August 17, 1978
Page 26603
Mr. MUSKIE. Mr. President, the Curtis amendment proposed yesterday involves a most serious fiscal problem.
The Federal Government's continuing deficit must be eliminated as soon as possible.
But we must beware of simple-minded solutions proposed for personal or partisan advantage to this most serious problem.
H. L. Mencken once said:
There is always an easy solution to every human problem — neat, plausible, and wrong.
The deficit is a difficult problem.
The Curtis amendment is a simple, easy and wrong approach to solving it.
In fact, the Curtis amendment will almost certainly make the deficit worse and may lead to even greater Government spending.
The Curtis proposal would amend the Constitution. It would require the President to impose an income tax increase every calendar year equal to the Federal deficit of the last year. For example, last year's deficit was $50 billion. Under the Curtis amendment, 1978 income taxes would have risen $50 billion, or about 12½ percent for every taxpayer.
Now that is a simple proposition if I have ever seen one. But, let us take a closer look.
First of all, where does the deficit come from? The Federal deficit in any particular year is roughly the difference between what the Treasury takes in in taxes and what it pays out for expenditures. A deficit occurs when Government expenses rise more rapidly than taxes.
Deficits will occur even in good economic times when Government simply spends too much. I want to say more about that later in these remarks.
But deficits also occur — like those of the last several years — when a recession depresses private business. Government revenues go down when taxes on wages and profits are lost in a high unemployment, low profit economy.
These deficits are a serious problem.
The Curtis amendment's answer to this problem is to kill the patient to cure the disease.
In recessionary times, like those of the last 3 years, the Curtis amendment would require massive tax increases. It would attempt to balance the budget by huge tax increases precisely when the economy is weakest and most in need of support from tax cuts.
Had the Curtis amendment been in effect during the past 4 years, Federal taxes would have risen by a theoretical $156 billion, the total deficit in those years.
As a practical matter, such huge tax increases would have severely damaged the economy. An even deeper recession would have shattered business and consumer confidence. And the deficits would then probably have been even deeper as more wages and profits and the taxes on them were lost.
But this deficit deepening effect of the Curtis amendment is not its only startling defect.
In better times, the Curtis amendment would encourage excess Federal spending by producing excess revenues.
Let us see how that would happen.
Under the budget Congress has adopted, for example, we expect to gradually eliminate the deficit by 1983 as the economy improves.
In fact, we foresee a surplus in 1983 of about $3 billion.
But there will be a $13 billion deficit in 1982.
Under the Curtis proposal, taxes would be increased in 1983 by $13 billion — the amount of the deficit in 1982.
This surtax would not avoid the 1982 deficit. It will already be on the books. And it will not limit spending in 1982 which will already be history.
But it will encourage excess Federal spending in 1983, because these $13 billion in extra taxes will just add on to the $3 billion surplus already forecast. Assuming this tax increase did not start another recession that year, the Curtis amendment would encourage new Federal spending up to this $16 billion surplus and an expansion of the Government to use these new taxes.
As chairman of the Budget Committee, I yield to no Senator in my concern about this deficit and my attempts to eliminate it through the congressional budget process. The 5-year budget we adopted this year is designed to do that.
But the budget process has got to be allowed to work.
Senators cannot vote to suspend the budget process when it interfers with their spending plans.
Senators who vote against budget resolutions — and then vote to suspend the Budget Act in order to spend more money anyway — are saboteurs of the budget process and fiscal responsibility.
For example, the sponsor of this amendment has never voted for a budget resolution. Yet twice in the past 6 months — once only 2 months ago — he has voted to suspend the Budget Act. He has done so to allow for billions of dollars in new deficit-financed Federal spending which the budget resolution prohibited.
It may be that the temptation to preach fiscal responsibility and practice fiscal profligacy cannot be controlled in the Senate. I often have my doubts on that question.
For example, contrary to the proposed constitutional amendment which is advocated here today, this same Senator is a cosponsor of the so-called Roth-Kemp bill to cut taxes by one-third during these next 3 deficit-financed years — for a total addition to the deficit of another $126 billion.
Mr. President, I had the great pleasure recently to meet with Mr. Howard Jarvis.No one can fail to admire the sincerity and single-mindedness with which he has pursued the important issue of property tax reform.
But we must beware of those who would ride his coattails.
It may be that someday,we will have to give up on ourselves and amend the Constitution to restrain our conduct.
I hope we can act responsibly, so that that day never will come. But if that day comes, such an amendment must be workable, well thought through, and responsible.
This one is not.
I oppose it and I urge my fellow Senators to do likewise.
Mr. BAYH. Mr. President, will the Senator yield?
Mr. MUSKIE. Yes, I would be happy to yield to my good friend from Indiana.
Mr. BAYH. Mr. President, I have had the opportunity to study the logic presented by the distinguished Senator from Maine on this issue, and I just want to add my commendation to him for the well-thought-out logic. This business of how one ultimately deals with our goal of a balanced budget is the kind of thing that, like specialized surgery, requires well-honed technicians and the use of a scalpel instead of a meat ax or vise grip approach. I think the Senator from Maine says that much more eloquently than the Senator from Indiana ever could. I just wanted to associate myself with his remarks.
Mr. MUSKIE. I appreciate that.
May I add that Senator DANFORTH, whois the author of a proposal that appears to be similar in some respects to the Curtis amendment, asked me several days ago to take a look at his proposal. We have been doing so in good faith and with a positive attitude, because he obviously has considerable faith that his approach would work. We were prepared to consider offering suggestions for changes in that proposal. Of course, we are not in a position to develop such changes in connection with this amendment.
The unfortunate thing is that the amendment in this case was offered to anunrelated amendment, the pending constitutional amendment. The purpose, I gather, is to prolong debate on the pending constitutional amendment. The result is, I think, to give less than a complete and comprehensive evaluation of proposals of this kind.
Having had the benefit of at least a preliminary analysis of such proposals for automatic tax increases, we were in some position to evaluate their consequences. In its present form in this amendment, it does have the drawbacks that I have suggested here this morning. For that reason, even though it may be popular to vote for anything in the name of balancing the budget, to act responsibly I have to vote against this proposal. I have stated the reasons, and I think I stated them sufficiently briefly so as not to burden the Senate with my oratory.
Mr. BAYH. Mr. President, could I ask the Senator to yield for another observation and response?
Mr. MUSKIE. I would be happy to yield.
Mr. BAYH. When this matter was brought to the floor yesterday, our distinguished friend and colleague from Nebraska issued an opinion which, frankly, I think probably was very accurate, and in which he said that everybody is for balanced budgets but not now.
I think we all have to recognize there is a certain amount of hypocrisy on this question. Having admitted that, and confessing, if that is good for the soul, may I address another concern I have on the way we go about it? We just have to find a way in which we can address ourselves to that issue, if not on a year-to-year basis at least if we look at a larger cycle to try to see that assets and liabilities pretty well balance out. At least we give more attention to that than we have in the past.
This is not easy to do. One of the concerns I have, as chairman of the Subcommittee on the Constitution that has dealt with some degree of success and a great degree of lack of success in the constitutional amendment area, one thing that is obvious is that it is very difficult to amend the Constitution. I think this is probably good, as much as I have come a cropper in a good many of the ideas I have had to change the Constitution.
We do not want the Constitution changed at every whim. I say that, and I want the Senators' opinion on that, because, if we consider a balanced budget and the relationship it has on the economy, and the need to be careful if we cut taxes or raise taxes so that that is not a self-defeating kind of thing so far as getting additional revenues, that is, undoing what we set out to do, and if we consider that you cannot tell what you are going to need 10 years from now, thenif you write into the Constitution something that can only be changed by an extenuated legislative process where you need to get two-thirds and then three-fourths of the State legislatures, it seems to me it denies us the kind of day-to-day almost, certainly year-to-year, decisions that can ultimately accomplish the goal.
Also the provision in the amendment of the Senator from Nebraska would require a three-fourths agreement. In otherwords, you might be able to get 52, 53, or 54 percent of both Houses, if they had courage enough to say that we are going to raise taxes and we are going to cut the budget here and not here, but to get three-fourths, it seems to me, is to make it almost impossible to have the opportunity to use some of the selective tools the Senator from Maine is very much aware of.
I wonder if he would address himself briefly to the need to have that kind of flexibility, and that this amendment is really sort of an inflexible way to approach the problem?
Mr. MUSKIE. I would agree with the Senator's conclusion. I would add that when we were in the process of drawing up the Budget Reform Act, we considered several approaches, from the very rigid and inflexible to some that perhaps would have been too loose and too flexible.
We bore in mind constantly that we had to deal with an institution of 535 Members, 100 Senators and 435 Members of the House of Representatives, each of whom had his or her own priorities.
You know, I have never met a Senator who did not believe in more spending for something. It might be defense, it might be veterans programs, it might be social security programs, but I believe almost every Senator's record will reveal that he stands for more spending for something other than the President recommended or than the budget resolution provided.
Well, you cannot accommodate every Senator's desire for more spending in his area without having large increases in total spending. So we have to — and I have reminded President Carter of this — put together a budget resolution for which we can get a majority vote. That means getting a budget resolution with a wide range of priorities.
That has been very difficult to do on the House side, and it has also been difficult to do here. You have people with that wide range of priorities, which has the result of raising total Government spending to a higher level. The result is that the total spending is more than I would like to have seen in the last 3 or 4 years, for example.
The budget has to be passed by a margin of only one vote, but that has never been easy to do. So I have found myself, as chairman of the Budget Committee, defending spending proposals at levels that I disapprove, and agreeing to limitations on spending in other areas where I would have preferred not to see them, in the interest of maintaining the process and the overall discipline.
If you do not have flexibility of that kind, the process will not work. The Senator was here in the same period that I was, when Presidents urged overall spending ceilings on us. They did not work, because when Members' priorities did not fit under the ceilings; Congress paid no attention to them.
A constitutional amendment as rigid as this one would, in my opinion, have produced very unfortunate economic results if we had had it in place. The escape route of a three-quarters vote would not work. How often would you see three-quarters of the Senate vote for something with specific costs to override the effect of the Curtis constitutional amendment if it were in place?
I just cannot see a three-quarters vote. You might just as well ask for a unanimous vote, if you were going to do that.
The second point I would make is that the Curtis amendment and the Danforth amendment are geared to outlays. Well, it is not outlays that trigger Government spending. Government spending is the result of budget authority. So if you try to screw down Government spending by controlling outlays without cutting budget authority, you have not controlled anything. To control outlays you have to control budget authority in prior years.
But the point of flexibility which the Senator raises is a very important one. There is no question that we need discipline. I could not concur more heartily with my good friend from Nebraska. We do need discipline.
But we also need flexibility, not only to meet economic exigencies, but to meet the unanticipated emergency, to meet the changing priorities of Members, and to meet the priorities of the people of this country, which change on us from time to time. We need flexibility in order to get their votes.
I think the Budget Act, with all its shortcomings, and it does have shortcomings, has had the effect of gradually establishing a sense of discipline in this body. It does not always work the way I would like it to. The result of its application is often not what I would like to be the result. But there were a couple of votes last week that, to my surprise, in view of what has previously happened in the Congress indicated that the need for discipline has begun to be felt by Senators. I would like to take advantage of that sense of discipline, which I believe has given the budget process a longer life than some of us expected when we created it. By building on that process and doing the job, I think we can have a balanced budget when a consensus in the country requires it, and the economy is strong enough to make it possible.
In the second budget resolution, which we will be considering in September, it is projected that the budget process outlays down just below 20 percent of GNP by 1983. Since outlays have been on the order of 22 to 23 percent of GNP through this recession period, if we can get it down to about 20 percent, we will have accomplished a great deal in limiting spending. We will also move toward a balanced budget, because, if we can moderate inflation by that action and encourage the private sector, revenues will continue to grow. We will then probably be able to have additional tax cuts and still achieve a balanced budget by 1983.
That is our objective and has been our objective in the budget process. As to the prospect of increasing taxes in times of recession, during these 3 or 4 years of recession we have had, no economist who has appeared before our committee, from the most conservative to the most liberal, has advocated tax increases to wipe out those deficits. None.
Mr. BAYH. No economist?
Mr. MUSKIE. No economist has recommended that. Some of them have proposed cutting spending or taxes more than others, and they obviously have differing economic philosophies. But there has not been one who has advocated massive tax increases to wipe out the deficits of the last 3 or 4 years which were forced on us by the depressed state of the economy.
Mr. BAYH. I appreciate very much the Senator's significant contribution.
Mr. CURTIS. Mr. President, I very much respect the distinguished Senator from Maine. He has carried a load, as chairman of the Budget Committee, that involves more detail and more trials, perhaps, than most of us realize. I respect his opinion on budget matters.
Likewise, I want to commend the distinguished Senator from Indiana (Mr. BAYH) for his work on constitutional amendments.
There are a few items that I feel we should correct for the RECORD.
The Curtis substitute does not authorize the President to impose taxes. The taxes are imposed automatically, under the force of the Constitution if this were a part of the Constitution. All the President does is perform an administrative act of working the arithmetic.
Here is the situation: I am not riding Mr. Jarvis' coattails. I have had a constitutional amendment to compel a balanced budget pending before this Congress for more than a quarter of a century.
Mr. BAYH. Mr. President, will the Senator yield?
Mr. CURTIS. I yield.
Mr. BAYH. I will say to my good friend from Nebraska that he manufactured the cloth that Mr. Jarvis somehow got on the shelf.
Mr. CURTIS. I thank the Senator for that compliment. Mr. Jarvis is a great benefactor.
There were individuals in California who 10 years ago had a tax of $250 on their home. That tax had gone up to $2,500.
I talked to a young man, a resident of California, and I said, "How did you vote on Jarvis?" He said, "Well, I do not understand these things very much, but without it, they were driving families, and particularly old people, out of their homes."
So the fact that Mr. Jarvis performed this service for California is a good thing.
There are probably some harsh things about it. Maybe some things will have to be adjusted. But the fact remains the people who were paying the bills received some consideration, and the destruction caused by more taxes and more taxes was called to a halt.
I also want to point out there is no surprise to my amendment here today. It has been pending since April 4. The House District of Columbia representation proposal came here on March 6. It was held at the desk. My amendment was offered on April 4.
May I say something about the provision in the Curtis amendment in reference to taxes? I will say why it is there. I hope the Congress will never rely upon a mere declaration written into the Constitution that Congress must balance the budget. There will come a time in extreme circumstances, or arguments will be persuasive, and they will figure out a way not to do it, unless there is a self-enforcing procedure.
Is that just an idle charge? No, it is historical fact. The Constitution provides — though it is not very effective any more — that representation in the House of Representatives should be based upon population. However, if not all of the people were allowed to vote, representation should be reduced accordingly. That was the supreme law of the land in the Constitution, but there was no enforcement procedure.
What happened? I can name a few States. For example, Nebraska had four times as many voters over a series of elections, and they had about four times as many Representatives in the House of Representatives.
A mere declaration that we balance the budget would not be enough. It would be wrong to submit such a thing to the States.
I have had a constitutional amendment pending in the Congress for more than 25 years. One morning I heard the news that the distinguished Senator Byrd, father of our beloved colleague, had figured out a way to write a constitutional amendment which would be self-enforcing. This was a long time ago. He offered a constitutional amendment that said that Congress must balance the budget and they cannot adjourn until they take steps to balance it.
I thought it sounded great. Congress had been getting out about the first of July or the last of July. To make them stay there until they balanced the budget was a good thought. I called the distinguished senior Senator Byrd and said, "I want to be a cosponsor." The distinguished Styles Bridges, of New Hampshire, was a cosponsor.
What good would that enforcing session do now, with Congress in session most of the time, to say we had to stay in session until we balanced the budget, when we are in session almost all the time?
How can we enforce it?
I believe this provision for an automatic increase in taxes if we do not balance the budget will actually reduce expenditures because it is there, it cannot be overcome. Every Congressman and Senator will know if we authorize too much spending, everybody will know it right now, and they will have their taxes raised. If that will not be the discipline we have been hunting for, I would be surprised.
When I first introduced this particular feature of the enforcing provision, the fiscal year ended June 30. Since then, it has been changed to September 30. Every other year, 20 days after the end of the fiscal year, the announcement would be made that there would have to be a surtax added on everybody's taxes. That would be done every year. Every other year that would come about 2 or 3 weeks before the election.
It will not happen that we will have an unbalanced budget. If the report cards go out and say to all the voters, "The Congress has spent too much money and your taxes will have to be raised by 3 percent," 5 percent, or 20 percent, they have a remedy in the ballot box and they will use it.
Now, Mr. President, someone may come up with a much better enforcing provision than this automatic surtax. If they do, I will be delighted. Up to the present time, it has not happened.
I would earnestly warn, however, that it would be a mistake for us to go through the lengthy and difficult process of amending the Constitution and have it merely contain a declaration that Congress should balance the budget. It has to have a self-enforcing provision.
After all, what is so bad about the proposition that if you are going to spend, you have to collect the taxes? What is so virtuous about saying, "We are going to spend $50 billion more than we take in but we will not collect the taxes; we will charge it to another day."
That is not heresy?
Even if this surtax automatically went in, what is wrong if you overspend this year and you have to make it up next year? What is wrong with that? Why should we refuse to pay the cost of Government any more than we refuse to pay the cost of our food, our housing, or our clothing? Why all this pleading for the right to run deficits? It has not worked to prop up the economy. If running deficits would spur the economy, we would not have an economic problem in this country. Look at the deficits.
There is something interesting about this deficit business. There is quite a parallel between the amount of the interest on the national debt and the amount of the deficit. It is not only that Uncle Sam does not pay his bills, he does not pay the interest on them. We have increased the debt approximately the amount of the interest on the debt. This year the interest will be about $56 billion, not exactly that but somewhere near that figure. That will be the amount of the deficit, approximately. When are we going to start paying our bills? What is going to be the answer if a young lad speaks up and says, "Mr. Senator, does Uncle Sam ever pay his bills? If I buy a Government bond will it be paid out of surplus? Will you collect enough money to pay the interest every year?"
The truthful answer is that the bonds are paid by issuing more bonds, and we even go into debt for the interest.
If there is anyone who thinks we can go on and on with that without courting serious trouble, I am afraid they are mistaken. I hope they are not. It would be most comforting to accept the theory that we can go on doing that.
As I said a bit ago, both the District of Columbia representation proposition and this budget- balancing proposition are here without the benefit of committee recommendation, so they have equal standing so far as committee recommendation is concerned. Both of them have had some hearings. Neither one has been approved by a committee. The question then arises, which should come forth? Is the pressing problem throughout all of our land involving the falling of the value of the dollar in the markets of the world? Is inflation the pressing problem? Or is what the people are looking for all across the land some change in the representation for the District of Columbia?
Let us put first things first. Let us advance the constitutional amendment to require a balanced budget now and then follow that with consideration of the District of Columbia representation.
Mr. President, I yield the floor.
Mr. ROBERT C. BYRD. Mr. President, I oppose the pending amendment. Others have expressed objections and have been very effective in their analysis of the amendment. Mr. MUSKIE has made a very fine, reasonable, logical statement in opposition to it. Mr. KENNEDY, who is managing the measure, has done likewise. I oppose it for two reasons in the main. Let me say parenthetically that, at this point, I have not yet made up my own mind on the District of Columbia representation amendment. I have an open mind. But I am opposed to this amendment on two grounds.
One, it is a complete substitute for the District of Columbia representation amendment. If the amendment by the distinguished Senator from Nebraska (Mr. CURTIS) were to be adopted, then the Senate would no longer be voting on a District of Columbia representation amendment. There is not a word mentioned in this substitute about District of Columbia representation. The Senate will be voting on a so-called budget-balancing amendment. There is no relation.
Of course, there is no rule of germaneness in the Senate except under cloture and in deliberation on appropriations bills.
I hope the Senate will be fully aware that if this amendment is adopted, instead of going due east, the Senate will be going due west. There are those who may prefer due west, but let there be no doubt about it. The legislation before the Senate will be a sudden shifting — 180 degrees — a complete shift in the legislation before the Senate.
D.C. representation will be out of the window. There are those who are opposed to it, and I respect them for their opposition. As I say, I have an open mind. I may even vote against it in the final analysis; I may vote for it. But if we are against it, let us hit it head on; let us vote against it. Let us not inflict the fatal wound by the dagger-under-the-cloak approach.
I do not ascribe to the distinguished Senator from Nebraska that motive. I think he is absolutely dedicated to the balanced budget approach. He knows that because we have a constitutional amendment before the Senate, it is a vehicle whereby he can attempt to have a constitutional amendment to which he is very deeply dedicated, on a subject concerning which he is highly motivated. Nevertheless, in vaccinating the patient with a needle in this instance, the result will be the expiring of the patient and, in the final analysis, the delivery of the legislative corpse to the morgue.
I do not think that that is the way to go about fighting this amendment. As I say, for those who want to vote against it, let us have an up or down vote on it and let it rise or fall on its merits.
Second, Mr. President, I think it would be disastrous for a constitutional amendment to be adopted requiring a balanced budget. I am for a balanced budget, and I want to achieve a balanced budget, whenever and wherever possible. As I understand it, the Senator's amendment would make mandatory a balanced budget by increased taxes. Some may favor a balanced budget — and may even favor making it mandatory — but they may want to use the reduced spending mechanism as part of the approach.
In any event, the distinguished Senator from Nebraska has referred to the fact that many States are required by their own constitutions to have a balanced budget. My own State of West Virginia is so required. But many States would not be able to balance their budgets if it were not for the Federal largesse. The Federal contribution is 90 percent — 90 to 10 on interstate highways, for example. And then there are the Federal contributions for education, welfare, and public safety, and in myriad other areas. My State requires a balanced budget, but I am one of those Senators who are in here frequently talking to Senators, with regard to applications for Federal assistance for this, that, or something else. The number of inquiries is endless and the number of applications is endless, and the number of areas in which the Federal Government aids the States in ways that make it possible for them to balance their budgets — although that is not the purpose of the Federal budget, yet it is one of the results — is really impossible of calculation.
So it is one thing for the States to be required to balance their budgets; it is quite another thing for the Federal Government to be mandated to balance its own budget.
Additionally, the Federal Government is required to carry out many responsibilities that the States do not have. The Federal Government is required, for example, to raise and support armies. Well, of course, the States do not have to bear that responsibility. They do have a National Guard and reserve units, but they get a lot of Federal assistance in carrying out those functions.
The Federal Government is required to appropriate moneys for a navy. Of course, this is a responsibility that the States do not have to bear.
The Federal Government is required through the Congress to provide for the common defense and the general welfare of the United States. States do not have that burden.
States have the problem of acting in conformity with their own individual welfare, but no State has the responsibility to provide through the State legislature for the general welfare of the United States.
The Federal Government has the responsibility through the Congress to establish post offices and post roads. The Federal Government contributes large amounts of money for the conduct of the Postal Service system, the Federal courts, the establishment of tribunals, the Federal courts, district courts, and appeals courts. All of these are responsibilities of the Federal Government. The Federal Government has to provide for the buildings, the equipment, and all the necessary accouterments that are required for them to carry out their functions.
I have already mentioned the provision and maintenance of the Navy. The State of West Virginia does not have to maintain a navy, although we do have what is called the Cherry River Navy. We have a small stream in West Virginia called the Cherry River, and a group that banded together calls themselves admirals in the Cherry River Navy.
The State of West Virginia does not maintain a navy, could not maintain a navy, is not required to maintain one, and would be prohibited from maintaining one, even if it could.
The Federal Government is required to exercise legislation over the District of Columbia, which is the seat of the Federal Government — not a seat, but the seat of the Government of the United States. This is a responsibility that an individual State does not have to bear.
The Federal Government is required to exercise authority over all places purchased by the consent of the legislature of the State in which the same shall be for the erection of forts, magazines, arsenals, dockyards, and other buildings.
The Federal Government has the responsibility for navigable rivers, locks, and dams throughout the country.
We could go on and on and on.
But, Mr. President, the Federal Government has many responsibilities that in some instances are entirely out of the sphere and in some instances largely out of the sphere of State functions.
So to equate balancing the Federal budget with the balancing of a State budget is, again, almost like going due east as against going due west.
Moreover, Mr. President, to mandate a balanced budget would put the Federal Government in a straitjacket. To mandate it, I say. Where it can be achieved, if economic conditions are such that it can be achieved, it ought to be achieved, and it has been achieved during such years in this century.
So I think that all of us are in favor of having a balanced budget where it can be done. But to mandate it is quite another thing. To send out to the country a constitutional amendment that would result in mandating a balanced Federal budget sounds good. The idea of a balanced budget appeals to me. It would appeal to every voter.
But when one stops and thinks what happens in the event of a depression, in the event of a recession, when fiscal policy is an instrument to deal with such occurrences, and that the Federal Government would be mandated to balance its budget in any event, it could be disastrous for the country.
To repeal such a constitutional amendment once it were ratified by the States would be a long and arduous task, whereas the needs of the moment might require fast action.
CLASSICAL THEORY: THE SELF-CORRECTING ECONOMY
Early or "classical" economists believed that the economic system was self-correcting by nature. When distortions in the economy occurred, such as periods of high unemployment, they believed that automatic adjustments in the price and wage systems would restore the economy to full employment. As long as this belief was held, government budgets were not used purposefully to help work out economic distortions. Accordingly, the annually balanced budget was an unquestioned goal of public finance. As stated by Adam Smith in 1776, "The only good budget is a balanced budget."
CONTEMPORARY THEORY: THE COUNTERCYCLICAL BUDGET
The belief in "automaticity" did not square with economic reality.
The Senator from Nebraska and I remember the Great Depression well, but there are millions of people in this country who do not believe the stories that can be told about that Great Depression, who just do not believe the facts, who never experienced that depression.
The Great Depression finally provided proof that "automatic" wage and price adjustments would not insure the health of the economic system — that is, full employment at low levels of inflation.
Today it is recognized that there is a need for discretionary fiscal policy. Levels of government spending and tax revenues are deliberately set by Congress as policy tools.
This amendment would take away from Congress these policy tools to deal with recession, with depression, with inflation, with unemployment, and with many other problems.
As a matter of fact, this amendment could result in tremendous exacerbation of unemployment in this country and could prevent Congress from using the instruments of fiscal policy to deal with inflation, to deal with a recession, to deal with a depression.
Under this philosophy, the Government's budget has a "countercyclical" function. To offset an economic slowdown, recession, or depression, the Government must consider reducing taxes or raising expenditures. That is what it has been doing following the most recent recession.
The current economic recovery is one of our longest post-war expansions. And it has been fostered by exactly what I am talking. about — these instruments of fiscal policy. In short, the Government can and must continue to be able to stimulate the economy in times of a recession through the use of a deficit.
If we were to go forward now with a requirement for an annually balanced Federal budget, we would prevent Government fiscal policy from serving as a countercyclical tool. In some instances, such a requirement could intensify the harmful effects of the business cycle.
For example: During a recessionary period, tax receipts can be expected to decline. In order to achieve a "balanced budget," the Government must either raise taxes or reduce expenditures or both. The effect of such action would further dampen the economy and add to unemployment.
Thus, it is now recognized that the "balanced budget" is not "neutral." It would have different effects at different stages of the business cycle. It could tip the economy from an economic slowdown back into a more serious recession.
The new thinking which has replaced classical theory is embodied in the Employment Act of 1946:
The Congress hereby declares that it is the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy, with assistance and cooperation of industry, agriculture, labor, and State and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work and to promote maximum employment, production, and purchasing power.
Controversy surrounds the application of countercyclical budget policy because our economy is simultaneously experiencing "slow growth" and high inflation. So there is no easy answer as to how much stimulus is economically right. One can say that whatever we do, we should not act precipitously. However, that is exactly what we will be doing here — we will be acting precipitously. If a constitutional amendment such as this ever is adopted, heaven help this country. There would be no way to legislate around a constitutional amendment that requires the mandates of a balanced budget. There is no way to legislate around it. That amendment would have to be repealed, and that would be a time-consuming operation.
If we really want to open Pandora's box, then mandate, through a constitutional amendment, a balanced budget. If we want to mandate it through legislation, that is one thing. Congress can change that legislation. A subsequent Congress can change what a previous Congress has done.
We mandated the balancing of the budget the other day. There were a great many Senators who voted to mandate a balanced budget. I was not in that group, and I am as much for a balanced budget as is anybody here — and many of those who are not here right now.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. ROBERT C. BYRD. I yield.
Mr. MUSKIE. Mr. President, I am afraid I was not here at the time. I would have joined the majority leader in opposing legislation to require a balanced budget in 1981. I would have done so because recent actions taken by the Congress which would increase future deficits make a balanced 1981 budget an unrealistic goal. To vote to legislate a balanced 1981 budget would be just posturing, attempting to fool the citizens and voters of this country.
Mr. ROBERT C. BYRD. Of course.
That vote will have no more binding effect on the next Congress than my finger is having in leaving a hole in the air that I am now punching up there, or if I were to stick it in a pool of water and remove it, because the next Congress cannot be bound by this one.
Mr. MUSKIE. The point is that we cannot mandate a prosperous private economy by law. A prosperous private economy is the product of the right kind of balance between government at all levels and the private sector, where men are free to pursue their own enterprise. When that is out of balance, somebody has to act to restore the balance.
I was looking at a table in the 1979 Presidential budget document, which reveals that from 1921 to 1930, which was a period of conservative Republican administrations, we had balanced budgets each year. In 1930, the budget surplus was $738 million, in a year when total budget receipts were only $4 billion. In other words, the budget surplus was almost one-fifth of the total Government receipts. Yet, the Great Depression hit us, and we had a deficit in 1931— contrary to the argument that if you have minimum government and no government deficits, you can have prosperity. We did not have prosperity, and the deficits increased.
In 1932, incidentally, in order to overcome the deficit projected for fiscal year 1933, Congress, cooperating with the President, enacted increased taxes to eliminate that deficit. The result was a fiscal year 1933 deficit of $2.602 billion. In other words, the increase in taxes proved to be countercyclical, producing exactly the opposite result to what was intended — in good faith, I am sure — and to what was expected.
The Curtis amendment would have the same effect, but at a higher level of economic activity in the country and a much higher Federal budget.
Mr. ROBERT C. BYRD. I thank the distinguished Senator. I hope he will obtain consent to insert that table in the RECORD at this point.
Mr. MUSKIE. Mr. President, I ask unanimous consent to have the table printed in the RECORD.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[Table omitted]
Mr. ROBERT C. BYRD. Mr. President, in plain, simple language, the recent amendment mandating Congress to balance the budget by 1981 will have no binding effect. It really would amount to no more than a hill of beans; because the next Congress cannot be bound by this Congress, and subsequent law is going to be given precedence. If the next Congress passes a law to change that date or to repeal the law that this Congress enacts — if it finally becomes enacted — that Congress can do it. So if we are to mandate it, it should be done by legislation, not by a constitutional amendment.
In light of our economy's dual problems, there are some who are ready to advocate a return to the classical "balanced budget" philosophy and make it mandatory. I believe that this would be a precipitous course of action. At the very time when we need flexibility to deal with serious economic fluctuations, I believe that the absolute requirement of a balanced budget would tie the hands of Congress. It would mandate a balanced budget, but where will Congress make the cuts?
I am among those who are for a strong defense in this country — I suppose everybody would claim to be, and believe they are — but where are the cuts going to be made? Are the cuts going to be made in the school programs, are the cuts going to be made in the defense programs, in order to bring about a mandated balanced budget?
Those who are for a strong defense should stop, look, and listen because I imagine that if this constitutional amendment is adopted mandating a balanced budget, the defense of this country is going to seriously suffer.
Mr. President, I shall move to table as soon as I complete my statement and that will be within the next few minutes.
I understand Senator THURMOND will come over and speak, unless the Senator from Nebraska wishes to respond to my remarks. Then I shall move to table.
If Congress refused to set fiscal policy — as it must — in light of changing economic conditions, Congress would not be facing up to its responsibilities for helping to manage the economy.
The achievement of a balanced budget is presented by some as a cure for inflation. What is being overlooked is today there are many causes of inflation unrelated to the size of the deficit.
The achievement of a balanced budget is presented by some as a "cure" for inflation. In defense of his amendment (to the International Monetary Fund legislation) for a balanced budget beginning in fiscal year 1981, Senator HARRY BYRD said:
I am prompted to offer this amendment, because of the official Government reports last week that our country now has double-digit inflation.
I am convinced we will not get the cost of living under control until we get the cost of Government under control.
What is being overlooked is that today there are many causes of inflation unrelated to the size of the deficit.
Much inflation now originates outside the U.S. economy. Inflation is worldwide. For example, it is argued that the quadrupling of the world price of oil was the single most important cause of the 12.2 percent rise in consumer prices during 1974. Appropriately, the latest report of the Council of Economic Advisers concludes :
The major inflationary pressures in 1973 and 1974 . . . were not caused by domestic monetary and fiscal policy.
Mr. President, we need to maintain congressional flexibility with regard to fiscal policy. We need to strive to achieve a balanced budget. The administration is moving in that direction. Congress is reflecting that mood. Congress reduced the administration's deficit figure. The administration in its budget proposed a deficit of something like $60 billion. The first concurrent budget resolution that was enacted by Congress cut that figure by $10 billion, roughly, and in its second concurrent resolution I believe Congress is likely to further reduce that budget deficit figure by perhaps $8 billion.
So Congress has caught that mood and is reflecting that mood in its actions.
So what I am saying does not gainsay the desire on my part of the need for achieving a balanced budget wherever we can and whenever we can, but that is quite a different thing from mandating a balanced budget.
Requiring a "balanced budget" by a specific date would force Congress to deal with our economic problems with its hands tied behind its back.
The need to maintain flexibility as regards the budget is embodied in some of the administration's recent statements on economic goals. According to the administration, it will—
Restrain outlays to the President's stated limit of 21 percent of GNP so that a balanced budget in 1981 is achievable if the economy continues to recover along the path assumed in the long-range economic assumptions. However, since receipts depend directly upon economic performance, the goal of a balanced budget would have to be deferred if the President determined that the economy required further tax reductions.
I yield to the Senator from Maine.
Mr. MUSKIE. Mr. President, as the second budget resolution will make clear to Senators when we receive it — the Budget Committee completed it last week — our goal is to bring outlays below 20 percent of GNP, and if the second budget resolution is implemented over the next 5 years, that will be the result. Outlays as a percent of GNP will be 2½ percentage points lower in 1983 than they were at the depth of the recent recession.
Now, 2½ percentage points as against GNP represents a substantial reduction in spending when translated into dollars.
Congress can achieve this substantial reduction in spending by implementing the recommendations of the Budget Committee, and I expect that these recommendations will in fact be supported by the Senate and by Congress as a whole. That support should encourage those who, as the majority leader and myself, and others, are committed to the idea of a balanced budget.
Mr. ROBERT C. BYRD. Yes. I thank the Senator.
In summation, Mr. President, I base my opposition to the substitute by Mr. CURTIS on the two points, mainly, that I have tried to stress, in addition to those that have been so effectively raised by Mr. MUSKIE, Mr. KENNEDY, and others, to wit:
One is that a complete substitute has nothing to do with D.C. representation; and
Two is that it would be very unwise to have a constitutional amendment that would mandate a balanced budget.
Mr. President, it is my intention to move to table the amendment. I do want to give Mr. THURMOND an opportunity to speak on the amendment and Mr. GOLDWATER, if he wishes to speak.