February 21, 1977
Page 4758
Mr. President, the Senate today begins debate on Senate Concurrent Resolution 10, the third concurrent resolution on the Federal budget for fiscal year 1977.
The purpose of this third budget resolution is to revise the congressional budget adopted on September 16, 1976. This revision is necessary if we are to sustain a vigorous economic recovery in light of current economic conditions.
The second budget resolution for fiscal year 1977, which set binding limits on Federal revenues and spending, was intended when it was adopted to promote a strong economic recovery and meet all foreseeable needs as of that time. When it adopted that resolution, however, Congress recognized that, if economic conditions seriously worsened, additional Federal action might be necessary to stimulate the economy. We are now aware that the economy did significantly worsen during the fall, with unemployment at the end of the year — even before the current winter fuel crisis — at a higher level than it was in the first quarter of the year.
Responding to this unacceptable slowdown in the recovery and the hardship for American workers this rate of joblessness imposes, President Carter has, as one of his first legislative initiatives, proposed a temporary program of additional fiscal stimulus. This program would require changes in the binding spending ceiling and revenue floor contained in the second budget resolution adopted last fall.
Even before receipt of the President's recommendations, the Budget Committee had begun hearings with prominent economists representing a broad range of views to determine the appropriateness of such additional stimulus. The committee heard from prominent economic advisers to Democratic Presidents and Republican Presidents as well. We heard from Walter Heller, who had been Chairman of the Council of Economic Advisers for Presidents Johnson and Kennedy, and we heard from Paul McCracken, who was Chairman of the Council of Economic Advisers to President Nixon. We also heard several others prominent in the economic and business fields, including Messrs. Reginald Jones,chairman and chief executive officer of the General Electric Corp., and Albert T. Sommers, chief economist of the Conference Board. Nearly all of our witnesses recommended additional Federal stimulus in excess of the amounts contained in the President's subsequent request or in this budget resolution to counter the economic slump.
Subsequent to the receipt of the President's special stimulus message on January 31, 1977, the Republican policy conference of the Senate also offered a plan for Federal fiscal action to deal with the present economic situation, a plan which, by itself, would have required a revision of the third concurrent resolution.
The Budget Committee recently met for 2 days of markup sessions to consider these recommendations as well as others it had solicited and received from the other committees of the Senate. On February 10, 1977, the committee reported a third concurrent resolution on the budget. The program recommended in this resolution falls midway between the various recommendations from the President and other sources. It represents an acceleration of certain of the President's proposals to get the maximum job creating effect in 1977, with a minimal increase in the fiscal year 1977 deficit compared to the President's proposal. It proposes revenue and spending levels which are adequate to accommodate either the President's proposals or those alternatives which have been advanced by other congressional committees.
NEW GOALS AND FISCAL TARGETS
Because the 1977 goals established in the second budget resolution are now out of reach, we must now establish new goals and pursue them vigorously.
The stimulus provided by this new budget will make it possible for the economy to resume a vigorous recovery this year. Real GNP should expand at a rate of 51/2 to 6 percent during 1977 and bring unemployment to 7 percent or less by the end of the year. If appropriate policies are adopted for fiscal year 1978,this growth should be sustainable next year and the unemployment rate should fall below 6 percent by the beginning of 1979. This steady progress over the next 2 years would make it possible to aim for unemployment below 5 percent in 1980.
To achieve these goals, Mr. President, the committee recommends adoption of the following overall fiscal targets for fiscal year 1977:
Revenues of $346.8 billion;
Outlays of $415 billion;
Deficit resulting from these figures of $68.2 billion;
Budget authority of $467 billion; and
Public debt resulting from these figures of $718.3 billion.
I ask unanimous consent that a table summarizing the congressional budget for fiscal year 1977 be printed in the RECORD at this point.
There being no objection, the table wasordered to be printed in the RECORD, as follows :
[Table omitted]
Mr. MUSKIE. The Budget Committee is reporting this third budget resolution now because of the serious economic conditions facing the country. The possibility of such additional budget resolutions to meet changed conditions demonstrates the flexibility of the budget process. But the committee wishes to emphasize that additional resolutions should be the exception and not the rule. The Budget Act provides for such additional resolutions to meet changed conditions, not simply to take account of matters which might have been considered in the first and second resolution.
RECOVERY AND JOBS
When the second budget resolution was adopted last fall, the Congress established a set of economic goals for 1976 and 1977. The budget adopted in September was calculated to produce real GNP growth of 6.6 percent in 1976 and 5.6 percent in 1977, thereby lowering unemployment to 7.2 percent at the end of 1976 and 6.2 percent at the end of 1977.
At the time that the budget was adopted, a slowdown in the economy had begun to appear, but its likely duration was a matter of debate. Recognizing the uncertainty of the economic outlook and the possibility that the slowdown would prove temporary, the Budget Committee reported that "it does not appear to be appropriate to make any major economic policy change at this time," but noted that more expansionary policy would be required to pursue our growth and employment goals if the economic recovery faltered. In its report on the second budget resolution, the committee stated that it would be "prepared to consider a subsequent concurrent resolution early next year if the economic data received by then do not indicate that the recovery is proceeding satisfactorily."
The recovery has, in fact, Mr. President, proceeded at a rate below that projected in the second budget resolution, and the economic outlook is not encouraging. Private sector demand, and, in particular, business investment and exports, has been weaker than anticipated. Real output grew at only a 3.2 percent rate in the last half of 1976.
This slow growth of output was insufficient to reduce unemployment significantly. As a result of this slowdown, the congressional output and unemployment goals for 1977, as embodied in the second budget resolution, are now beyond reach.
The already disappointing recovery recently has been further set back by the exceptionally cold winter. Industry has experienced lower output and higher unemployment resulting from energy shortages and the cold. Serious production losses are also occurring in the agriculture sector, due to both the cold winter and the drought in the Great Plains and the West — a subject which I discussed earlier with mv good friend from Washington (Mr. JACKSON). In addition, higher fuel costs are a serious drain on consumers' income and savings, and this further weakens the economy.
STIMULUS PROPOSALS
These new fiscal targets primarily reflect changes necessary to accommodate an economic stimulus program aimed at continuing the recovery. The new functional totals also incorporate the latest reestimates by the Congressional Budget Office of current spending levels under existing programs which reflect savingsthat have been achieved and additional costs which have arisen under current programs. I ask unanimous consent to have printed in the RECORD a table that summarizes the stimulus proposals contained in the resolution.
There being no objection, the table wasordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. MUSKIE. The resolution establishes a revenue floor for fiscal 1977 of $346.8 billion. This would permit enactment of up to $12 billion of tax relief as proposed by the Carter administration, or alternatively the enactment of permanent tax reduction or other forms of temporary tax relief of comparable amount. In arriving at this figure, the committee considered both the requirement for a prompt and adequate stimulus and the need to offset increased consumer fuel and food costs attributable to the exceptionally harsh winter.
This new revenue target for fiscal year1977 rests upon a number of economic assumptions concerning growth in gross national product, profits, and personal income. I ask unanimous consent that a set of tables illustrating our revenue calculations, together with underlying assumptions, be printed in the RECORD at this point.
There being no objection, the tables were ordered to be printed in the RECORD, as follows:
[Tables omitted]
SPENDING PROPOSALS
Mr. President, several of the new spending recommendations are intended to fund programs which will quickly produce jobs in areas of high unemployment. The proposals are aimed at those groups and sectors hardest hit by the continuing recession, especially youth and minorities, State and local governments, and the construction industry.
JOB PROGRAMS
The committee recommends that the spending ceiling be adjusted to permit a significant expansion of public service employment over the current level of 310,000 jobs to 600,000 jobs by the end of fiscal 1977 and to 725,000 jobs by the end of fiscal 1978. This adds $4.4 billion in budget authority and $0.7 billion in outlays for fiscal 1977 over what it would take to fund the existing level of jobs through fiscal 1978. The new ceiling, Mr. President, would accommodate the President's recommendation concerning the number of public service jobs to be funded under titles II and VI of CETA. The committee recommends the funding of 100,000 jobs under CETA title II and 500,000 jobs under CETA title VI in fiscal 1977 and the funding of an additional 25,000 jobs in title II and 100,000 jobs in title VI in fiscal 1978.
The committee recommends additional funds to permit expansion in job and training slots for programs directed at youth unemployment and older Americans. This adds $1.6 billion in budget authority and about $650 million in outlays.
The high unemployment rate and low earnings of youth continue to be of concern to the committee and the Nation. In 1976, Mr. President, youth represented 29 percent of the labor force, but 46 percent of the unemployed population. This recommendation provides for expansion of the number of jobs and training slots directed at the problem of youth unemployment through existing CETA title I, III, and IV programs, through a new CETA title that focuses on youth programs, or through other youth programs.
The unemployment problem among America's older workers is also severe. The resolution allows funding of an additional 15,000 public service jobs under title IX of the Older Americans Act.
PUBLIC WORKS
The resolution allows additional funding, Mr. President, for the local public works program. This adds $4 billion in budget authority and $0.4 billion in outlays.
This money will provide grants for public works projects that will produce jobs in areas of high unemployment and give assistance to workers in the construction industry, which has been hit especially hard by the recession.
We have also provided another $1.1 billion in budget authority and $0.8 billion in outlays for EPA construction grants, railroad and highway construction, and improvement in recreational facilities.
COUNTERCYLICAL REVENUE SHARING
The resolution allows an additional $633 million for countercyclical revenue sharing.
This recommendation provides full year funding for a revised countercyclical revenue sharing program. The revised formula will be more responsive to changing levels of unemployment.
State and local governments, Mr. President, have been hard hit by the recession. This program replaces some of the revenues lost to the State and local governments because of the weak economy and helps prevent reductions in basic services and increases in State and local taxes.
In his stimulus message, the President proposed that funding for this program be increased, beginning with the July 1 payment period. The $633 million assumed in this budget resolution corresponds to the President's proposal.
The President is now considering an earlier implementation of the increased funding level, possibly beginning with the April 1 payment period. Such a change would require an additional $300 million not included in this resolution.
I add parenthetically that it is included in the President's proposed budget revisions which has been released as of today by the Executive Office of the President, the Office of Management and Budget, and this particular item is intended to help offset the increased fuel costs which are faced not only by State and local government, but by those of their citizens who are particularly hard hit by such costs.
Fortunately, the House resolution provided an additional increase in funding for the countercyclical program, so that should the Congress decide to accommodate this possibility, there will be sufficient flexibility in the House-Senate conference to accommodate the needed changes.
According to a report released this morning, Mr. President, by the Subcommittee on Intergovernmental Relations, which I chair, this money will be well spent.
The subcommittee report, which is based on the results of a survey conducted of approximately 400 State and local governments, found that this new program, enacted by Congress just last year, is working very well.
The study found that by far the greatest amount of assistance has gone to those places most in need. For example, 70 percent of all funds paid out during the third payment period under the countercyclical program went to jurisdictions with unemployment in excess of 8 percent. Among local governments, 75 percent of the funds went to jurisdictions with unemployment higher than 8 percent.
The study also found that the program can be expected to have a substantial jobs impact — somewhere in the neighborhood of 87,000 jobs per $1 billion allocated to local governments.
DIRECT RELIEF FOR INDIVIDUALS
Mr. President, the resolution also assumes special direct measures for relief of individuals and families hardest hit by the recession and the severe winter. These relief measures include direct payments to individuals who are recipients of social security, SSI, and railroad retirement benefits. In general, these are the people who are not covered in the tax relief proposals. The $1.8 billion in budget authority and outlays assumed for this purpose could be used for the President's proposal or any similar stimulus measure.
They also include an extension of the Federal supplemental benefits program for the unemployed which is scheduled to expire on March 31. This extension was considered necessary because economic conditions and unemployment remain significantly worse than projected when the measure was last extended in June 1975. This proposal adds $0.5 billion to budget authority and outlays on the assumption that the maximum benefit period will be reduced from 65 to 52 weeks.
The totals in the resolution assume about $300 million in budget authority and outlays for a program to provide emergency assistance to those low and moderate income families hardest hit by rising fuel bills this winter. Funds would be distributed through the Governors based upon the severity of the winter, the number of people in need of assistance, and the relative cost of fuel in each State. Funds might be paid directly to fuel supplier, with the applicant receiving a limit of $30 cash out of a maximum payment of $250.
The need for these funds is evident. This winter is the coldest in 60 years — 40 percent colder than last. States in every region have felt its effects.
Subnormal temperatures have caused energy consumption to increase dramatically this winter. In New England, where conservation efforts have been widespread and effective over the past 3 years, consumption nevertheless is up 25 percent. Nationally, residential consumers are using 32 percent more energy to stay warm than they did last year.
And with the severe cold, prices for energy have skyrocketed. Fuel oil customers in New England have faced a 5 to 7 cents per gallon increase since last summer. Natural gas prices across the country have jumped more than 7 percent in the past 2 months. In fact, congressional estimates of the total residential heating bill for the Nation are that it will be between $5 billion and $8 billion this winter — up to a 49 percent increase nationwide over last year, equivalent to an average of more than $139 per housing unit.
These big heating bills hurt every consumer. But they hit hardest those least able to pay — the poor and the near poor. Every day, more and more low income families must make the cruel choice between getting enough to eat or staying warm — paying the rent or paying the utility bill.
Energy costs have risen more than four times faster than average welfare payments since 1973. Even before this winter, elderly persons were paying 60-80 percent of their income for shelter and heat.
The need is clear. Using the best data available, Federal agencies have estimated that more than 2 million families must have financial assistance because of this winter's severe cold.
This proposal is not intended to be, nor can it be, the answer to all the problems of the poor this winter. But it does provide best coordinated Federal-State response to the financial crisis faced by many of the Nation's low income citizens.
THE FEDERAL DEFICIT
The committee has recommended a revised Federal deficit target for fiscal year 1977 of $68.2 billion. This figure is $17.6 billion above the deficit target of $50.6 billion in the second budget resolution. $3 billion of this increase is related to reestimates of revenues and outlays under the second budget resolution. Revenues under current law are estimated to be $6 billion below those projected in September, principally because of the slowdown in the economy. Outlays for programs assumed in the second budget resolution are now estimated to be $3 billion lower than in September, reflecting the net of savings which have been achieved and unforeseen costs which have arisen under existing programs.
The remaining $14.6 billion of increased deficit reflects the net cost of revenue reductions and spending increases which the committee believes appropriate to meet the economic conditions which face us today. Our recommendation provides for a reduction in net revenue collections of $9.7 billion, after allowing for higher receipts from a stronger economy and outlays on programs not provided in the second budget resolution of $4.9 billion.
I wish to emphasize that the continuation of the large Federal budget deficit is due to the fact that the economy is operating far below capacity and only partial recovery has taken place from the worst recession in postwar history. The only acceptable path toward lower deficits in the future is the path of full economic recovery. If we maintain the recovery and promote health and vigorous growth in the private sector, we will be able to lower the deficit in future years and move toward budgetary balance.
INFLATION
We met our inflation goal last year. In the first budget resolution for fiscal 1977, we aimed for a 6 percent rate of increase in the consumer price index for 1976. The actual inflation rate was 5.7 percent, in line with the assumption made in the second budget resolution.
Inflation has been a critical problem for our society in recent years and it continues to be a very serious concern. Nevertheless, we have made substantial progress in squeezing inflation out of the economy, even though much more remains to be done.
In 1974, American consumers lived through double digit inflation. When we drew up the first congressional budget in 1975, prices were still rising at over 9 percent annually, and food prices were going up at nearly 8 percent. By late 1976, consumer price inflation was down to about 5 percent.
I wish to emphasize that this does not mean that inflation is no longer a serious problem. The committee is acutely aware of the danger of overstimulating the economy and setting off another round of large price increases. The possibility of renewed inflation has been an important consideration in our deliberations over the appropriate size and type of stimulus package.
Inflation is always a potential danger when the economy is operating near full capacity and the demand for goods equals or exceeds our capacity to produce them. However, the inflation we are now experiencing is not the result of excess demand. Our present inflation results from the inflationary momentum built into the system, as each year's price increases are incorporated into the next year's wage and price decisions.
Considerable slack exists in the economy at present. Unemployment is still higher than at the bottom of other postwar recessions, and manufacturing industries are using only about 80 percent of their productive capacity. Judging from historical experience it should be possible for the economy to grow at a 51/2 to 6 percent rate at present without adding to inflation, if an appropriate mix of policies is followed.
The consumer price index suddenly rose at a 10 percent annual rate in January, after 3 to 5 percent increases during the last few months. Price increases in the food and services components were much larger than in recent months, while prices of commodities other than food rose at about the same rate as in December.
This large price increase was due primarily to the severe weather conditions, and we must expect a continuation of temporary price increases for some commodities in the next few months. The drought in the West has cut back on agricultural output. The natural gas shortage has closed plants in some parts of the country. The increased demand for heating fuel has led to further increases in energy prices.
It is important to recognize that this additional inflation is due to special supply conditions and not to general excess demand. The temporary inflationary effects of these supply difficulties should not be allowed to impede the implementation of appropriate fiscal and monetary policies.
The Congress and the Nation must keep a watchful eye on inflation as we decide on fiscal policy for 1977 and 1978.Our policies of prudent expansion have allowed us to make continuing progress in reducing inflation. We must continue this progress in 1977.
Mr. President, although the Budget Committee's report has been produced in response to immediate economic conditions, we must view congressional fiscal policy in a long term context.
We must never lose sight of where we have been and where we want to go.
We have been through the most severe recession in postwar history, combined with unprecedented peacetime inflation. Only 2 years ago the unemployment rate was nearly 9 percent and inflation was over 10 percent. In part that was a result of forces outside our control. But it was also due to mistaken Government policies. We need not repeat that experience. If we choose our policies wisely, we will not do so.
The traumatic effects of that experience linger on in the economy. It takes time to reduce unemployment from those levels. It takes time to squeeze inflationary pressures out of the economy.
It will be 1980 — a full Presidential term from now — before America can once again have full employment.
Even if the private sector of the economy proves exceptionally strong, we should not expect budgetary balance before 1981.
In the best of circumstances, the goals of full employment, lower inflation, and a balanced budget will prove difficult to reach. Attaining them will require not only wise policies from the Congress and administration, but much better luck than in the last few years.
The revised budget we put before you today for fiscal 1977 is directed at those goals. It represents a clear commitment to economic recovery. It continues the fiscal discipline maintained by second budget resolution. I urge my colleagues to support it.
Mr. President, at this point I would like to express my appreciation to the members of the Budget Committee, led on the Republican side by the distinguished gentleman from Oklahoma (Mr. BELLMON) , and especially those members, including the distinguished Presiding Officer at the moment (Mr. NUNN), who served with the Budget Committee over the last 2 difficult years.
I welcome the addition of the new Members who are joining the committee this year. I trust they will find the experience as stimulating, interesting, and challenging as those of us have who served for the last 2 years.
I would like to make this point with respect to one of the challenges that faces us in the next 2 years. For the past 2 years the budget process has worked. I think that both outside and within this Chamber it is viewed as having worked successfully in a Congress with a majority of one party and a White House with an incumbent President of the other political persuasion.
The challenge now, with a President and a congressional majority of the same party, is to insure that the congressional process does work and continues to work as a separate, independent process, with an integrity of its own, a policy making potential of its own, a data accumulation base of its own, so that we will be in a position to assert our responsibilities under the Constitution over the power of the purse.
I am sure we will be watched by those who may be tempted cynically to believe that with both the White House and Congress controlled by the same party, the congressional budget process will tend to become a rubberstamp of the administration.
I want to assure my colleagues in the Senate and those Americans outside who may be watching us, that I, for one, am committed to the integrity of this congressional budget process as a separate budgetary force.
We will, of course, work with this President, and with every President, in an attempt to insure that the budgetary decisions serve the best interests of the country. At times we will agree with this President and other Presidents; at times we will disagree.
But I hope we will always follow the dictates of our own best judgment after full consideration of the options before us and the conditions and problems we are being asked to meet. Only in that way can we serve the purpose for which the congressional budget process was created. If we do not do that, we might just as well junk the whole thing.
I just wanted to make that point in this, my first, statement at this session of this Congress.
Mr. President, finally, before I yield to my good friend from New Mexico (Mr. DOMENICI) , I want to take this opportunity to thank the employees of the Government Printing Office for the fine spirit of cooperation they have displayed in the printing of this resolution and report. It could not have been done anywhere else in the world in such a short time.
My one complaint about the printing process in Congress has not to do with production but with the fact that we cannot always get the colors we want. You will notice this report is printed in green ink. I would like to see it printed in red until such day as we achieve a balanced budget But I have not been able to, you know, break through the controlling regulations. So it is printed in green. But I want to assure my colleagues that we are still in the red, and it might be a useful signal to the country if we could print it in red until we get the color as well as the contents corrected.
EXHIBIT 1
STATEMENT BY SENATOR BELLMON
I believe this is the fifth Budget Resolution presented to the Senate by the Budget Committee over the last two years, but this is the first time Congress has been called upon to reexamine and change its budget after the budget ceilings had been fixed just before the start of the fiscal year. This is an important occasion and as with the preceding budget resolutions, I rise to support this one although with less enthusiasm than the previous resolutions.
My desire today is not to restate the recommendations of the Committee, but rather to voice some perspectives which I believe are important in reviewing the recommendations. In particular I want to discuss—
(a) Should there even be a Third Concurrent Resolution;
(b) Which of the various economic stimulus packages can be accommodated by the Budget Committee recommendations;
(c) The very important fact that certain types of components of the stimulus package can be significantly more effective than others; and
(d) Some observations regarding the future impact of two programs discussed in the Committee's Report.
First, should there even be a Third Concurrent Resolution? We are not reconsidering the Budget decisions of last fall on the basis of some whim of spending or taxation — rather, this Resolution is in response to economic events of a serious nature. While there is little doubt that the economy is in a stage of recovery, through a series of hearings, the Budget Committee has developed the belief that some fiscal adjustment was necessary to sustain and accelerate the pace of that recovery, and that continued, unacceptably high levels of unemployment are a likely prospect unless action is taken.
I am acutely aware that there are a broad range of actions needed to help restore the vigor of the U.S. economy which do not involve immediate and direct budget impacts, such as regulatory reform and adjusting the structure and incentives of our tax system and income support programs. But these avenues of action would be delayed by debate and are thought to have relatively slow economic effects. In view of these limitations, it is incumbent upon us to use the Federal budget as an economic tool according to our best judgment. Further, if Government fiscal policy is to overcome the long established criticism that it is not sufficiently responsive to economic events, that there is too long a "lag" between the need for action and the appropriate fiscal policy response, then we must act now. It is more prudent to change the FY 1977 Budget Resolution now, rather than waiting until the FY 1978 Budget Resolution in April and May to set policies that cannot take effect until October of this year.
At the same time, however, I would make it clear that the Committee is not overreacting to a mere wiggle or two in the economic statistics. There is considerable evidence that economic performance is below our expectations and below the economy's capability at this stage of the economic recovery.
Given the understanding that action was deemed necessary, it should be pointed out that this Third Budget Resolution demonstrates a strength, not a weakness, in the Budget process. The process is flexible enough to permit adjustment when economic or emergency conditions warrant; however, the process is not so flexible as to allow for changes whenever an economic statistic moves in an adverse direction. It is anticipated that this Resolution will prove to be a unique budgetary event, and that future years will require only the normal First and Second Budget Resolutions.
A second major point I would endeavor to leave with my colleagues concerns the general thrust of the recommendations in the Budget Resolution. In keeping with the Committee's tradition and mandate, specific legislative programs are not endorsed by this Resolution. Rather, we have attempted to set the right overall dimensions and general outline to an adjusted budget policy for the remainder of this fiscal year. Specifically, it is my view that the Committee has essentially recommended that efforts to stimulate the economy at this time should be primarily through tax reductions — to encourage consumer purchases and sustain business confidence. At the same time, the Committee recognizes the need for some additional expenditure initiatives, primarily to target Federal efforts on sections of the economy or on individuals most acutely in need of employment assistance and capable of being effectively assisted through Government spending initiatives. In addition to the relative balance between these two thrusts, the total size of actions has been carefully weighed with regard both to realistically attainable and sustainable economy goals and the importance of limiting the size of Federal deficits, the weight of Federal borrowing on financial markets, and the burden of federal debt in future budgets. We are shooting for 6 percent unemployment by the end of 1978, and hoping for better. While recognizing the uncertainties of weather and agricultural production, both in the US and around the world, and of other effects on prices, we foresee some inflationary pressures but seek to avoid acceleration of prices and wages. Finally, while the deficit for FY 1977 will be larger than if no action were taken, the Committee believes that this delay in reducting deficits will provide the economic thrust that will reestablish the trend of declining deficits and toward a balanced budget. That appears to be in jeopardy without these economic initiatives.
Beyond these general dimensions and goals, no specific policy package is endorsed by the Committee or mandated by this revised Resolution. In light of the wide range of opinions and approaches represented by individual members of the Committee, and because further information and insights remain to be gained from the hearings and deliberations of the other Committees of the Senate, this Resolution should be viewed as accommodating a range of alternatives, although of course not the entire universe of possibilities. For instance, there is room for the proposals of the new Carter Administration. In spite of serious reservations being expressed throughout the Congress about several elements of that package, the Committee did not wish to foreclose those options. At the same time, the stimulus proposal of the Senate Republicans would fit easily within these revenue and outlay totals, and, would, in my opinion, yield better economic gains, higher revenues, lower expenditures, in a smaller budget deficit than any alternative we have reviewed.
While the Budget Resolution recommended by the Committee does not endorse the Republican proposal, I would take this opportunity to express my continued support for those policies.
Specifically, I favor a permanent personal tax reduction that would result in a smaller amount of revenue reduction in FY 1977, but would provide more continuing tax reductions in 1978 and beyond. This is the kind of steady and sure support to consumer spending and business confidence that is best for the continued and steady growth and employment increases. As opposed to the declining recession situation of early 1976, the economy now has an upward momentum. Growth of 4.3 percent or better is expected for 1977 and 1978 without any additional stimulus. I therefore question the need for a quick kick to the economy by means of a large one time tax rebate. Rather, a firm but continuing nudge is needed to push the economy to a somewhat higher growth rate. Further, I question even the effectiveness of the rebate plan in providing the quick kick. The Committee heard and received evidence and analysis to suggest that most of the rebate will not be spent in the first three to six months, and that much of it will remain in savings or debt reduction after 9 months to a year.
Why should the Government borrow large sums of money and pay it out to individuals just so that they can put that money in the bank? This rebate plan will result in a bulge in the Federal deficit and Government borrowing which will bring extra pressure to bear on financial markets and Federal reserve monetary policy. In view of the speculative need for and effectiveness of the rebate plan, these pressures should and can be avoided.
On the spending side, our efforts should be directed exclusively at those who have particular and lasting difficulty finding jobs, even when the economy returns to more normal levels of performance. These are often referred to as the "structurally unemployed". At this time and in the foreseeable future, a large proportion of these individuals are young people and women. Many are relatively recent entrants to the labor market who have had little or no employment experience.The Republican stimulus proposals focus sharply on young people through training and employment programs, and on the long term unemployed through an employment credit incentive to the private sector.
I would note that the Committee's recommendation includes a substantial increase in funds, both budget authority and outlays, for Function 450, which could be used for accelerated public works. I am in favor of a responsible level of public works, and I may support additional public works expenditures. However, it is a serious mistake to view public works initiatives as a part of an economic stimulus package, to be geared up and shut down in response to the economy's needs. In spite of the best of plans and intentions, public works just are not manageable in that way. In addition, they carry with them a legacy of maintenance that is required regardless of the state of the economy or of state and local budgets. Congress appropriated $2.0 billion last September for an "accelerated" public works program, but the Wall Street Journal last week said that even one construction person has not yet been hired some five months later. Such a program may have merit but not in a stimulus package.
A final word of caution. We will in the next three months be considering the Budget Resolution for Fiscal Year 1978. I would point out to my colleagues that in the revised FY 1977 Third Budget Resolution being considered here today, budget authority for FY 1978 in public employment and training under CETA is provided. This is done to enable 1978 program levels to be established at the same time the remaining program funds for FY 19'77 are appropriated. This accommodation through a late appropriation should not be viewed as a general precedent or commitment to full advance funding for all parts of the public employment programs.Although a good part of such programs are designed as countercyclical policies and must be responsive to economic trends, advance funding may be a desirable management policy in certain circumstances. It is clearly the intent of these recommendations that this advance budget authority was being provided as a planning and management tool, to provide program sponsors with assurance that the program would be extended into 1978. This assurance would give sponsors the confidence to hire and train people as intended by the program. However, it was not intended that this budget authority would be available before FY 1978 — it was not to be a "backdoor" way of getting extra 1977 funding. There should be no confusion of this point.
As said earlier, I support the Resolution, but I did want to be on record regarding the above issues.
EXHIBIT 2
STATEMENT BY SENATOR MAGNUSON
The Senate has before it S. Con. Res. 10, the third budget resolution for fiscal 1977. I support the resolution, and I urge all of my colleagues to do likewise. Its adoption is a necessary first step in the enactment of a stimulus package of tax reductions and increased spending that will provide an improved economic climate in which millions of unemployed Americans will at last be able to find productive jobs and reestablish for themselves the economic security they deserve.
The spending ceiling and revenue floor modifications that are proposed in the third budget resolution seem to me very well advised. When I first spoke in support of the fiscal 1977 budget resolution last spring, I indicated that my one major concern was that the resolution might be too cautious because it seemed to shy away from providing the extra stimulus required to assure a speedy economic recovery. I noted that "I would provide this extra stimulus . . . by spending to put people to work — directly through more public service jobs, and indirectly through accelerated investments in needed public works projects." During the early summer the recovery proceeded better than I had expected, and began to think that perhaps the extra stimulus I had sought in the first budget resolution wasn't really necessary. Now, however, it is clear that it is necessary.
In another area, I believe it is important for the Senate to be aware of the general approach taken by the Committee on the Budget in preparing this third budget resolution. Since this is the first time an "extra" budget resolution has been required in order to amend the budget ceilings established in the fall, the precedents established are important. It is significant, therefore, that the Budget Committee restricted itself to adjusting the spending ceilings and revenue floor only to respond to emergency conditions that were unforeseen at the time of enactment of the second budget resolution, and to account for certain technical budget reestimates. Thus the committee consciously avoided opening the door to reconsideration of all of the controversial budget issues that were debated and resolved at the time of enactment of the second budget resolution.
I believe this was a wise decision. I feel it is important to the continued success of the congressional budget process that the basic dimensions of the budget be firmly established in the second budget resolution, and be adjusted thereafter only as may be required by unforeseen emergencies such as now confront us.
In conclusion, I recommend that the Senate approve the third budget resolution as reported by the Committee on the Budget. It amends the previous resolution by providing room in the budget for the Congress to enact legislation providing for such stimulative measures as expanded public service jobs and other employment and employment security programs, accelerated public works, and tax reductions. The report accompanying S. Con. Res. 10 includes a number of suggestions which the Budget Committee believes the Senate should consider in enacting such legislation, and I am sure the authorizing and appropriating committees will give these the serious attention they deserve. The third resolution has been purposefully designed to allow consideration of a number of different strategies for economic recovery, and I encourage my colleagues to consider them fully before reaching a conclusion.
Mr. MUSKIE. Mr. President, I yield to my good friend from New Mexico, who has made such a solid and always challenging contribution to the work of the Budget Committee. We are delighted to have him continue his service.
Mr. DOMENICI. I thank my good friend from Maine.
I was just wondering, on the red ink, Mr. President, perhaps our chairman would speculate with me: Does he really think we would only need the red ink until 1981 and then we can switch to green?
Mr. MUSKIE. I think if we print it in red we might achieve it in 1979 in order to avoid the embarrassment.
[Laughter.]
Mr. DOMENICI. I thank the chairman of the Budget Committee for his remarks today and, particularly, his closing remarks with reference to the independent nature of the Budget Committee and its fact gathering and its thrusts. I think the Senator has said it exactly right. We tried to do that with President Ford in office, and we understand that our new President has some very definite approaches. Those approaches which indicate his commitment to a balanced budget as soon as possible will not find any trouble with the BudgetCommittee. Certainly this year, I think it is safe to say, in spite of some differences, it is virtually unanimous that we think we need a stimulus package. I do not think there is much argument on that score.
On the other hand, I think there is some genuine feeling that there are different ways to do it.
Mr. President, I do not intend to present extended remarks on this resolution since my position is reflected in the additional views and the minority views contained in Senate Report No. 95-9. I hope that my colleagues will carefully study those sections of the report and earnestly consider the points of concern and opposition expressed by minority members of the Senate Budget Committee.
My basic position is that the adjustments in revenue and spending for the remainder of this fiscal year which would be allowed by this third concurrent resolution are in excess of adjustments needed to sustain economic recovery and provide the foundation for orderly and stable growth without inflation. The aggregate of reductions in revenue and increases in spending is simply more than required to achieve our revised economic goals. Senator McCLURE and I describe an economic stimulus package in the minority views of the report which would accomplish our goals at a lower cost, both in fiscal year 1977 and in subsequent years. I strongly urge my colleagues to examine our alternative proposal, especially since we intend to join with other Senators in attempting to implement that proposal, or major parts of it, through individual revenue and spending legislation permissible under the revised budget numbers.
In that regard, Mr. President, I feel that recognition should be given to the fact that the resolution's revised figures for revenue, outlays, and new budget authority are limits, not targets. I hope we will be able to resist the tendency to reduce revenues all the way down to the level specified in the resolution. I hope we can reject the notion that we must spend and obligate to the full extent allowed under the resolution. The resolution simply sets the outside limits and if we can achieve our goals without reaching those limits, that is our duty as responsible legislators.
Many of our colleagues agree with me that we can, and feeling that if we can, we must, I will actively seek an eventual combination of revenue reductions and spending increases substantially less than permitted under Senate Concurrent Resolution 10.
Mr. MUSKIE May I say at this point that the distinguished Senator from New Mexico presented those alternatives very articulately and persuasively in the Budget Committee. I think that is one of the constructive attributes of the budget process, that whatever the source of an idea we discuss it constructively and positively and benefit from it, although we do not always agree as to it.
The second point I would make, as to which I think the Senator will be in agreement, is that some of the numbers we have put in will accommodate some of the alternatives that were debated, even though we did not nail down particular alternatives with respect to job producing programs, for instance, or even the nature of a tax relief. So that we served our function of establishing overall ceilings but, at the same time, left some flexibility with respect to program content under it.
Mr. DOMENICI. I thank the chairman for those observations, and I wholeheartedly agree with him.
I just want to spend a few minutes addressing a couple of the issues as I see them. As our good chairman remembers, when the President's three representatives came before us to discuss their economic package — the Secretary of the Treasury, the Director of OMB, and Mr. Schultze, the chairman of the Council of Economic Advisors — I spent a great deal of time on this issue of the tax rebate, the $50 rebate.
My efforts had two or three reasons behind them: I am genuinely concerned that while we need a stimulus package that there may be a better way than the $50 rebate.
My questions basically focused around the question of why do we not have a tax cut right now for the average working man and woman in America and perhaps for a portion of America's private sector? From my standpoint I was trying to make the point that small business in America needed a permanent tax cut.
I think, in the final analysis, the position that representatives of the administration were giving on that particular point was that they wanted a tax reform package to come into being in the not too distant future and they needed to wait for that as they looked at the entire tax structure of this country.
I made the point, and I make it here for my fellow Senators that I do not believe any major reform package will not have in it a 6 to 8 percent tax cut for the average working man and woman in America and a substantially similar one, if not a little higher, for small business. The reason I make that point is that if we were to cut taxes permanently, say up to adjusted gross income of $20,000 and for small businesses $100,000 in taxable income and under, we would really not be cutting their taxes in the sense of cutting back or giving them substantially more to spend. Rather, we would just be keeping pace with what inflation has done to the average taxpayer and small businessman in America because as their incomes were increased they moved into other categories and paid more taxes and their real disposal income is really less because of inflation than it should be. Therefore, it seems to me that any reform package is going to try to adjust that either on a one shot basis or by the initiation of some kind of permanent indexing in the system.
I wanted very much to make the point in the Budget Committee and I want to make it now that I truly believe the best way to stimulate the American economy now is to build some confidence in average consumers and small business persons in America, not so they will go out and make a one time investment but so that they will have more confidence in their position as consumers next month and the month after and so that they will see in their paychecks rather consistent new money flowing into their pockets as the result of their work. I think that will cause them to buy, plan, and spend, and I think that is the best stimulus we could put in effect.
I would say for those who are interested in the Budget Committee's report there is room. As my good friend has said, if that is what this body chooses in the revenue side, there is adequate room for us to debate and vote on that very distinct option: tax rebates versus a permanent tax cut.
It is for that reason that I am here saying to those who are concerned about whether or not this resolution provides only one avenue of approach. It does not. In other functions this particular third concurrent resolution addresses two other very important issues.
Mr. MUSKIE. Mr. President, could I make a point on the position the Senator has just discussed?
Mr. DOMENICI. Indeed.
Mr. MUSKIE. This is only for the purpose of maybe adding another dimension to the discussion of it.
First of all, with respect to the nature of the tax program that we ought to adopt, I think the Senator has described very clearly the advantages of a permanent tax cut in terms of consumer confidence and its practical economic effect down the road as an important result to achieve. I think we are in agreement on that.
I think the reasons that the administration preferred to go easy on permanent tax cuts include: First, the possibility of tying tax cuts to tax reform down the road; second, to give the administration time to consider the down year impact on revenues as against the down year requirement for revenues after the administration has had more time to contemplate both of those down year effects.
The administration is committed to programs of national health insurance and welfare reform. There are other big problems staring us in the face with respect to development of alternative energy sources, mass transportation, and others that the Senator from New Mexico could add as well as I.
So, the administration chose to go somewhat slow on permanent tax reductions. It did provide for a permanent increase in the standard deduction, which is a permanent tax cut, as a partial payment on a permanent tax cut.
The Senator has made a very important point that I think is beginning to get increasing public awareness. The nature of the progressive income tax is that especially with inflation the effect of inflation is to put people in higher and higher tax brackets, thus in effect increasing taxes without legislation. Congress over the last 20 years has offset that effect by tax cuts from time to time which has managed to keep the Federal share of GNP to something like 21 or 22 percent, and I think that informally in the Budget Committee we have agreed that is the level at which the Federal share ought to be held. So that that is, I think, a strong argument for permanent tax cuts.
So the disagreement really is not as to the validity of the permanent tax cuts at some point between now and 1980 but precisely when that ought to take place with maximum benefit to our people without compromising the Government's options down the road.
There is one other factor that I wish to mention with respect to this. The President was looking for continuity in his stimulus program over a 2 year period.
It was very difficult to conceive of immediate stimulus of the size that he desired in fiscal year 1977 and which is included in this resolution and in his proposal, that is, stimulus on the order of about $11 billion which represents the tax rebate.
I think there was some discussion in the committee of other possible tax formulas that could inject that kind of money at about the time this rebate money would go into the economy, but they have not yet been developed as of the time we discussed it, so there may be some other formula that would do it. But a permanent tax cut would not do it standing by itself.
The permanent tax cut would take effect about April 1 presumably and would be reflected then in ongoing reduction in withholding rates which, of course, would add to consumer confidence, but it would not provide the stimulus of a tax rebate at this point in the economy.
With respect to continuity of the stimulus, the administration was sensitive to the need of continuity. So what it undertook to put together was a 2 year package of roughly $15 billion in each year.
The PRESIDING OFFICER. The 1 hour allotted to the resolution has expired.
Mr. MUSKIE. I do not know if anyone else wanted time. I ask unanimous consent we may have another 15 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MUSKIE. That was beginning with the tax rebate now, continuing with the increase in the standard deduction, which is about $4 billion at annual rate, and then phasing in job creating programs which would begin to blossom into full size about 1978. So we would move from this tax rebate to more permanent spending programs and a permanent tax deduction the second year.
The idea was that with the country assured that we have a 2 year program in place that would tend to give continuity of effort and hopefully a response of confidence and growing confidence on the part of the country.
It is not as conventional or as traditionally accepted a way of doing that as the permanent tax cut. But I think the administration is trying to put together a package that will work all around.
May I make one other point? I know the Senator will respond to this, but I have to make it. That is that beginning with 1975, we have been using temporary tax cuts to stimulate the economy.
The act we enacted 2 years ago this March, I believe, was a temporary program, and indeed it included tax rebates. Then we extended the permanent part of that program, I think, at least twice since that time. It will expire at the end of this calendar year and will have to be re-extended.
I know the Senator's argument to that is that the taxpayer, as he sees it in his withholding rate and as he expects it to continue, does not really know it will expire. His expectations, of course, will be reinforced by the fact that we have extended it twice. Nevertheless, it was a temporary tax cut.
From the point of view of those in production, of those who make management decisions and employment decisions in this country, its temporary nature was certainly clear. They might have found a permanent tax cut preferable, but we retained the option or preserving our revenue base and our options down the road rather than enact the permanent tax cut. I guess there was also a political reason between the President and the Congress, that we wanted to maintain our options in our dialog, debate, and controversy with each other. That was another reason, I suppose, for the temporary nature of the tax cuts at that time.
Mr. DOMENICI. I thank the Senator for his observations. Let me just make three or four quick points. I do not intend to belabor the issue.
Did the chairman introduce the prepared remarks of the ranking Member, the Senator from Oklahoma?
Mr. MUSKIE. Yes, I did.
Mr. DOMENICI. Let me say first I do not disagree with the President's overall amounts by way of what stimulus might be needed for the rest of this year and next year. I do not want anyone to think that because I have what I consider to be constructive alternatives, I believe thePresident's proposals were outlandish. Quite to the contrary, I think there are many who will insist very strongly that the overall stimulus package is not big enough. I think it is adequate, and, as I've said, perhaps we can get by with somewhat less.
I do want to make these points, however: The deficit effect of tax rebates, in my opinion, is totally out of proportion to the stimulative effect. Once we put rebates into the system and the deficit is created, it just makes it more difficultfor us to arrive at that point in time when we can have a balanced budget.
In a very real way, we are beginning to understand that we have to pay that deficit back some day. As the chairman knows, the interest on the national debt is quickly becoming one of the most significant singular items in the budget. It is over $34 billion. That is an estimate. I think we have to be concerned about that.
Second, in our particular work we are constantly looking for reflows back into the tax structure from activities that are stimulative so that we find reductions in other expenses that will thus cause us to gain substantially from stimulative efforts. I think it is obvious here, too, that tax rebates do not generate a significant amount, or might I say as significant an amount, as other kinds of stimulative expenditures.
I want to raise one other point. The chairman has discussed here the fact that we have to be concerned with commitments that are yet unfulfilled, programs that might have to come into existence because of commitments and thus we want to look at the tax revenues. We should leave them alone, so to speak, until we see those commitments. I want to address this issue.
In my opinion, after 2 years on the Budget Committee, a concept I do not think many people were talking about has become very, very paramount and significant to this Senator. That is the percentage of the gross national product that goes to government, whether it be the Federal Government alone or the Federal Government in combination with State and local governments. That is the real issue.
Will we get a balanced budget with the Federal Government taking 25 percent of the gross national product some years down the line, or will we get a balanced budget at 20 percent? We are now approaching 35 or maybe 37 percent of gross national product that is going to all government, Federal, State, and local.That is the highest ever, and it is growing rapidly. I will admit it is not growing any more rapidly at the Federal level than it is when you add up State and local governments. I believe the single most important fact about America's future is how much of the productivity ofour people will go to government.
Mr. MUSKIE. Will the Senator yield?
Mr. DOMENICI. May I just finish this thought? Then I will be delighted to yield.
While I think we can cut taxes right now and worry about what fits into the tax revenue pictures of our country 2 or 3 years down the line, I would rather look at it from the standpoint of less
revenue today, percentagewise, of the GNP than keep it at its present level and then see what will fit.
I am not suggesting the chairman disagrees with that position; I am just saying that is one of the reasons that I do not think we ought to wait before we enact permanent tax cuts. I think the paramount economic facts in America in terms of our growth and the well being of our people are two things: the bignessof Government and its inefficiency, which are directly related, in my opinion, to how much of the GNP we are going to assign by our actions, direct or indirect, to the Federal Government.
I am pleased to yield to the Senator.
Mr. MUSKIE. The records of the Federal Government's percentage of the GNP has been at about 20 percent or 21 percent since World War II. So as a percent of GNP it has been fairly steady. It is a little higher than that now because of the recession which throws percentages off. It is around 23 percent now. I think when we get back to full employment it will be at a steady base of about 20 or 21 percent.
As we said earlier, all of us would use that as a target for the size of the Federal Government for the foreseeable future. So there is no disagreement about that.
The second point I would make is that the President in his package has provided tax rebates. He has also provided some permanent tax reduction at an annual rate of $4 billion. So he is moving in the direction that the Senator from New Mexico suggests. There is also the direct job creating program. Again, it is a matter of how much you do and when. I believe the administration recognizes the importance of reducing the permanent tax take of the Federal Government at such time as it has had an opportunity to get all its ducks lined up.
The failure to move as far as the Senator would in permanent tax reductions right now does not reflect a disagreementon the part of the rest of the Budget Committee or of the President. All he is asking for is what we need.
Because of the state of the economy we need a certain amount of stimulus now. This looks like a sensible package to me now. We will look at it again as we go along, including the need for permanent tax cuts.
That, to me, is a prudent approach. That is not to say that the Senator's approach is not prudent.
It is a matter of honest differences of judgment about what to do right now. I think that is what it amounts to, and I think this dialog — hopefully — will identify some of the options which we debated in the Committee on the Budget.
I notice the Senator has another point he would like to make.
Mr. DOMENICI. I want just to say, with reference to the crisis that is upon many of our people because of increased energy costs, that it is a real one. For any Member of this body who went home to visit his people during this recess, if he did not meet with senior citizens on fixed incomes, predominantly our social security recipients, he should have. I met with a number and they are no longer reluctant to stand up and show you the condition of their expenses and the amount of money they get, and something has to be done.
I understand that our national energy policy is going to be a tough one, and I do not think we are going to have cheap energy next year for working Americans or for retired Americans or for anyone else. That is an absolute fantasy, that we are going to have cheaper energy.
On the other hand, when you have literally hundreds of thousands, if not a few million Americans who get nothing more than a social security check — and for many of them, that check is based on incomes that are not even relevant to today's incomes, because they earned them in other economic times, some getting $189; and in my State, which is not as high as some others in terms of energy cost, many are paying $38, $40, $45, as high as $46 in energy bills. That is for simple little houses, in some instances for apartments that they rent. We just have to do something at the State level and national level to help with that.
I want to say, on that score, that while I might support the rebate for the social security people that is contained in the President's request and provided for in these recommendations, that was not its intent and that will not do the job, because that expense is not going to go away. That irrational relationship of $44 for energy to a $200 social security recipient, in our part of the country, did not come about because of severe weather. We did not have severe weather the 6 weeks that we had it back here. That is going to be an ongoing, serious problem that we must address and we must address it in a manageable manner, in an orderly manner — not with another program that is filled with regulations and they all have to go sign up for. That may help a few of our poor people, but we have to address the issue in a very broad way.
I do not have the answer. I do not know what it is. I hope the levels in the resolution will accommodate that if someone finds a manageable, orderly way to perhaps subsidize our States, perhaps subsidize ad valorem taxes, perhaps add on revenue sharing in some way to be used as an offset against property taxes. I do not know which approach to take, but it is serious and must be addressed.
In closing, on the rebates themselves for the working people of the country, as contrasted to the fixed income people, I am not opposed to that because I do not want to give the family $50 or $100 or $250. I am on record as wanting to give them a permanent tax cut, which, over the years, will give them more and give it to them consistently. But the principal reason for making these adjustments is that we need a stimulus. Our economy is not producing at as high a level as it should. There is not sufficient demand, so supply is not being generated, so people are not being put to work. But I do not think that there is good evidence that the tax rebate will be used to purchase the kinds of things that will cause that demand to increase substantially and do so with the consistency sufficient for the enterprise sector of America to respond and increase supply and hire people.
I am delighted to tell the Senate that the Committee on the Budget has done an excellent job of analyzing the makeup of unemployment in this country and there is a good, objective analysis now, clearly indicating that significant portions of the unemployment problem in our country are structural, not cyclical. There are various definitions of that, but let me give you mine in the context of my comment.
Cyclical is the kind of unemployment which comes about because the economyis down, and, therefore, there are not enough jobs for those who were previously employed and able and trained; whereas, structural is the kind that is going to be there substantially, even when the economy is moving ahead at satisfactory rates. Structural unemployment is the tough one. We do not know exactly how to cure it and, more importantly, it is predominantly comprised of young people.
We believe that 50 percent of the unemployed in this country are from 16 to 24 years of age. I submit that we have to find ways and means, even if it costs substantial amounts of money, to address that issue. Either we are not training them properly, or we are not matching their skills, or we are not giving them the kinds of opportunity, because of structures that are in their way — I do not know what they are, but people have said it is everything from minimum wage to the fact that they are not properly trained to the fact that it is hard to get part time jobs for young people. We know the problems are there.
I am delighted that this particular resolution contains within its recommended figures, not by way of identifying the proposal I support speciflcally, but within function 500, which contains CETA and some other programs. The committee has obviously put sufficient latitude for a major American thrust at helping the unemployed youth of this country find work. I think that is absolutely mandatory.
It cannot be delayed if we figure out a program that will be cost effective. It willbe far more cost effective than more macrostimulus as to those unemployed youth looking for work.
The facts are also very clear that macrostimulus does not respond very well in that arena, or shall I say that arena of unemployed does not respond very well to that macrostimulus. So those in the substantive committees of the Senate have some serious challenges here. I hopethat we use the CETA umbrella, but that we seriously consider permitting CETA to have a principal charge for young people, a new thrust, and that they are given the latitude for the first time under the umbrella of CETA, the Comprehensive Employment Training Act, to address some effort at the private employment sector for young people under the auspices of local prime sponsors around the country, who know the dimension of the problem, know the nature of the problem, and will far better address it than for us to try to resolve that youth problem nationally as if it were homogeneous.
One last remark on that score. Much has been said in this country that youth unemployment is a problem of the big cities of America. Indeed, it is. But there is serious misunderstanding if people assume that it is exclusively or even predominantly the problem of major American metropolitan centers. It is not so, according to the best information we could find out. Heavy youth unemployment is kind of homogeneous across the country. It festers in rural America, small town America, medium sized, and urban centers. And any program must be directed at all of them, in my opinion. We might have some specific help for our major cities, but there is no question that youth unemployment, the inability of young people to find something to bridge that gap between youth and adulthood and learn the system, and make something of themselves while they are in those years, is deficient across this country in urban, rural, and medium sized towns. It is just everywhere in about the same proportion.
Mr. President, I yield the floor.
Mr. MUSKIE. Mr. President, just an additional response to the Senator.
Mr. President, the distinguished Senator has made the same eloquent plea on the floor that he did in committee in respect to youth unemployment.
As he indicated, I think the reaction of the committee was unanimously in support. Frankly, there is considerable frustration in the committee that we have really put together a program that targets that particular unemployment problem, as we hope we can find the wisdom to do before we get through the work of this session of the Congress.
So I associate myself with what the Senator said on that.
With respect to the problem of our senior citizens, I associate myself with that, also.
I make the point that that is still another addition to the agenda of items we will find ourselves dealing with which have serious budgetary implications. We have to keep our options open as much as we can while we move to deal with those immediate problems.
Mr. BIDEN. Mr. President, I am speaking today in support of the third concurrent resolution on the budget for fiscal year 1977. This resolution will provide help for those who are the innocent victims of our economic ills — both unemployment and inflation.
Quite candidly, I do not speak in favor of this resolution because I like the higher deficit numbers it proposes. I do not like them. They are not my kind of numbers.
However, I must support this resolution because responsible action to protect our Nation's economic health leaves me no alternative. Our continued sluggish economy leaves no alternative. Our continued high unemployment leaves no alternative. Our unstable inflation rate leaves no alternative.
And looking further to the future — say 5 years — the need for a healthy economy and a balanced budget leave no alternative.
There are at least two domestic policy goals for the next few years that we all share. What is more, these goals are interdependent — success in one depends on the accomplishment of the other. These major goals are the improved health of our economy — and a balanced budget. Long term improvement and stability of the economy — including lower inflation — depend upon continued steady progress toward a balanced budget and fiscal integrity. Equally, a balanced budget depends upon an economy which thrives and provides additional revenues, and reduces unemployment and the need for many recession created spending programs.
Accomplishing our goals of a balanced budget with low unemployment and low inflation, depend directly upon economic growth in the private sector. Ultimately, in all our economic considerations, it is private sector activity and employment that make the difference. However, although business activity in this recovery period is about average for such a period, the recession was much deeper than the others. Therefore, the private sector has been slow to pull out of the recent recession. This is evidenced by the wide agreement among business leaders that Government stimulus of the economy is essential.
A recent sobering report by the Congressional Budget Office shows that without unprecedented growth in our economy we may have to settle for only one of our two goals in the next 5 years — either high employment or a balanced budget — but not both. Right now the private sector shows no signs of being able to forge ahead on an unprecedented scale of activity. Quite the contrary; however, this does not mean we should despair of achieving our objectives. We must see what can be done.
Right now we are at a particularly delicate point. The economy has made some forward progress, but that has slacked off. Inflation is stable, but the rate is still high. Unemployment levels are unacceptable. We have a long way to go to bring the budget into balance.
However, the still ailing economy is retarding the budget's return to balance. A major question pressing us is how we should adjust our present fiscal policy to improve the economic outlook now, while moving toward a balanced budget in the next few years. We have come to a delicate turning point in the economy — with economic growth just comingout of a backslide; unemployment high; and the direction of inflation uncertain.
As we look at the needs of the economy, we must also look at the effect of various economic policies on the Federal budget and our need to bring it into balance. Will certain action — or lack of it — stimulate the economy and lead to the healthy economic climate that will help balance the budget in the years ahead? Or will what we do simply create greater deficits, unbalance the budget in the years ahead with resultant serious effects on the economy, particularly inflation?
The deficit we have now, and the further deficit that will be caused by this resolution, is primarily caused by the present unhealthy economic climate. Revenues are way down due to the recession. And many expenses, like unemployment compensation, are up due to the recession.
What we need for a balanced budget is an improved economy that will increase revenues and decrease our temporary expenses. When economic progress sticks, sometimes an investment by the Federal Government — to help consumers get back in the marketplace or to encourage businessmen to move ahead — is just what is needed to get the economy rolling and balance the budget. So a relatively small investment by the Federal Government now can both help people who are hurt by the recession and provide the climate necessary to balance the budget. That is what is called for in this budget resolution.
Recent economic performance has been disappointing. After starting the year at a fast clip of 9.2 percent real growth in the first quarter, GNP growth. slid to 3 percent in the last quarter.
Although economic growth for 1976 as a whole was just over 6 percent, the slide in growth during the second half of 1976 leads many economists to project GNP growth rates in 1977 as low as 4 percent. This level of real growth will not be enough to generate new jobs to make a significant dent in unemployment. Even assuming a stimulus similar to that in this resolution, the Congressional Budget Office forecasts that real GNP will grow only at a 4.7 percent rate and that unemployment may not get down to 7 percent in 1977. This is indeed a dismal outlook.
Equally dismal is the outlook for the behavior of the Consumer Price Index. The increase was around 5.7 percent in 1976. However, it may be expected to rise in 1977 and perhaps hit an annual rate of 6 percent toward the end of the year. The question is whether inflation is sufficiently calmed at this point to permit substantial economic growth without starting another inflationary spiral. Not only does inflation erode the earnings of the working man, it also makes our efforts toward a balanced budget and a stable economy more difficult.
However, although we should welcome the slower growth in prices, should we be satisfied with it? I think not. While a rate of inflation between 5 and 6 percent is better, it is not good. It is helpful to place current figures in a historical perspective over the last 20 years. In the 10 years from 1956 through 1965, the CPI never rose more than 3 percent in any year. In the next 10 years, from 1966 through 1975, inflation rates were higher. However, even in this period of higher inflation — including the famous 12.2 percent in 1974 — the rate was lower than the 5 to 6 percent range, now sometimes labeled as "tolerable," in 5 of the 10 years. So by any historic standard, our present rates of inflation are as intolerable as our unemployment rates.
One of the most difficult problems is knowing how to control inflation, short of such drastic and unacceptable means as wage and price controls. While I do not mean to propose a comprehensive
program here, one important measure deserves special mention: A balanced budget. Ironically, to achieve this may mean stimulating the economy more at this time through Federal spending or tax reduction, as is proposed in this resolution, to end a recession induced deficit. However, once the economy starts to move ahead, it is essential that all spending be restrained and special anti-recession programs be stopped. Running a Federal deficit with a full steam economy is a sure invitation to inflationary disaster.
Fortunately, one prescription should help alleviate both of our present ills. The economic stimulus will help promptly to create more jobs and put people back to work in the private sector. In addition, the stimulus should give the economy the shove it needs to reach levels that put a balanced budget within reach. And if we can achieve the balanced budget we will remove a major inflationary pressure.
In a few months we will be back here on the Senate floor talking about a budget for fiscal year 1978. None of the problems we face today will have gone away in that short time. We will have difficult choices to make as we try to read the future. What level of economic recovery can be expected? How can we hold down the size of Federal spending in relation to the private sector? How are we going to balance the budget? These are going to be hard questions to answer and I do not profess to have the answers yet.
However, I think the path today is clear, if painful. We must proceed with this third resolution to move our country along the path to economic recovery.
Mr. MUSKIE. Mr. President, I express at this point my appreciation for Senator BIDEN's commitment to this process.
I say the same about the distinguished Presiding Officer (Mr. NUNN) , who has chosen to leave us this year. In any case, we have appreciated the contribution he has made.
Mr. President, I yield the floor.