October 10, 1978
Page 35327
THE DANFORTH EXCESS SPENDING SURCHARGE
Mr. MUSKIE. Mr. President, I oppose the Danforth Excess Spending Surcharge in H.R. 13511. That provision would severely and unnecessarily complicate the process of formulating congressional budgets.
The provision could force a future Congress into the absurd position of legislating a general tax reduction at the same time a general surtax takes effect.
In addition, that provision would encourage additional use of loan guarantees, off-budget spending, regulatory policies, and tax expenditures, because these policies can provide benefits which are not fully included in the spending side of the budget.
Finally, the provision is written in such a manner that the final size of a surtax would be determined not by the Congress, not even by a fixed formula, but by the Secretary of the Treasury.
The provision, included in the Finance Committee bill after having been offered by Senator Danforth, would impose an income tax surtax on individuals and corporations if Federal Government spending exceeded specified limits. Those limits would allow 2 percent growth in spending after adjustment for inflation. The limits would not be in effect when unemployment has been in excess of 7 percent for 3 months or in case of war.
The surtax rate would be the rate determined by the Secretary of the Treasury to be necessary to raise revenues proportionate to Federal outlays in excess of the specified limit. The Secretary of the Treasury, however, is allowed substantial discretion in this determination. I will point out the very serious implications of allowing that discretion after I discuss the more general weaknesses in the provision.
Mr. President, the Danforth provision would unnecessarily complicate the congressional budget making process. Each time the Budget Committee or the Congress considered a spending program, the potential revenue impact of that program would have to be considered, because each spending program affects the aggregate level of outlays, and the aggregate level of outlays would determine the surtax rate under the Danforth provision.
In fact, under the Danforth provision we might not know the magnitude of the surtax until early or mid-September when the House-Senate conferees agree on the level of outlays provided in the second budget resolution. Tax policy would, therefore, remain uncertain until a few weeks or days before the new fiscal year began. Rational, well-reasoned budgetary policy would be extremely difficult under those circumstances.
Mr. President, when a constant dollar spending increase of less than 2 percent is appropriate, the Congress can and will hold spending growth to that rate. Which is to say that whenever the goal of the Danforth provision is a worthy goal the Congress can achieve it without the Danforth surcharge.
When a constant dollar spending of more than 2 percent is appropriate, however, the Danforth surcharge can become a serious obstacle to prudent budgeting.
Mr. President, the second budget resolution for fiscal year 1979 provides for outlay increases below the level that would trigger a surtax if the Danforth provision had been in effect that year. This demonstrates the fact that this Congress does not need the threat of a Danforth-style penalty to face the hard job of controlling spending. When the need to reduce the budget deficit is clear, and that need has been clear this year, the Congress can and will work through the existing budget process to achieve the necessary reduction in the budget deficit.
Now, consider the options the Congress would face under the Danforth provision if the economy experienced an extended period of stagnation or a recession. A balanced economic stimulus program might combine tax reductions with constant dollar growth in outlays of 3 to 4 percent — a very modest growth rate for Federal spending. Indeed, "real" outlay growth might exceed 2 percent without any new programs, because economic stagnation or a recession would automatically lead to increased spending for unemployment insurance, food stamps, and other income maintenance programs.
Under the Danforth amendment that moderate spending increase would trigger a surtax. The Nation's taxpayers would therefore face the prospect of a tax increase at the same time that a stimulus program provided tax reduction. Moreover, that tax increase would occur just as the country heads into a recession.
As absurd as that possibility might sound, it could be a likely outcome in some future year if the Danforth provision is enacted into law.
Proponents of the surcharge may believe that they have eliminated this problem by providing that the surtax would be turned off if the unemployment rate exceeded 7 percent for 3 consecutive months. While this feature moderates somewhat the possibility of harmful effects of the Danforth provision, it most certainly does not eliminate the possibility.
Under the Danforth surcharge, even with this "escape valve," the Congress could not begin to implement a moderate economic stimulus program like the one I just discussed until an economic downturn was half a year old or older. Unless, of course, the Congress chose to implement that program in the face of the perverse tax increase that stimulus program would trigger.
Mr. President, the Danforth surcharge would also create a new incentive to design legislation in ways that evade the discipline of the budget process to avoid triggering the surtax.
If an increase in spending triggers an automatic tax increase, why not simply provide the same program benefits in ways that don't show up in the budget? Loan guarantees, for example, offer substantial subsidies to those who receive them, and these subsidies are not reflected in the budget. I fear that if the Danforth surcharge is approved by the conferees, there will be increased use of this device to provide benefits to eligible groups, benefits which do not appear as outlays in the Federal budget.
Tax expenditures offer another means to provide benefits to some groups without adding to Federal spending. This option also generally avoids the periodic authorization and appropriations process.
Trade restrictions and regulatory policies represent still more means to establish programs with hidden costs.
Until the congressional budget processhas been extended to fully cover these types of practices, mechanisms which encourage their use, mechanisms such as the Danforth provision, should not be enacted.
I have another serious reservation concerning the Danforth surcharge; namely, the discretion that provision provides the Secretary of the Treasury to set the level of the surtax.
I noted earlier that under the Danforth provision, we would not know the level of revenues in the budget before final decisions had been made on all spending items. In fact, however, the Secretary of the Treasury is provided substantial discretion to change the level of the surtax even after the second budget resolution has passed both Houses of Congress.
The Danforth provision states, and I quote:
The Secretary shall adjust the percentage determined under paragraph (2) whenever necessary, but not more than twice during any twelve-month period, to compensate for errors of estimate or significant changes in Federal outlays or revenues not taken into account when the percentage was determined or previously adjusted.
The language may sound harmless, but outlay estimating differences between CBO and the administration can easily add to $5 billion. The language may also allow the Treasury to adjust the surtax in response to projected outlays from programs the administration favors but the Congress doesn't want.
Whatever the reasons for Treasury and congressional disagreement, the language in the Danforth provision clearly allows the Secretary of the Treasury to base his surtax calculation on an outlay projection other than the outlay total provided in the second budget resolution.
In summary, Mr. President, the Danforth provision would pose serious impediments to the congressional budget process. It would hamper congressional efforts to provide budgets which appropriately meet the Nation's needs. In a recession, the provision could have a harmful effect on the economy. The provision could encourage poor budgetary practices. Finally, the provision could hand over authority on tax reductions to the Secretary of the Treasury. In so doing, it could greatly weaken congressional control over the budget.
The appropriate way to control Federal spending is not to require taxes to rise when Congress exceeds an arbitrary spending level. The appropriate way to control Federal spending is for Congress to exercise self-discipline — to work within the existing budget process and make reasoned, prudent decisions on each and every spending program we consider. Only then will we have a reasoned, prudent budget.