my colleagues know the First Budget Resolution recommended a $2 billion tax reform in existing tax expenditure provisions. The tax bill which was debated on this floor is currently in conference with the House but we have not yet achieved the full $2 billion additional revenue which the First Resolution called for. I would like to have seen enactment of the full $2 billion tax reform and I voted for many amendments toward that end during consideration of the tax bill. We should continue to work toward achieving the full measure. It is clear that we must do better in handling revenues and tax expenditures. Such items should be subject to the same standards of review as direct spending programs if we are to reap the full benefits from the new budget process in controlling the Federal budget.
While progress to date has been encouraging we must continue to work to do better. I support this Resolution not because I necessarily agree with every figure or with each of the proposals. It does not precisely square with my own views in every detail but I support it because I believe that it does represent a reasonable, responsible strategy for meeting the nation's needs as they are foreseen at this time. It represents another important milestone on the road to bringing the nation's budget under control and in better management of the nation's fiscal affairs. The new Budget process is one of the most significant positive steps the Congress has taken in decades.
And I intend to continue to do what I can to support the process and even improve it in the days ahead. For example, I have joined Chairman Muskie in cosponsoring S. 2925, The Government Economy and Spending Reform Act which will help eliminate unnecessary government programs and improve the management of those which remain.
In closing, I urge support of this Resolution by my colleagues. I also want to again commend the efforts of Senator Muskie, and Senator Bellmon — whose strong leadership has been an inspiration to us all — and to express my personal appreciation to the outstanding Committee staff who has performed with unusual competence and dedication.
Mr. ALLEN. Will the Senator yield?
Mr. MUSKIE.I am happy to yield. How much time would the Senator like?
Mr. ALLEN. I would just like to engage in a colloquy with the Senator.
Mr. MUSKIE. I yield 5 minutes for that purpose.
Mr. ALLEN. I thank the distinguished Senator.
The Senator knows that I have been a strong supporter of the Congressional Budget Committee and its work. I have commended the distinguished chairman (Mr. MUSKIE) and the distinguished ranking Republican member (Mr. BELLMON) for the fine efforts of the committee in the area of congressional budgeting.
I feel that they have been a great force for fiscal responsibility. I have seen time and again here on the floor where the distinguished chairman (Mr. MUSKIE) and the ranking Republican member (Mr. BELLMON) have taken the floor to ward off, and to call to the Senate's attention, the fiscal irresponsibility of measures here on the floor.
The efforts of the Budget Committee have been very constructive, indeed.
I am interested in the projection that is being made that by fiscal year 1980 they will be able to come up with a balanced budget.
That is correct, is it not?
Mr. MUSKIE. Yes. May I add that any such projections are tentative, at best.
Mr. ALLEN. I understand.
Mr. MUSKIE. They are used simply for illustrative purposes; they provide no guarantee. The projections are our best guess at this time.
Mr. ALLEN. Yes.
I happen to disagree with this projection because, frankly, I feel that there is not a single Member of the Senate, including the youngest Member, the Senator from Delaware (Mr. BIDEN), who will see a balanced Federal budget again.
I do not believe that we are going to be able to move from a deficit of $50 billion to a balanced budget, a realistically balanced budget, not only in 4 years, but in four decades. That is my personal belief in this matter.
But I would like to inquire as to whether this projection, which is susceptible of error, of course, is based on the prospect of more revenue, or less expenditures, or a combination?
Mr. MUSKIE. It is based, first of all, upon a projection of continued steady recovery to full employment. That is essential because the deficit at the present time is principally, if not totally, the product of the fact that 7½ million Americans are not working and not paying taxes, and the costs of unemployment.
So full employment would eliminate those two impacts upon the budget.
If we can sustain the present recovery, then at least those two factors which contribute to an unbalanced budget can be brought under control.
If our economic and budget projections — shown on page 19 of our report — are correct, and the budget is balanced at 20 percent of GNP in fiscal 1980, then revenues will have grown by $143 billion and expenditures by $92 billion during the next 3 fiscal years.
I say to my friend from Alabama, I express my appreciation for his very overt and supportive backing in the course of trying to institute this budget process. I say that we must accompany that by an ever-increasing demonstration of our capacity to impose fiscal discipline upon our own actions. We cannot let expenditures grow as rapidly as revenues if we are to balance the budget; in fact, we can only spend about $2 of every $3 in revenue that we realize from economic growth. Moreover, if we continue all of existing programs at current service levels, all but $5 billion of the $92 billion in allowable expenditure growth will be absorbed by increases in social security, defense, and other programs now on the books.
I say to the Senator, although the Senator from Oklahoma and I appreciate the Senator's praise, and I think I speak for Mr. BELLMON in this instance, that this process could not have worked, it will not continue to work, unless each and every Member of the Senate makes his own contribution to the discipline. Because, if all this process is reduced to constant nagging by two Senators, one from each side of the aisle, then it is not going to work.
The Senate in due course will reject us, like a body rejecting a transplant, if that were all there was to it.
But I have found encouraging examples in the course of the last year and a half in willingness of Senators, even those who may have a reputation for free spending, to cut back upon their own pet projects, their own pet programs, their own pet spending, in order to conform to this discipline.
I commend to the Senator's attention another legislative initiative with which I am associated, that is the so-called sunset legislation.
The Senator is a member of the Rules Committee. I testified yesterday before the Rules Committee on behalf of sunset legislation. I think that if we can refine that to a point where the Congress will enact it into law then we can build real fiscal discipline as a companion piece to economic recovery. If we can do that, then I hope that the years will demonstrate that the Senator's pessimism, which may be justified by past developments, will not be justified by future developments. That is my hope.
Mr. ALLEN. I thank the distinguished Senator, and I commend him for his sunset legislation. He was kind enough to allow me to be one of the cosponsors of this legislation. Certainly, I support it in the Rules Committee and will support it here on the floor.
But I see no indication, though, that even the constructive effect of the sunset legislation would cause this graph, which shows a continuing increase in expenditures, to ever start down.
So it is going to require, it would seem to me, more revenue to narrow the gap between expenditures and receipts.
I am just wondering whether there is enough play there, if we are able to catch up the slack and have full recovery, ever to close this gap, and I am fearful it cannot.
Mr. MUSKIE. I believe there is for two reasons. I make the point first that between fiscal year 1976, which was the first trial run of the budget process, and fiscal 1977, there is a revenue increase of $62 billion on an annual basis notwithstanding the continued recession. This is not as much of an increase as there would have been if we had eliminated unemployment, or reached full employment. The past year proves that economic progress improves, not only the private sector, but Government revenues as well.
Second, because of the nature of the progressive Federal income tax, inflation,even the moderate kind of inflation that we would like to achieve, produces more Federal revenues.
The PRESIDING OFFICER. The Senator's time has expired.
Mr. MUSKIE. I yield another 5 minutes.
For example, I think the ideal, stated on a pretty widespread basis, is that Federal revenues should not exceed 20 percent of gross national product.
If we maintain that proportion, the economy still could produce higher revenues without increasing the burden on the average taxpayer. For example, since I first came to the Senate, I think there have been three major tax cuts. Notwithstanding those cuts, Federal revenues in periods of full employment have been adequate to match Federal expenditures and will continue to be. That is in the nature of the strength of our private enterprise economy. I do not think we will need to increase Federal tax rates in order to produce more revenue.
I would be happy to supply staff studies which indicate this aspect of the Federal revenue system, and which I found very encouraging as I became more familiar with it. I think the Senator might find it to be encouraging.
Mr. ALLEN. I do not quite follow the Senator when he says that the Federal Government receipts have matched expenditures. How could that be when we are projecting a deficit of $50 billion for the next fiscal year?
Mr. MUSKIE. Of course, the Vietnam war and the subsequent recessions destroyed much of the picture over the past10 years so one cannot see what the normal situation would have been. If it
had not been for the extraordinary war expenditures for that period, we would have seen balanced budgets in the mid-sixties because of this basic characteristic of the Federal revenue system and the strength of the private economy. I think we can provide that kind of analysis, which is hypothetical in the sense that there is no way of rewriting those years, but which, nevertheless, I believe is reassuring.
I say that not for the purpose of encouraging the idea that revenues will automatically cover Federal expenditures no matter where they go — I do not say that at all — but want simply to put both Federal spending and Federal revenues in perspective as we see them in the future.
Mr. ALLEN. What I fear is if $1 is brought in, the Congress will spend at least $1.10 and possibly $1.25, and we will not have any true gain from an increase in Federal tax receipts.
Mr. MUSKIE. Let me put it this way for the Senator, if I may: If the economy recovers, as we hope it does, to the level of full employment, then there will be a margin of extra revenue over expenditures for current programs. That margin is available for just three purposes: to relieve the tax burden on taxpayers, or to cover additional spending, or to reduce the debt.
The congressional budget process, if it continues to work, will make those options clear to the electorate as well as to the Congress. It is for the political process to decide which of those courses will be followed. The Senator and I cannot mandate that decision in advance. But, by insuring that the budget process is a healthy one, we can make sure that the political process, which involves the people as well as the Congress, will dictate the choice that is made when that happy day arrives.
Mr. ALLEN. Is this projected balanced budget in fiscal 1980 a cherished desire or is that based on studies and reasonable anticipation of disbursements and receipts?
Mr. MUSKIE That is based upon studies. The results are shown on pages 15 to 23 of our report. The study assumes a continuation of the present economic recovery at about the present rate, which is 5.5 to 6 percent per year. Of course, whether or not that is achieved depends not only upon the budget, but upon Federal Reserve Board policies and actions in the private sector. If economic growth is different from the assumption, then the budget projection changes.
I believe that growth rate has been a modest goal. It has not been excessive. It has not triggered another round of inflation. It is a "doable" kind of a thing if all of the factors which influence the economy come into play in the right way.
The budget process in the last year and a half has indicated that it is an influence in the direction of coordinating all of these various inputs into the economy. I think it is encouraging to the business sector. I believe it gives the Federal Reserve Board more confidence that it can work with congressional policy rather than having to fight it. I think we have a feeling of confidence that this new discipline is working.
I believe if these three things — fiscal policy, monetary policy and the private sector — move together we can sustain that kind of a recovery. If we do, we can look forward to full employment and a balanced budget not later than 1980.
Mr. ALLEN. I thank the distinguished Senator. My belief that we are not going to see a balanced budget by that time or during our lifetime, for that matter, is not based on any lack of confidence in the Budget Committee. I know it is going to make a projection and try to hold things in line. But it is based upon the experience in the past of the spending proclivities of Congress. I would say that neither the Senator nor I will ever see a balanced Federal budget.
Mr. MUSKIE. May I say I understand the Senator's pessimism. May I also say that I hope we can eliminate the basis for it.
Mr. ALLEN. I would hope to see it by 1980, the Lord willing and both of us being here.
Mr. BELLMON. Mr. President, I yield to the Senator from New Mexico.
Mr. DOMENICI. I would say to the distinguished Senator from Alabama that I think anyone who has seen the budget process work to this point would have exactly the questions which the Senator had to put to our chairman. The discussion which has been had was extremely relevant.
I would say in a general way to my friend from Alabama that what we have tried to do is to state in this report the factors that we now know are under our control. We have estimated those which will be under our control. As we move down the road, we will have some very distinct options which are going to either move in the direction of that balanced budget in 1980 or we will be able to know, the Senator, myself, and others, in the areas where we have control, where we are moving off.
We have pretty good indicators of what will happen in that budget in 1980, and we have it in one place, related to the functions of Government as they are related to the targets which have been set out.
Obviously, we have to make some estimates. We have to estimate what will be the rate of growth of our gross national product. We have to make some estimates on what we are doing in the unemployment field. We have to make some estimates of the rate of taxation we are going to have.
When one looks at those in light of the process, the predictions, and the goals, I think it is safe to say that at least we will be able to know when we are moving off that line toward a balanced budget. I believe we will know whether it is our fault specifically in terms of what we have done to get off, or we will know what has happened out in the economy. There may be diverse views as to who caused that.
I do believe there are a couple of areas that are dangerous. They are the very outyear expenditures that are already in the law, the so-called entitlements, pensions, those kinds of things. We do set those out in our process as being the areas of grave concern at which we have to look in our predictors of the future.
Mr. President, I, too, commend the chairman of the committee.
Mr. ALLEN. Will the Senator yield?
Mr. DOMENICI. I would be delighted to yield.
Mr. ALLEN. The Senator will understand, of course, that my attitude is one of commendation for the work of the Budget Committee. I approve very strongly of the work the committee is doing.
I am talking about the pressures on the Congress and the spending proclivities of the Congress, with the unwillingness of Congress to levy a tax bill, to enact a tax bill, that will bring in sufficient revenue to come anywhere near matching our expenditures.
The committee will function and will do a good job in trying to hold expenditures in check and indicating the necessary revenue.
But what I am fearing is that Congress, based on its past record, is not going to be willing to close this gap, because as new revenue comes in it is going to provide for expenditures to more than offset the additional revenues. That is what I fear and what I base my premise on.
Mr. BELLMON. Mr. President, will the Senator yield?
Mr. ALLEN. I yield.
Mr. BELLMON. I would like to call the attention of the Senator from Alabama to some of the recent battles fought on this floor over spending issues.
The Senator will recall the battle over child nutrition, which is about as emotional an issue as you can have — the welfare of children measured against dollars — but yet the Senate voted against increases in child nutrition programs.
Mr. ALLEN. Yes. I managed that bill, and after the Senator from Oklahoma and the Senator from Maine gave their estimation, we succeeded in defeating this amendment and for the first time, I believe, in history, the Senate did turn down a proposal for added expenditures in the area of nutrition.
I said at that time that the Senate Budget Committee had earned its keep right there.
Mr. BELLMON. The Senator will recall the same things happened on a defense appropriation matter and on a dairy price support bill. These are all things that, in the past, have gone through without any real effort.
I think the Senator will agree that there seems now to be more debate on these issues.
Mr. ALLEN. Yes, I think those matters would have taken a whole lot of work to straighten out if there had not been a budget committee.
Mr. DOMENICI. Mr. President, how much time do I have remaining of the time yielded to me?
The PRESIDING OFFICER. The Senator's time has just expired.
Mr. BELLMON. I yield the Senator an additional 5 minutes.
Mr. DOMENICI. I thank the Senator from Oklahoma. I, too, wish to thank the Senator from Maine and the Senator from Oklahoma, our ranking Republican Member, for a good job in bringing the budget process to where it is today.
Mr. President, the prophecies of its detractors notwithstanding, Congress has demonstrated its ability to carefully develop consensus about change needed in the way it does business, to translate that consensus into the remarkable legislation that is the Budget Act, and to accommodate the radical acceleration of usual work schedules and the troublesome procedural alterations mandated by the act. The process has not been, and will never be, without difficulty, but it has contribued to measurable results. For the first time in a generation, authorizations and appropriations show promise of being completed before the start of the fiscal year to which they apply. Hard priority choices have been made and translated into targets and the targets have, with limited exceptions, been observed. The credit is due the Members in both bodies who have put aside selfish interests to make the congressional budget process a vital contribution to the welfare of the people of this great country.
Recent economic events, in combination with earlier legislative decisions, have pushed the share of gross national product devoted to the Federal Government well above the customary 20 percent. Continued fiscal restraint will be necessary to restore to the people direct control over more of their own resources.We have tested the outer limits in substituting governmental for private decisions. Freedom from unnecessary interference with private lives through poorly designed and artlessly implemented regulatory and spending programs is a result the people have a right to expect.
The people also have a right to expect that their politicians will avoid the creation of unrealistic expectations. I believe that the budget process can make a substantial contribution to the achievement of those results.
Restraint has characterized the recent fiscal and monetary policies of the Federal Government.
We have, I hope, learned that sudden and massive changes in fiscal and monetary policies destabilize the base on which our economic lives are built. Our recent fiscal policy has minimized the addition to permanent programs and has used triggering mechanisms to reduce the spending on temporary countercyclical programs as conditions improve. While I do disagree with some features of the recently adopted programs and feel that better and more sensitive triggering mechanisms are needed, I am encouraged by the successful efforts to prevent substantial expansion of those programs which permanently increase the Federal "bite" out of the GNP pie.
I find it also encouraging to note that some of those who were urging upon the Federal Reserve Board simplistic targets and courses of action are now acknowledging that the complexities of the interactions between monetary factors and the rest of the economic system require more sophisticated policies. While the course of relationships between our central bank and the Congress has seldom been smooth in our history, it may be that a period of relative calm can be anticipated.
I share the concern of many of my colleagues on the Budget Committee that some of the substantive law changes believed by us to be necessary on budget grounds have not yet been achieved. It is only through two-way cooperation between the Budget Committee and other committees that coordination of fiscal policy and program goals can be achieved. No committee, including ours, has a monopoly on any aspect of the complicated Federal legislative task. We must all work together to make our views understood, to listen to the views of others, and to proceed with legislative action when we are convinced that substantial consensus exists in the country as well as within the Federal Government. Neither stubborn resistance nor precipitous acquiescence to change will serve the country's interests. Improvement in the performance of that portion of the Federal Government which can be effectively influenced by congressional action requires that the careful processes which resulted in the enactment of the budget act be applied to other problems.
I can add nothing of substance to what has been said about the particulars of the second concurrent resolution on the budget for the fiscal year 1977. As always, I would prefer that some features of the resolution be different, but I do support the resolution in its present form since I believe it is the best result obtainable under all the circumstances, and I urge that it be supported.
I might say in closing, Mr. President, that I do believe the budget process is well on the way to setting some rather startling goals for this country as far as the Federal Government's fiscal policies are concerned. For instance, I do not think we are far from setting a goal that we will, in good time, not exceed taking 20 percent of the gross national product pie for the Federal Government, and that is a rather startling goal. That, in and of itself, with a counterpart taxation policy, might very well answer Senator ALLEN'S question.
But if that is the case, and we know what the GNP growth is, then obviously it would be rather easy to predict where we would be 2, 3, or 4 years from now, and the proclivity of Congress, as Senator ALLEN says, to spend more than it takes in will have a rather remarkable target to measure its proclivity against on a regular and specific basis.
These are the kinds of things that I hope will occur. This will add stability, continuity, and reliability, as I see it, to America's private sector, and to the attitude of American consumers, and I think in the long run that kind of thing is what is needed more than anything else to get us out of the recession and to maintain a stable and vital American economy.
Mr. President, I thank the chairman and the ranking Republican member for their efforts and for yielding me time here this morning.