October 25, 1977
Page 34899
Mr. HOLLINGS. This is a very important statement, Mr. President, with relation to the budget process. The Budget Committee met all morning long, and I am sure Senator BELLMON, our ranking minority member, will be along. We were in unanimous agreement with respect to the sentiments expressed herein by this statement of our chairman.
STATEMENT BY SENATOR EDMUND S. MUSKIE
Mr. President, the Energy Production and Conservation Tax Incentive Act now before us affects both energy policy and the Federal budget in very significant ways. The Budget Committee met this morning to consider the relationship of this bill to the budget.
I want now to report to the Senate the conclusions the committee arrived at this morning regarding the bill.
First, the individual tax expenditures provided by this bill would breach the revenue floor Congress adopted in its binding congressional budget just last month. The bill contains tax expenditures for fiscal year 1978 which cut more than $800 million below that revenue floor. These tax expenditure provisions of the bill are therefore subject to a point of order under the Budget Act.
Second, to moot the point of order and evade the budget process, section 1056 of the bill directs the Secretary of the Treasury to implement the effective dates of the act on a phased basis, so that the revenue loss which would otherwise occur does not actually breach the budget resolution revenue floor during 1978.
This provision does not reduce the ultimate $40 billion cost of the legislation. It is simply a cosmetic device to get around this year's budget resolution.
Particularly unfortunate, this device surrenders control of fiscal policy to the executive branch. It undercuts the primary purpose of the Budget Act, which — as set forth in the very first section of the Budget Act — is to establish effective congressional control over the budgetary process.
Third, we hope and expect the Senate will — during the course of its debate and amendment of the bill — take appropriate action to bring revenue losses under this bill within the constraints of the binding budget resolution Congress has adopted. The ill-advised evasion of the budget process proposed in section 1056 would then be meaningless and could be eradicated.
Fourth, if that result does not occur, the Budget Committee will feel constrained to make appropriate recommendations to reduce the revenue losses contained in the bill.
No Senator wants to see the congressional energy program derailed by technicalities. Equally so, I do not believe anyone in this body wants to sacrifice the budget process as a matter of one committee's convenience, even for the highest of motives.
If one committee of the Congress can void the application of the budget process to its legislation by an artifice such as section 1056, then, surely, all committees are entitled to the same consideration, and the budget process has become a dead letter.
Mr. President, let me make very clear the desire on the part of the Budget Committee to cooperate with the FinanceCommittee, the Energy Committee, and all other committees of the Senate to achieve a wise and workable national energy policy. We understand and sympathize with the problems the Finance Committee has faced in producing this bill.
But the Budget Committee's responsibility is to seek to secure adherence by the Congress to the budget it has adopted and to the preservation of the budget process itself.
We want an energy program, but there is no reason why we must sacrifice the budget process or the congressional budget to get an energy bill.
So let us be responsible. Let us enact whatever energy bill we can. But let us also be honest and responsible about the budget process. Let us conform the energy bill we pass to the requirements of that honesty and responsibility.
Just how does the binding budget Congress adopted 3 weeks ago apply to this bill? That congressional budget resolution permits a net reduction by all new revenue legislation of $1.1 billion in fiscal year 1978. This figure was based upon an assumption of a $1 billion reduction for energy tax legislation. This amount reflects the net effect of the House-passed energy tax bill. The resolution also assumed an additional net reduction of $0.1 billion to accommodate a series of other smaller revenue measures.
By comparison to this $1.1 billion allowance, the energy tax bill reported by the Finance Committee would reduce fiscal year 1978 revenues by $1.9 billion, if all the individual effective dates in the bill are maintained. Thus, without further modification, the bill would be inconsistent with the budget resolution and subject to a point of order on the Senate floor.
However, in order to avoid this budget process point of order and to remain cosmetically consistent with the budget resolution, the Finance Committee added section 1056 to the bill.
One might be tempted to admire the ingenuity involved in developing such a device for attempting to avoid a point of order for breaching the congressional budget floor; but the Senate must reject the use of this ploy.
It undercuts the budget process and the budget resolution. It will cause the fiscal year 1978 budget to inadequately reflect the large long term revenue losses of this bill. It would abdicate significant responsibility to the Treasury Department for the amount of revenues to be
raised in 1978 — a constitutional responsibility traditionally jealously guarded by the Congress.
It undercuts the very purpose of this legislation. It is impossible to justify, on any energy policy ground, postponing the effective dates of these energy conservation, production, and conversion provisions. Postponement, in effect, creates a disincentive during the period preceding the delayed effective date to undertake the very actions the legislation is supposed to encourage.
With respect to the long term implications of this bill, I am sure all Senators are well aware of the $41 billion of new tax credits and deductions which the pending bill would create during the period fiscal year 1978-85.
We are deeply concerned that these very high revenue losses — averaging $5 billion a year over the next 8 years — will make it substantially harder for the Congress to achieve a balanced budget in the foreseeable future.
This enactment certainly will jeopardize any chance for significant personal and corporate tax reductions in the foreseeable future.
Some Members of this body might say, "Don't take these potential revenue losses seriously. After all, the House energy tax bill contains several significant new taxes, and therefore, the conference tax bill is certain to have sharply reduced outyear revenue losses." Unfortunately, based on recent experience, this response is inadequate. Just a few months ago, the Senate passed an agriculture bill which breached the budget. Some Senators supported that bill because they believed its high cost would be cut back by the conference. However, in fact, the conference product came back costing even more than the Senate version.
The Senate cannot abdicate its responsibility. It cannot vote for legislation it would be unwilling to see enacted into law. We cannot simply delegate responsibility to our conferees to rectify our Senate excesses. We cannot abdicate our responsibility under the Constitution and the budget process to legislate wisely.
So Mr. President, we must watch the progress on this bill carefully as it occurs. We hope the Senate will enact a bill which is consistent both with the achievement of a sound energy program and the preservation of the congressional budget process. The Budget Committee will do whatever it can to assure that result.
MACROECONOMIC IMPLICATIONS OF THE FINANCE COMMITTEE ENERGY BILL
Mr. President, I am especially concerned because the energy bill reported by the Finance Committee is bad economic policy. It is bad policy because it provides an unbalanced set of economic incentives which would unnecessarily sacrifice revenues and jeopardize the long run economic goals of full employment and budgetary balance.
The Finance Committee bill does not balance its tax credits with revenue increases in attempting to change the incentives for using energy and for converting from oil and gas to coal. The Finance Committee rejected all four of the tax increases proposed by the administration and approved by the House, depending solely on tax credits for its energy savings. It thereby attempts to shift the entire cost of the energy program onto the Federal budget. The cost will appear as larger budget deficits, as reduced funding for other programs, or as higher tax bills for American taxpayers.
This tax credit program is also unnecessarily costly in its loss of Government revenues. This is because it provides extremely large benefits for conservation and conversion investments although it is reasonable to believe that many of these investments would be undertaken in any case in response to rising oil and gas prices.
The driving economic force behind energy conservation and conversion away from oil and natural gas dependence is higher oil and gas prices. These prices have already risen dramatically, and further rises are likely in the future. This should provide strong incentives for insulation, conservation, and conversion to coal or other energy sources. This tax credit program will provide large windfall gains for many who are merely responding to rising energy prices.
Mr. President, the financial incentives provided by this bill are enormous. The 40 percent additional tax credit for investment in energy conversion, for instance, would lower the cost of capital to firms by 60 to 80 percent relative to current law. The tax expenditure is so great that it would pay some firms to buy coal using equipment even if its economic value were extremely low. It may produce uneconomic investments at the taxpayers' expense, or may simply accelerate investments that would take place anyhow. This is not an efficient use of tax revenues.
Mr. President, finally, and most important, this program would jeopardize our long range economic goals of full employment and budgetary balance. Revenue reductions will, in any case, be necessary in the next few years to offset the increased tax burden on American households imposed by growth and inflation. But it is essential that these tax reductions have sufficient stimulative impact to offset such fiscal drag and maintain the recovery.
In the Budget Committee's recent report on the second budget resolution it was estimated that, even with strong investment demand, tax cuts totaling about $30 billion would be required in the next 5 years if we are to return to full employment while we restrain Federal spending. That is under very optimistic assumptions about the growth of private sector demand. The tax credits in the Finance Committee bill would result in revenue reductions totaling about $40 billion by 1985. But these credits would not relieve the increasing tax burden on American families.
Furthermore, in comparison with energy incentives which balanced revenue increases against revenue losses, the Finance Committee proposals would require cumulative revenue losses of some $15 to $20 billion from 1978 to 1985 in order to achieve and maintain full employment. In response to the increased budget deficits resulting from this erosion of revenues, the temptation would be to conduct a more restrictive fiscal policy, which would raise unemployment.
In short, this tax credit program would make it much more likely that we fail to reach our full employment targets and that we continue to run large budget deficits.