March 25, 1980
Page 6498
Mr. LEVIN. The Muskie substitute to the Roth resolution instructs the Budget Committee to report a balanced budget for fiscal year 1981. This resolution would require $16 billion of cuts.
I understand that the Budget Committee will recommend specific program savings when they report a balanced budget. Does adoption of the Muskie substitute bind us to support the specific cuts that will be offered by the Budget Committee?
Mr. MUSKIE. No; it does not. Each Senator will have to decide his own vote on the basis of his appraisal of our work.
Mr. LEVIN. Furthermore, in voting for the Muskie substitute are we committing ourselves to use the windfall profit tax revenue to fund general revenue programs?
Mr. MUSKIE. You are making no assumption about the windfall revenues in such a vote. The windfall revenues will come into the general fund, and Congress will have to make the decisions about how to spend them through the regular budget and appropriations process each year.
Mr. BAYH. Mr. President, I rise to join with Senator MUSKIE today in offering a substitute proposal to Senate Resolution 380, the resolution offered by the Senator from Delaware which is currently pending before the Senate.
I know of no Member of this body who has been more persistent in this pursuit of a balanced budget.
I believe that our proposal builds on that of the Senator from Delaware, and if adhered to by the Budget Committee, will provide the Senate with the necessary tools to make sound budgetary decisions later in the year.
The resolution introduced by the Senator from Delaware would express the sense of the Senate that the first budget resolution reported out by the Budget Committee this spring should limit Federal spending to 21 percent of the gross national product.
The substitute proposal that Senator MUSKIE and I and others are offering today would expand on Senate Resolution 380 by stating that it is the sense of the Senate that the Budget Committee should report out a balanced budget for fiscal year 1981, reserving any surplus for a tax reduction as well as spelling out what additional cuts might be necessary to reduce the fiscal year 1981 budget to 21 percent of the GNP. In short, our proposal instructs the Budget Committee, at a minimum, to lay these two alternatives before the Senate when we cast the votes that will guide taxing and spending policy during fiscal year 1981. It will thus permit the Senate to consider both options in an informed manner as it assesses the best course for the Nation at that time.
The Senator from Delaware has been a long-time proponent of a balanced budget. He has also supported proposals to limit Federal expenditures to a certain percentage of the GNP, as many of us have, in order to get at the question of the size of the Government as well as the size of the deficit. I urge him to join us in broadening his resolution, so that we can consider both of these options, which are not mutually exclusive, in an informed fashion later in the year when we vote on the budget resolutions.
Mr. President, the Budget Act, of 1974 provided the Congress with new procedures to coordinate Federal taxing and spending policies. For the first time, it charged House and Senate Budget Committees with recommending fiscal policies for the coming year which were sensitive to the Nation's economic needs.
As part of this exercise, the Budget Committees must report out two resolutions a year, one in the spring, and a binding one in the fall, which are meant to guide our taxing and spending committees and force the Congress to take responsibility for the sum total of the many individual decisions made by the Congress over the course of a year.
To my mind, these new procedures have been very helpful. They have forced us to look at the sum total of our efforts and not just the parts. This has been especially true this year, as we face an inflation rate of 18 percent or more, soaring interest rates, and a budget increasingly made up of "uncontrollable expenditures, or automatic expenditures flowing from programs and benefits to which people are automatically entitled.
Mr. President, there is no question that the decisions we make this year will be critical for our Nation, and perhaps affect the course of the economy for years to come. This makes it all the more imperative that we weigh our actions very carefully in the months ahead. The resolution I am offering with Senator MUSKIE today will permit the Senate to do just that — to take into account a number of options available to us to reduce Federal spending and taxing, and the size of the Government, and do so in a manner that will be helpful in resolving our economic problems.
Mr. President, during recent months, as chairman of the Judiciary Committee's Subcommittee on the Constitution, I have considered a wide variety of proposals to amend the Constitution to require balanced budgets or limit Government expenditures to a percent of the gross national product. I have also been exposed to a cross section of economic thought on our current difficulties. The subcommittee held 6 days of hearings and listened to 38 witnesses.
I came away from this experience with two firm judgments. First, that it is essential to balance the Federal budget this year if we are to keep the confidence of the American people and get inflation under control. Second, that the Congress do this without delay by using established procedures available to us now and by exercising the discipline necessary to eliminate deficit spending at the Federal level post haste.
Mr. President, the American people have spoken loud and clear. They want a balanced budget this year. I believe that they will get it.
The House Budget Committee has already taken its first steps toward this goal by marking up a budget resolution that not only provides for a balanced budget in fiscal year 1981, but which also provides for a surplus.
The President has likewise spoken on this subject. He has announced his intention to send budget modifications to the Hill by the end of this month which would provide for a balanced fiscal year 1981 budget.
Having voted to balance the fiscal year 1981 budget last year, in the Public Debt Limit Act, the Senate would be breaking its faith with the American people if it followed any other course than to develop a balanced budget this year. I have every confidence that under the able and dedicated leadership of Senators MUSKIE and BELLMON, chairman and ranking member of the Senate Budget Committee, that the Senate will keep its word to the American people by balancing the fiscal year 1981 budget.
Mr. President, balancing our budget this year will reduce some of the pressure on the Federal Reserve Board and encourage the Fed to moderate its policy of constantly raising interest rates.
If the Fed refuse to lessen interest rates, I intend to pursue changes in the Federal Revenue Act which will enable Congress and the President to lessen present usurious rates which threaten to destroy our Nation's economy by inflation and recession. A balanced budget will also send a signal to the financial markets and the American people that we are serious about fighting inflation, and that the Federal Government is willing to do its share in cutting back and trying to live within its means. This is a necessary step toward moving our current double-digit inflation down to where it belongs. Accomplishing this goal will require sacrifice among many, and reductions, or even termination, of some programs that have merit and have enjoyed the support of many of us over the years.
The Senator from Delaware suggests that, rather than moving to balance the budget, we instead, move to limit the fiscal year 1981 budget to 21 percent of the GNP. This suggestion is designed to reduce the size of Government and the role Federal spending plays in our economy.
This approach is very similar to a procedure I endorsed when I introduced S. 2132, the Taxing and Spending Limitation Act of 1980, which would require the administration to prepare, and the Budget Committees to report out to the full House and Senate, a budget in which both taxes and spending would be limited to a certain percentage of the GNP. This bill, currently pending before the Senate Budget Committee, would require Congress to vote on that budget before it could consider any alternative budget which might provide for a higher level of Federal expenditures relative to the GNP.
To my mind, this proposal, which establishes by law that the Congress must consider limited budgets, is a good supplement to our existing budgetary procedures. It would force the Congress to vote, each year, on a limited budget aimed at paring down the size of Government. By addressing both taxing and spending, it would avoid balancing the budget by increasing the tax burden. At the same time, it would provide sufficient flexibility for the Congress to effectively deal with changing economic conditions.
The resolution Senator MUSKIE and I are sponsoring today has many similarities to the approach suggested in S. 2132. It would call upon the Budget Committee to present the Senate with a balanced budget proposal, as well as a proposal that limits Federal spending to a percentage of the GNP. It would have the Budget Committee lay out the consequences of both of these proposals before us, and estimate their relative impact on the inflation rate. It would specifically outline what would be required in the way of cuts, for specific programs, in order to reach either or both of these goals. This, I submit, is the proper way for us to proceed.
Mr. President, before concluding my remarks, I would like to digress for a moment to discuss several related issues that very much bear on this debate : The impact of rising energy prices on our inflation rates, the impact of high interest rates on our economy, and my reasons for supporting a balanced budget through direct action this year by the Congress rather than through the vehicle of an amendment to our Constitution.
I raise these issues because I believe they should be an integral part of this debate. The American people want a balanced budget. This is a serious concern, and, as I said earlier, I do not think we will disappoint them with our actions.
At the same time, I think it is imperative to stress that reaching a balanced budget this year will not — I repeat, will not — bring our people speedy relief from the heavy burden inflation has laid at their doorstep. Even the most ardent advocates of a balanced budget do not believe that eliminating Federal deficits alone this year will shave more than a fraction of a percent from our current inflation rate.
The reason this is so is that balancing the budget will not immediately get at two other inflationary culprits: Soaring energy prices and interest rates.
SOARING ENERGY PRICES FEED INFLATION
Mr. President, I submit that many of the most serious national problems we face today can be traced back, in one form or another, to our intolerable dependence on expensive and insecure foreign oil.
A major cause of our present inflation is the shock of successive oil price increases which have raised our oil import costs from under $5 billion in 1972 to a projected $90 billion or more this year. These increases have raised the cost of a gallon of gasoline from 73 cents in 1979 to $1.26 today. They have raised the price of home heating oil more than 90 percent in the last year.
These increases have rippled throughout our economy. Several weeks ago, Walter Heller, a senior economic adviser in past administrations, estimated that 60 percent of the increase in the inflation rate last year could be traced to soaring energy prices. And I believe him. Almost every month over the past year, when the new CPI figures came out, it has been plain for all to see.
Last year the Consumer Price Index went up to 13.3 percent. Food prices went up 10.2 percent, energy prices 37.4 percent, and home purchase and financing costs went up 21.5 percent. All other items went up 7.6 percent on the average.
If the proportionate weight of each of these items in the index is taken into account, direct energy prices contributed 3.2 percent of the 13.3-percent inflation, home purchase and financing costs contributed 4.3 percent of the 13.3-percent inflation, food prices contributed 1.8 percent of the inflation, and purchases of all other items contributed only 4 percent of the total 13.3-percent inflation. When compared to the 1978 rate of inflation, nearly 60 percent of the increase is directly attributable to energy prices.
These estimates show only the direct impact of these items on the Consumer Price Index. Underlying all of these increases is the hidden burden of energy cost increases on nearly everything we produce, and the reverberations which these increases have on the wage-price spiral, consumer expectations, and the counterproductive attempt to control inflation through higher interest rates.
The oil price increases we are experiencing as a result of the new OPEC policy — to produce less and charge more — and of domestic oil price decontrol, have played havoc with our economy.
It would be bad enough if their efforts were limited to increasing petroleum product prices. Unfortunately, the ripple is much wider than that. With deregulation of natural gas, natural gas prices have gone up in lockstep with oil prices. These costs are passed on directly to consumers, in their gasoline and utility bills. They are also passed on indirectly in the costs of virtually all consumer goods and services because of the energy intensive nature of our society.
Increased petroleum and natural gas prices are reflected in the plastic wrapped around a loaf of bread or a pound of hamburger. They are reflected in the plastics used to make our automobiles, eyeglasses, toys and a whole myriad of consumer products. They are reflected in the polyester and other synthetics from which our clothing is made.
I could go on and on, Mr. President, but I believe I have made my point. Balancing the budget is important. But it will not make oil price increases go away or prevent workers from desiring wage increases so they can pay their heating bills and feed and clothe their families. It would be unfair and deceptive, Mr. President, to suggest otherwise.
This means that an equally critical part of fighting inflation will be to keep energy prices down, develop alternative domestic energy sources to back our foreign oil — such as gasohol and coal and coal derivatives — encourage new ways to conserve energy and break the monopoly stranglehold of the major oil companies and their OPEC allies over our economy by insisting on the introduction of competitive principles into the energy marketplace.
The profits the major oil companies are making at the expense of the average American are unacceptable to this Senator. In 1979 the profits of the 20 largest oil companies rose by more than 64 percent. During the last year gasoline prices have risen by more than 72 percent and heating oil prices by more than 90 percent. At the same time. the consumer has paid higher prices for energy, they have also paid again as the inflationary pressures of surging energy costs ripple through the economy.
While this issue is not before us today, I submit that if a majority of this Congress continues to support unbridled oil company price increases, we are in for hard times no matter how fiscally prudent we are.
SOARING INTEREST RATES FEED INFLATION
The present monetary policy of raising interest rates to fight inflation is counterproductive. Last year, the home finance component of the Consumer Price Index rose by 27 percent. The prime rate charged by banks has risen from 11.5 percent last July to 19 percent presently. At the same time consumer prices have risen from an annual seasonally adjusted rate of 12.7 percent in July to a rate of 18 percent during the months of January and February.
The cost of money not only affects the Consumer Price Index which in turn impacts upon indexed programs such as social security and many wage contracts, but it also raises the price of almost everything we buy. Business must pay these higher rates to invest in equipment, inventories, and plants and to refinance loans which become due on existing investments. These costs get passed on to consumers.
Raising interest rates to fight inflation not only severely impacts new investment on the supply side, but it sets us up for a recession which will be severe indeed. Monetary policy is a blunt tool to fight inflation caused by oil prices. Its impact on economic output is usually delayed for 6 months or more and its effect on inflation depends on inducing a recession and may be delayed for as long as several years. In the short run, it severely aggravates the inflation.
Furthermore, high interest rates single out the housing industry to bear the brunt of the burden. This has always been the case with higher interest rates, and it is unfair and inequitable.
I believe that one of the most important benefits of balancing the budget will come if our fiscal restraint would encourage the Federal Reserve Board to back off its present high interest rate policies. Not only will balancing the budget give the Federal Reserve more reason to back off, but it will also leave more funds available for private borrowing and investment.
REDUCE REGULATORY COSTS THROUGH CONGRESSIONAL OVERSIGHT
Mr. President, another area to which this Congress must direct its attention is Federal regulation. We must take strong steps to rein in the regulators — the inefficiency and ineffectiveness of poorly run, ill-conceived programs create incalculable costs which cannot be borne by a nation struggling to improve its productivity and retain its international competitiveness. We now have before us in the Senate several omnibus reform bills whose thrust is to improve regulatory performance through better management within the executive branch. While I support these bills in concept, I find myself more and more convinced that the most sure handle on controlling, molding, and pruning the regulatory machinery is in the hands bf the Congress.
Congress created the agencies and their programs; we are ultimately responsible for them. If at times the agencies have overstepped congressional intent, if they have grown to size and power beyond that contemplated by us; if they have sometimes seemed to achieve a life of their own independent and unmindful of the constituents they were established to serve; then it is time for Congress to accept the responsibility of overseeing what they are doing.
In this belief, I intend to offer later this week a bill offering a new approach to congressional oversight of agency programs. It combines in a practical way two sound principles which have been studied in recent Congresses: "sunrise" — the establishment of performance measures; and "sunset" — the modification or termination of programs in an orderly review process by the appropriate committee. It will tie review to other legislative action, and to the budget process itself. It provides for workable reexamination by Congress of programs which have failed to meet their purpose and have become more of a burden than a benefit to those they were intended to serve. The country cannot afford the costs of ineffective and duplicative regulation. The Congress is the best place to control them.
Mr. President, I have painted a fairly bleak picture, perhaps bleaker than I intended, or believe is necessary. But I do so for a good reason. The American people deserve to know the truth about our current economic maladies, no matter how bitter the medicine. I believe too many politicians have held out too many false hopes and simple answers for too long. The plain truth is, that the economy is a complex web, and getting a handle on inflation will require action on a number of fronts. Balancing the budget is one of these. But the other areas I have touched on are equally important — if we are being honest with ourselves and the Nation. And this brings me to one last issue I would like to discuss, Mr. President. That issue is the wisdom of amending our Constitution to require a balanced budget, rather than leaving this responsibility with the Congress, where it currently resides.
A CONSTITUTIONAL AMENDMENT TO BALANCE THE BUDGET
Mr. President, as I stated before I did not reach a decision on the Balanced Budget Amendment to the Constitution easily or without careful study. Over the past year, as chairman of the Subcommittee on the Constitution, I held an extensive series of hearings on the various proposed amendments to the Constitution which were designed to balance the Federal budget or place a lid on Federal spending. We heard 38 witnesses including the sponsors of every proposed amendment in the Senate; the Secretary of the Treasury, the Director of the Congressional Budget Office, several distinguished economists and various non-governmental organizations with a particular interest in this area such as the National Taxpayers Union, the National Tax Limitation Committee, the United Auto Workers, and the AFL-CIO. I have spent more time in hearings on the amendment issue than any other Member of the Senate.
At the conclusion of this study, however, I determined that the constitutional approach to balancing our budget was not advisable. This was not an easy decision on my part. Support for such an amendment is widespread throughout the country, as well as in my own State of Indiana. The proponents of the amendment presented an enticing picture of the benefits to be gained from such an approach. And it is a revered American maxim that families, towns, States, and the Nation should live within their means.
In making this decision, Mr. President, I opted for the kind of bite-the-bullet discipline evidenced by the Senate today as a better alternative to that of the long-drawn-out process of amending the Constitution and writing economic prescriptions fitting for our times into a document that is meant to endure for all times.
The difficulty of predicting our national needs is well known to all of us. In these volatile times, national security considerations weigh heavily on all of us. Unanticipated defense expenditures could be necessary at any moment. The constitutional amendment before the Judiciary Committee would have allowed an unbalanced budget in times of declared war. I remind my colleagues that America's last two armed conflicts were not declared wars and would not have come within the exception to this amendment.
Mr. President, a balanced budget amendment would severely limit the Government's ability to respond quickly to economic recessions. Witness after witness at our hearings have described how necessary it is for the Federal Government to be able to respond to a slowing economy in order to avoid recession or even depression. As former Secretary of the Treasury Blumenthal noted in our hearings:
It is neither possible nor desirable to reduce the complex process of fiscal policy to the single constraint of budget balance. Flexibility is the necessary element of an effective fiscal strategy. Constitutionally mandating a balanced budget would undermine our efforts to develop and practice prudent economic policy.
A rigid balanced budget mandate could exacerbate economic fluctuations. If income falls unexpectedly, then budget balance can be achieved only if tax rates are raised, or spending for the quarter of the total budget that can be controlled on an annual basis is drastically reduced. But such actions would be counter productive because they would reduce output, employment, and incomes still further, resulting in bigger deficits which would, under a balanced budget mandate require even larger cuts in spending and/or increases in tax rates. This is a formula for deepening recession, not for promoting economic stability.
In some economic situations a balanced budget can make a bad situation worse. Mr. Martin Gerber, vice president of the United Auto Workers, notes that these amendments would have a crippling effect on the working men and women of this country. In our hearings he stated:
I can summarize our objections in a few words: the rigid requirement of a balanced budget every year is the best guarantee that a small economic downturn will be converted into a recession, and the best guarantee that a recession will be converted into a depression.
A study by the Council of Economic Advisers of the 1973-75 recession shows that if there were a mandated balanced budget in effect over that period, the unemployment rate would have risen to 12 percent compared with the actual rate of 8.5 percent. Moreover, the GNP in 1975 would have been about 12 percent below the 1973 level. As Secretary Blumenthal notes:
Rather than just a serious recession, the American economy would have suffered its first real depression since the 1930's.
I should also point out, Mr. President, that this amendment would most likely result in an explosion of litigation in the courts. Rather than settling the issues of taxing and spending in the legislature through the elected representatives of the people we would have these central issues determined by the courts of our land. While I have a great deal of respect for our courts I do not believe they are properly equipped nor do I believe they provide a proper forum for such decisions. The people, through their elected representatives, should make these determinations, not unelected judges who hold their positions for life without standing for public scrutiny and judgment through the elective process.
In short, Mr. President, I believe the preferable approach now, and in the future, is year in and year out fiscal responsibility on the part of the Congress. The initial cuts which will have to be made will be painful for everybody impacted by them. Once the deficit is eliminated, and the Congress moves in the years ahead to practice responsible oversight, I believe the underlying logic of this position will be sustained. There will be tough sledding ahead — politically as well as on the merits — for those of us favoring this approach. But the problems are too serious and complex for this Senator at least, to choose any other path. And I say, "let's get on with the job."
In closing, I commend the chairman of the Budget Committee, the distinguished Senator from Maine, for the leadership he has provided over the years in exercising this responsibility, and especially for the hard work and diligence evident in his work on this substitute to Senate Resolution 380. I believe the substitute we are offering improves on the original resolution offered by the Senator from Delaware — in requiring both a report on a balanced budget and a budget limited to 21 percent of the GNP — and hope it will enjoy the support of those supporting Senate Resolution 380. I have been honored to work with the distinguished Senator from Maine, as well as the majority leader in developing this proposal. I urge Senate adoption of this modified version of Senate Resolution 380.
The Senator's proposal is meritorious. It, perhaps, does not make as much political sense as some of the seemingly easy, simple solutions offered by others. But it makes a lot more economic sense.
I think now the people of this country are demanding good, commonsense.
I am glad to associate myself with the Senator.
Mr. MUSKIE. Mr. President, I would like to express my appreciation for the support of the distinguished Senator from Indiana in developing this approach to the balanced budget goal which seems to have so much support around the country.
As chairman of the Constitutional Amendment Subcommittee of the Judiciary Committee, Senator BAYH has had to conduct hearings and deliberations in the Judiciary Committee on so-called constitutional balanced budget approaches.
He has had serious reservations about those while still committed personally to the objective of a balanced budget under our present economic circumstances.
So I appreciate the cooperation he has given me and the majority leader, and others, in this effort to develop a proposal that is realistic, that will advance us to the goal of a balanced budget in 1981, without some of the inflexibilities involved in other approaches.
So I thank my good friend from Indiana.
Mr. BAYH. If the Senator will yield, I appreciate the thoughts of the Senator from Maine.
The more we have studied this particular problem of how one balances the budget, the more I have been persuaded that to put something that is lacking in specificity, that is lacking in absolutes, into the Constitution of the United States would be folly.
I understand the great appeal this has to many of our colleagues. I do not want to be unnecessarily critical of them because this has been portrayed by many people in the country as if it were the magic potion, the one teaspoonful of snake oil that will cure us of everything from arthritis to boils to, perhaps, fallen arches.
The fact of the matter is that the economic theory in this country today is not a 2-plus-2-equals-4 science. It is an art, at best, one which is practiced with great deftness by my friend and colleague from Maine.
To put something into the Constitution that is lacking in this definiteness, I think, would have been tragic.
I am glad the majority of my colleagues on the Judiciary Committee saw the wisdom of this and refused to go along with it.
However, I think the fact that we were not for a constitutional amendment should in no way be interpreted as a lack of resolve to try to get our fiscal house in order.
As I said earlier, my distinguished friend from Maine has been one of the most persistent souls in this body who has pursued this course. I am glad to join hands on this with him.
Mr. MUSKIE. I thank my good friend. Mr. President, at this time I yield myself such time as I may need to engage in a colloquy with my good friend from New Jersey (Mr. BRADLEY) .
The PRESIDING OFFICER. The Senator is recognized.
Mr. BRADLEY. I thank the Senator very much.
Mr. President, I would like to have a colloquy about the intent of the resolution the Senator has offered to the Senate.
I think that all of us will agree that, over the years to come, reduction in Federal expenditures is a salutary process for a fight against inflation.
At the same time, the argument is adequately made that it will reduce only a small part of the inflation rate in 1981 if we balance, but what we are really dealing with are expectations, and that a balanced budget will affect the expectations of business, the financial sector.
I, as one Senator, feel that tax policy will have more direct effect on those expectations. I also believe that the balanced budget concept is just a part of the total fight against inflation, that if we come into 1981 with the idea of balancing the budget, we might find that the other inflation medicine has worked, that monetary policy has squeezed off the flow of money, and that we are moving, instead of into an inflationary spiral, into a recession.
I know the chairman has had the same kind of contacts I have from the housing industry in his State that is crying about 12- to 15-percent mortgage rates. I know the chairman has had the same contact with businessmen who are faced with business investment decisions that they are unwilling to make with money as expensive as it is. I also know the chairman is aware that even consumers have reduced those savings accounts and can no longer consume. That is reflected in the national reduction of savings from 6 percent to 3 percent.
So if our objective is the long-term redevelopment of our economy, to make it more productive, it is possible we will come to a time in 1981, and even in the consideration of the budget for 1981, when this Senator might feel that tax cuts directed toward increasing productivity are more important than a balanced budget, per se.
I would like to ask the distinguished chairman if he sees anything in support of this resolution that would preclude support of tax cuts in future considerations of the budget.
Mr. MUSKIE. I will make these points to my good friend, and he has raised concerns that occurred to many of us.
The other side of high and persistent inflation which we are experiencing is the risk of recession, and even a deep recession. All those with whom I consult, people in the financial community, people in the financial institutions, all see that risk, and no one is in a position to guarantee that risk will not materialize.
But the immediate risk to which we must address ourselves, in my judgment, is the high, persistent, and exploding inflation which is the product, in the minds of many people, of inflationary expectations.
Those expectations prompt them to make their wage and price decisions, as though they expected inflation to be even higher, and perhaps even permanent.
So it is important to try to stabilize those expectations and to bring them down to a more normal scale.
Having said that, we still must be alert to the possibility of a recession. The budget process is flexible enough, and during its 6 years of life has demonstrated that flexibility, to respond to changes in our economic prospects. I think the possibility of tax cuts to respond to that kind of development is demonstrated by the record of the budget process since 1974.
I say, too, that in the first concurrent budget resolution. which was confirmed later by the second budget resolution for 1980, for the current fiscal year, our projections over the next 5 years assumed the possibility of a $55 billion tax cut in 1982, and perhaps a smaller one in 1981, if the rather small surplus we anticipated in 1981 at that time materialized and grew.
So there is a place, a very distinct place for tax reduction in our economic planning for the future — I am not talking about 10 years down the road, I am talking within the next 5-year time frame, or even less — there is a place for changes in the tax code which will — and I know this is very high on the Senator's mind — stimulate investments in productivity as well as prices, relieve some of the pain of the social security tax increases that will go into effect next January, and, possibly, if the worst happens, stimulate an economy that slows down to too great an extent.
These are possibilities we need to be alert to, and the need for which we ought to be ready to respond to, if the circumstances develop in that fashion.
That is not precisely on all fours with what the distinguished Senator from New Jersey would prefer to see put in place now.
I understand the Senator's concerns. There are people who share that policy approach. So I respect it. It is just that we all have to make the choices.
I urge the particular formulation in the Muskie substitute, because it does three things. As the Senator knows, it will have to have the support of the majority of this body or it does not become policy.
Number one, it sets up as an objective a balanced budget in 1981 to hit the high risk of inflation. The Senator is right in suggesting that if it has an effect against inflation, it will not be very visible in the econometric models. The issue is whether or not we would really hit hard at inflationary expectations.
Second, it holds out the prospect for a reserve, if everything works out well, that could be devoted to two of the three tax objectives I have discussed.
Third, it will present, only as an option, if the majority of the Senate wishes to support it, even deeper cuts, which come in the Senate think should be made in order to meet the inflationary problem.
So it is the kind of resolution, I suppose, which does not please everybody and displeases some.
Whether or not it commands the support of a majority remains to be seen.
However, I do assure the Senator that I understand fully his concerns not only with respect to this legislation but also with respect to the question of whether or not this resolution will leave us enough flexibility to move effectively in the direction he proposes, if economic developments justify that kind of move. In my judgment, we do have that kind of flexibility, and I assure the Senator on that point, whether or not I can assure him on all the questions he has raised.
Mr. BRADLEY. I thank the chairman for his explanation of the resolution and the way he sees the economy going in the next year.
I do intend to support the resolution, but I should like to reserve my right to make sure that in any further budget process considerations, we do have sufficient incentives to increase productivity.
Since we are talking about addressing inflationary expectations in the long term, I think it is important that we create the climate for investment and savings that will put the economy back on the right road.
If we get down the road and there is a conflict between the balanced budget, as such, and the kind of incentives that I feel are necessary for us to be competitive in an ever-increasingly competitive world, I make it clear at this point, prior to the vote, that I intend to support those initiatives to make us more competitive and increase our productivity.
Mr. MUSKIE. I should like to make a couple of other points, to assure the Senator with respect to his options.
No. 1, this is a sense of the Senate resolution. Whatever the Senate puts into this resolution I will regard as binding on me, because markups begin in the Budget Committee tomorrow.
If, for example, the Senate adopted the Roth amendment today, I would feel bound — morally, if not legally — to seek its implementation, even though I think it is wrong, the wrong medicine for the country at this point.
Second, whatever budget we adopt in April of this year, whether it is a budget structured on the Roth resolution or on the Muskie substitute, is a target budget resolution; and it is not until September that we adopt the binding budget resolution. That gives us from May 15 until September 15 to contemplate not only the spending measures that come before the Senate but also the economic policy upon which they are based.
If the bottom falls out of the economy this summer, the second budget resolution is available to us to make any mid-course corrections that the majority of the Senate think necessary.
So, from a procedural point of view as well as in terms of the substance of this resolution, I think the Senator will find his options pretty much open, depending upon developments throughout the course of the summer.
Mr. BRADLEY. I thank the chairman.
I should like to ask him one more question. Support of the resolution does not entail support of any specific cuts but is simply a direction that the Senate as a whole is giving to the Budget Committee in its deliberations. Is that correct?
Mr. MUSKIE. The Senator is correct.
In responding to the Senator's question, may I also respond to a point Senator ROTH made earlier today.
We will, of course, give consideration to the proposals for cuts which were developed in the leadership meetings that were held over the past 2 weeks. We also will give consideration to any additional proposals the administration may suggest.
Senator ROTH's list of proposed changes certainly will be evaluated and considered, as will any others. I know that Senator BELLMON has a list of proposed cuts for both 1980 and 1981. We will do our best to analyze them all and to weigh the merits of the various proposals and try to combine them into a final resolution.
So there is no specific list attached to this Muskie resolution, and I suspect that Senator ROTH will make the same comments relative to his resolution. The cuts he proposes and the cuts I have discussed today are all illustrative. They pretty much narrow the field. If you go outside what we propose together, there is not much left that you can cut without hurting programs very deeply.
So we are open to the consideration of any ideas; and, of course, the committees will make suggestions to us in their March 15 reports.
So I think there is plenty of room for flexibility. All we are talking about is a sense of the Senate resolution, one or the other, as a guide to the Budget Committee as we proceed with our work.
Mr. BRADLEY. I thank the chairman very much.
Mr. MUSKIE. Mr. President, I yield the floor.
Mr. ROTH. Mr. President, I yield such time as he may require to the Senator from—
How much time does the Senator want?
Mr. SIMPSON. Five minutes.
The PRESIDING OFFICER. The Senator from Wyoming is recognized for 5 minutes.
Mr. SIMPSON. I thank the Senator.
Mr. President, I commend my friend BILL ROTH, even though he had a momentary lapse in remembering that it is the State of Wyoming I represent. I will chat with him later about that. He has done a tremendous job in speaking on this issue, and the people of America are paying attention.
The President now proposes to cut billions of dollars of spending from his January budget and achieve a balanced budget at a level of $613 billion. I say that is a fine start but woefully inadequate to solve the Nation's grave economic problems. The $613 billion still represents between 21.6 and 22 percent of the Nation's estimated GNP for fiscal year 1981. This does not include that most puzzling item of "off budget" spending, which is $18 billion, another 0.6 percent of GNP.
Off-budget spending: A sinister connotation and concept, which we really do not deal with very well. We are going to hear more and more of that in the coming months.
On-budget and off-budget spending for fiscal 1981 would thus total between 22.2 and 22.6 percent of the GNP. This is consistent with the high spending levels of the last 5 years but substantially above those for the 15 years prior to 1975, which were generally 19 or 20 percent.
Senate Resolution 380 would express the clear sense of the Senate that the first concurrent budget resolution should not exceed 21 percent of the GNP. Remember, this is for on-budget spending only. In my judgment, we should be gunning for a figure of 19 percent for on-budget spending. That may be too much to target for in 1981, but we should work for it in future years.
I believe we must also bring the off-budget items back into the budget where they will be more visible, more controllable, and where we will be more accountable for them. The appropriate figure for total spending might then be 20 percent of GNP. That is a nice round number.
Mr. President, it should be clear to everyone now that we must take some action to limit spending. We get lost in the issue of balanced budgets when we should be talking about limiting spending. That is the issue. It is obvious that a balanced budget in itself is not enough. A budget could be balanced at 20 of GNP or 50 percent of GNP. That is how you solve the problems with mirrors.
Government spending is the culprit. Government has taken resources away from productive use by the private sector. Whether those resources are taken by taxes or borrowing, the effect has been to leave less for private investment. Higher interest rates, lower capital investment, declining productivity — all have been the inevitable consequences of a lower supply of private investment money.
The Federal Reserve Board has inflated the money supply in an attempt to reduce the economic problems this has created. But people are really not fooled any more. More dollars in circulation does not mean more resources available.
Mr. President, what do we do? It is clear to me as a freshman Senator, on-stream for 14 months now, that the necessary spending restraint will never be achieved by a case-by-case examination of spending programs. The advantages of every spending program are made very clear to us by the lobbying activities of the special interest groups that most benefit. The political disadvantages of opposing the program are also made quite clear to us by these same groups.
Do we ever hear much anguish or opposition expressed about these programs? Do we ever hear much about priorities, or about the fact that maybe some other program might be better or, heaven forbid, maybe even that the money should be left for the taxpayers? No, it does not happen that way, for who would say those things? The average taxpayer is not represented by a lobbyist and he has not the time or the energy to be aware or actively interested in every program. And for the same reason, he is unlikely to abandon his support for a politician based upon a single spending vote, unlike the member of the special interest group.
I admit that in my time here I have now played the full game. I have blasted the budget. As the ranking minority member of the Committee on Veterans' Affairs, I shepherded a bill through on the GI bill — $480 million worth. And I voted for it, well aware that it was over the budget guidelines.
I say there is no way that we are going to turn the situation around until we make firm decisions about the size of the total pie. That is the only way we will achieve fiscal responsibility. I represent a State of rather progressive philosophy, but rather fiscally conservative. Nevertheless, most every group that comes to my office says, "Get with it, Al. Cut her back. We are counting on you," but before they leave my office, they ask for their $5 or $10 or $15 million worth from the Federal Treasury.
That is the problem. So we get in the habit of saying, "somebody get that group out of town. Give them their $20 million so we can get on with the burning issues of the day." That is where we make our mistake. Until the amount of that pie is limited, so that this is all we have to play with, we will not produce results.
How do we work our operation here? We take our computer terminal with us back to the home district. We punch the buttons and say "These are the goodies which we can promise you today." We never stop it either. Oh, we will jab each other. I will jab Senator ROTH on some of his pets. I may jab Senator MUSKIE on some of his. They are going to jab me on some of mine — we have all been at fault. But we just keep doing it.
Mr. President, the existing budget process is not adequate. It is affected by the political realities I have just described.
As long as budget totals can be easily increased to allow more money for a particular program, whether by borrowing or by the silent tax increases caused by "tax bracket creep," then that will be the most likely result, rather than to incur the political disadvantage or wrath of rejecting the program or reducing some other program, or going on the record for a legislated tax increase.
In other words, even if we conformed to the second budget resolution, which we have not been doing, we would still be spending too much. We must somehow place a limit on the spending totals.
Mr. President, I believe that we should permanently reform the process by which budget and tax decisions are made, to eliminate the spending bias that exists as a result of the easy availability of borrowing and automatic tax increases. I continue to support a constitutional amendment to achieve this purpose. Senate Joint Resolution 126 would have proposed a constitutional amendment to require that any deficit budget be adopted by a three-fifths vote and that no tax increases occur without a roll call vote by Congress.
Unfortunately, Senate Joint Resolution 126 was defeated last week in the Judiciary Committee by a 9 to 8 vote.
I am most skeptical that a statutory approach alone will be adequate in the long run, especially if we should reduce the severity of our economic problems. However, a modification of the budget process to limit total spending would be effective now, when it is needed most. I believe public opinion would assure that effectiveness.
A 21-percent limit for on-budget spending, although too high to be the appropriate figure for future years, is an achievable limit this year. It would require the President's new budget to be cut. I urge the support of my colleagues who wish to reduce our economic problems by reducing the Government's drag on the economy.
Let me conclude my remarks by saying that if we were to establish a limit on the size of the total spending pie, then we would have the citizens behind us and the marts of trade and commerce
would begin to respond — they do not really listen to us now because they believe we are not being serious.
And we might just be able to resist the political pressure of special interest groups. Once the size of the total pie were established, one group's share could not be increased except at the cost of reducing some other group's share. Spending advocates would be fighting each other, not the taxpayers. They would have to show not only that their own program would be beneficial but that the benefits of alternative programs would not be as great. Aside from the spending restraint results, this would have a most healthy effect on political debate. For the first time we would become a responsible, vigorous debate arena since we would have to truly set priorities.
Thank you, Mr. President.
Mr. MUSKIE. I shall address a question to the distinguished Senator from Wyoming. He says we should vote for the Roth proposal because the budget process does not work.
The budget process is a broad proposal and by its terms mandates the Budget Committee to do the job.
The second point the Senator made is that we are not going to control spending until we limit the size of the pie. The budget ceiling that the Senator concedes he voted to breach was set in the 1980 budget for the purpose of reducing the size of the pie.
How would the Roth proposal in setting the size of the pie work any more effectively than the 1980 budget resolution when it tried to set the size of the pie?
The Byrd amendment in 1978, which is now part of the law, undertook to set the size of the pie.
Or the Nunn-Chiles-Bellmon amendment of the 1978 Revenue Act undertook to set the size of the pie for this fiscal year 1981, 20.5 percent of the GNP.
None of those have worked, and they all have been structured different ways. The last one, the Nunn-Chiles-Bellmon amendment, was very similar to the Roth amendment. All of those were attempts to set the size of the pie.
Why did they not work?
The answer may lie in the reasons which prompted the distinguished Senator from Wyoming to vote for a program which breached the size of the pie with respect to the very year we are discussing, 1981.
Now he wants to set that at a lower figure. I am for limiting the size of the pie. My frustration comes when we get to the specific decisions which determine whether or not we stay within the size of the pie, and it is in that area that we have run into trouble consistently for the last 5 years.
I do not see anything in the Roth formulation to deal with that problem.
In the Muskie proposal we would make the commitment to a balanced budget. Hopefully, we can make reductions in outlays below the levels necessary to balance the budget. I doubt that we can get down to this $45 billion reduction but we will report out a specific amendment listing specific cuts that could be made to reduce the pie to the Roth size.
So the Muskie resolution combines both the general objective of limiting the size of the pie plus the specific means of implementing it. There is nothing like that in the Roth resolution. There is in the Muskie resolution.
And that amendment will be at the desk with the first concurrent budget resolution and anyone who wishes to, the Senator from Delaware, the Senator from Wyoming, will be free to offer that amendment as an amendment to the first concurrent budget resolution which will be balanced. There is nothing to prevent it.
The difficulty, of course, will be that it will include the specific areas which have to be cut in order to achieve the Roth level.
There is a chance to combine both the general pious wish, in order to reduce spending to a certain level, plus the specific means to achieve it.
Mr. President, I think this might be an appropriate moment for me to make the record with respect to something that Senator ROTH said earlier today. That had to do with the outlay totals for fiscal year 1981 contained in the Senate concurrent resolution for this year. That amount was $596.8 billion. Senator ROTH says that is the figure he now adopts rather than the $45.2 billion, although his amendment at the desk is still the one that would require cuts of $45.2 billion.
But suppose he were to lift his target for outlays to $596.8 billion, which was in the second concurrent resolution. Why is not that figure a valid one today? Well, No. 1, there is the President's proposed defense increase of $4.9 billion, and I suspect my friends on that side of the aisle consider the President's defense number too low.
Well, all we put in here was $4.9 billion which reflects the President's increase. You add that to the $596.8 billion.
Then you have an increase in interest costs. As all Senators know, the Federal Reserve in October or November increased interest costs to the point where they are now around 18 percent. Well, that costs the Federal Government something. I mean that added $12.1 billion to the Federal Government's cost of interest. You have to add that to the $596.8 billion.
Social security and Federal retirement, the estimates for those costs have gone up because of inflation and increases in the rolls that have taken place, and that adds $3.6 billion.
Then unemployment compensation — and this is based, of course, on economic projections, because we are talking about a year that has not yet started. I mean if unemployment does not rise any higher than it is now then this figure will not have to be added. But all of the economic forecasts we get indicate that unemployment is going up, and if it is you have got to put a figure in to cover the costs, and that adds $4.4 billion. I repeat if there is no increase in unemployment some of these costs will not need to be added.
Now, that takes it up to $621 billion. That is the reason why the $597 billion no longer fits, and it is because of these additions — and I suspect just if the initiative to increase defense spending by as much as $10 billion a year gets a lot of support in this Chamber, then you would have to increase that outlay number from $621 billion to $631 billion if that happens.
I mean you can ignore arithmetic if you wish to and base your policy on what was relevant after you added up all the numbers last fall. But I cannot bring myself to ignore these additions that have to be made to any responsible consideration of where Federal spending is headed unless we do something about it.
Now, when the second concurrent resolution came out of conference outlays were at the level of $600.5 billion. If you add these other numbers, which I have added to the second concurrent resolution, then you are up to $624.7 billion, which is the $625 billion to which Senator ROTH has made reference.
We rely on CBO's analysis of the cost of the President's budget, and that analysis is at $629.2 billion.
So when we are mandated to make cuts that is what we have to cut. We cannot begin cutting at $613 billion or $615 billion or $616 billion. We have to begin cutting at the level which CBO tells us is the cost of the Presidents budget, and in order to reduce and to get down to $616 billion we have to cut $13 billion. There is no alternative. I cannot get down to $616 billion by fiat, by arbitrary judgment. I have to get there by cutting something from what is in the $629 billion.
So, in order to get down to the $613 billion that I talked about this morning we had to cut $16 billion. In addition we had to agree to change the laws in order to achieve another savings of $5 billion which the President assumed in his budget would be done. But the same assumption was made in the 1980 Federal budget, and Congress did not achieve those savings. You all remember the struggle over reconciliation and our inability to get the House to concur, and a lot of those savings were involved in reconciliation.
We committed ourselves to that $5 billion, and so we have committed ourselves, those of us who have been involved in this exercise, to $21 billion in spending reductions.
But in order to get below that to the Roth level, if the Roth level was retained under the language at the desk, we would have to get down by $45.2 billion or another $29 billion, and that is the nature of the arithmetic with which I have to struggle.
Frankly, in my judgment, I could not floor-manage a budget resolution that was built on Roth, because it simply would require unconscionable cuts, in my judgment, in areas where they ought not to be made at this time,
But if Roth is adopted, I would sure bend every effort to see that the Senate gets an opportunity to vote on a budget structured on the Roth lines.
It would be interesting to see how many votes such a budget could get, and I would be surprised if it got a majority of the Senate at that time. It is one thing to get a majority of the Senate voting for a resolution of general policy today; it is another one, as I have learned through bitter experience, to get those who vote for such a general expression of policy to vote for to vote for the specific reductions which are needed to implement it. That is my constant frustration.
Mr. President, how much time do I have left?
The PRESIDING OFFICER. The Chair will advise that the Senator has 5 minutes remaining.
Mr. MUSKIE. I reserve the remainder of my time.
Mr. ROTH. I yield some time, Mr. President, to my friend from Wyoming.
The PRESIDING OFFICER. The Chair was not able to hear the Senator from Delaware. How much time did he yield?
Mr. ROTH. Such time as the Senator would take.
The PRESIDING OFFICER. The Senator from Wyoming is recognized.
Mr. SIMPSON. I thank the Chair and I thank Senator ROTH for yielding.
You mentioned, or Senator MUSKIE mentioned, constant frustration. I certainly share that frustration.
I have seen that Senator work on this issue, labor on this issue, scold on this issue, exhort on this issue, punch us around on this issue, and do all the things that can be done under the existing budget process to make us listen.
Unfortunately, we always have an escape hatch. We can always get out of the box and say, "Well, somebody give that group their $10 million and get them out of our hair." There is no limit apart from the particular spending total that has been adopted, which can be modified at any time without violating any norm.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. President, may I ask a question at this point very specifically? How does the Roth resolution close the escape hatch?
Mr. SIMPSON. Mr. President, the Roth resolution is a start. We do not seem to do anything in the area of start here. At least a norm would be established. If spending were planned in excess of that 21-percent norm, it would be clearly seen as violating not merely the total arrived at by totaling a particular set of spending programs, but also an economic policy — that Government should not represent more than a very specific fraction of the economy, 21 percent.
Where we really could have closed the escape hatch was in the Judiciary Committee the other day when Senate Joint Resolution 126 fell by a vote of 9 to 8, as I have already indicated.
Whenever the issue of a constitutional amendment on these issues is brought up, it is dealt with as if it were simplistic, Neanderthal, and out of step with the world. It is not. It is what the American people are demanding. The amendment proposed by Senate Joint Resolution 126 would have greatly reduced the spending bias in our political process. Given public opinion today, the effect would have been to produce the spending restraint so badly needed.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. SIMPSON. I yield.
Mr. MUSKIE. Mr. President, I know it has been what a lot of people are demanding. And I do not use any of the adjectives that the Senator has used to describe my position.
But I do not believe it would work any more than Roth would work. What I fear is that when you put that kind of a general policy — unworkable, in my judgment — on the books and say, "Ah, I've closed the escape hatch. I don't have to do anything more," you then weaken the only thing that is going to close that escape hatch and that is good old-fashioned willpower.
There are so many ways around the constitutional amendment of that kind. I think the best description of it is one that was made by the well-known ultra-liberal columnist James Kilpatrick. You all know Jim Kilpatrick. He read this constitutional amendment that was pending in the Judiciary Committee and wrote a column on it. If I can find it, I would like to put it in the RECORD.
But he read that very constitutional amendment which the Senator was discussing. Jim Kilpatrick, that well-known ultra-liberal columnist, said:
I've read that resolution. It doesn't mean anything. It won't work, because what it says is that the Government's expenditures and revenues shall be balanced.
He said,
The problem I have with it is that it is the Congress which defines expenditures and revenues.
Just to give you one illustration.
The Federal budget is the one budget in America that does not separate out capital investments at all. Now, I think it would be a bad idea to do so. Corporations separate them out and they have balanced budgets while they are borrowing money to the sky to invest.
Mr. SIMPSON. Will the Senator yield?
Mr. MUSKIE. Let me finish my point.
Mr. SIMPSON. The Senator is using my time.
Mr. MUSKIE. Well, I would be glad to put it on my time.
All right, I will yield the floor. The Senator is not interested in my point. I yield the floor because I want to reserve some time for the majority leader.