December 17, 1979
Page 36430
Mr. PACKWOOD. I wonder if I might say something to my chairman of the Budget Committee.
I have only gone on the Budget Committee this year, and the Senator from Maine has made the Budget Committee, in my opinion, the toughest job in the Senate, and I say that as a compliment because when it was set up there was no idea exactly in which direction it would go, and under weak leadership, under leadership that refused to fight for reconciliation, under leadership that had been willing to cave in and go along, the Budget Committee today would be a pro forma committee that no one wanted to serve on.
Instead it has gone in the opposite direction, and ED MUSKIE is the reason why it has gone in the opposite direction.
It has today become not only the most important committee or certainly one of the most important committees in the Senate, but because of the direction he has started it on there is no question in my mind it is going to become the single most important committee in this Senate because the bottom line of everything we must consider is how much income will it raise, how much money will it cost.
Nothing is more important in terms of committee direction than what happens when it is formed. Had it gone in the wrong direction, it would have taken a decade or longer to bring it back. Having started it in the right direction it is going to be easier in the future to reach the balanced budgets and to achieve the other goals that Senator MUSKIE has set for the committee, for this Senate, and for this Congress.
But I do agree with the Senator from Idaho when it says there are things other and in addition to, besides the budget figures starkly to consider. There is no question in my mind that the Finance Committee presumption of $30 a barrel for oil in 1980 is going to be wrong. I will be very surprised if by the summer of 1980 there is any country left selling oil for less than $30, and those will be the ones that are restraining themselves, and those that have no care for restraint — I am not talking about the spot market, I am talking about what the everyday posted price is going to be — are going to be selling oil some place between $32 and $35 or more.
As the Senator said, every dollar that that price goes up hurts our balance of payments, hurts the inflation, hurts the budgetary planning of this country.
So I totally support the amendment of the Senator from Idaho and would hope, despite, I know, the feelings of the Senator from Maine, he will treat this amendment with kindness and gentleness.
Mr. MUSKIE addressed the Chair.
The ACTING PRESIDENT pro tempore. The Senator from Maine.
Mr. MUSKIE. Having listened to my good friends from Oregon and Idaho, I ought to make a few observations before I get to the disagreeable part of my responsibility this morning.
First they both know I have the highest respect for each of them in terms of intelligence and their commitment to the public interest and their understanding of this issue, and it is with regret that I fmd myself in a position that I am in with respect to this and other amendments, I might say.
Second, I want to make it clear to all Members of the Senate that these amendments we are talking about do not impact on the current budget resolution. So I have no authority to apply any formal kinds of discipline to these amendments. If they were written in such a way as to impact on the current fiscal year, then they would be subject to the discipline of the current budget resolution.
But the congressional budget is an annual one, and all that I can do about future years is to simply point out the trends we may be caught up in if current policies and current programs continue through the next decade.
What I have to say is not binding upon any other Senator, and other Senators may make different assumptions about what is likely to happen in this debate, and I would assume they would do so in terms of their own convictions as to how they see the future. That is every Senator's prerogative.
Any chart of this kind needs to be viewed and understood in terms of the assumptions upon which it is based, and those assumptions can change with the realities as they develop.
So let me repeat what this chart reflects. First of all, it makes rather conservative assumptions about the condition of the economy through a 10-year period, and I do not know that it would be fair to make anything but conservative assumptions when one talks about a 10-year period into the future.
It is based upon, for instance, an average of 3 percent real growth through that period. Now, whether or not we get 3 percent real growth is anybody's guess. The 3 percent would be a pretty good performance as a 10-year average, taking into account what has been happening in the last year or two. Nevertheless, we make that assumption, and if Senators disagree with that assumption, they believe it is either too conservative or too optimistic, then they would make adjustments in the other conclusions reflected in the budget.
Second, this congressional budget, which makes projections only for 3 years, the current year, 1981, and 1982, supposes a surplus in 1981 and 1982 that could be very much jeopardized by current economic trends, as the Senator from Oregon and the Senator from Idaho know.
We are in a very uncertain position at the present time and if we have a shallow recession next year, we have a deep recession next year, and if they have the latter, this surplus would be wiped out. I do not think there is any question about that. We lose revenues, and the costs associated with unemployment and welfare would rise, and that projected surplus which I have projected as making possible a tax cut in fiscal 1982 would be wiped out. So that is the only budget commitment that the Congress has made.
Now, what are the rest of these lines? This solid black line under the solid red represents spending projections if the budget keeps up with inflation. That means that it includes discretionary inflation allowances as well as mandatory inflation allowances, which we think is a realistic conclusion, a realistic assumption, because Congress is disposed to protect programs with discretionary inflation allowances as well as mandatory, although this current year we did manage to cut out the discretionary allowance to hold down real program growth. But that is not a typical congressional reaction.
Now, what this line represents is the growth of the budget during the 1970's, notwithstanding the extension of the budget process. In other words, we have gone beyond inflation allowances and created, actually, new programs. Energy, of course, is preeminent among those, but there have been others.
So if one assumes that in any decade Congress is going to approve some new programs in addition to merely keeping up with inflation, that is one measure of what the result is likely to be.
But if we do that, of course, we are going to be in a deficit through the next decade under present projections. Even if we can manage to apply this much discipline, we will still be in the red.
Let me say this, in addition, about the assumptions here: First, they include commitments to real growth in defense through 1982. You remember the 3-5-5 formula. Beyond that, we drop a bit to 3 percent for defense for the rest of the decade. Well, the President's defense numbers, as I understand them — and I have not analyzed them totally — are higher numbers for the decade, I think. If so, then the assumptions for defense spending are probably too conservative.
In addition, this chart assumes all energy legislation that we have enacted up to now. It also includes the House-passed welfare reform bill, on the assumption that some form of welfare reform will be approved, and that is relatively conservative. It also assumes catastrophic health insurance, which is now being considered in the Finance Committee, and that is a relatively conservative approach to national health insurance.
Now, what about the revenue side? We have assumed here the revenues that were in the Finance Committee's bill as it came to the floor; and in addition to that, we assumed a tax cut of $55 billion in 1982. It is in the budget.
In addition, we assumed continuous tax cuts that would be made possible if the Nunn-Chiles- Bellmon amendment to the 1978 Revenue Act is implemented. So much for the revenue side.
Now, what have we done with respect to the revenue side and the agreement that has been reached on revenue? The formal agreement has not changed this policy very much. We increased revenues in fiscal year 1980 by $1.35 billion, and that appears in the projected budget resolution, leaving about $50 million to play with under the budget resolution. In fiscal year 1981, which is the first year of the McClure amendment, we added $1.4 billion — these are rough-cut figures by JCT, but they give us an order of magnitude. We have increased revenues for 1984 by $1.4 billion, but the projected deficit is $19 billion. So we have reduced the deficit by only $1.4 billion in revenues for that year.
In 1982 the projected deficit is $18 billion, and we have reduced that by $1.4 billion additional revenues in this bill. In fiscal year 1983, we added to revenues by $2.1 billion as against a deficit of $27 billion, and in 1984 we have increased revenues by $2.6 billion as against a projected deficit of $18 billion.
I remind you that those deficits in 1981, 1982, 1983, and 1984 are on the basis of commitments that have not yet been written into law, including tax cuts that have not yet been written into law.
So those deficits are avoidable if we are willing to forgo the tax cuts, if we are willing to reduce the energy legislation already approved, if we reject welfare reform, and if we reject catastrophic health insurance.
In other words, this is not frozen in concrete yet, and so you have to make your own assumptions as to whether or not we are really going to eliminate those projected expenditures, or whether we are going to make commitments to them; and there is a possibility that we may make even greater commitments, especially for defense and national health insurance.
That is what the chart is. If Congress changes any of these things, the chart will change. If the economy improves and the 3-percent real growth is improved, the chart will change.
Now, for all these things, this is the best picture we could take of the commitments that have been made and the revenue picture as of this date.
Mr. McCLURE. Mr. President, will the Senator yield for a brief comment?
Mr. MUSKIE. Yes.
Mr. McCLURE. I thank the Senator for yielding.
Mr. President, let me point out that this is not the time for major debate over the budget, and I do not think it should be.
Mr. MUSKIE. Yes.
Mr. McCLURE. But I think we should point out that a lot of the assumptions in that chart and others we have been using are built on econometric models that are demand side oriented. There is a great effort in the economic community today to change those figures to indicate the supply side changes when we have incentives for work, investment, and production. If, as a matter of fact, we are successful in making those projections up on a different basis, that entire chart changes, depending upon the mix of policies that we apply.
My purpose in making the point today is not to debate the issue extensively, but to point out that there are different theories about what the economic responses are to a different set of circumstances or stimuli, and this is based upon one set of assumptions. There are others who make the very strong argument that the old assumptions no longer are true.
Mr. MUSKIE. I am familiar with that, and, of course, that fundamental change could occur. We have a Presidential election next year, as well as congressional elections; and those elections, reflecting, presumably, the mood of the country, may well change the underlying economic philosophy which drives Government policy.
Mr. McCLURE. Yes.
Mr. MUSKIE. I understand that. So I hasten to add again, this is a picture that could be changed. It could be changed not only by controlling spending and revenues, but by changing underlying economic policy and hopefully creating a healthier economy. I understand all that.
But the value, I think, of looking at a 10-year picture of this kind is to indicate the need for change. We may disagree as to what kind of change ought to take place.
Mr. McCLURE. I cannot argue that.
Mr. MUSKIE. So, as Budget Committee chairman, having seen these trends, I am not quite as optimistic as I once was that that kind of fundamental change is taking place; and what concerns me now is that congressional habit tends to perpetuate this kind of picture, and Members of the Congress ought to understand that.
Now, when I ask for roll call votes on such amendents such as the amendment of the Senator from Idaho (Mr. McCLURE), I will not make tabling motions. I think you are entitled to have up or down votes. Indeed, that is the purpose of the exercise: that Senators look at this picture and then decide, having heard the merits — and there is a lot of merit to the Senator's proposal — consider the merits as against this and make their own choices.
They also ought to understand that if this picture persists, fundamental changes do not change it, that all of us are going to have to say no on some occasions. You cannot always say yes. It is not necessarily true that this particular one is one to which a no should be uttered, or any of the others.
And I also said to the Senator from Idaho (Mr. McCLURE) that I have not picked his amendment out as the guinea pig or the scapegoat. His amendment just happened to come up first in line.
I think there are about a dozen others that I am going to have to bring to the attention of the Senate in the same way. But all I am doing at the beginning is to simply put this chart up here so, as Senators come in to vote, they can take a look at it and they might ask: "What is that thing?" I would say to them that is red ink.
Mr. McCLURE. Will the Senator yield for just a comment?
Mr. MUSKIE. Of course, I will yield.
Mr. McCLURE. Mr. President, I appreciate the fact that the Senator says — and I know it is true — that he has not picked on me or picked on my amendments. But I would say, if it were not for the honor of the occasion, I would just assume he had not.
Mr. MUSKIE. Mr. President, I understand what the Senator is saying. The first one, of course, was the Percy amendment.
Mr. PACKWOOD. Mr. President, will the Senator yield further?
Mr. MUSKIE. Yes.
Mr. PACKWOOD. Having sat with the Senator on the Budget Committee has been very instructive to me. Being on the Finance Committee under Senator LONG is a very instructive experience.
I am curious as to how we face this situation. One of the amendments I had in the Finance Committee had to do with cogeneration. There is an incredible amount of energy to be saved by cogeneration.
I had some amendments on it. I kept them back to tailor it as it came out of the Finance Committee with the amount of money we were going to raise.
And there is no question, in terms of cost-benefit ratio, that it is cheaper energy than oil, at the prices we were assuming, let alone the prices we will be paying.
And yet there is no question but what it loses money and most of them were tax credits. There was not much disagreement.
How do we factor that, realizing it is going to lose money, into this chart? Or do we not do it? Do we simply say we cannot afford to lose the money, we cannot afford to widen the deficit or lower the surplus, as the case may be, so we will forgo this opportunity to save energy, even though we know it would work.
Mr. MUSKIE. Well, first of all, I think one needs to consider what resources we have to work with.
Now, I heard the argument, largely on your side of the aisle — and I say that without any criticism at all — that this bill ought not to be made a revenue bill.
Well, for good or for bad, it is a revenue bill, because it is a tax bill, although its principal objective, of course, is to deal with an energy problem.
Second, there is a question of having agreed on what the size of the revenues could fairly be. I guess the Senate has made a judgment which may be changed at the conference. But, nevertheless, then for what purpose should that revenue be used? Primarily, of course, for energy purposes.
And the tax credit device has been used by the Finance Committee to do that.
Now, with respect to tax credits — these may not be strictly accurate — but they start at an annual cost of about $1.5 billion in 1980 and they go up to an annual cost in 1990 of $5.1 billion.
Now, that is one way of setting the outer parameters of what you could afford to invest in these things at any given time. I do not know whether tax credits on a benefit-cost basis would be the most useful way to use these resources. But that is certainly a judgment to be made.
We have to do it on the spending side of the budget, as Senators know. We have to make choices. And we are not always able to invest as much as we would like in particular things.
I like the cogeneration approach myself. Whether or not I would have voted for that as against some other tax credits in the bill, I do not know.
Mr. PACKWOOD. One of the difficulties we have when we were looking at the tax credits is trying to guess in 1987 how many people will put in solar hot water heaters for the 50-percent residential credit. And we could be off by a factor of 500 percent, one way or the other.
Obviously, the more people that do it, the more tax loss. On the other hand, the more that do it, the better the energy saving. All we could do is take the best estimates we have.
And, of course, it is the same thing we do in the Budget Committee in trying to estimate revenues. And we are sometimes off $5 billion, $10 billion, $15 billion. It could be.
And you try to weigh one credit versus another credit and you try to weigh cogeneration versus residential solar, and you try to figure out a cost per barrel.
And that figure fluctuates between when oil is $22 or $40 a barrel. At some point, I suppose oil will be sufficiently expensive and other energy sufficiently expensive that you would not need any credit.
At the moment, when you are talking about solar energy for hot water — and any one of us who has been to Israel has seen it, and any of us in most of the United States could use it, including my State and your State — but it costs easily two to 2½ times as much for a solar hot water heater as it does for the most advanced gas hot water heater.
For the average Joe or Jane whose hot water heater goes out and they are going to invest in a new one, a gas one costs them $1,200 and the solar one costs $3,000 — they do not have the $3,000 and they do not have the $1,200 — the natural inclination is to buy the gas one. That is why we put in these 50-percent credits, in the hope that they would induce this. The well-paid corporate lawyer wants solar energy to talk about at the cocktail parties. If all of them put it in, it is not going to be enough. We have to have the $15,000 and $20,000 income people put them in their homes, and that will do it.
But whether the cost is right or the energy savings is right is purely speculative.
Mr. MUSKIE. Well, the two choices are either to raise the revenues to be generated by the pending bill, which makes more resources available, or to choose different tax credits. And both of those are difficult ones, because if we raise the revenues, conceivably, and this is the argument of those who wanted to keep the revenue bill down, it might affect the incentives for developing one or another new source of energy.
Well, that was one of the arguments that was raised and one of the tradeoffs we had to make when we were talking about 60 versus 75 percent on tier 2, new oil, and stripper oil, and a 1,000-barrel-a-day exemption. If you did not do it, how much more oil would you produce?
And I must say that I voted against the oil interests on almost all of those exemptions, with one or two exceptions, because I looked upon this bill as an energy bill, not an oil bill. And if, indeed, by raising the tier 2 from 60 to 75 percent you could produce x billion dollars, even though it resulted in a 200,000 to 300,000-barrel-a-day drop in production by 1990, if that money could be used for tax credits to increase savings in conservation or increase solar by 500,000 to 600,000 barrels a day, it was a worthwhile tradeoff.
Mr. PACKWOOD. We got into it between oil States and non-oil States. We all have constituents, and I can understand if you come from an oil State, where it is your principal business, you only look at the oil production side. If you come from a State that has no oil, you do not look at that side.
When the oil interests come to me and say, "Look, why can't we do both? Why do we not have the tax and we will produce another 200,000 barrels and give the credit and we will say 500,000 to 600,000 barrels and produce it with solar energy?" And you say to them, "Because it costs us $10 billion, $15 billion, $20 billion, which we had planned to use the revenues from this bill for."
The question "Why don't you use some other revenues?" Well, the answer is, one, because we are working on this bill and, two, the likelihood of increase in taxes from some other source by $15 billion or $20 billion to pay for these credits is nil. This is the bill, this is the time, this is the balance.
Mr. MUSKIE. Incidentally, there is a third source, as I remember when I first went to the legislature back in, I guess it was, the last century some time. But we had a very small Democratic minority in the House. I think we had 24 out of 151. And the previous session there had been 14 Democrats out of 151. So they were so small they thought their policy input was nil. And the majority made sure that the policy was nil by leaving us off committees.
But, in any case, that year I was the floor leader with very few troops. And we decided we had to put a program in. So we did.
We caucused and we decided maybe we ought to figure out a way to pay for it. And one of the oldtimers who had been around a long time said, "Well, now, Mr. MUSKIE, I understand we have a deficit. Why don't we spend that?"
Well, that is the third source of funding. We can increase revenues, reduce other spending, or spend deficits. All of these are projections.
I want to emphasize again that what is shown here is not the budget through 1990. These are simply trends based on current activity. I hope we can make enough investment in all of these energy alternatives which the Finance Committee considered and which all Senators have considered so that we can tap the most productive ones and ease this problem as well as the energy problem as a whole.
Mr. PACKWOOD. As the Senator said of himself, I was also in the State legislature, although it was more evenly split out there. But the best thing that budget committee did in my estimation, had nothing to do with the legislature but had to do with the surpluses, if we had them. The argument was used, "Well, let us use it to raise basic school support from $50 to $100, if we have the surplus, and no projection beyond the biennium as to what the program is going to cost."
I think we will have the surplus here. As I look upon what ought to come in from the windfall profit tax based upon where oil ought to be, we will have the surplus. I am delighted that the one thing the Senator will not let us do is say, "Well, we have $50 billion, and we can pay for the program that will cost $50 billion and not worry beyond that."
That is the most constructive thing this committee has done.
Mr. MUSKIE. I thank the Senator. I appreciate the opportunity to discuss this chart and put it into its proper perspective. This is not a club, but it is an analysis, helpful or not to other
Senators. I am not going to spend a lot of time on each of these amendments. I am simply going to ask the Senate to make the judgment. I know with articulate spokesmen like the Senator from Oregon and the Senator from Idaho that part of the case will be made.
Mr. PACKWOOD. Mr. President, I suggest the absence of a quorum.
Mr. BENTSEN. Will the Senator withhold?
Mr. PACKWOOD. I will.
Mr. BENTSEN. Mr. President, we considered this amendment in the Finance Committee. It was part of the package, as I recall, that the Senator from Oregon originally presented. There is a lot of merit to what has been stated by the Senator from Idaho and the Senator from Oregon. But at some point we have to stop. We are talking about a 20-percent tax credit which is available for this equipment and one which is available on a great many other industry equipment orders that will generate energy other than oil and gas. To bring it to 30 percent means we ought to take into consideration the vast number of others where we have limited it to 20 percent.
As has been stated before, we are giving a production credit, in effect, of about $17 a barrel because for some time now we have excluded from the tax on gasohol the 4-cents a gallon if it has as much as 10 percent in alcohol in its content. Obviously, you get a multiplier effect of that 10 times, and you get up to 40 cents a gallon. That means you get $17 a barrel if you have 42 gallons in a barrel. At some point you have to stop the economic incentives to get the increased production.
Mr. McCLURE. Will the Senate yield?
Mr. BENTSEN. In just a moment. They are asking for an extension in the period of time until 1984. I think this is something that ought to be considered by the committee. It has been considered in the past, of course, and we may change it for a number of these items. But I think we ought to be going back to committee action at a future date. We have 1053, and a number of us, including the Senator from Oregon, are cosponsors. I believe we will make some headway on something like that.
Obviously, if you had a 5-year depreciation, amortization, or a schedule of 5 years on equipment, and you loaded that front end with a 30-percent investment tax credit, you would get into a situation where everybody would be trying to buy this kind of equipment, I suppose, not for economic reasons but just for some kind of a tax gain.
So these are the kinds of conflicting problems that develop if we take another step in raising this up to 30 percent. Therefore, I must reluctantly oppose it.
Mr. McCLURE. Will the Senator yield?
Mr. BENTSEN. I am delighted to yield.
Mr. McCLURE. Mr. President, as I said earlier, I think before the Senator was in the Chamber, these incentives that we have for alcohol in gasohol, 40 percent for gasohol and the waiver of the motor vehicle fuel tax, for which it is a substitute or an alternative, have already been in effect.
The regular business 10-percent investment tax credit has been in effect for some time. The energy 10-percent investment tax credit has been in effect for over a year, and it is not happening.
The bill recognized the need for a longer period of time and stretched it out through 1990 in order to give people more certainty. That is a step in the right direction. At the same time, the Finance Committee bill includes a 20-percent investment tax credit for two classes of biomass: one which is the direct conversion of biomass as a fuel, and the other is the conversion of biomass into a solid fuel. Those are for 20 percent tax credit for a period ending in 1990 under the committee bill. But we did not do the same thing for alcohol for gasohol, for the production facilities.
While the 4 cents a gallon or 40 cents a barrel is an incentive to the consumer, it is not an incentive to the producer unless it reflects itself in increased consumption. What we are trying to do by this investment is to make an additional incentive to the person who will make the investment in production facilities. Obviously, if what we have now is not getting the job done, and I want the job to get done, then maybe we need to go just a short measured step further.
While I originally suggested that we match the tax credit that was given for the two classes of biomass which the committee has already agreed to, to extend that to alcohol treatment, I compromised on that by saying we will end it in 1984. We will take another look and see whether or not the additional incentive is getting the job done, whether it is a failure, whether it is doing too much, whether the response has been too great. We can chop it off.
I think we need to do something rather than continue to penalize the American economy by the hemorrhage of money that is flowing out to the OPEC countries.
Mr. BENTSEN. I agree with the Senator on that.
Mr. McCLURE. I just wanted to repeat what I said earlier, that for every $10 increase in the price of OPEC oil, the American consumer pays $35 billion a year in additional fuel cost. It seems to me that where we are working on margins, on marginal production, surplus, or deficiency, we better be keeping our eye on the most important goal, and that is breaking the grip of the OPEC cartel which can dictate those kinds of prices to us.