[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
PREDICTABILITY AND CONTROL: TWIN REASONS FOR RESTORING BUDGET
DISCIPLINES
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, APRIL 25, 2002
__________
Serial No. 107-28
__________
Printed for the use of the Committee on the Budget
Available on the Internet: http://www.access.gpo.gov/congress/house/
house04.html
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COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
PETER HOEKSTRA, Michigan Ranking Minority Member
Vice Chairman JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota KEN BENTSEN, Texas
VAN HILLEARY, Tennessee JIM DAVIS, Florida
MAC THORNBERRY, Texas EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia GERALD D. KLECZKA, Wisconsin
GARY G. MILLER, California BOB CLEMENT, Tennessee
PAT TOOMEY, Pennsylvania JAMES P. MORAN, Virginia
WES WATKINS, Oklahoma DARLENE HOOLEY, Oregon
DOC HASTINGS, Washington TAMMY BALDWIN, Wisconsin
JOHN T. DOOLITTLE, California CAROLYN McCARTHY, New York
ROB PORTMAN, Ohio DENNIS MOORE, Kansas
RAY LaHOOD, Illinois MICHAEL E. CAPUANO, Massachusetts
KAY GRANGER, Texas MICHAEL M. HONDA, California
EDWARD SCHROCK, Virginia JOSEPH M. HOEFFEL III,
JOHN CULBERSON, Texas Pennsylvania
HENRY E. BROWN, Jr., South Carolina RUSH D. HOLT, New Jersey
ANDER CRENSHAW, Florida JIM MATHESON, Utah
ADAM PUTNAM, Florida
MARK KIRK, Illinois
[Vacancy]
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, April 25, 2002................... 1
Statement of:
Thomas J. Donohue, president and CEO, U.S. Chamber of
Commerce and chairman, Americans for Transportation
Mobility................................................... 5
Hon. Bill Frenzel, co-chairman, the Committee for a
Responsible Federal Budget and former ranking member, House
Budget Committee........................................... 23
Barry B. Anderson, Deputy Director, Congressional Budget
Office..................................................... 31
Richard Kogan, senior fellow, Center on Budget and Policy
Priorities................................................. 34
Susan J. Irving, Director for Federal Budget Analysis, U.S.
General Accounting Office.................................. 43
Prepared statement of:
Mr. Donohue.................................................. 7
Mr. Frenzel.................................................. 25
Mr. Anderson................................................. 32
Mr. Kogan.................................................... 41
Dr. Irving................................................... 46
PREDICTABILITY AND CONTROL:
TWIN REASONS FOR RESTORING
BUDGET DISCIPLINES
----------
THURSDAY, APRIL 25, 2002
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 9:10 a.m. in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Moore, Spratt,
Collins, Brown, Putnam, Gutknecht, Culberson, and Hilleary.
Chairman Nussle. Good morning, we were just joking a little
bit. There are quite a few of us in the room here, and this is
probably one of the most exciting topics, and the most
important topic of the day.
Yet, there are not too many television cameras or too many
people looking around to find out how you enforce the budget.
This is probably one of the least glamorous topics on Capitol
Hill these days, but probably one of the most important that we
can discuss.
Today's full committee hearing is called ``Predictability
and Control: Twin Reasons for Restoring Budget Disciplines.''
We have an excellent panel of witnesses to talk to us today,
and this hearing is probably on the easily overlooked and yet
very important issue of extending discretionary spending and
other budgetary controls.
For the first time in 17 years in Congress, the Congress is
facing the prospect of entering a budget cycle without a
conference report on a budget resolution or any other kind of
control on discretionary spending.
To date, the Senate majority leader has given no firm
commitment that the Senate will consider a budget resolution,
even though Congress was required to do so by April 15, and the
House passed its resolution now, I believe, a month ago today.
This comes at a time when we all should be, I believe, much
more concerned, and I know this committee is much concerned
about its fiscal health; not less concerned. We are faced with
the triple threat of a domestic emergency, a war against
terrorism, and a still weakened economy.
Our surpluses have largely disappeared for the short term,
and if we are going to re-invigorate our economy, it is
imperative that we take steps to control spending, to ensure
that resources intended for waging the war on terrorism and
defending the homeland are not diverted to less critical needs.
The first test will come when the House takes up the
supplemental appropriations requested by the President. In the
view of the amount of resources we, by necessity, have had to
devote to the war on terrorism and homeland defense, I believe
it is important to ensure that Congress stay within the overall
discretionary levels recommended by the President.
Let me be even clearer on this. The President has requested
$27.1 billion of emergency spending for homeland defense, and
for the war on terrorism. He has declared that this is an
emergency. It is an emergency. It fits the definition that all
of us in a bipartisan way, I would suggest, could defend and
define emergencies.
But it should not be one penny more than that. I heard, as
we probably all have heard, over the last 24 or 48 hours, about
the Appropriations Committee, with their bid of $39 billion as
their opening bid to this emergency supplemental.
Let me be very clear: That will not fly. That dog will not
hunt, as far as the Budget Committee is concerned, if I have
anything to do with it. It should be not one penny more than
the President requested as an emergency.
The President should make the determination at this time of
emergency what an emergency is, and that message should be
delivered both to the Appropriations Committee and to our
leadership.
The inability of the Senate to consider a budget resolution
makes the subject of extending the caps in PAYGO all the more
important. The appropriation caps in PAYGO were initially
adopted in 1990, and were extended again in 1993 and 1997.
Last year, on a bipartisan basis, the committee reported
legislation to revise the caps for the current year to, among
other things, respond to the events of 9/11. At the end of the
fiscal year, the caps will expire.
Without a budget resolution in place, the Congress will
have little ability to control spending, unless we adhere to
the House-passed level of spending and the revenue levels, and
extend the discretionary spending limits.
On this point, again, I would like to be perfectly clear.
The House must agree to adhere to the levels in the House-
passed budget resolution, and to extend the caps before it
considers any regular appropriation bill.
Additionally, we must revise the highway cap to forestall a
sharp reduction in highway spending as a matter of critical
importance, both to the States and to our economy, as a whole.
Under the terms of the Transportation Equity Act of 1998,
which tied transportation spending to receipts in the Highway
Trust Fund, the administration is required to reduce the
highway obligation limitation and the highway outlay limits.
It is now clear that the States cannot sustain this
reduction. To that end, the House-passed budget resolution took
steps to restore more than $1 billion in outlays to the highway
category.
If we are to forestall these cut-backs, however, it is
imperative that we also revise the highway cap and the way in
which the cap is annually adjusted to reflect revenue flowing
to the Highway Trust Fund.
The appropriators introduced legislation in their attempt
to ``fix'' this solution or this particular predicament. I
would suggest it is a half solution that fixes the problem
possibly for 2003, but it leaves undone the challenge in the
out-years.
So I should inform my colleagues that next week, I intend
to introduce legislation that will extend both the
appropriation caps and address the shortfall in the Highway
Trust Fund. I would enjoy working with any Members who would be
interested in continuing this in a bipartisan way.
Today, we have got two great panels of witnesses. On our
first panel, we are very pleased to hear from Tom Donohue, the
President of the Chamber of Commerce, as well as former Member,
Bill Frenzel, who is the co-director of the Committee for
Responsible Federal Government.
I am very pleased that Mr. Donohue is available to give us
perspective from the business community on extending the caps.
It is, of course, always a pleasure to hear from our former
colleague, Bill Frenzel.
On our second panel, we will be pleased to hear from Susan
Irving, the Director of the Federal Budget Analysis of the GAO,
the Government Accounting Office; Barry Anderson, the Deputy
Director for the Congressional Budget Office; and our own
Richard Kogan, who served on the Budget Committee staff for
many years, and is the patron saint--you might say--of Budget
Enforcement Act endeavors, or at least some might call him
that. [Laughter].
Well, I just called you that. I guess that is good enough.
These witnesses are not only equipped to discuss the
broader issues surrounding the extension of the caps in PAYGO,
but also to advise us on what other controls might be designed
to meet the fiscal needs of our country.
So we are pleased to have this hearing. Again, as I said,
it may not be the most glamorous in town, but it will have
direct impact on the fiscal success of this year.
With that, I would turn to my friend, Mr. Spratt, for any
opening comments that he would like to make.
Mr. Spratt. Quickly, Mr. Chairman, we did not come to an
agreement on a budget resolution, at least not yet; but I think
there is agreement that we need a budget process. We are
witnessing the slow death of the budget process as we have
known it for the last 30 years and, in particular, for the last
dozen years.
The budget process has a kind of a policy wonk reputation.
A lot of people inside and outside the Congress disdain it, and
for good reason. It is often honored in the breach. But it has
served us well since 1990, when we met finally at a Budget
Summit, which we had called for repeatedly with President Bush.
We not only came up with a budget plan that was a 5-year
plan, but we came up with budget rules to enforce that plan. We
got away from projections of a deficit, which were our target,
and we put real caps on discretionary spending, and we put a
restraint on tax cuts and entitlements, too, called the PAYGO
rule, which we observed.
It was not a neat process. It was not, as I like to say,
``Euclidian geometry.'' But nevertheless, we basically agreed
with this process. We fudged on it, but throughout the 1990s,
in 1990, in 1993, and 1997, when we came back to the budget
agreement and laid down another 5-year plan, we always, always
backed it up with budget process rules.
This year, we are about to see those rules expire. The
PAYGO rule will expire. The discretionary spending caps, may be
for 1 year, but certainly not for 5 or 10 years, will be a
thing of the past.
That is not only sad to see, but it is very worrisome for
those of us who are deeply concerned about the projection of
the budget, as it stands today.
I do not see how we get back to the surpluses we were
enjoying without some discipline in the process, some starch in
the process, and some budget rules that are adhered to.
Let me say that I would agree with you, we have got to have
some restraint, not just on the regular budget process, but on
the supplementals, too. Otherwise, they will flout and make a
mockery of the regular budget process, winking and knowing that
they can always ask for this now and get more later. It is
critically important that we have some restraint on the
supplemental process, as well.
But let us not forget that the bottom line is affected by
tax cuts, as well as spending increases. Last week, we had a
$400 billion to $500 billion tax cut provision on the floor,
which was not provided for in the Budget Resolution, and which
required a waiver of the PAYGO rule.
The PAYGO rule is meaningless, if you can simply, ``willy-
nilly,'' waive it for a piece of legislation of that magnitude.
So I am pleased to see this hearing, pleased to see our
witnesses. I know they will bring different points of view, but
we need all the points of view on the table, and I hope that we
can come to some resolution and renew the budget process for
the future, before this fiscal year is out.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you, Mr. Spratt.
Without objection, members will have 7 days to submit
written statements for the record.
At this point, Mr. Donohue, welcome home. We were visiting
before the hearing, and you said that you just came back from
Russia. In fact, my understanding is that you just flew in
yesterday and last night.
The fact that you are here today to talk about this not
only demonstrates your deep interest in the subject, but also
your personal physical fortitude, to put up with the time
changes, and everything else that needs to be done, to be here.
So we are honored that you are here to talk to us today,
and we are pleased to receive your testimony at this time.
STATEMENT OF THOMAS J. DONOHUE, PRESIDENT AND CEO, U.S. CHAMBER
OF COMMERCE AND CHAIRMAN, AMERICANS FOR TRANSPORTATION
MOBILITY; BILL FRENZEL, CO-CHAIRMAN, COMMITTEE FOR A
RESPONSIBLE FEDERAL BUDGET AND FORMER RANKING MEMBER, HOUSE
BUDGET COMMITTEE
STATEMENT OF THOMAS J. DONOHUE
Mr. Donohue. Well, thank you very much, Mr. Chairman and
members of the committee. It is a pleasure to be home. It was
an extraordinary experience to be there. I was in Russia 3
years ago, and the changes that are taking place are mind
boggling, and perhaps another time we could talk about that.
I am here today on behalf of the Chamber of Commerce of the
United States, and I also here as Chairman of Americans for
Transportation Mobility, a coalition of business groups and
labor organizations in support of continued investment in the
Nation's transportation infrastructure, using dollars paid for
by the citizens that use the transportation network.
This morning, I would like to stress the importance of
fiscal responsibility, and offer ideas on how we can achieve
it.
The U.S. Chamber has long supported the controls on
government spending, and the processes that both the chairman
and the ranking member just commented on.
Unforeseen events, however, have made that challenge more
difficult than ever before. Our Nation must spend valuable
resources to fight global terrorism and bolster homeland
security, so that our borders, public buildings, transportation
and infrastructure are safe and sound.
No one would argue against increased government spending
for these purposes, nor would our citizens, and certainly not
the Chamber of Commerce.
But that means that it is absolutely essential to keep
discretionary spending in check. The current growth in spending
simply cannot be sustained without running up deficits and
damaging our Nation's future in the out years.
In this environment, it is increasingly important for
government to enact policies that will spur long-term
sustainable economic growth which, in turn, will significantly
boost government revenues, and put us back on the path toward a
balanced budget.
The Chamber believes that several pieces of legislation
pending before the Congress are critical to long-term growth
and fiscal responsibility, and I would like just to mention
them:
A comprehensive energy policy that will ensure a reliable
and affordable supply of energy, create thousands of new jobs,
and make us less dependent on unstable and unfriendly countries
for our oil is essential.
Trade promotion authority for the President, so that he is
able to make deals with our trading partners, create untold
numbers of new jobs and opportunities for American workers is
essential.
Making last year's tax cut permanent, which will encourage
continued savings, investment, and consumption would be
helpful. Finally, we need continuous, predictable investment in
our transportation infrastructure, so that it is safer, more
efficient, and reliable.
I would like to focus on that, although I would be glad to
enter the other subjects and the questions. It is related,
transportation, clearly to the Budget Committee's problems. It
might be worthwhile to spend just a moment describing our
needs.
Right now, our transportation system is ill-prepared to
handle higher and higher volumes of freight and people. Air
cargo volumes are expected to triple by 2015, and passenger
traffic is expected to increase by 50 percent over the same
time.
Yet, new airport and runway projects never get off the
ground due to lack of funds, or because they are buried under
an avalanche of bureaucratic red tape.
Our Nation's highway system is facing a similar capacity
crisis. In just 25 years, from 1970 to 1995, passenger travel
in the U.S. nearly doubled. But improvements in expansion of
highway systems are not keeping up.
Since 1970, vehicle miles traveled in this country have
gone up 123 percent, while road capacity has increased a
massive 5 percent.
Our system of channels, ports, and marine terminals is no
better off. Every major U.S. container port will experience a
doubling or tripling of container volume by 2020; but as of
right now, many are not even equipped to handle these new mega-
ships that are carrying the containers.
Modernization of our transportation infrastructure meets
several needs, chief amongst them for your consideration is
economic growth. Each billion dollars spent on the construction
and maintenance of the Nation's transportation infrastructure
creates approximately 42,000 jobs.
In addition, every $1 billion invested in transportation
infrastructure creates more than $2 million in economic
activity. Improvements to the system also improve the Nation's
air quality by cutting down on highway congestion that causes
millions of gallons of unnecessary gasoline consumption, as
well.
Finally, the importance of a robust transportation system
to national security can never be emphasized enough. Outfitting
the Nation's border crossing points, airports, railways, and
seaports with top-of-the-line technology is critical to our
Nation's safety and well being.
Given the tremendous long-term economic, environmental, and
security benefits of a modernized transportation system, the
Chamber strongly believes that the government should invest the
maximum sustainable amount into the transportation trust funds.
We also need to look at creative ways to grow the
infrastructure investment. There may be valid political and
environmental reasons, for example, for using ethanol in
gasoline, but doing so without taxing ethanol at the same rate
as gasoline, and without transferring these revenues to the
Highway Trust Fund will make it impossible to maintain, let
alone modernize, our infrastructure in the years ahead.
Some will continue to say this statement is contradictory
to the Chamber's desire for fiscal responsibility; but the two
are not mutually exclusive. As I hope I have made clear today,
the additional revenues and savings reaped from the
transportation investment will help regain fiscal discipline
and lead us back to a balanced budget. I will be finished in
just a second.
So we ask this committee to reauthorize the Budget
Enforcement Act and the TEA-21, and to protect the important
transportation funding mechanisms contained in them. These
mechanisms will maintain minimum funding levels in the Surface
Transportation Trust Fund, while guaranteeing that all of those
revenues are spent for their intended purpose of highway and
transit investment.
We ask the committee to continue to work with the House
Transportation and Infrastructure Committee to restore a
portion of the $8.6 billion reduction in the Highway Funding
Program for fiscal year 2003.
This shortfall was clearly not envisioned by anyone, and
clearly was not the intent of Congress, upon enacting the
formula in 1998.
If this reduction is allowed to stand, 350,000 Americans
will lose their jobs, and dozens of States will freeze or
cancel road construction projects.
Mr. Chairman, we appreciate your leadership and that of the
other members of this committee on this issue. We look forward
to working with both you and the leadership in the House and
the Senate, to come to some reasonable conclusion.
Mr. Chairman, the United States Chamber of Commerce and the
ATM Coalition strongly believe in fiscal responsibility. We
believe that long-term, sustainable economic growth is the best
and surest way to get there.
To trigger that kind of growth, government has to make wise
investment choices; and as the old saying goes, ``You have to
spend money to make money.'' Investment in our highways,
airports, seaports, and waterways will get us there.
I very much appreciate the opportunity to be here, and I
look forward to answering your questions.
[The prepared statement of Mr. Donohue follows:]
Prepared Statement of Thomas J. Donohue, President and CEO, United
States Chamber of Commerce
Mr. Chairman, Ranking Member Spratt, members of the committee,
thank you for allowing me to appear before the committee to discuss the
importance of fiscal responsibility and maintaining guaranteed funding
protections for Federal highway and mass transit programs. I am Thomas
J. Donohue, President and CEO at the United States Chamber of Commerce,
which is the world's largest business federation. I also appear before
you as the chairman of the broad-based Americans for Transportation
Mobility (ATM) coalition. My testimony will address the importance of
reauthorizing the Budget Enforcement Act of 1990 (BEA) [P.L. 101-508],
with particular emphasis on the guaranteed spending categories added to
the BEA with enactment of the Transportation Equity Act for the 21st
Century (TEA-21) [P.L. 105-178] in 1998 that provides predictability
and control to investment from a dedicated Highway Trust Fund.
americans for transportation mobility
Last summer, the U.S. Chamber helped launch a new coalition called
Americans for Transportation Mobility, or ATM. ATM is a broad-based
organization of transportation users and providers, State and local
organizations, and State and local government officials. The coalition
has more than 300 organizations presently, and we hope to increase that
figure significantly in the coming months.
The coalition's objective is simple: to build public and political
support for a safer and more efficient transportation system. We hope
to achieve our objective through a two-pronged attack: 1) fighting to
ensure that Congress fully dedicates Federal transportation trust fund
revenues for their intended purpose, and 2) accelerate the project
review process by removing redundancies. All the money in the world
will not help if we are not efficient in the planning and approval for
much-needed improvement projects.
The coalition is bringing together for the first time the business
and labor communities in educating lawmakers on the importance of
improved mobility and safety to future economic growth. Six major labor
organizations are members of the coalition as well, with Laborers
International Union of North America General President Terry O'Sullivan
serving as a vice chairman. They serve on the front lines in the
building and maintaining of the Nation's transportation infrastructure
and are welcome partners in ensuring a national transportation system
that provides the mobility our country demands.
BUDGET ENFORCEMENT ACT AND TRANSPORTATION FUNDING
The BEA expires at the end of fiscal year 2002 (September 30,
2002). The BEA has provided the basic enforcement framework for
budgetary matters. This framework has provided fixed domestic caps in
Federal Government spending along with procedures for controlling
deficits. The BEA established statutory limits on discretionary
spending and a pay-as-you-go (PAYGO) requirement [only spending
revenues collected] for new mandatory spending and revenue laws.
In Title VIII of TEA-21, new discretionary spending categories were
formed to create firewalls for highway and transit spending. These
firewalls guarantee that all revenues paid into the Highway Trust Fund
(HTF) must be spent for their intended purpose of highway and transit
investment. Previously, the highway and transit discretionary programs
competed for annual budgetary resources with most other domestic
programs. The firewalls created a ``floor'' for highway and transit
spending over the fiscal year 1998-2003 period of $162 billion for
highways and $36 billion for transit programs.
The U.S. Chamber and many members of the ATM coalition, strongly
supported the effort to bring ``truth in budgeting'' to the Highway
Trust Fund. Before the enactment of TEA-21, the HTF had a balance of
$28 billion. This surplus was used to mask the overall budget picture.
With enactment of the TEA-21 budget firewalls, the Federal Government
could no longer run up surpluses in the HTF and for the first time
ensured that all dedicated taxpayer revenue paid into the HTF is used
for much needed highway and transit maintenance and improvement.
The domestic discretionary caps were raised by TEA-21 to
accommodate the increased transportation spending. Although the overall
discretionary spending caps expired last fall, the Highway and Transit
outlay caps established under TEA-21 continue through 2003.
The creation of the highway and transit categories, combined with
BEA provisions that prevent Congress from moving funds from one budget
category to another, has been the main mechanism for assuring under
TEA-21, that all user fee revenues into the Highway Trust Fund are used
solely to finance Federal investments in highways and mass transit.
Without the separate budget categories, there would have been no
limitation on the incentive for the Federal Government to cut highway
and mass transit funding below the TEA-21 guarantee and use the savings
for other programs. This means there is no incentive for the TEA-21
highway and mass transit investment levels to be underfunded, because
those funds by law cannot be used for any other purpose.
Reauthorization of the BEA must retain the separate highway and transit
budget categories to ensure the continued guaranteed investment in our
Nation's transportation system.
REVENUE ALIGNED BUDGET AUTHORITY
The enactment of TEA-21 also created a funding mechanism [Revenue
Aligned Budget Authority (RABA)] to ensure that Federal highway
spending was linked to revenues paid into the HTF. This mechanism,
beginning in fiscal year 2000, has used projections of Highway Account
receipts into the HTF to adjust highway spending to the amount
estimated to be collected. The Transit Account of the HTF is not
included in the RABA calculations.
The RABA mechanism was created to ensure that all revenues paid
into the HTF were utilized as they were being collected for needed
transportation investment. Since fiscal year 2000, this mechanism has
generated an additional $9 billion in highway spending over the
guaranteed minimum amount in TEA-21. These additional funds have
allowed States like Iowa and South Carolina to move forward with much
needed surface transportation projects.
With vehicle miles traveled (VMT) continuing to rise every year, it
came as quite a jolt to the business and transportation community that
the RABA formula called for an $8.6 billion reduction in the Federal
highway program for fiscal year 2003. When the formula was created, it
was not believed that revenues into the HTF would ever experience such
a drastic reduction. According to the Treasury Department, the $8.6
billion reduction figure came from two calculations of the formula.
First, according to the ``lookback'' component of the calculation, it
was estimated that revenues from fiscal year 2001 were actually $4.369
less than the amount estimated to be collected. The second component,
the ``look forward'' provision, was also reduced by over $4.2 billion.
While the intent of Congress when enacting the RABA formula was to
ensure full funding of the highway program, the effect of the formula
in fiscal year 2003 to reduce program spending was not an intended
consequence and must be adjusted when TEA-21 is reauthorized next year
and incorporated into the BEA reauthorization.
OTHER TECHNICAL ISSUES
When Congress reauthorizes the BEA and TEA-21, two technical issues
should be addressed:
BALANCED BUDGET ACT ADJUSTMENT
The Balanced Budget Act should adjust the highway category in
section 251(b) to reflect the fiscal year 2003 budget resolution by not
less than $4.369 billion. The reason this needs to be done is that even
though the budget resolution provides room to add back $4.4 billion for
highways, the highway guarantee is still only $23.2 billion absent a
change in the Balanced Budget Act. While the Appropriations Committee
has received an additional $4.4 billion via the budget resolution,
there is no requirement that it be used for the highway program or
distributed according to the highway program formulas. Revising the
highway category to reflect the budget resolution clarifies the intent
of the House to distribute the additional funding to each State via the
Federal funding formula.
IMPACT OF HIGHWAY PROGRAM FUNDING TRANSFERS
Occasionally, the President or Congress will propose to move some
core highway program funds to another program within the highway budget
category, such as the National Highway Traffic Safety Administration
(NHTSA) or the Federal Motor Carrier Safety Administration. Programs in
these areas have a faster spendout rate than the core highway program,
meaning higher outlays during the budget year. Section 251(b) of the
Budget Act, however, puts a strict limit on total highway budget
category outlays for each fiscal year. To prevent the fund transfer
from increasing outlays, section 251(b) requires that the highway
obligation limitation be reduced to offset the increase. This offset
can be significantly larger than the proposed fund transfer, thus
cutting highway investment even more.
The following example should explain the problem: Let's say
Congress wants to take $100 million from the core highway program,
which spends out over 7 years, and give it to NHTSA for a safety
education program that spends out immediately. According to the highway
program spend-out formula, $100 million for highways in a fiscal year
results in $27 million of outlays during that fiscal year. But $100
million for NHTSA results in $100 million of outlays, an increase of
$73 million. Section 251(b) requires that highway funding be reduced
enough to offset the additional $73 million of outlays. Since it takes
a $100-million cut in highway funding to reduce outlays $27 million, a
$73 million cut in outlays would require a $270 million cut in highway
funding. The net cost to the highway program of a $100 million transfer
to NHTSA would thus be $370 million--the initial $100 million transfer
plus the $270 million needed to offset the increased outlays. The $100
million gets spent by NHTSA and presumably accomplishes something, but
the $270 million simply vanishes and is thus a cost to the highway
program with no benefit to anyone.
While this is just an example, it is important to note that budgets
submitted by the Clinton administration as well as the fiscal year 2003
budget submitted by the Bush administration included fund transfer
proposals that involved precisely this kind of problem.
If Congress wants to use core highway funds for something else, it
should not result in an unnecessary multiple cut in highway investment.
The relevant provisions of section 251(b) need to be revised so that
any loss is at most dollar-for-dollar.
HIGHWAY FUNDING RESTORATION ACT
Faced with a possible $8.6 billion shortfall in fiscal year 2003
highway funding, the bipartisan, bicameral leadership of the House
Transportation and Infrastructure Committee and the Senate Environment
and Public Works Committee introduced the Highway Funding Restoration
Act (H.R. 3694/S. 1917). The legislation would at a minimum restore
$4.4 billion of the $8.6 billion reduction for fiscal year 2003. This
restoration would bring Federal highway funding to the minimum level
authorized in TEA-21 ($27.7 billion). With a balance in the HTF of over
$20 billion, there has been overwhelming support in Congress to address
the fiscal year 2003 funding shortfall with 315 House Members and 71
Senate members co-sponsoring the legislation.
What would happen if the $8.6 billion reduction took place? Studies
that link spending to jobs suggest the loss of up to 350,000 jobs for
starters. These jobs are held by hard working men and woman who could
ill afford to lose their job as our country is recovering from an
economic slowdown. How about the impact on State highway projects?
Several States have already frozen new projects until the Federal
funding situation is clarified. In Iowa, an $8.6 billion reduction
would delay approximately $50-$60 million in State highway and bridge
projects in fiscal year 2003. South Carolina would be forced to delay
$25 million in pavement and reconstruction contracts, $22 million in
Interstate highway upgrades and $15 million in safety upgrades. A
significant reduction in Federal funding would put a great strain on
State resources during a time when State tax revenues are declining.
Special thanks goes to you, Mr. Chairman, for understanding the
negative consequences of inaction and including the intent of H.R. 3694
in the House Budget Resolution. While the Senate Budget Committee
approved a higher highway number ($5.7 billion restored), we look
forward to working with both the House and Senate leadership to restore
highway funding to the maximum sustainable amount. On March 20, the
Congressional Budget Office (CBO) announced that the HTF could sustain
spending for the highway program at a $30.1 billion level. We will
continue to work with this committee, the Transportation and
Infrastructure Committee, the Appropriations Committee and your
counterparts in the Senate during the budget process to ensure the
intent of TEA-21 to invest all HTF revenues collected for its intended
purpose of surface transportation investment.
THE IMPORTANCE OF TRANSPORTATION INFRASTRUCTURE INVESTMENT
While this committee spends much of its time reviewing the
mechanics of the Federal budget process, I would like to take a minute
to explain the importance of investment in our Nation's transportation
system.
Our Nation's transportation system is the lifeblood of our Nation's
economy. It provides the mobility to move people and freight better
than any country in the world. Unfortunately, our transportation
infrastructure system is ill-prepared to handle higher and higher
volumes of freight and people. Only two major hub airports have been
built in the United States in the past 25 years, and new runway
projects like the one in San Francisco can take as long as 15 years to
build. Unless something happens soon, our aviation system will be
virtually grounded by an expected tripling of air cargo volume by 2015,
and a 50-percent increase in passenger traffic during that same period.
On our Nation's highway system, a similar crisis is facing it. In
just a 25 year span--1970 to 1995--highway passenger travel in the U.S.
nearly doubled. But improvements to and expansion of our highway system
are not keeping up. Since 1970, vehicle miles traveled have soared 123
percent while road capacity has increased just 5 percent.
The U.S. Marine Transportation System, which is 25,000 miles of
navigable channels, 300 ports and nearly 4,000 marine terminals,
annually moves more than a billion tons of domestic and international
freight. At the current rate, every major U.S. container port will
experience a doubling or tripling of container volume by 2020, but as
of right now, many aren't even equipped to handle the new mega
container ships.
There are many consequences of a subpar system: congestion,
decreased productivity, more accidents and diminished global
competitiveness. The cost of road congestion to the U.S. economy was
nearly $78 billion in 1999; more than triple what it was 20 years ago!
Billions and billions more are lost to companies when their products
don't reach their destinations on time.
Our ports simply don't compete on an international level. When you
compare our seaports with some of those in Asia, you'll have difficulty
figuring out which ones belong to the most advanced nation in the
world, and which belong to a developing country. Failure to modernize
seaports has increased costs for shippers, carriers, and ultimately,
consumers, and threatens our status as the world's strongest trading
partner.
FUNDING REQUIREMENTS FOR SURFACE TRANSPORTATION
U.S. Department of Transportation (DOT) data show that a minimum
$50 billion per year Federal investment in highway improvements is
necessary to simply maintain the current physical conditions and system
performance of the Nation's highway and bridge network. To actually
produce improvements, DOT reports that a $65 billion per year Federal
investment is needed. On the transit side, DOT estimates that $17
billion in capital investment is needed annually just to maintain and
improve current public transportation services.
To meet these current challenges, we must invest our limited
resources in a better, more efficient manner. We must look at
innovative financing and public-private partnerships to supplement the
Federal user fee system. That is why it is of critical importance to
ensure the investment of all HTF revenues into much needed surface
transportation programs.
CONCLUSION
In conclusion, Mr. Chairman, the U.S. Chamber of Commerce and the
ATM coalition believe that the Federal Government should operate with
the fiscal controls that BEA reauthorization would bring. The BEA has
proven to be an effective means of controlling government spending.
The funding of transportation projects requires long-term,
predictable funding. Without a timely reauthorization of the BEA and
TEA-21, the Federal surface transportation program will experience an
uncertainty that will curtail the ability of State DOT's to finance,
design, and execute multi-year, multi-million dollar construction
projects. The transportation trust funds are inherently fiscally
responsible due to their self-financing through revenues generated
solely by users of these networks.
The impact of doing nothing will be increased congestion, decreased
safety on our roads, and setbacks in our ability to improve air
quality. The U.S. Chamber and the members of the ATM coalition look
forward to working with Congress and the President to bring
predictability and control to the Federal budget process that will
bring about continued, predictable investment in our Nation's
transportation system. Investment in our national transportation system
will ensure we remain a leader in the global marketplace and should
remain a priority during the budget process.
Thank you, and I am happy to answer your questions.
Chairman Nussle. Thank you very much for your testimony.
Let me go back, first and foremost, to the issue of restraint
and fiscal responsibility.
There are those who would say that reimposing caps on
spending, as an example, extending, as you and I both are
interested in doing, is inside baseball; it is politics; it is
government.
How do you connect this with some of your members in the
business community? How do you make this make sense to them out
there, so that they are paying attention to what we are doing
here with regard to budget enforcement?
Mr. Donohue. Well, Mr. Chairman, you might be surprised to
learn that at our last board meeting, in my comment to the
Chambers' Board, I vigorously supported the expenditures for
national defense and homeland security.
I told our members that if we wanted ever to keep our
commitment about reducing government spending or controlling
government spending, that we had to avoid lining up for a free
lunch on these new dollars; and that those monies should go to
the essential matters of national defense and home security.
We heard that the Appropriations Committee has a much
larger number. A lot of that are things that maybe we do not
need.
You cannot run this committee, and you cannot control the
Federal spending of this country, without a process that gives
the Members of the Congress and the Senate some place to go.
The gentlemen and ladies in these bodies listen every day
to constituents that want more money for something. The budget
discipline that has been in place, for the most part, as a part
of the processes that we have been following, is clearly a way
to get there, and one of the important steps in protecting the
members from the ever-demanding increase in support from
constituent bodies.
I think it is absolutely essential that we have a budget
process here that is the same that we have in our homes and the
same that we have in our businesses, that says we can go about
as far as we can go; and then we cannot go any further without
additional revenues or without additional changes in the way we
do business.
I absolutely support a process that gives you, the
Congress, and the American people a discipline in the behavior
of the Federal budget.
Chairman Nussle. Let me make sure I am not missing your
point, too. Because you, on the one hand say, fiscal
responsibility; and then in the last paragraph, you said that
you have to spend money to make money.
Some might suggest, well, wait a minute, that is what we
are doing. We are spending money to make money. We are spending
money as an investment, you know, in government expenditure,
and priority is always in the eye of the beholder.
We have probably seen the best example of that when it
comes to homeland security. I had a Member joke with me but,
you know, I do not think maybe they were that far off, when
they were suggesting to me that you could even make an argument
that dairy supports somehow were important for homeland
defense, because it created strong bones, and our military
fighting men and women needed strong bones. Therefore, let us
not let the bastards win; let us support dairy supports,
because that is for homeland security.
Now, you know, I think a lot of people could make the
argument about investment. I just want to make sure that they
are not competing, or that they are not contradictory, when you
say we have to invest in transportation; and yet, we have to
have constraint.
Mr. Donohue. Well, I think there are a number of
fundamental issues here. First of all, as I said, I told our
own board we are not going to add all those things under my
leadership. We are not going to support those additions that
have no real relationship to home security.
What I am talking about, the transportation investments, I
want to remind you of the difference. For the most part, these
monies come from trust funds that are paid by people that ride
on airplanes, that drive in cars, and operate trucks around
this country, or buy trucks.
By the way, one of the reasons you had a major shortfall is
when the economy went in the can, you know, I used to run the
Trucking Association. They know how to hunker down. Those guys
can live in a drought, and they did not spend that money, and
there is $19 billion or $20 billion in the Transportation Trust
Fund right now, the Highway Trust Fund.
What I am saying is that we need to continue to spend the
highway money and the airport money, which is collected for a
special purpose, held for that purpose, and available for that
purpose.
Those investments will return significant economic well
being to this country by creating jobs, reducing accidents and
fatalities, improving productivity, reducing the extraordinary
cost of sitting in congestion.
The Congress was very, very strong in moving forward to put
these funds aside, and to spend them as best they could to keep
the infrastructure improving at a rate somewhere near the
economic and mobility growth demands that face us in this
country.
I am very clear on what I'm saying, although I maybe did
not say it right the first time. That is, these are funds that
have been set aside. Nobody expected this shortfall that came
because of three issues.
It came because of the extraordinary economic slow down; it
came because of the result from people not traveling as much;
and it came because of 9/11, when everybody shut off the key,
and stopped moving and stopped traveling for a period of time.
So you have a problem of a claw-back that says, ``hey we
did not take in as much money'' and a claw-forward that says,
``therefore, we have got to double that up and we cannot spend
it next time.''
Well, what I am saying is, that money is available, without
going to get some other money. There is a surplus in the
Transportation Trust Funds.
I vigorously support this committee's difficult job to
reign in spending. Much of that spending may be desired by some
of my constituents. To limit extraordinary spending to the
fight against terrorism and the protection of this Nation, you
will have our support on that.
Chairman Nussle. Well, let me tell you that I think our
first test is coming within minutes, hours, and certainly no
more than days, with regard to the emergency supplemental.
The President requested $27.1 billion. The opening bid from
the Appropriations Committee was $39 billion. They are now
saying, well, no, it is probably closer to $33 billion.
The point is that it is more than the President requested,
and more than what the President designated as an emergency. I
will just predict, we may lose. You and I may fight this
battle, and there may be others who join with us, and we may
lose. But if we do, Katie bar the door.
There is nothing to stop the rest of the appropriation
process from completely imploding or exploding if we do not
stand our ground now with this emergency supplemental and say,
not a penny more than what is designated as an emergency for
homeland security and for national defense at this moment of
dire emergency, and not a penny more than that, than has been
requested by the President.
I appreciate your help in that, and your communication with
your members. Because as I say, if we do not do it now, the
line will be crossed, and there will be absolutely no way to
pull that back, given the fact that we have all of these
provisions expiring this year, and no more budget fences that
have been erected in the meantime. So I appreciate your help in
that endeavor.
Mr. Donohue. Thank you.
Chairman Nussle. Mr. Spratt.
Mr. Spratt. Mr. Donohue, you make a fairly radical
statement for the Chamber of Commerce to a government
committee: you have to spend money to make money.
The clear thrust of your testimony is that infrastructure
investments pay off, at least for now. We have got such a vast
backlog and demand for infrastructure needs that wise
infrastructure investments and additional investment in
infrastructure will more than pay, in terms of its rate of
return for the investment.
In light of that, would you recommend or seek additional
gasoline taxes, in order to fund additional infrastructure?
Mr. Donohue. Sir, I thought that question might come up.
Mr. Spratt. That is not a trick question.
Mr. Donohue. I know it is not a trick question. It is one I
have dealt with, with this coalition that we run.
Let me give you my thoughts on this subject. First of all,
I would not recommend an increase in taxes while we are
struggling to get out of a recession. By the way, I am deeply
concerned. You know, we are going to have maybe 5 percent
economic growth in the first quarter, and then it is going to
go down to three or maybe two.
But I am deeply concerned, and I am on four public company
boards, that companies now are holding their cash. With 11
committees of the Congress investigating, appropriately, the
events around Enron and Andersen, and with the SEC, and with
everybody now, all over the country and States looking into
this, what is going on in corporate boardrooms, the people are
saying, ``let us hold our money.''
We are going to change a lot of our accounting systems, you
know, which are dictated to corporations. We have got insurance
issues that are changing fundamentally, because of terrorism.
We have a lot of questions here. So they are saying, let us
hold our money.
That is a real serious problem, because investment is what
drives economic growth, improved productivity, and reduction in
costs.
So as I look at the question, first of all, in dealing with
infrastructure costs, I say, thank goodness that the money
comes out of special funds. It is not money we have to go and
appropriate every year.
Second, thank you that we have some money left in the can.
Third, clearly, we need to have a system that makes sure that
this does not happen again.
That means that we have to do away with the extraordinary
events. If we get down the road a little bit, and our demands
are greater than our supply, then you will find me saying that
those investments are absolutely critical to reducing air
pollution, to getting rid of congestion, to improving
productivity, to improving mobility; and very important, 30
percent of the deaths on the Nation's highways come because of
insufficient maintenance and care of our infrastructure.
So I will be the first one up here, when it is time to do
that. But right now, while we are trying to crawl out of this
recession; while we are looking at serious challenges that
companies are trying to meet; while we have additional
resources still available; while I believe we are going to go
back to buying more trucks, if we can figure out how to deal
with the engine problems; and to traveling, and we are already
traveling more than we were; and that the numbers will probably
be a lot better next year--for now, I would say, I am very
aware of the need, if it has to be there, and I would counsel
about not doing it right now.
There are some in our coalition that might think we should
do it right now. But I think in the interest of this country,
in getting this economy cooking, and putting revenues back into
the system, improving productivity, improving safety, we can do
it with current resources, with the help of this committee and
others.
I will be the first person back here, if the resources are
not enough to support the Nation's needs and its economic
growth, to say that we need to get more money for it.
Mr. Spratt. Ironically, the programs that you are
supporting right now were indirect beneficiaries of our efforts
to reduce the deficit. Because as you will recall, these
additional gasoline taxes that were imposed were imposed
originally and dedicated to deficit reduction, and not to
infrastructure.
In time, when we got rid of the deficit, or nearly rid of
the deficit, we took these funds and used them for their
traditional purposes; that is, building infrastructure. But we
had to get this tax increase in through the back door. That
shows you how difficult it is.
If the Chamber is not willing to come stand forthrightly
for it, it is not going to happen. You have got to make the
case for infrastructure investments, and for the return that I
heard you make very distinctly in your testimony.
Mr. Donohue. I have personally, and as a part of the
Chamber, on previous occasions, supported those types of
adjustments in tax increases that supported the Nation's
infrastructure. I think you would agree with me, sir, that we
should avoid it right now.
Mr. Spratt. I would agree with you, sure, in a recession,
and particularly with the price of gasoline going up, anyway,
due to world conditions.
Mr. Donohue. That is exactly right. By the way, having the
circumstances in Venezuela, the lack of some of the stability
in the Middle East, that is worrisome.
Although I might say, having just returned from Moscow,
there is a lot of gas and oil there. I think there are some
pretty strong understandings that we might have another source
of energy.
Mr. Spratt. Let me ask you specifically: is the Chamber
supporting what is in the bill, which is $4.4 billion; or are
you supporting Senator Conrad's budget resolution with a $5.6-
billion increase?
Mr. Donohue. The Chamber and the Coalition, first of all,
appreciate the $4.4 billion. We have visited with Chairman
Young at great length. We are certainly not going out trying to
get the $8 billion.
The difference between $4.4 billion and $5 billion, really
is going to come down to when we do it and what it is. I am
going to let the Congress resolve that. I think that they are
in the position that they are going to do the right thing,
because they understand this issue.
Would I rather have $5 billion, because I have got $19
billion the bank? Sure, because I am still trying to get out of
this recession; we are. Whatever number comes, we are a lot
better off than we would have been; and what I am most
concerned about is that we have a plan and we have a system
that says, we are going to fix this thing so it does not happen
again.
If at the end of that curve, it means more taxes, then we
will be very willing to talk about it. But for right now, I
think the infrastructure expenditure issue between the House
and the Senate is the smallest--least difficult decision to
come to. It is somewhere between $4.4 billion and $5 billion;
whatever the number is, God bless us. Let us get it and go out
and build the roads and keep on working.
Mr. Spratt. So $5 billion or $5.6 billion; you are not
willing to go up to $5.6 billion?
Mr. Donohue. Well, this is a very good question. I will
leave that with you. [Laughter]
Mr. Spratt. Well, now you are the witness. You said you
expected us to do the right thing. What is the right thing?
Tell us.
Mr. Donohue. Well, I think you have a balance here, sir.
First of all, if you take $5.6 billion, alright, and that
depends on whether you are going to do some things going
forward on ethanol, there are a lot of questions.
I can go with $5.6 billion, if what we are going to say is,
we are going to make sure we are going to tax ethanol at the
same amount of money going forward, and then put the money in
the Highway Trust Fund and so on.
If you have $5.6 billion, you will create more jobs. You
will move faster on a system that we are way behind the curve
on. You will move more aggressively to improve safety and
mobility and reduce congestion and clean the air.
Mr. Spratt. So the answer is $5.6 billion?
Mr. Donohue. The answer is, I am saying here, I appreciate
what has been done on this committee. I will look forward to
working with the conference to get the best deal for the
country and for us, and the higher number is better, but you
laid it out, sir. You have a big time problem, and we are going
to be there to do what is reasonable.
Mr. Spratt. Thank you, sir.
Chairman Nussle. Well, that is a non-starter, taxing
ethanol. [Laughter.]
We have a lot of talking to do, if that is the case.
Mr. Donohue. Well, you do tax ethanol right now.
Chairman Nussle. I am trying to inject a little humor.
Mr. Donohue. I understand the problem. I saw what the
President and Daschle did yesterday.
Chairman Nussle. Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman, and welcome, Mr.
Donohue.
Mr. Donohue. It is nice to see you, sir.
Mr. Collins. We have enjoyed our working association for
several years, and hope to continue.
You know, you make a very good point about additional
revenues. But you know, Mr. Donohue, additional revenues do not
necessarily have to come from additional taxes. You say you
have to spend money to make money. Well, you are talking about
infrastructure and actually fixed assets that belong to the
U.S. Government.
But you know, the thing about it, the revenue for this
government comes from people. That was the purpose and is the
purpose of tax relief at periodic times. You can go back 40-
plus years, and you can look at what happened when tax relief
was put forth in a favorable way to the wage earner, and we had
additional revenues come into the government.
In the 1960s, you know, looking at the tables not too long
ago, in 1961 the revenue into the government was something like
$92 or $94 billion that year; substantial tax relief under the
Kennedy administration, early in his administration. It led to
over a doubling of revenue over that decade.
Then when you look at the 1980s, when Reagan came in, and
put forth a very substantial tax relief for wage earners, we
had again almost a doubling, from $599 billion in 1981 to a
little over $1 trillion in 1990 of revenues.
I do not say you will have a doubling of revenues into the
Treasury based on the tax relief that we put forth last year.
We adjusted the cash flow of people, giving them more monies to
spend in the marketplace, and that is where the taxes for those
trust funds go, that you are so favorable of, and I am, too,
having been in transportation for 39 years, that is where those
funds come from.
Mr. Donohue. Right.
Mr. Collins. They come from the cash flow of people.
Fortunately, we did put forth the tax bill that left more
revenue in the earnings, and two, we had a drop in the cost of
gasoline and fuel, which helped to keep this economy from being
a lot worse than it was.
So I think, in the long run, if the Congress would focus on
the cash flow and the budget, and I am a cash flow nut, you
know.
I used to run my business every morning by going in the
front door, pulling out the drawer with the checkbook in it,
and I wanted to see what the balance was. Then I wanted to see
what I had coming in, that I had earned the day before. I let
those that I owe worry about that. But I knew where my money
was.
But if we would stay focused on the cash flow of our
constituents, who are the wage earners in this country, by
giving them relief from imposed taxation by this government, we
not only help the revenues of this government, but we help the
revenues of all entities and levels of government, because of
sales tax and use tax and excise taxes that they receive.
So, you know, I appreciate the fact that you say we need to
spend money to make money, and we do. But we need to also allow
the people to use more of their money as they see fit, and we
will have additional revenues to expend on those transportation
routes that are so needed.
I am so glad that you brought this thing up about the
engine, truck engines. The EPA rules that are going into place
this October, supposedly to increase the fuel mileage, but it
is going to work in reverse; lower mileage, more consumption,
shorter internals in oil changes; it will be just the opposite
of what those idiots over there at EPA think it is going to do.
You know, there again, we are imposing regulations that are
going to impose additional cost, which is an additional
taxation that is levied by this government on people out there,
trying to earn and make a living.
There were over 200,000 repossessions since this recession
started last year in independent owner operators, and there
will be more. People are trying now to buy new trucks, based on
the current market and what we have available, because they do
not want those new trucks coming in October.
Mr. Donohue. Mr. Chairman, you have probably concluded that
Mr. Collins and I have had some business going on for a long
time.
When I used to run the American Trucking Association, I
would always come to him for advice. Because if you can run a
trucking company in these days, you can run just about
anything.
In fact, the reason he came in to look at his checkbook is
not what he had in it, but what was coming in, because of what
he had already spent.
Mr. Collins. That is right.
Mr. Donohue. Let me make two comments, if I can, Mr.
Collins. First of all, I do not know if everybody appreciates
it, but when this tax cut was put in place, the part that the
Chamber supported vigorously, and a lot of folks were saying,
``what are you doing for big companies,'' was the reduction in
the individual rate.
Here is the reason: Millions and millions of small
companies pay their taxes, either as individual business
people, as sub-Ss or LLC companies. So they are the people that
got the tax cut.
By the way, that tax cut and the reduction in oil prices,
which was either good, smart performance, or luck, and we will
figure out what it was, is the thing that kept this recession
from going into a real hole in the wall.
I will be glad, at another time, to have a long talk with
you about EPA and engines and those kinds of things. As you
know, since I have come over here, I have left that to others.
But I have still got a whole lot of opinions about it.
Mr. Collins. Well, we all have, and I appreciate that.
Maybe sometime, we can talk about the ANWR situation too,
because I do not think people have actually thought that ANWR
situation all the way through.
You know, we have got people that have focused on the
environmental risk on 2,000 acres of barren land, which is a
minimum risk. It has been proven by technology and the
exploration already that we have done in that area.
This is 2,000 acres of barren land, with little risk
involved versus, look at the risk 10 years ago, when the Iraq
invaded Kuwait, and we had to send 500,000 soldiers in there,
and the loss of life and billions of dollars; and we know that
is coming again. That risk is real, and I do not think we are
focused on the real risk when it comes to ANWR.
I say, shame on those who voted against the exploration in
the northern slopes of Alaska, especially those from Georgia.
Thank you.
Mr. Donohue. Well, thank you; I would just say, Mr.
Chairman, the Chamber vigorously supported controlled, measured
exploration in ANWR, and I believe will eventually get to it,
when the need dictates.
Chairman Nussle. Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman, and thank you, Mr.
Donohue, for your testimony. Like Mr. Collins, I hope I have a
long time in the future to work with you, as well.
Everyone here today I think understands, Mr. Donohue, the
gravity of the situation that our country is facing with regard
to the current budget outlook, so I will not go into a great
deal of detail about that.
But I want to focus my comments and my questions on what
steps we might take collectively to get us out of the deficit
ditch and back on the path of fiscal responsibility.
You know, when I talk to my constituents back home and ask
them what it means to be fiscally responsible, they tell me
Congress ought to operate the way families and businesses do.
American families, I think, and Kansas families follow
three common sense rules: No. 1, do not spend more money than
you make; No. 2, pay off your debts; No. 3, invest in basic
needs in the future.
A few weeks ago, the majority party offered a budget that
provided for basic needs quite well; but I think they fell
short in the other two areas; that is, spending more money than
we made and paying our debts off.
I have heard a lot of talk the last few weeks that no one
in the minority offered a plan, and that is not correct,
either, because myself and three other of my colleagues
submitted a plan to make sure we pay our debts and to make sure
we do not spend money we do not have. But the majority denied
us a hearing and a vote on the House floor on that plan.
So later today, in the spirit of these hearings and in the
spirit of doing what is right to get our fiscal house in order
again, my Blue Dog colleagues and I will be announcing another
plan to set us on the path of fiscal responsibility, to secure
the financial future for America, for our kids, and for our
grandkids.
We are going to introduce four bills, Mr. Donohue, to
return to what I call the ``ABCs'' of budgeting. ``A'' is
assuring honesty and accountability by extending and
strengthening the Budget Enforcement Act that expires this
year, which I hope we all can agree to do.
``B'' is balancing the budget without using Social
Security; by amending the Constitution to require Congress and
the President to enact balanced budgets, without counting the
Social Security surplus in receipts.
``C'' is climbing out of the deficit ditch by passing a
short-term debt limit, through the end of this fiscal year,
September 30, to meet current obligations to prevent a Federal
default.
Nobody wants a Federal default, and we certainly understand
meeting those obligations. But I do not want to write a blank
check for $750 billion.
``D'' is defending our children by passing legislation that
requires Congress to obtain a three-fifths, 60 percent, vote to
considering legislation that would require us to borrow money.
This will prevent us from passing on huge debts to our kids.
You know, there has been a lot of talk in Congress in the
past several years about taxing and spending. We have also
talked some about borrowing and spending, and neither can put
us in the deficit ditch. I think we need to return to some
fiscal responsibility.
So in that context, I want to talk to you for just a
moment, and try to draw an analogy here. I understand that I am
going to run out of time probably, and I understand that there
is no perfect analogy between business and government. But I
think we can, in government, learn some things from the way
business operates.
Both entities, for example, must look at both sides of the
balance sheet, revenues and expenditures. When revenues exceed
expenditures, both entities are said to be running a surplus.
In business' case, retained earnings or surpluses are often
returned to shareholders in the form of dividends.
Last year, when government was in surplus, we returned
revenues to the taxpayers, and I voted for the President's tax
cut proposal. But when expenditures exceed revenues, both
entities, business and government, are in deficit.
I think this should force responsible businesses and a
responsible government to re-evaluate their financial position,
and develop a plan to get us back on the right track, as far as
fiscal responsibility, and get us back in balance, at least, as
far as government goes.
I think this is the situation we are in today. We should
and we need to develop a plan to get us out of the deficit
ditch.
So I guess I want to ask you, and I just have limited time
left, but would you agree that it would be a good idea to
require that our business, and I am talking about our business,
Congress' business of government, balance its budget? I am sure
that you would.
Mr. Donohue. Well, Mr. Moore, you left out a fourth issue
in families and in companies. That is that some of our major
expenditures we capitalize with loans. We buy our houses with a
mortgage.
Mr. Moore. That is true.
Mr. Donohue. Many of us buy our car with a car loan, or
some of us send our children to college with a loan.
If we were to be operating on a cash basis, we would not be
able to do this, under the argument that each year, what comes
in and what goes out has to be the same.
One of the problems that the ladies and gentlemen of the
Congress face is that when there are large capital
expenditures, and you want to deal with those on a cash or an
annual basis, it is almost impossible to stay within the
scenario which you structured.
Now let me say, first of all, I have not read any of your
bills, but I applaud you trying to keep the Budget Act in
place.
Second, we need a short-term debt limit, so that we do not
let this government go into default. Third, there is no
question that over time, we need to press the government to
operate within its means.
Now if you have a $2 trillion expenditure level, without
any capital budgeting, and you decided, from time to time,
because of war or pestilence or other reasons to, in fact,
capitalize some of that, then you have to have some ability to
do that.
As I said, I do not know what I think about the three-
fifths and 60 percent, and all that sort of thing. We all know
one thing. We are going to support this Congress and this
administration to prosecute our war against these terrorists,
and we are going to protect ourselves at home, and we are going
to take care of that.
Mr. Moore. Absolutely.
Mr. Donohue. On the Social Security issue, you know, I am a
student of demographics and entitlements. We have had an
extraordinary, wonderful thing happen in this country over the
last 100 years. We have extended our life expectancy by 30
years. In the next 20 or 30 years, we are going to extend it
another 10. So we have got a massive number of collectors.
Our problem is, we do not have enough ``payers-in'' and
enough taxpayers, and we are all going to have to work on that.
For as long as I have had anything to do with government,
for 30 years, we have been fooling around with, ``do we really
have a Social Security Trust Fund,'' and ``how do we use that
money that comes in?'' I would love to sit down and talk to you
about that.
But what we have to be very careful to do, when we have no
capital spending, the government is different than families and
businesses in the way that they have to go defend this Nation.
Mr. Moore. I understand.
Mr. Donohue. The analogies are helpful, but they are not
pure.
Mr. Moore. I have one last comment, and I do appreciate
your remarks. I tried to say at the outset, it was not a
perfect analogy, by any means.
I certainly understand, and I think this Congress
understands, the need to defend our country is the first and
most important priority of any government.
Mr. Donohue. Right.
Mr. Moore. The last thing I would say though is, with
regard to your remarks about mortgages, I understand that, as
well. I have a mortgage. A lot of Americans have mortgages. We
are going to pass on a $5.7 trillion mortgage to our children
and grandchildren. We are giving them a great country, but we
are passing on a heck of a mortgage.
I think that Mr. Greenspan, if he were here right now,
would tell us, and I have heard him say this several times, if
we can practice fiscal responsibility and start to pay down our
long-term debt, it is going to keep long-term interest rates
down. That is going to be the ultimate tax cut for everybody
who borrows money in this country.
Mr. Donohue. I agree, and by the way, we always have to
look at, in our families and our businesses, the amount of our
debt in relation to the size of our enterprise.
Mr. Moore. Yes.
Mr. Donohue. I look forward to some further discussion with
you on that.
Mr. Moore. Thank you very much, Mr. Donohue.
Mr. Donohue. Thank you.
Chairman Nussle. Mr. Brown.
Mr. Brown. Welcome, Mr. Donohue, we are glad to have you
here.
Mr. Donohue. Thank you.
Mr. Brown. Certainly, you will serve us in America through
the representation of the business community. Having come from
the business community myself, I recognize the bottom line is
very important in the continued existence of the corporation.
You have raised a couple of good points, and I know that
the chairman was not too happy with your first remark. But I
think it is a debate that we certainly must look at; what are
we going to do with the tax on the gasohol and ethanol or
whichever?
As I understand now, the gas is taxed at five cents a
gallon. Is that right, Mr. Chairman?
Mr. Donohue. Where is Mac?
Chairman Nussle. That is not quite right.
Mr. Brown. OK, what is gasoline, 18 cents or 17 cents? I
have always taken the tax on gasoline as a user fee, which is
intended to provide infrastructure for the user of the
gasoline.
It would appear to me, Mr. Chairman, that there is the lost
revenue, which is impacting our trust fund, and also impacting
the maintenance and the continued development of our
infrastructure on highways across the Nation.
It would seem to me, if we are going to supplement the
gasohol, it ought to come from funds outside the trust fund. I
know that is a debate that we are going to debate later. But I
am just curious, how much revenue do you think we might be
losing through that differential?
Chairman Nussle. I would be happy to have an ethanol
hearing, at some time, but I am not sure that that is
necessarily the debate, today.
Mr. Brown. I understand, Mr. Chairman.
It was mentioned in this report, and since we were looking
for new funds, not necessarily to raise taxes, but maybe to
raise equity, but we will debate that another time, but thank
you for that.
Mr. Donohue. Mr. Brown, the issue there is not only the
current situation; but if we expand the use of a particular
product and exempt that from the trust fund, we would have a
problem. I think the chairman will figure out a way to have a
discussion on that.
Mr. Brown. That is the reason I raised that. I am sure he
has got some idea in mind.
The other issue, as we look at raising the debt ceiling,
and recognize that we are sort of bound by law, that the
proceeds of the Social Security monies must be invested in
Treasury instruments, which effectuates the increase of the
debt limit.
There is a move afoot in Congress to divide the different
types of debt, the consumer debt, from the internal transfers,
which would, in effect, lower the debt ceiling. Do you have any
thoughts on that?
Mr. Donohue. Mr. Brown, I want to be very careful here. I
am quick to have thoughts on a lot of things. Sometimes I do
not know exactly what I think until I hear what I have to say.
But on this matter, where I am not an expert, I think I am
going to be careful what I say.
But let me just very clearly say, there is a three-part
issue here. First of all, this committee is doing the right
thing in establishing, maintaining, and supporting a process
that makes sure we carefully analyze what our real expenditures
are, and we have limits on what we can do in relation to what
we bring in.
Second, unfortunately, the debt business in this government
in recent times has become very political. It is going to be a
very close race in the Congress and the Senate, and everybody
has a lot to say about that. That is why I appreciate Mr.
Moore's suggestion that we might put some of that aside while
we tend to our business.
We have to really understand our true debts. You know, we
have all kinds of off-budget kinds of issues. I mean, I believe
the Enron thing is a very sad moment for American business.
But many of our businesses, all the real estate businesses,
many people have off-budget corporations, because that is how
you do business. I have been waiting for somebody to finally
say, and so does the government, lots of them. I do not know
who your auditor is but, you know, it could be very
questionable.
I would support this Budget Committee and other Members of
the Congress, outside the political environment, taking a real
serious look at our debt. What should be our debt process; how
do we go about it? We should not do everything in a cash-on-
cash basis. What is consumer debt versus entitlements, and how
do we deal with those issues?
I am prepared to put the Chamber behind a vigorous
discussion. But I want to be very careful, at this sensitive
time, getting out in front on that, right now. Although, if you
and I want to walk down the hall, I will try to tell you what I
think.
Chairman Nussle. Are there other members who wish to
inquire?
If not, Mr. Donohue, thank you so much for your testimony
here today. We appreciate your words of wisdom and, as well,
your support in our endeavor to try and reign in the budget and
provide some discipline. Thank you very much.
Mr. Donohue. Well, Mr. Chairman, I appreciate being here. I
want to remind the committee that yours is not the most famous
and appreciated work in this Congress. But were it not done, we
would find more significant gaps between what we take in and
what we spend.
I congratulate you on your work, and I am available, and
the Chamber is, to help in any way possible. Thank you very
much.
Chairman Nussle. Thank you.
Our friend and former colleague, Bill Frenzel, is also a
part of this panel. We welcome him to the witness table, again.
He has been a long-time supporter and warrior in the effort to
reign in spending and provide control.
We are happy to have you here today to provide yet again--
because this is not the first time you have labored in this
vineyard. You have been here before and labored hard.
We need your ideas, at this point in time, given the unique
situation we find ourselves in, with the House having passed a
resolution, and the Senate, as of yet, not passing one; with
caps and PAYGO expiring; all the fences seem to be laid down.
How we are going to get this under control is the thrust of
this hearing, and we appreciate you coming to give us that
testimony.
Your entire written testimony will be made part of the
record, and you may summarize as you would like. Welcome.
STATEMENT OF HON. BILL FRENZEL
Mr. Frenzel. Thank you very much, Mr. Chairman, Mr. Spratt,
and members of the committee. I appreciate the opportunity to
testify again before this distinguished committee on the
subject of budget discipline.
I do so for myself and the Honorable Tim Penny, for the
Committee for a Responsible Federal Budget, of which we are co-
chairmen.
I want to talk mostly this morning about discipline, and
mention two things, which I think are critical, right at this
moment.
No law can actually control fiscal policy, nor stop the
Congress from spending, if it really wants to do it. Congress
can only be restrained by the Constitution. The record is
replete with less than successful efforts to control
Congressional spending, each having modest success; but
eventually being evaded by the Congress.
Of all the restraints that we have tried to apply over the
years, I believe the most enduring and most helpful have been
discretionary spending caps and the PAYGO restrictions. So I
recommend that the Congress extend these two primary control
features, as early as possible this year, and I congratulate
the committee for its good work in pursuit of that elusive
goal.
The chairman suggested the lack of a budget in the Senate
is a problem, and I am not going to be the person who tells you
how to get around that particular problem.
But I do want to talk about spending caps and PAYGO. They
are not perfect. They cannot force the Congress to do or not to
do anything. However, when spending limits have been agreed to
by the President and the Congress, they are the most effective
budget enforcement mechanism the Congress has discovered yet.
The caps and PAYGO were first employed after BEA 1990. They
were revised in 1993 and again in 1997. The 1997 changes
obviously needed more adjustment. The Committee for a
Responsible Federal Budget and I have recommended a number of
times in the last couple of years that you adopt new
discretionary spending limits early in each budget cycle.
Unfortunately we are without them at the moment.
In the case of terrorism and our war against it, it is a
good thing to waive limits, when it is necessary, in real
emergencies. But it is also a good thing to re-establish the
limits as soon as possible, and to preserve the priorities, old
and new, which the Congress sets when it passes or modifies its
Budget Resolution. The caps really need to be reset now.
I am occasionally asked, Mr. Chairman, why we need PAYGO in
addition to the caps. My own answer to that is that the urge to
spend follows the path of least resistance. If discretionary
spending is capped and entitlements are not, it is not hard to
guess what kinds of new and changed spending programs we will
have.
In addition, discretionary spending programs are a little
more easily dealt with, in the budget sense, and entitlements
are forever. So not having some kind of entitlement
restriction, I think, would be a real mistake.
For those Members of Congress who are nervous about
inhibiting urges to cut taxes through PAYGO, it is good to
remember that when the President and the Congress want to
exceed the caps, they find a way to do so. When tax cuts seem
to be the right policy, they will find a way to accomplish
them, too.
Caps and PAYGO are not straight jackets. They are sign
boards to remind Congress what its priorities were when it
passed the Budget Resolution. In true emergencies, when the
Congress and the President need to spend more, or to provide
more tax cuts for economic incentives, it is always appropriate
to reassess the priorities.
Now except for my own personal wants, there is no level of
Federal spending which is just right. The right level
politically, at the end of the appropriations process, is the
one on which the President and the Congress agree. That is
where caps should be.
We think Congress should reset them regularly; perhaps as
often as biannually. They have to conform to political reality,
or they will be ignored.
As you know, Mr. Chairman, our committee also supports a
binding Budget Resolution, passed by Congress and signed by the
President. One important feature of that process is the regular
opportunity for and an expectation of agreement between the two
branches of government on spending limits.
In this testimony, however, I really want to focus on
spending caps and PAYGO as being the highest priorities right
now, rather than to divert your attention by repeating other
wonderful ideas previously presented, such as the Joint Budget
Resolution. For the record, my testimony of last July 19 before
this distinguished committee stands, but the twin spending
limits are target number one for today.
My final warning is to repeat that no amount of good law
can substitute for Congressional commitment and Congressional
leadership on this issue. It is not easy to set priorities.
They reduce flexibility, but they do establish some order and
discipline. Once set, based on history, they are a helpful and
occasionally powerful reminder, which reinforces the original
commitment.
Mr. Chairman, and long-suffering committee members, thanks
for your time and your interest. This is a terrible committee
on which to serve. It is a political truism that nobody ever
tears the cufflinks off of Congressmen who say no.
Nevertheless, I suspect that future generations of
taxpayers who will be obliged to live with the effects of
today's fiscal policies may indeed honor the memory of those
who occasionally said no.
[The prepared statement of Mr. Frenzel follows:]
Prepared Statement of Hon. Bill Frenzel, Co-Chairman, the Committee for
a Responsible Federal Budget
Mr. Chairman and members of the committee, thank you for giving me
the opportunity to testify again today on the subject of budget
discipline. I do so for myself and the Hon. Tim Penny, and for the
Committee for a Responsible Federal Budget, which we co-chair.
No law, process, provision or formula can actually control fiscal
policy, nor stop the Congress from spending if it seriously wants to do
so. Congress can only be restrained by the Constitution. The record is
replete with Congress' less-than-successful efforts to control its own
spending, from debt limitation statutes, to the Budget Act itself, and
to other fancier embellishments like Gramm-Rudman.
Each of these had some early, modest success. Eventually, Congress
found ways to get around them all. Of all of these restraints, the most
successful, and the most durable budget control mechanisms have been
discretionary spending caps and PAYGO, and so I recommend that the
Congress extend these two primary control features as early as possible
this year, and I congratulate this committee for its good work in
pursuit of this elusive goal.
Spending caps and PAYGO are imperfect instruments, and as noted
earlier, they cannot force Congress to do, or not to do, anything.
However, when the spending limits are agreed to by the President and
the Congress, they are the most effective budget enforcement mechanism
the Congress has discovered yet.
Because their effectiveness wanes with age, they need to be
reviewed and renewed every couple of years.
First used after the Budget Enforcement Act of 1990, they have a
pretty good record of keeping spending within the levels set by
Congress in its Budget Resolution. They were revised in 1993, and again
in 1997. Because the 1997 changes obviously needed further adjustment,
this committee, and I, have recommended since 1998 that you adopt new
discretionary spending limits early in each budget cycle.
After the initial high caps set for fiscal year 1991, discretionary
spending remained well below the inflation rate through the 90s. In the
last two budget years, fiscal years 2000 and 2001, when the limits were
pretty well ignored, discretionary spending increased at rates more
than several times the rate of inflation.
In the case of terrorism, and our war against it, it is good thing
to waive such limits when necessary in real emergencies, but it is also
a good idea to reestablish them, as soon as possible, to preserve the
priorities, old and new, which Congress agrees to when it passes, or
modifies, its Budget Resolution. The caps should have been reset at the
end of last year, but now is a very good time to set the caps again.
I am occasionally asked why we need PAYGO in addition to the caps.
My answer is that the urge to spend follows the path of least
resistance. If discretionary spending is capped, and entitlements are
not, it is not hard to guess what kinds of new, and changed, spending
programs we will have. In addition, discretionary spending programs are
more easily dealt with in a budget sense since they can occasionally,
admittedly not often, be reduced or even zeroed, while entitlements are
forever.
For those who are nervous about inhibiting urges to cut taxes, it
is well to remember that when the President and the Congress want to
exceed the caps, they find a way to do so. When tax cuts are the right
policy, they will find a way to accomplish them, too.
Caps and PAYGO are not straitjackets. They are signboards to remind
Congress what its priorities were when it passed its Budget Resolution.
In true emergencies when Congress and the President need to spend more,
or to provide more tax cuts for economic incentive, it is always
appropriate to reassess the priorities, and alter the limitations.
Except for my own, there is no level of Federal spending which just
right. The right level politically is the one on which the President
and the Congress agree.
That is where the caps should be. We think Congress should reset
them regularly, perhaps as often as biennially, even if it may mean
generally higher levels of spending. They must conform to political
reality, or they will be ignored. A simple majority should be able to
make changes as long as the votes are recorded. The transparency of
free debate and clear-cut votes will have what we believe is a sobering
affect on the Congress.
As you know, Mr. Chairman, our committee supports a binding Budget
Resolution, passed by Congress and signed by the President. One
important feature of such a process is a regular opportunity for, and
an expectation of, agreement between the two branches of government on
spending limits.
Even without a Joint Budget Resolution, Congress could
automatically send a bill setting caps to the President when it passes
its Budget Resolution, just as it used to do with debt ceiling bills
under the old ``Gephardt'' procedure.
In this testimony, however, I really want to focus on the spending
caps and PAYGO, as being the highest priorities right now, rather than
to divert your attention by repeating other wonderful ideas previously
presented, such as the Joint Budget Resolution. For the record, my
testimony of last July 19 before this distinguished committee stands,
but the twin spending limits are target No. 1 for today.
The final warning is to repeat that no amount of good law, or good
process, or good restraint, can substitute for Congressional commitment
and Congressional leadership on this issue. It is not easy to set the
priorities. They reduce flexibility, but they do help establish order
and discipline. Once they are set, they are, based on history, a
helpful, and occasionally powerful, reminder which reinforces the
original commitment.
Mr. Chairman, and long-suffering committee members, thanks for your
time and your interest in this matter. This is a tough committee on
which to serve. It is a political truism that nobody ever tears the
cuff-links off of Congressmen who say no. Nevertheless, I suspect that
future generations of taxpayers who will be obliged to live with the
affects of today's fiscal policies, may honor the memory of those who
occasionally said no.
Chairman Nussle. Thank you, Mr. Frenzel.
Long-suffering is a new description that I have not heard
before, but I think it is certainly applicable to some of the
things that we are treading on today.
Just to update you, on one example, and I could not agree
more with your last comment, that certainly, you know, we put
these rules into place, and they have been waived as many times
as they have been enforced.
The issue of leadership and the issue of authority, moral
authority, or however you want to put it, technical authority,
and the willingness of our membership to enforce agreements or
budgets, is really what is at stake here, as much as anything.
To give you an example of that, the President put forward a
supplemental appropriation request of emergency for homeland
security and defense, for obvious reasons. I think, in this
case, you will see bipartisan support in the Congress to
achieve this.
However, the opening bid of the Appropriations Committee,
after receiving the $27.1 billion request, was $39 billion.
That was the opening bid from the appropriators, who found
almost $12 billion of additional spending that, in their
wisdom, was now all of a sudden emergency; or maybe better
said, the train was leaving the station, and let us get on
board, because this may be the only thing leaving in any short
time.
We are making it very clear that the President has
designated an emergency of $27.1 billion. It should not be a
penny more. It should not be a penny more than $27.1 billion,
without the understanding and acquiescence of the
administration in this regard, to designate additional items as
emergencies.
We have a definition. It is a bipartisan definition. It
should be adhered to; otherwise, we might as well declare the
entire Federal Budget an emergency, and pass it in the next
month and go home. That is kind of where we are at right now.
So we are taking a pretty hard line approach. As you know,
emergencies are outside the process, and we are going to try,
as best we can, to exert, or I guess I am speaking in the
plural. I am going to do it myself, if I have to.
I do not know if I am going to get any cufflinks for it, as
you stated. But we are going to at least make the attempt to
say no here.
That is even before we get to the topic of whether the
$27.1 billion is appropriate, and getting the right
accountability and oversight that we need to start providing
for homeland security and defense.
Where I am going with all of this is also a question on how
we should extend the caps, not just whether; and how we might
extend PAYGO, not just whether.
Would you propose or would you favor a single cap on
discretionary spending, or would you support separate caps? Is
this a matter of any cap is better than no cap? How would you
approach that?
I mean, one of the challenges we had with PAYGO, and for
that matter, caps, is that all of these were designed and
defined during periods of deficits. They were designed to get
out of deficits, and they were not constructed very well to
deal with an era of surpluses.
So as a result, when we achieved a definition of surplus,
all of a sudden, it became less relevant or much easier, you
know, to ignore. I am wondering if you would change or reform
any of those processes, given the opportunity to do so at this
time?
Mr. Frenzel. Mr. Chairman, that is a huge question, or a
huge set of questions. I do pretend to be the last expert on
the subject.
First, I note that when you say the Appropriations
Committee has bid already nearly a 50 percent upgrade, that is
just the first Appropriations Committee you are running into.
There is another one, as well, coming along behind.
With respect to the question of what caps, my preference is
to have discrete caps, at least separate ones for military,
which I have always thought were appropriate. But now, I think
they are even more appropriate. So that is my preference.
On the other hand, is a single cap better than no caps?
Yes, it is, but there is too much mischief that can occur
within a large spending account. It seems to me that if setting
of caps is to enforce Congressional priorities set in a budget
resolution, you really ought to have a series of discrete caps.
It is also true that the caps and PAYGO seemed to work much
better when we were in deficit and there was some fear in the
Congress that maybe we were not ever going to get out of
deficit.
My own judgment is that Congress has had really more
difficulty dealing with surpluses than with deficits. I think
we are not going to know the story on that until we see how
caps perform through a little longer period of surpluses.
But I think you ought to do them as soon as possible. Of
course, legislative branch caps established in the Budget
Resolution are good. Those established by negotiation with the
President are better. Those established by law, in which both
branches participate, are best.
I recall, as I noted in my testimony, but did not say, in
the old days, I think perhaps the late 1970s, we used the
Budget Resolution to carry with it a bill that would extend the
debt ceiling to fit whatever the budget resolution said we were
doing. Dick Gephardt was the creator of this system, and it
carried his name.
When the Budget Resolution was passed, this auxiliary bill
sticking to it was sent to the President for signature. That
might be one way of establishing the caps and having the
President entered into the system.
But any way by law is the best, and if Congress does not
want to share this with the President, but wants to keep those
caps within the branch, it should do that, too. That is better
than no caps.
My guess is, the way I prefer it is to nail them down as
tight as you can, because I do not think Congress can do the
full job for itself. Too many spending butterflies fly by that
are attractive to Congress, after the budget is passed.
Congress is strongly tempted to have this one, and that one,
and all the others.
It is much better if the President can help in the
discipline. But any kind of cap is better than no cap.
Chairman Nussle. Thank you.
Mr. Spratt.
Mr. Spratt. Mr. Frenzel, thank you for coming. We remember
listening to your wise advice on the House floor and from this
committee. You do have one comparison to make service on this
committee satisfying. It is better than being on the Ethics
Committee. That is for sure. [Laughter].
I read your testimony, and I listen to what you have got to
say. It seems to me that you have a more permissive attitude
about the PAYGO rule than you do about spending caps.
Do you think that perhaps we should have one PAYGO rule
that is applicable when we have surpluses, and by that, I mean
surpluses outside Social Security, on-budget surpluses, and
another when we have deficits?
Mr. Frenzel. I have not thought about that a lot, Mr.
Spratt. I am sort of reluctant to put my foot in that pool,
just as Mr. Donohue was on a different question.
Again, I believe in PAYGO in times of surplus and deficit.
But there may be clever ways to structure it. Congress may find
out that it can do a better job in ways different than with one
across-the-board blunt rule. Until that is explained to me, I
guess I will stick with a single PAYGO.
Mr. Spratt. Let me suggest this to you, and get your
reaction to it, because you have got a long perspective looking
back. What we have here is a macro-economic problem, where last
year, there were two projections of the 10 year surplus that
totaled $5.6 trillion, which made it appear that we could have
it all.
As a consequence, there was a substantial tax cut,
reminiscent of 1981. Within months, we found that we had an
overstated, or some would say, bloated estimate of the surplus,
looking out 10 years. We now know that it probably was
overstated by economic and technical mistakes alone, to the
tune of about 40 percent.
Furthermore, that was the August update. Having discovered
that we had an overstated estimate of the surplus, upon which
the budget was based and the tax cuts were based, we then were
overtaken by other events, overridden by terrorist attacks,
contingencies that nobody expected or provided for in the
budget.
So we have got a fundamentally different foundation for the
budget. But we have still got the budget with tax cut
expectations, spending projections, that is based upon economic
estimates and projections that no longer apply, in a world that
no longer exists.
What do you do to get out of this?
Mr. Frenzel. That is a good question, Congressman Spratt,
and I am probably not going to be able to help you out of that
thicket.
I have some thoughts about the 10 year budget estimates, in
that I do not think they are very helpful. I think they are
useful sometimes, in just trying to track where you are going;
and useful, probably because of Congress' own, what would you
call this desire to back-end load both spending and tax cut
programs.
Mr. Spratt. That is the tendency, if you do not have a 10
year window to keep everybody honest about the out-years.
Mr. Frenzel. That is true. But on the other hand, as you
have already pointed out, a 10 year is taken at a slice of time
that develops quite a different picture than if you take it 6
months later, or 6 months before.
Everybody has to understand that somebody is just
extrapolating lines on a chart, and those figures do not really
mean a whole lot. You know, we do it for 75 years on Social
Security. You know, maybe it is right and maybe it is not. I do
not really know that.
I guess I would fight the tax cut wars on a little
different basis. I am one of those that likes to look at the
percentage of GDP that taxes take up, and I like to see that
they do no get above 19 percent. But that is a personal thing.
So for me, I would not need a 10 year surplus projection to
make me want to cut taxes.
Mr. Spratt. Let me simplify it to one choice.
Mr. Frenzel. OK.
Mr. Spratt. If we are running a deficit, an on-budget
deficit, exclusive of Social Security, do you believe that the
PAYGO rule, in most cases, should require an offset equal in
amount to the tax cut?
Mr. Frenzel. I do.
Mr. Spratt. Thank you, sir.
Mr. Frenzel. You asked a simple question, and I am a simple
man.
Mr. Spratt. And I got a straight answer; thank you.
Chairman Nussle. Mr. Putnam.
Mr. Putnam. Thank you for your testimony.
Mr. Frenzel. Mr. Chairman, I apologize for arriving late. I
proved myself to still be in that small percentage that does
not get the word. All I can say is, I was lucky I arrived on
the right date. [Laughter].
Chairman Nussle. Your testimony is accepted and
appreciated, no matter when it is given. We welcome you back,
as a long-suffering alumnus, to the committee. So we appreciate
your testimony, and we will work on these issues together.
Thank you.
Mr. Frenzel. Thank you.
Chairman Nussle. With that, we have our second panel, which
we will be joined today by Susan Irving, from the General
Accounting Office; Barry Anderson, from the Congressional
Budget Office; and Richard Kogan, from the Center of Budget and
Policy Priorities.
While they are joining us, I just want to welcome all of
the young people who are joining us today as part of that
special day when you get to bring your kids to work. We have
Jack, Peter and Paul Wydler who are here today, and Yvonne
Ochiri who is here from the Alexandria public schools. So we
welcome them all today.
Bud, your son's name?
Mr. Newman. Dan.
Chairman Nussle. Dan Newnam is here; we welcome him as
well. He can be next up here, if he's interested. He can't ask
any questions; they'll be better than ours. But we welcome all
the young people who are here today.
We also welcome our panel. They have all three testified
before our committee before, on these and other topics. We will
start and just move right down the witness table, with Barry
Anderson first. We welcome your entire testimony; the testimony
of all three witnesses will be made a part of the record, and
you may summarize as you see fit.
Mr. Anderson.
STATEMENT OF BARRY B. ANDERSON, DEPUTY DIRECTOR, CONGRESSIONAL
BUDGET OFFICE; RICHARD KOGAN, SENIOR FELLOW, CENTER ON BUDGET
AND POLICY PRIORITIES; AND SUSAN J. IRVING, DIRECTOR FOR
FEDERAL BUDGET ANALYSIS, U.S. GENERAL ACCOUNTING OFFICE
STATEMENT OF BARRY B. ANDERSON
Mr. Anderson. Thank you, Mr. Chairman.
Chairman Nussle, Ranking Member Spratt, and members of the
committee, thank you for inviting me to this hearing. I am
happy to be here this morning to discuss mechanisms of
budgetary discipline, something that I have been actively
involved with for more than 20 years.
During those years I have seen the budget process change
dramatically--from the 1-year budgets of the late 1970s, to the
budget deals between Congressional leadership and President
Reagan of the early- and mid-1980s, to the aggregate deficit
control mechanisms of Gramm-Rudman-Hollings in the late 1980s,
and finally to the three versions of the Budget Enforcement Act
in 1990, 1993, and 1997.
As an active participant in devising and enforcing many of
those mechanisms for budgetary discipline--and, more recently,
as an observer as other people have tried their hand at
enforcement--I believe that I have a sense of what
characteristics make a mechanism more likely to be effective or
more likely to fail. On the basis of that experience, I offer
four principles that are required for any budget enforcement
mechanism to succeed.
The first is shared goals. For a system of discipline to be
effective, its overall goals must be broadly shared: by the
Congress and the President, by Republicans and Democrats, by
the Senate and the House, even by the major committees--Budget,
Appropriations, Tax and Authorization.
An example of the need for shared goals can be found by
comparing the Budget Enforcement Act at its inception in 1990,
with virtually the same BEA 7 years later. The goal of
eliminating large and growing deficits through limits on
spending was largely shared by the majority of political
players in 1990 and during the first half of the decade. As the
economy continued to expand, revenues came in at unexpectedly
high rates, which--combined with the end of the cold war, the
end of the thrift bailouts, and the BEA's limits on spending--
produced unanticipated surpluses. Suddenly, the shared goal of
deficit reduction had been achieved, and the willingness of the
President and the Congress to adhere to the restraints of the
BEA withered, even though the law was virtually the same.
The second principle is realistic assumptions. Budgetary
assumptions, particularly for 5 or 10 years into the future,
cannot be much more than educated guesses. Some demographic
trends can be projected with good accuracy, but precision in
forecasting has never been possible over more than a very short
period of time. Nevertheless, overly optimistic assumptions
about economic or technical factors, such as the timing of
spending, can discourage policymakers as the unrealistic
targets are missed by wider and wider margins.
The third principle is appropriate sanctions. The BEA's
mechanism of spending caps and PAYGO--and especially the
sequestrations available to enforce it--was a big improvement
over GRH's mechanism of deficit caps and sequestrations,
largely because of the appropriate application of sanctions for
those who had violated the limits. Under GRH, a sequestration
might be required for discretionary programs, for example,
because of economic factors unrelated to discretionary
spending, even if the appropriators had not exceeded their
appropriation targets. Under the BEA, by contrast, no
sequestration of discretionary programs would occur unless the
Appropriations Committee exceeded its limits.
Note that the enforcement mechanism for the spending caps
is weakened when lawmakers use special provisions to protect
one class of programs from sequestration. Limiting the programs
subject to sequestration makes the burden on the remaining
programs heavier, thus providing a greater incentive to waive
the sequestration entirely.
The fourth principle is availability of safety valves.
Exemptions for emergency spending--for example, for natural
disasters, for wars, or for recessions--can strengthen a
mechanism for budgetary discipline if the exemptions are
applied fairly and honestly. For example, during the first 7
years of the BEA, emergencies were limited to natural and
economic disasters, as had been defined in 1991. That system
broke down in the late 1990s, however, as the definition was
discarded and any semblance of discipline abandoned.
If the goal of the current Congress is to retain the
discipline of the caps and the PAYGO mechanism but gear the
specific targets so that all surpluses stemming from Social
Security receipts are used to pay down debt--in other words, so
that there is no on-budget deficit--I would remind the
committee that an earlier model exists. The 1990 BEA was
drafted with that same goal in mind. Besides the spending caps
and the PAYGO mechanism, it also contained a provision that
established declining targets for the on-budget deficit. That
provision could be used as the foundation for procedures to
enforce on-budget balance.
The precise caps for a new mechanism would need to be
worked out, of course, and the political agreement required to
implement the new regime of budgetary discipline would not be
easy to obtain. However, the laws to implement a new agreement
that protects the Social Security surplus already exist, and
except for the aggregate deficit mechanism, they were used
successfully for the first several years of the BEA.
A final point: I spoke to this committee, as others did,
last year about a number of conceptual problems that I thought
needed to be addressed by a new ``budget concepts commission.''
None of those problems have been addressed, and some of them
have gotten worse in the past year. No matter what new regime
of budgetary discipline results this year, I continue to advise
that a new ``budget concepts commission'' is necessary.
Thank you, Mr. Chairman.
[The prepared statement of Barry R. Anderson follows:]
Prepared Statement of Barry B. Anderson, Deputy Director, Congressional
Budget Office
Chairman Nussle, Ranking Member Spratt, and members of the
committee, thank you for inviting me to this hearing. I am happy to be
here this morning to discuss mechanisms of budgetary discipline;
something that I have been actively involved with for more than 20
years.
During those years, I have seen the budget process change
dramatically: from the 1-year budgets of the late 1970s, to the budget
deals between Congressional leaders and President Reagan of the early
and mid-1980s, to the aggregate deficit control mechanisms of Gramm-
Rudman-Hollings (GRH) in the late 1980s, and finally to the three
versions of the Budget Enforcement Act (in 1990, 1993, and 1997).
As an active participant in devising and enforcing many of those
mechanisms for budgetary discipline and, more recently, as an observer
as other people have tried their hand at enforcement, I believe that I
have a sense of what characteristics make a mechanism more likely to be
effective or more likely to fail. On the basis of that experience, I
feel that four principles are required for any budget enforcement
mechanism to succeed.
SHARED GOALS
For a system of discipline to be effective, its overall goals must
be broadly shared: by the Congress and the President, by Republicans
and Democrats, by the Senate and the House, even by the major
committees (Budget, Appropriations, Tax, and Authorization). An example
of the need for shared goals can be found by comparing the Budget
Enforcement Act (BEA) at its inception in 1990 with virtually the same
BEA 7 years later. The goal of eliminating large and growing deficits
through limits on spending was shared by the majority of political
players in 1990 and during the first half of the decade. As the economy
continued to expand, revenues came in at unexpectedly high rates, which
combined with the end of the cold war, the end of the thrift bailouts,
and the BEA's limits on spending, produced unanticipated surpluses.
Suddenly, the shared goal of deficit reduction had been achieved, and
the willingness of the President and the Congress to adhere to the
restraints of the BEA withered, even though the law was virtually
unchanged.
REALISTIC ASSUMPTIONS
Budgetary assumptions, particularly for 5 or 10 years into the
future, cannot be much more than educated guesses. Some demographic
trends can be projected with good accuracy, but precision in
forecasting has never been possible over more than a very short period
of time. Nevertheless, overly optimistic assumptions about economic or
technical factors--such as the timing of spending--can discourage
policymakers as the unrealistic targets are missed by wider and wider
margins.
APPROPRIATE SANCTIONS
The BEA's mechanism of spending caps and pay-as-you-go (PAYGO) and
especially the sequestrations available to enforce it was a big
improvement over GRH's mechanism of deficit caps and sequestrations,
largely because of the appropriate application of the sanctions for
violating the limits. Under GRH, a sequestration might have been
required of discretionary programs, for example, because of economic
factors unrelated to the caps, even if the appropriators had not
exceeded their appropriation targets. Under the BEA, by contrast, no
sequestration of discretionary programs would occur unless the
Appropriations Committee exceeded its limits. Note that the enforcement
mechanism for the spending caps is weakened when lawmakers use special
provisions to protect one class of programs from sequestration.
Limiting the programs subject to sequestration makes the burden on the
remaining programs heavier, thus providing a greater incentive to waive
the sequestration entirely.
AVAILABILITY OF SAFETY VALVES
Exemptions for emergency spending (for events such as natural
disasters, wars, and recessions) can strengthen a mechanism for
budgetary discipline if the exemptions are applied fairly and honestly.
For example, during the first 7 years of the BEA, emergencies were
limited to natural and economic disasters, as had been defined in 1991.
That system broke down in the late 1990s, however, as the definition
was discarded and any semblance of discipline abandoned.
If the goal of the current Congress is to retain the discipline of
the caps and PAYGO mechanism but gear the specific targets so that all
surpluses stemming from Social Security receipts are used to pay down
debt (in other words, so that there is no on-budget deficit), I would
remind the committee that an earlier model exists. The 1990 BEA was
drafted with that same goal in mind. Besides the spending caps and the
PAYGO mechanism, it also contained a provision that established
declining targets for the on-budget deficit. That provision could be
used as the foundation for procedures to enforce on-budget balance.
The precise caps for a new mechanism would need to be worked out,
of course, and the political agreement required to implement the new
regime of budgetary discipline would not be easy to obtain. However,
the laws to implement a new agreement that protects the Social Security
surplus already exist. And, except for the aggregate deficit mechanism,
they were used successfully for the first several years of the BEA.
A FINAL POINT
I spoke to this committee last year about a number of conceptual
problems that I thought needed to be addressed by a new budget concepts
commission. None of those problems have been addressed, and some may
have gotten worse. No matter what new regime of budgetary discipline
results this year, I continue to advise that a new budget concepts
commission is necessary.
Chairman Nussle. Thank you.
Welcome back, Mr. Kogan. We welcome your testimony at this
time.
STATEMENT OF RICHARD KOGAN
Mr. Kogan. Thank you, Mr. Chairman, Mr. Spratt. It is good
to be home. Thank you for your exceedingly kind words.
Unlike all the other witnesses, I speak only for myself,
not for any organization.
I would like to make four points this morning:
First, the Budget Enforcement Act of 1990, which many have
discussed, is a far better process, as many have said, than the
Gramm-Rudman-Hollings process that preceded it.
Second, no process--not caps, not PAYGO--which as I just
said, is a far better process--can force bipartisan agreement
when the actors don't want to agree. What the BEA did best with
its caps and PAYGO rule, was to enforce an agreement that the
two parties had already come to.
In that respect, then, I would agree with the implication
of what Mr. Frenzel said, which is that if you want to
reestablish caps and PAYGO in any form, or anything like them,
the first requirement is to negotiate a substantive agreement
between the leadership of Congress and the President--have a
budget summit--and then use a budget process like this one,
which has proven that it is useful in enforcing agreements, as
the enforcer after the fact. But a budget summit would be the
necessary predicate.
Third, I want to point out that the facts make it clear
that excessively large tax cuts can lead to serious budget
problems. There has been a lot of discussion by previous
witnesses implying that there is an equation between lack of
budget discipline and spending increases. As a matter of logic,
it is equally true that lack of budget discipline can mean lack
of discipline in tax cuts. As a matter of history, I think it's
fair to say that lack of discipline in tax cuts has actually
been the greater threat than lack of discipline in spending.
Finally, I would like to reiterate a point that others have
made today, which is that Congress has yet to figure out how it
wants to deal with surpluses. I would like to offer a
suggestion made by Robert Reichsauer, former director of CBO.
OK. Let me go through my points and use these slides that
magically appeared on the screen to illustrate them.
First of all, slide one shows the amount by which the first
Gramm-Rudman law of 1985 and the second Gramm-Rudman law of
1987 were violated. They set six deficit targets declining to
zero. Those targets were missed by incredibly large and growing
amounts. The first GRH law, which was going to balance the
budget by 1991, ended up missing its target by $356 billion in
2002 dollars. The second GRH law, which was abandoned when it
got too far out of whack, missed its 1991 target by $272
billion in constant dollars.
The next slide makes the same point in a different way. In
the next slide you can see what the budget outcomes were under
GRH versus the budget outcomes under the caps and PAYGO system.
Now, the caps and PAYGO system did not require that we hit any
specific target; it merely required that we behave ourselves
with our appropriations, with our tax cuts, and with our
entitlement increases. It let the chips fall where they may. It
turned out that behaving ourselves over a long period of time
was better than setting a dollar target for the deficit or
surplus and trying to hit that target, or pretending to try to
hit that target. As you can see, the total amount of deficit
reduction under GRH from the beginning to the end of the period
was 1.3 percent of GDP, but under the BEA it was 4.7 percent of
GDP.
OK, enough said about this, because I think all the
witnesses are in pretty clear agreement that fixed deficit
targets, as in GRH--and, I might add, as in lockboxes and
constitutional amendments--really aren't a workable idea.
So let me move on to my third point--which is perhaps the
one that I should spend the most time on because it contradicts
what earlier witnesses said--which is that tax cuts can be as
fiscally irresponsible as spending increases, or more so. If
you look at the slide that is up now, slide three, you will see
the size of the tax cut that was passed by the last Congress,
and the spending increases projected for about 10 years--as
though they would continue forever--that were passed by the
last Congress. You can see that the tax cut amounted to a very
significant share--more than three-quarters--of the costs that
the last Congress enacted. So if the total costs turned out to
be excessive, excessive tax cuts were the culprit.
As we move on to the next slide, you will see what happened
to spending and revenues as a share of GDP since the creation
of the Congressional Budget Act of 1974. You can see that there
were long periods of time in which spending shrank; long
periods of time in which revenues rose; and this led to the
temporary surpluses, the 4 years' worth of surpluses that we
actually observed. But you will also see something that is
intriguing, which is that spending tended to rise when taxes
were cut, and spending tended to fall when revenues were
increased. There is an old line that is taken as a truism,
which is that if you raise revenues, if you leave the money in
Washington, ``they'' will just spend it. I never knew who
``they'' were. But this slide indicates that the opposite is
the case.
The next slide corrects for the fact that there is a little
bit of self-perpetuating results in the previous slide because
of the fact that we're measuring as a percentage of GDP, and
spending increases as a percent of GDP and revenues as a
percent of GDP fall when there is a recession, and vice versa
when there is a boom.
In this slide, we use numbers prepared by CBO in which the
business cycle is simply removed, so that we're talking about
the underlying rate of revenues and spending as a share of GDP.
You can see that spending as a share of GDP declined for 11
consecutive years, starting with the enactment of the Budget
Enforcement Act of 1990. This is not a coincidence. You can see
also that the spending explosions that people are complaining
about in 1999 and 2000--spending was still declining in those
years. You can see also that the two biggest budget changes
that happened during the entire period, other than the long
spending decline, were the big tax cut of 1981 and the big tax
cut of 2001. In the case of the 1981 tax cut at least, it led
to very, very large deficits; deficits that were too large for
the country to be comfortably dealing with.
OK. If you move to the next slide, you'll see it examines
the relationship between revenues and outlays that was
indicated by the previous one. What this slide shows is that
there is a clear inverse relationship, that the higher the
level of revenues, the lower the level of spending, and vice
versa. I know this contradicts conventional wisdom, but here
you have 20 years of data that contradicts conventional wisdom;
you have a correlation that is so strong that social scientists
would stay awake at night celebrating if they found it in the
rest of their data.
OK. So if you move on to the next slide, you'll see it
examines a different argument in favor of tax cuts. One of the
arguments in favor of tax cuts, of course, was the one I just
stated, the conventional wisdom that if you don't cut taxes and
there are surpluses hanging around or revenues hanging around,
``they'' will just spend it.
The other contention is that tax cuts--and particularly
reductions in marginal rates at the top--are good for long-term
economic growth. I'm not talking about a short-term stimulus,
when clearly tax cuts are useful, but rather over the long
term, when reductions in marginal tax rates supposedly have
supply-side benefits.
The evidence seems to be that the supply-side benefits,
though they are small, and that the harm done by making
deficits larger than they were--or surpluses smaller than they
would otherwise be--is as great, perhaps, as the supply side
benefits, since the economy does not benefit in the long term
from tax cuts.
You see in the bottom part of the panel, ``real economic
growth in the 1980s,'' measured from the peak of 1981 to the
peak of 1990. In the 1980s, economic growth was 3.2 percent
real growth per year on average. In the 1990s, when tax rates
at the top were raised, and raised fairly substantially, real
economic growth was 3.2 percent per year on average. The 1990s
performed as well as the 1980s, even though they had very
different tax rates at the top. The economic argument for
lowering tax rates at the top, I think, simply doesn't exist on
the basis of this evidence.
So what are we left with, if the argument for tax cuts--the
economic arguments, and the ``restraining spending'' arguments
for tax cuts--have proved invalid on the basis of the
evidence--we are left with the normal give-and-take of politics
in which the level of spending and the level of taxes, the
purposes of spending, and the nature of taxes, are public
policy preferences. In this regard, then, any budget process
should be neutral, I think, between taxes and spending. It
should not be a budget process designed to control spending. It
should be a budget process designed to control spending and
control tax cuts. That's the essence of the points that I
wanted to make by reviewing the evidence of the last 20 or 30
years.
With respect to the final point that I made, that the
Congress doesn't know how to deal with surpluses, I want to
offer a suggestion that Robert Reichsauer offered over a year
ago, in which he said that basically you should discount
projected surpluses. He offered this, perhaps, as an informal
or formal rule that Congress could adopt: that if surpluses are
projected into the future, make a point of not committing all
of them. In fact, commit only a declining share of them in any
given budget cycle or any given Congress. He suggested, purely
for illustration, that you commit only 80 percent of the
surpluses that you foresee in the first 2 years and only 60
percent of the surpluses that you foresee in the next 2 years,
and so on.
The theory behind this suggestion is that if the surpluses
really do materialize, if the projections prove accurate, if
the good news really is good news, then you can pass successive
tax cuts year after year, Congress after Congress. It won't get
you in trouble back home if you pass tax cuts every other
year--or spending increases. But if the surpluses prove to be a
mirage, you will not have overcommitted them prematurely.
That concludes my testimony. Thank you very much for your
patience and for your willingness to let me go, even when the
light said ``red/stop'' over there.
[The prepared statement of Richard Kogan follows:]
Prepared Statement of Richard Kogan, Senior Fellow, Center on Budget
and Policy Priorities
Mr. Chairman, Mr. Spratt, members of the committee, I am always
happy to come home to the House Budget Committee. My prepared testimony
is brief. With your permission, I would like that testimony and
accompanying charts, graphs, and other material to be placed in the
record.
I will make four points this morning. First, the Budget Enforcement
Act of 1990, which established appropriations caps and pay-as-you-go
rule, is a far better budget process than some type of fixed dollar
target for the deficit or surplus, such as under Gramm-Rudman-Hollings
in 1986-1990 or under any version of the proposed ``lockboxes.''
Second, no process--not even caps and PAYGO--can force bipartisan
agreement when the principal budget players do not want to agree. Given
how evenly balanced the government is between the two parties, a budget
summit negotiation is probably the best budget process.
Third, the facts make it clear that excessively large tax cuts lead
to serious budget problems but do little or nothing to help the long-
term growth of the economy. This was true with the Reagan tax cut of
1981 and is true of the Bush tax cut of 2001. One useful budget process
reform would be to require that the reconciliation process be used only
if some large portion of a reconciliation bill (such as three-fourths)
consist of spending reductions and tax increases. No more than one-
fourth of the budgetary effects could be tax cuts or entitlement
increases, so the bill in net could only be used to protect the public,
not dissipate it.
Finally, the Congress has yet to sort out how to deal with
surpluses, especially since budget projections are just educated
guesses. The simplest approach may be to develop a new consensus: agree
to treat some share of projected surpluses as non-existent. At a
minimum, we should be sure surpluses are real before we dispose of
them. Better, we should try to preserve a noticeable share of any
future surpluses to pay down the debt; that is the most direct and
effective way to prepare for the inevitable cost of the baby boomers'
retirement.
I will illustrate each of these points by referring to graphs or
charts that I have prepared.
GRH VS. BEA
GRH set fixed deficit targets declining to zero. Through excessive
gimmickry and the because the economy is far stronger than the budget,
the targets were missed by amounts that became embarrassingly huge [See
slide 1].
The BEA, in contrast, was used to enforce a budget agreement made
between a Republican president and a Democratic Congress, an agreement
that all the leadership (except for the new wave of House Republicans)
was committed to enforcing. The BEA gave the president and the
leadership special tools to prevent backsliding. The BEA was extended
twice and was closely adhered to until 1998, when surpluses first
appeared and threw everybody for a loop. Slide 2 shows that budget
outcomes were far better under the BEA than under GRH.
I would also call to your attention to CBO's 1993 annual report.
CBO devoted an entire chapter to a discussion of the budget process,
focusing on the lessons learned over the prior 7 years. It concluded,
as I have, that fixed dollar targets such as in GRH are a mistake. I
have included that chapter as an attachment to my testimony. I can do
nothing better than to quote CBO's conclusion:
The past indicates that efforts to reduce the deficit are most
likely to be successful if the President and the Congress first agree
on policy actions and then set up processes to enforce them: deficit
reduction does not work well if the process changes precede the policy
actions. * * * Procedures are important, but they should not be asked
to do what they cannot.
If you are dissatisfied with the current state of the budget, if
you are disconcerted by the fact that the President's budget calls for
deficits outside of Social Security in every one of the next 10 year,
then CBO's conclusions suggest that a budget summit is the best budget
process, with new caps and a new PAYGO rule, or some equivalent rules
of accountability, to enforce the summit agreement after it is reached.
TAX CUTS ARE THE PRIMARY CULPRIT
I turn now to last year's tax cut. On its surface, this would seem
to be an issue of policy, not process. But issues relating to the tax
cut have a bearing on process precisely because many people, possibly
including some on this committee, mistakenly believe that controlling
spending through a more rigid budget process is the boulevard to fiscal
responsibility. That belief misses the key point: excessive tax cuts
got the Nation's finances in trouble in 1981 and may also have done so
in 2001. History suggests that budget process is more likely to produce
sustained debt reduction if it is geared to stopping tax cuts than if
it ignore tax cuts. That is why I would like to turn your attention to
the historical record.
Slide 3 makes clear that last year's tax cut is far more
significant than the spending increases enacted last year in causing
projected surpluses to melt away. Focusing just on legislation, we see
that more than three-fourths of the shrinkage in the 10-year surplus
was caused by the tax cut.
There were at least four appealing arguments made for last year's
tax cut:
1. Surpluses were so large that we could pay off the entire debt in
a decade even with the tax cut.
2. If we didn't get rid of the surplus through a tax cut, ``they''
would just spend it. (Who are ``they'')?
3. The tax cut would promote long-term economic growth by
encouraging ``supply-side'' decisions, such as to work more hours and
to save more of one's paycheck.
4. Americans were over-taxed.
Each of these arguments was and is false. First, it is evident from
this year's budget that promises of debt reduction were a mirage.
Second, the notion that tax increases lead to spending increases is
contradicted by a mass of evidence. Slide 4 shows the path of spending
and revenues since 1976, when the Congressional Budget Act first went
into effect and the first congressional budget was agreed to. In only
three of the years since then have there been both tax increases and
spending increases in the same year. Far more often than not, spending
goes up when revenues go down, and vice versa.
To a small extent, the data reflect not congressional policy but
the economy. When the economy is in a recession, for instance, GDP is
abnormally small but revenues fall even faster. Meanwhile, spending
rises slightly if only because of unemployment benefits; primarily,
though, spending grows as a percent of GDP because GDP shrinks, not
because spending grows. To correct for the effects of the economy,
slide 5 shows the data after CBO has adjusted it to remove the effects
of the business cycle. Slide 5 shows what spending and revenues as a
percent of GDP would have been if the economy had always been running
at full employment, no busts and no booms. As you can see, the story is
the same, though not quite as extreme; when revenues go up, spending
goes down, not up. The two notable exceptions are right after the huge
1981 tax cut, which was accompanied by major increases in defense
funding, and right after the huge 2001 tax cut, also accompanied by
major increases in defense funding.
Slide 6 shows this inverse relationship between revenues and
spending even more clearly. From 1983 through 2003, there was a very
strong negative correlation between revenues and expenditures (it is a
``negative'' correlation because spending goes down when revenues
rise). Statisticians would tell you that the correlation is extremely
statistically significant. In short, Congress has spent most of the
last 20 years demonstrating that conventional wisdom is wrong: in at
least two cases, tax cutters were also big spenders, and in more normal
times, when those who care more about the Nation's fiscal health are in
control, revenues grow and spending shrinks. I would also remind you
that slide 2 showed that, during the period from 1990 to 1998, when the
BEA was ascendant, spending cuts were greater than tax increases.
The third argument for the tax cut was that low marginal tax rates
promote long-term growth, especially by providing incentives to save
more and work more. There are two problems with this argument:
Big tax cuts lead to larger deficits or smaller surpluses,
of course, and that reduces the stock of capital available for
investment, thereby harming long-term growth. William Gale and Samara
Potter of the Brookings Institution recently concluded that, precisely
because of its budgetary effect, last year's tax cut is more likely to
harm long-term growth than help it.
While some people may choose to work more hours or save
more of their salary in response to lower marginal rates, others choose
just the opposite. Because their take-home pay goes up, they can afford
to work fewer hours; because their savings accounts grow faster, they
can afford to save a smaller share of their paychecks and still meet
their savings targets. This is why supply-side effects are so weak.
Slide 7 illustrates this point by comparing rates of real economic
growth during each period since 1960. It can be seen that average
growth rate in the 1980s, when the top marginal tax rate was twice
reduced very substantially, are the same as growth rate in the 1990s,
when the top marginal tax rate was substantially increased. What is
more, the 1990s achieved the same growth rates as the 1980s even though
the size of the working-age population was growing more slowly during
the 1990s. The conclusion must be that productivity was growing faster
in the 1990s than in the 1980s, labor force participation rates were
rising faster, or the number of hours worked was rising faster. These
facts must be disconcerting to supply-siders since lower marginal
rates, not higher rates, are supposed to produce these effects.
The question of whether the Nation is over-taxed is a judgment
call, not subject to scientific measurement. But I call your attention
to slide 8, which shows some facts that may inform one's judgment about
the levels of taxation of middle-income families and of the very well
off.
THE CONUNDRUM OF SURPLUSES
Congress has demonstrated it does not know how to deal with
surpluses. Lockbox legislation tried to define the surpluses out of
existence. The cause was good since current surpluses can help us pay
for the inevitable costs of the baby boomers when they retire,
pretending that part of the surplus ``doesn't count'' (and relying on
the natural public instinct to object to deficits in normal times)
would lead to the salutary effect of paying off the debt and, if we are
lucky, building up some reserves. But lockbox proposals are just GRH-
light with a different target, and so cannot form the basis for a
meaningful budget process.
Better than defining away the surpluses might be to adopt a rule
first proposed by Robert Reischauer more than 1 year ago. He suggested
that budget plans account for the reality that projections are
uncertain and for the fact that the degree of uncertainty grows as one
looks farther ahead by putting an increasing faction of any projected
surplus off the table. He posited a rule under which 20 percent of the
surplus for the next 2 years would be off limits, 40 percent of the
surplus in the following 2 years, and so on. This would have provided a
widening margin against over-optimistic projections or unforseen
events. If Congress had adopted that approach last year, the tax cut
would have been smaller, especially in the outyears, and the Treasury
and the budget would today be better off. If surpluses keep growing in
reality, as they grew in last year's projections, successive Congresses
could adhere to the rule and still pass successive tax cuts.
CONCLUSION
My general conclusion is to recognize, in designing any budget
process, that large tax cuts are problems, not solutions, and therefore
to design budget processes accordingly.
Specifically, I recommend a budget summit, backed up by caps and a
PAYGO rule--or the equivalent as enforcement tool--if a bipartisan
agreement is reached.
Second, I recommend returning reconciliation to its original
intention, as a procedure to reduce deficits or increase surpluses.
Third, I recommend a formal or informal but public agreement to the
Reischauer plan, under which projected surpluses would be taken with
ever-growing grains of salt, and not dissipated before they
materialized.
Chairman Nussle. Thank you. And we have obviously made some
changes since you testified before----
Mr. Kogan. I find them remarkable. I tried to take
advantage of them.
Chairman Nussle. Susan Irving, welcome back to the
committee, and we are pleased to receive your testimony.
STATEMENT OF SUSAN J. IRVING
Ms. Irving. Thank you, Mr. Chairman, Mr. Spratt, Mr.
Putnam. It is a pleasure to be back.
About a year ago some of us sat here to talk about how to
think about controls in a time of surplus, or rather in a time
when the surplus projection continued out about 10 years. Even
last year, when you moved out past that time horizon, both the
good and the bad news for the children visiting here today is
that my generation is getting older and will live forever.
I think it is important to recognize that we are looking
ahead at how to think about a budget process that offers us a
guidepath for the near term, where we really don't know how
long we're going to be in deficit or what challenges we're
going to face, for the medium term, where we expect to return
to surpluses, and for the longer term where with a certainty
much greater than any budget forecast--absent something that my
generation would view as a cataclysm--you are facing a
demographic tidal wave which will overwhelm the budget and make
the debates we have today about budgetary flexibility look like
a picnic.
I will try to not merely repeat everything that the people
before me have said. I think it is useful to stand back--and I
here will repeat what some others have said--that a process
will never force agreement where there is fundamental
disagreement. You don't have to agree on every item. I think a
process can provide you a focal point for debating priorities,
for attempting to reach some compromise over the many
conflicting demands that the American people express about what
they want their Federal Government to do.
I worked for a member of the other body at one point who
used to say, ``All of American political history could be
summed up in two sentences: Get the government off my back, and
there ought to be a law.'' One of the challenges you face is
that the ``ought to be a law'' part usually comes with dollar
signs attached.
We ask a great deal of our budget. We ask it to make a
statement of aggregate fiscal policy--the burden that we will
place on the economy by taking wealth out of the economy for
our collective use. We ask it to give us a way to allocate
resources across competing claims. At the agency level, we use
it to drive program management; and recently, in the world of
the Government Performance and Results Act, we like to see
whether we can tighten and make more explicit the links between
performance and how we allocate resources, which requires us to
find a way to measure that link.
I think it will be hard to find anyone who would disagree
with Barry's four fundamental characteristics. Let me add just
a few additional principles that we have articulated in the
past.
You would like to find a way, while recognizing that long-
term projections are really uncertain, to keep in mind the long
term while you deal with the near term. You would like to find
a process that facilitates making trade-offs between missions.
It would be helpful to be able to look across both spending and
tax incentives, and to make trade-offs across tools so that
when you select a goal, you can select whether a loan program,
a grant program, a direct spending program, or a tax incentive
is the best way to address it. At the same time, just for full
measure, you would like for the process to be enforceable,
offer controls, hold people accountable, and be transparent.
I believe, as my colleagues have mentioned, that the
history of the Budget Enforcement Act shows us that controlling
actions works a lot better than controlling final outcomes.
Caps, in fact, do constrain appropriations when they are viewed
as reasonable, when there is general acceptance that the caps
represent a reasonable path toward a goal. By ``reasonable,'' I
don't mean happy; in order for caps to feel binding at all,
they are probably a little tighter than you would like, but
they can't look to be ludicrous, and they cannot appear to have
been set at a time of completely different circumstances.
I think in the last few years, two things happened.
Frankly, the caps for the last few years were a little bit
over-tight when they were set because they assumed that we
would hold discretionary spending to a slower rate of growth
than had been true for the earlier part of the decade.
When on top of that, surpluses arrived earlier than you
expected, the caps became totally unrealistic to people, and
what you saw was increasing amounts labeled ``emergency,'' a
broadening definition of emergency, and then finally, a
situation where, when you are on your way out the door, you
raise the caps to what you have already decided.
PAYGO similarly, I think, worked to limit expansion. It is
important to remember that the PAYGO structure did not seek to
re-examine existing programs. It grandfathered their structure.
It sought to prevent Congress from adding new programs, or from
cutting taxes without offsetting the revenue loss. It has
worked admirably well as a restraint on adding programs, and
until the very recent past, when again surpluses made this
argument less credible to more people, it also forced most tax
cuts to be offset.
PAYGO, I would argue, going forward--whether in surplus or
not--as its fundamental design, needs to be re-examined because
I think it is not tenable, looking at the future, to leave the
base home free, because the drivers of the future have been
exempt: the current structure of those programs. And if you
leave them ``home free,'' you force the competition to be
between new proposals. Similarly, on the discretionary side,
you need to think about ways to enforce competition to be not
merely between new proposals, but across both new proposals and
existing programs. Just because something has been in existence
since before I was born, that doesn't mean it should have
priority over a new, better idea.
Looking ahead, what do I think? I think you probably want
caps. Caps have a lot of advantages. It's easy to measure
compliance. They meet the call of transparency. Depending on
the way you design them, they permit trade-offs across
boundaries. The more separate subcategories you create, the
narrower the range of trade-offs. That's a policy decision.
When you go to setting the caps, given the uncertainty of
today's world, I would suggest setting them for a relatively
short time. You don't want another 10-year caps deal because
you don't know what the world will look like--any more than you
did 10 years ago. It is important to think about how you will
deal with the safety valve issues. How much of ``emergency''
should be totally exempt? And I would like to note here, I am
talking about what I would call run-of-the-mill normal
emergencies; floods, pestilence, earthquakes--not cataclysmic
events like September 11.
How do you design the caps to work on the incentives for
sort of working around them? The increase in user fees in the
recent past seems to me, quite likely to be in part, due to the
structure of the caps.
How can you define a PAYGO goal that replaces budget
neutrality? This will be especially important when you return
to surplus, where saving the entire surplus is not going to be
accepted by most people. But how do you set aside some portion
of the surplus and design a path that gets you there?
Will you--and if so, how--permit trade-offs across those
walls, between discretionary and PAYGO walls? And how will you
keep that from being the same as having no controls?
I think with that, I will stop and say it's a pleasure to
work with you. Thank you for letting me run into the red, as
well. We look forward to dealing with you and your staff in the
future.
[The prepared statement of Susan J. Irving follows:]
Prepared Statement of Susan J. Irving, Director, Federal Budget
Analysis, General Accounting Office
Mr. Chairman, Mr. Spratt, members of the committee, it is a
pleasure to join you today as you think about how to extend and adapt
the Budget Enforcement Act (BEA) regime. The discretionary spending
limits and pay-as-you-go (PAYGO) mechanism established by BEA will
expire this year [Footnote 1].
Last summer when I appeared before this committee, we were
discussing what kind of process and controls made sense in a time of
surplus. Today--for a variety of reasons--we face a different outlook.
The events of September 11 imposed a new set of demands on the Federal
budget. At the same time, the pent-up demands kept in abeyance during
years of fighting deficits remain. The question before you is: what
kind of process and controls will permit Congress and the President to
respond to the needs of today while keeping in mind the need to deal
with the budgetary challenges looming over the horizon.
Later in this statement I will talk about some particular elements
and ideas that have been proposed for adapting and extending budget
enforcement mechanisms. Before doing that, however, I would like to
step back and talk a bit about what a budget process can and cannot do.
A budget process can surface important issues; it can seek to focus
the debate on the important choices. But it is not a substitute for
substantive debate--no process can force agreement where one does not
exist.
We ask a great deal of our budget process. We use it to determine
aggregate fiscal policy and to allocate resources across different
claims. We use it to drive program management. In the context of the
Government Performance and Results Act, we turn to the budget to tell
us something about the cost of obtaining a given level of results.
BEA, when first developed and later when it was extended, was a
process established to enforce a previously reached substantive
agreement. Last year, given 10-year projections showing fairly sizable
surpluses, there was a good deal of discussion about how much of the
surplus should be spent--or used for a tax cut--and how much of it
should be used for debt reduction. At that time, Congress and the
president seemed to have reached a tacit agreement that the Social
Security surplus should be used for debt reduction. While this did not
eliminate disagreements about tax or spending policy, it did provide a
fiscal target to replace ``zero deficit'' or ``balanced budget.'' It
set the outside parameters for the budget debate.
As I have testified before, the budget represents the decisions
made about a large number of often conflicting objectives that citizens
want the government to address. We should not be surprised that it
generates controversy. As BEA expires, you face a wealth of options and
choices. I appreciate the invitation to talk about some of these today.
Some of these points are discussed more fully in the BEA compliance
report [Footnote 2] that we did last year at your request, Mr.
Chairman.
PRINCIPLES FOR A BUDGET PROCESS
In the past, we have suggested four broad principles or criteria
for a budget process [Footnote 3]. A process should:
Provide information about the long-term impact of
decisions, both macro--linking fiscal policy to the long-term economic
outlook--and micro--providing recognition of the long-term spending
implications of government commitments;
provide information and be structured to focus on
important macro trade-offs--e.g., between investment and consumption;
provide information necessary to make informed trade-offs
between missions (or national needs) and between the different policy
tools of government (such as tax provisions, grants, and credit
programs); and
be enforceable, provide for control and accountability,
and be transparent, using clear, consistent definitions.
The lack of adherence to the original BEA spending constraints in
recent years and the expiration of BEA suggest that now may be an
opportune time to think about the direction and purpose of our Nation's
fiscal policy. The surpluses that many worked hard to achieve--with
help from the economy--not only strengthened the economy for the longer
term but also put us in a stronger position to respond to the events of
September 11 and to the economic slowdown than would otherwise have
been the case. Going forward, the Nation's commitment to surpluses will
be tested: a return to surplus will require sustained discipline and
difficult choices. It will be important for Congress and the president
to take a hard look at competing claims on the Federal fisc [Footnote
4]. A fundamental review of existing programs and operations can create
much needed fiscal flexibility to address emerging needs by weeding out
programs that have proven to be outdated, poorly targeted, or
inefficient in their design and management. Last October, you and your
Senate counterparts called for a return to budget surplus as a fiscal
goal [Footnote 5]. This remains an important fiscal goal, but achieving
it will not be easy. Much as the near-term projections have changed in
a year, it is important to remember that even last year the long-term
picture did not look rosy. These long-term fiscal challenges argued for
continuation of some fiscal restraint even in the face of a decade of
projected surpluses. The events of September 11 reminded us of the
benefits fiscal flexibility provides to our Nation's capacity to
respond to urgent and newly emergent needs. However, as the comptroller
general has pointed out, absent substantive changes in entitlement
programs for the elderly, in the long term there will be virtually no
room for any other Federal spending priorities--persistent deficits and
escalating debt will overwhelm the budget [Footnote 6]. While the near-
term outlook has changed, the long-term pressures have not. These long-
term budget challenges driven by demographic trends also serve to
emphasize the importance of the first principle cited above--the need
to bring a long-term perspective to bear on budget debates.
There is a broad consensus among observers and analysts who focus
on the budget both that BEA has constrained spending and that
continuation of some restraint is necessary both in times when near-
term deficits are accepted and when we achieve surpluses. These views
have been articulated by commentators ranging from Federal Reserve
Chairman Alan Greenspan, to former CBO Director Robert Reischauer, the
Concord Coalition, and President Bush. Discussions on the future of the
budget process have primarily focused on revamping the current budget
process rather than establishing a new one from scratch.
Where the discussion focuses on specific control devices, the two
most frequently discussed are: (1) extending the discretionary spending
caps and (2) extending the PAYGO mechanism.
RECENT HISTORY OF BUDGET ENFORCEMENT RULES
The Budget Enforcement Act of 1990 (Title XIII of P.L. 101-508) was
designed to constrain future budgetary actions by Congress and the
president. It took a different tack on fiscal restraint than earlier
efforts, which had focused on annual deficit targets in order to
balance the budget [Footnote 7]. Rather than force agreement where
there was none, BEA was designed to enforce a previously reached
agreement on the amount of discretionary spending and the budget
neutrality of revenue and mandatory spending legislation. The law was
extended twice.
While there is widespread agreement among observers and analysts of
the budget that BEA served for much of the decade as an effective
restraint on spending, there is also widespread agreement that BEA
control mechanisms were stretched so far in the last few years that
they no longer served as an effective restraint. In part, recurring
budget surpluses undermined the acceptance of the spending caps and
PAYGO enforcement.
Figure 1 illustrates the growing lack of adherence to the original
discretionary spending caps since the advent of surpluses in 1998. The
figure shows the original budget authority caps as established in 1990
and as extended in 1993 and 1997, adjustments made to the caps, and the
level of actually enacted appropriations for fiscal years 1991 through
2002. As we reported in our last three compliance reports, the amounts
designated as emergency spending for fiscal years 1999 and 2000--$34.4
billion and $30.8 billion respectively--were significantly higher than
in most past years [Footnote 8]. In addition to the larger than normal
amounts, emergency appropriations in both 1999 and 2000 were used for a
broader range of purposes than in most prior years [Footnote 9].
Emergency spending designations have not been the only route to
spending above the discretionary spending caps. For fiscal year 2001,
Congress took a different approach--one that also highlights the
declining effectiveness of the BEA discretionary spending limits. The
Foreign Operations Appropriations Act (P.L. 106-429) raised the 2001
budget authority cap by $95.9 billion, a level assumed to be sufficient
to cover all enacted and anticipated appropriations. Also, in January
2001, CBO reported that advance appropriations, obligation and payment
delays, and specific legislative direction for scorekeeping had been
used to boost discretionary spending while allowing technical
compliance with the limits [Footnote 10]. In 2002, Congress once again
raised spending limits to cover enacted appropriations. The Department
of Defense and Emergency Supplemental Appropriations Act for 2002
[Footnote 11] adjusted the budget authority caps upward by $134.5
billion.
Nor has PAYGO enforcement been exempt from implementation
challenges. The consolidated appropriations acts for both fiscal years
2000 and 2001 mandated that OMB change the PAYGO scorecard balance to
zero. In fiscal year 2002, a similar instruction in the Department of
Defense and Emergency Supplemental Appropriations Act eliminated $130.3
billion in costs from the PAYGO scorecard. Both OMB and CBO estimated
that without the instructions to change the scorecard, sequestrations
would have been required in both 2001 and 2002.
EXTENDING CAPS ON DISCRETIONARY SPENDING
BEA distinguished between spending controlled by the appropriations
process--"discretionary spending"--and that which flowed directly from
authorizing legislation--"direct spending,'' sometimes called
``mandatory.'' Caps were placed on discretionary spending--and
Congress' compliance with the caps was relatively easy to measure
because discretionary spending totals flow directly from legislative
actions (i.e., appropriations laws).
As I noted above, there has been broad consensus that, although the
caps have been adjusted, they did serve to constrain appropriations.
This consensus, combined with the belief that continuing some
restraints is important, has led many to propose that some form of cap
structure be continued as a way of limiting discretionary
appropriations. However, the actions discussed above have also led many
to note that caps can only work if they are realistic; while caps can
work if they are tighter than some may like, they are unlikely to hold
if they are seen as totally unreasonable or unrealistic. If they are
set at levels viewed as reasonable (even if not desirable) by those who
must comply with them, spending limits can be used to force choices. In
the near term, limits on discretionary spending may be an important
tool to prompt re-examination of existing programs as well as new
proposals.
Some have proposed changes in the structure of the caps by limiting
them to caps on budget authority. Outlays are controlled by and flow
from budget authority--although at different rates depending on the
nature of the program. Some argue that the existence of both budget
authority and outlay caps has encouraged provisions such as ``delayed
obligations'' to be adopted not for programmatic reasons but as a way
of juggling the two caps. The existence of two caps may also encourage
moving budget authority from rapid spend out to slower spend out
programs, thus pushing more outlays to the future and creating problems
in complying with outlay caps in later years. Extending only the budget
authority cap would eliminate the incentive for such actions and focus
decisions on that which Congress is intended to control--budget
authority, which itself controls outlays. This would be consistent with
the original design of BEA. The obvious advantage to focusing decisions
on budget authority rather than outlays is that Congress would not
spend its time trying to control the timing of outlays.
However, eliminating the outlay cap would raise several issues--
chief among them being how to address the control of transportation
programs for which no budget authority cap currently exists, and the
use of advance appropriations to skirt budget authority caps. However,
agreements about these issues could be reached--this is not a case
where implementation difficulties need derail an idea. For example, the
fiscal year 2002 budget proposed a revision to the scorekeeping rule on
advance appropriations so that generally they would be scored in the
year of enactment. Such a scoring rule change could eliminate the
practice of using advance appropriations to skirt the caps. The 2002
Congressional Budget Resolution took another tack; it capped advance
appropriations at the amount advanced in the previous year. This year
the administration proposed that total advance appropriations continue
to be capped in 2003 and the President's budget assumed that all
advance appropriations would be frozen except for those that it said
should be reduced or eliminated for programmatic reasons.
There are other issues in the design of any new caps. For example,
for how long should caps be established? What categories should be
established within or in lieu of an overall cap? While the original BEA
envisioned three categories (Defense, International Affairs, and
Domestic), over time categories were combined and new categories were
created. At one time or another caps for Nondefense, Violent Crime
Reduction, Highways, Mass Transit and Conservation spending existed--
many with different expiration dates. Should these caps be ceilings, or
should they--as is the case for highways and conservation--provide for
``guaranteed'' levels of funding? The selection of categories--and the
design of the applicable caps--is not trivial. Categories define the
range of what is permissible. By design they limit tradeoffs and so
constrain both Congress and the president.
Because caps are defined in specific dollar amounts, it is
important to address the question of when and for what reasons the caps
should be adjusted. This is critical for making the caps realistic. For
example, without some provision for emergencies, no caps can be
successful. In the recent past it appears that there has been some
connection between how realistic the caps are and how flexible the
definition of emergency is. As discussed in both our 2000 and 2001
compliance reports, the amount and range of spending considered as
``emergency'' has grown in recent years [Footnote 12]. There have been
a number of approaches suggested to balance the need to respond to
emergencies and the desire to avoid making the ``emergency'' label an
easy way to raise caps. The House Budget Resolution for fiscal year
2002 (H. Con. Res. 83) established a reserve fund of $5.6 billion for
emergencies in place of the current practice of automatically
increasing the appropriate levels in the budget resolution for
designated emergencies. It also established two criteria for defining
an emergency. These criteria require an emergency to be a situation
(other than a threat to national security) that (1) requires new budget
authority to prevent the imminent loss of life or property or in
response to the loss of life or property and (2) is unanticipated,
meaning that the situation is sudden, urgent, unforeseen, and
temporary.
In the past others have proposed providing for more emergency
spending under any spending caps--either in the form of a reserve or in
a greater appropriation for the Federal Emergency Management Agency
(FEMA). If such an approach were to be taken, the amounts for either
the reserve or the FEMA disaster relief account would need to be
included when determining the level of the caps. Some have proposed
using a 5- or 10-year rolling average of disaster/emergency spending as
the appropriate reserve amount. Adjustments to the caps would be
limited to spending over and above that reserve or appropriated level
for extraordinary circumstances. Since the events of September 11--and
the necessary responses to it--would undoubtedly qualify as such an
``extraordinary circumstance,'' consideration of new approaches for
``emergency'' spending should probably focus on what might be
considered ``more usual'' emergencies. It has been suggested that with
additional up-front appropriations or a reserve, emergency spending
adjustments could be disallowed. No matter what the provision, only the
commitment of Congress and the president can make any limit on cap
adjustments for emergencies work. States have used this reserve concept
for emergencies, and their experiences indicate that criteria for using
emergency reserve funds may be useful in controlling emergency spending
[Footnote 13]. Agreements over the use of the reserve would also need
to be achieved at the Federal level.
This discussion of issues in extending the BEA caps is not
exhaustive. Previously, we have reported on two other issues in
particular--the scoring of operating leases and the expansion of user
fees as offsets to discretionary spending. I would like to touch
briefly on these.
miscellaneous discretionary challenges: leases and user fees
We have previously reported that existing scoring rules favor
leasing when compared to the cost of various other methods of acquiring
assets [Footnote 14]. Currently, for asset purchases, budget authority
for the entire acquisition cost must be recorded in the budget up
front, in the year that the asset acquisition is approved. In contrast,
the scorekeeping rules for operating leases often require that only the
current year's lease costs be recognized and recorded in the budget.
This makes the operating lease appear less costly from an annual
budgetary perspective, and uses up less budget authority under the cap.
Alternative scorekeeping rules could recognize that many operating
leases are used for long-term needs and should be treated on the same
basis as purchases. This would entail scoring up front the present
value of lease payments for long-term needs covering the same time
period used to analyze ownership options. The caps could be adjusted
appropriately to accommodate this change. Most recently this issue has
arisen in authority provided to the Air Force to lease 100 Boeing
aircraft to be used as tankers for up to 10 years when the underlying
need for such aircraft is much longer--in fact, the need would likely
encompass the aircraft's entire useful life. Changing the scoring rule
for leases would be in part an attempt to have the rules recognize the
long term need rather than the technical structuring of the lease.
Many believe that one unfortunate side effect of the structure of
BEA has been an incentive to create revenues that can be categorized as
``user fees'' and so offset discretionary spending--rather than be
counted on the PAYGO scorecard. The 1967 President's Commission on
Budget Concepts recommended that receipts from activities which were
essentially governmental in nature, including regulation and general
taxation, be reported as receipts, and that receipts from business-type
activities ``offset to the expenditures to which they relate.''
However, these distinctions have been blurred in practice. Ambiguous
classifications combined with budget rules that make certain designs
most advantageous has led to a situation in which there is pressure to
treat fees from the public as offsets to appropriations under BEA caps,
regardless of whether the underlying Federal activity is business or
governmental in nature. Consideration should be given to whether it is
possible to come up with and apply consistent standards--especially if
the discretionary caps are to be redesigned. The administration has
stated that it plans to monitor and review the classification of user
fees and other types of collections.
EXTENDING AND REFINING PAYGO
The PAYGO requirement prevented legislation that lowered revenue,
created new mandatory programs, or otherwise increased direct spending
from increasing the deficit unless offset by other legislative actions.
As long as the unified budget was in deficit, the provisions of PAYGO--
and its application--were clear. During our few years of surpluses,
questions were raised about whether the prohibition on increasing the
deficit also applied to reducing the surplus. Although Congress and the
executive branch both concluded that PAYGO did apply in such a
situation--and although the question is moot currently, it would be
worth clarifying the point if PAYGO is extended. Last year the
administration proposed--albeit implicitly--special treatment for a tax
cut. The 2002 budget stated that the President's tax plan and Medicare
reforms were fully financed by the surplus and that any other spending
or tax legislation would need to be offset by reductions in spending or
increases in receipts. Ultimately, the Department of Defense and
Emergency Supplemental Appropriations Act for 2002 eliminated the need
to offset any of the PAYGO legislation by resetting the 2001 and 2002
scorecard to zero. While this action was undertaken for a number of
reasons, when surpluses return and Congress looks to create a PAYGO
process for a time of surplus, it might wish to consider the kinds of
debt targets we found in other nations [Footnote 15]. For example, it
might wish to permit increased direct spending or lower revenues as
long as debt held by the public is planned to be reduced by some set
percentage or dollar amount. Such a provision might prevent PAYGO from
becoming as unrealistic as overly tight caps on discretionary spending.
However, the design of such a provision would be important--how would a
debt reduction requirement be specified? How would it be measured? What
should be the relationship between the amount of debt reduction
required and the amount of surplus reduction (i.e., tax cut or direct
spending increase) permitted? What, if any, relationship should there
be between this calculation and the discretionary caps?
While PAYGO constrained the creation or legislative expansion of
direct spending programs and tax cuts, it accepted the existing
provisions of law as given. It was not designed to trigger--and it did
not trigger--any examination of ``the base.'' Cost increases in
existing mandatory programs are exempt from control under PAYGO and
could be ignored. However, constraining legislative actions that
increase the cost of entitlements and mandatories is not enough. GAO's
long-term budget simulations show that as more and more of the baby
boom generation enters retirement, spending for Social Security,
Medicare, and Medicaid will demand correspondingly larger shares of
Federal revenues. Assuming, for example, that last year's tax
reductions are made permanent and discretionary spending keeps pace
with the economy, spending for net interest, Social Security, Medicare,
and Medicaid consumes nearly three-quarters of Federal revenues by
2030, leaving little room for other Federal priorities, including
defense and education.
The budget process is the one place where we as a Nation can
conduct a healthy debate about competing claims and new priorities.
However, such a debate will be needlessly constrained if only new
proposals and activities are on the table. A fundamental review of
existing programs and operations can create much-needed fiscal
flexibility to address emerging needs by weeding out programs that have
proven to be outdated, poorly targeted, or inefficient in their design
and management. It is always easier to subject proposals for new
activities or programs to greater scrutiny than that given to existing
ones. It is easy to treat existing activities as ``given'' and force
new proposals to compete only with each other. However, such an
approach would move us further from, rather than nearer to, budgetary
surpluses [Footnote 16].
Previously we suggested some sort of ``lookback'' procedure to
prompt a re-examination of ``the base'' in entitlement programs. Under
such a process Congress could specify spending targets for PAYGO
programs for several years. The President could be required to report
in his budget whether these targets either had been exceeded in the
prior year or were likely to be exceeded in the current or budget
years. He could then be required to recommend whether any or all of
this overage should be recouped--and if so, to propose a way to do so.
Congress could be required to act on the president's proposal.
While the current budget process contains a similar point of order
against worsening the financial condition of the Social Security trust
funds, [Footnote 17] it would be possible to link ``tripwires'' or
``triggers'' to measures related to overall budgetary flexibility or to
specific program measures. For example, if Congress were concerned
about declining budgetary flexibility, it could design a ``tripwire''
tied to the share of the budget devoted to mandatory spending or to the
share devoted to a major program.
Other variations of this type of ``tripwire'' approach have been
suggested. The 1999 Breaux-Frist proposal (S. 1895) for structural and
substantive changes to Medicare financing contained a new concept for
measuring ``programmatic insolvency'' and required congressional
approval of additional financing if that point was reached. Other
specified actions could be coupled with reaching a ``tripwire,'' such
as requiring Congress or the president to propose alternatives to
address reforms. Or the congressional budget process could be used to
require Congress to deal with unanticipated cost growth beyond a
specified ``tripwire'' by establishing a point of order against a
budget resolution with a spending path exceeding the specified amount.
One example of a threshold might be the percentage of gross domestic
product devoted to Medicare. The president would be brought into the
process as it progressed because changes to deal with the cost growth
would require enactment of a law.
IMPROVING THE RECOGNITION OF LONG-TERM COMMITMENTS
In previous reports we have argued that the Nation's economic
future depends in large part upon today's budget and investment
decisions [Footnote 18]. In fact, in recent years there has been
increased recognition of the long-term costs of Social Security and
Medicare [Footnote 19].
While these are the largest and most important long-term
commitments--and the ones that drive the long-term outlook--they are
not the only ones in the budget. Even those programs too small to drive
the long-term outlook affect future budgetary flexibility. For
Congress, the president, and the public to make informed decisions
about these other programs, it is important to understand their long-
term cost implications. A longer time horizon is useful not only at the
macro level but also at the micro-policy level. I am not suggesting
that detailed budget estimates could be made for all programs with
long-term cost implications. However, better information on the long-
term costs of commitments like employee pension and health benefits and
environmental cleanup could be made available. New concepts and metrics
may be useful. We developed them before for credit programs and we need
to be open to expanding them to cover some other exposures. I should
note that the president's fiscal year 2003 budget has taken a step in
this direction by proposing that funding be included in agency budgets
for the accruing costs of pensions and retiree health care benefits.
The enactment of the Federal Credit Reform Act in 1990 represented
a step toward improving both the recognition of long-term costs and the
ability to compare different policy tools. With this law, Congress and
the executive branch changed budgeting for loan and loan guarantee
programs. Prior to credit reform, loan guarantees looked ``free'' in
the budget. Direct loans looked like grant programs because the budget
ignored loan repayments. The shift to accrual budgeting for subsidy
costs permitted comparison of the costs of credit programs both to each
other and to spending programs in the budget.
Information should be more easily available to Congress and the
President about the long-term cost implications both of existing
programs and new proposals. In 1997 we reported that the current cash-
based budget generally provides incomplete information on the costs of
Federal insurance programs [Footnote 20]. The ultimate costs to the
Federal Government may not be apparent up front because of time lags
between the extension of the insurance, the receipt of premiums, and
the payment of claims. While there are significant estimation and
implementation challenges, accrual-based budgeting has the potential to
improve budgetary information and incentives for these programs by
providing more accurate and timely recognition of the government's
costs and improving the information and incentives for managing
insurance costs. This concept was proposed in the Comprehensive Budget
Process and Reform Act of 1999 (H.R. 853), which would have shifted
budgetary treatment of Federal insurance programs from a cash basis to
an accrual basis.
There are other commitments for which the cash and obligation-based
budget does not adequately represent the extent of the Federal
Government's commitment. These include employee pension programs,
retiree health programs, and environmental clean-up costs. While there
are various analytical and implementation challenges to including these
costs in budget totals, more could be done to provide information on
the long-term cost implications of these programs to Congress, the
president, and the interested public. We are continuing to analyze this
issue.
CONCLUSION
To affect decision making, the fiscal goals sought through a budget
process must be accepted as legitimate. For many years the goal of
``zero deficit"--or the norm of budget balance--was accepted as the
right goal for the budget process. In the absence of the zero deficit
goal, policymakers need an overall framework upon which a process and
any targets can be based. When the deficits turned to surpluses, there
was discussion of goals framed in terms of debt reduction or surpluses
to be saved. As difficult as selecting a fiscal goal in times of
surplus is, selecting one today may seem even more difficult. You must
balance the need to respond not only to those demands that existed last
year--demands kept in abeyance during many years of fighting deficits--
but also demands imposed on us by the events of September 11. At the
same time--in part because of the demographic tidal wave looming over
the horizon--the events of September 11 do not argue for abandonment of
all controls.
Whatever interim targets Congress and the president agree on,
compliance with budget process rules, in both form and spirit, is more
likely if end goals, interim targets, and enforcement boundaries are
both accepted and realistic.
Enforcement is more successful when it is tied to actions
controlled by Congress and the president. Both the BEA spending caps
and the PAYGO enforcement rules were designed to hold Congress and the
president accountable for the costs of the laws enacted each session--
not for costs that could be attributed to economic changes or other
factors.
Going forward, new rules and goals will be important to ensure
fiscal discipline and to prompt a focus on the longer-term implications
of decisions. The Federal Government still needs a decision-making
framework that permits it to evaluate choices against both today's
needs and the longer-term fiscal future that will be handed to future
generations. What process will enable policymakers to deal with the
near term without ignoring the long term? At the same time, the
challenges for any budget process are the same: what process will
enable policymakers to make informed decisions about both fiscal policy
and the allocation of resources within the budget?
Extending the current BEA without setting realistic caps and
addressing existing mandatory programs is unlikely to be successful for
the long term. The original BEA employed limited actions in aiming for
a balanced budget. It left untouched those programs--direct spending
and tax legislation--already in existence.
Today's situation may argue for an interim step in extending and
modifying BEA. However, going forward with new challenges, we believe
that a new process that prompts Congress to exercise more foresight in
dealing with long-term issues is needed. The budget process appropriate
for the early 21st century will have to exist as part of a broader
framework for thinking about near- and long-term fiscal goals.
This concludes my statement. I would be happy to respond to any
questions you or other members of the committee may have at this time.
FOOTNOTES
[1] Although the overall discretionary spending caps expire in
2002, the Highway and Mass Transit outlay caps established under the
Transportation Equity Act for the 21ST Century (TEA-21) continue
through 2003, and the conservation caps established as part of the
fiscal year 2001 Interior Appropriations Act were set through 2006. In
addition, the sequestration procedure applies through 2006 to eliminate
any projected net costs stemming from PAYGO legislation enacted through
fiscal year 2002.
[2] U.S. General Accounting Office, Budget Issues: Budget
Enforcement Compliance Report, GAO-01-777 (Washington, D.C.: June 15,
2001).
[3] For a fuller discussion of these criteria see U.S. General
Accounting Office, Budget Process: Evolution and Challenges GAO/T-AIMD-
96-129 (Washington, D.C.: July 11, 1996), Budget Process: History and
Future Directions, GAO/T-AIMD-95-214 (Washington, D.C.: July 13, 1995),
and Budget Process: Comments on H.R. 853,GAO/T-AIMD-99-188 (Washington,
D.C.: May 12, 1999).
[4] See U.S. General Accounting Office, Homeland Security:
Challenges and Strategies in Addressing Short- and Long-Term National
Needs, GAO-02-160T (Washington, D.C.: Nov. 7, 2001); Congressional
Oversight: Opportunities to Address Risks, Reduce Costs, and Improve
Performance, GAO/T-AIMD-00-96 (Washington, D.C.: Feb. 17, 2000) and
Budget Issues: Effective Oversight and Budget Discipline are
Essential--Even in a Time of Surplus, GAO/T-AIMD-00-73 (Washington,
D.C.: Feb 1, 2000).
[5] House and Senate Budget Committees, Revised Budgetary Outlook
and Principles for Economic Stimulus (October 4, 2001)
[6] U.S. General Accounting Office, Budget Issues: Long-Term Fiscal
Challenges, GAO-02-467T (Washington, D.C.: Feb. 27, 2002) and Long-Term
Budget Issues: Moving From Balancing the Budget to Balancing Fiscal
Risk, GAO-01-385T (Washington, D.C.: Feb. 6, 2001).
[7] For more on history, see GAO/T-AIMD-96-129.
[8] See U.S. General Accounting Office, Budget Issues: Budget
Enforcement Compliance Report, GAO/AIMD-99-100 (Washington, D.C.: Apr.
1, 1999); Budget Issues: Budget Enforcement Compliance Report, GAO/
AIMD-00-174 (Washington, D.C.: May 31, 2000) and GAO-01-777.
[9] Additional information on issues related to emergency spending
can be found in the Congressional Budget Office report Emergency
Spending Under the Budget Enforcement Act, issued in December 1998, the
update to that report issued in June 1999, the CBO report Supplemental
Appropriations in the 1990s, issued in March 2001, and U.S. General
Accounting Office reports Budgeting for Emergencies: State Practices
and Federal Implications, GAO/AIMD-99-250 (Washington, D.C.: Sept. 30,
1999) and Emergency Criteria: How Five States Budget for Uncertainty,
GAO/AIMD-99-156R (Washington, D.C.: Apr. 20, 1999).
[10] For a slightly longer discussion of these issues, see GAO-01-
777.
[11] The full name of the act is the Department of Defense and
Emergency Supplemental Appropriations for Recovery from and Response to
Terrorist Attacks on the United States Act, Public Law 107-117, 115
STAT.2230 (2002).
[12] See GAO/AIMD-00-174 and GAO-01-777.
[13] GAO/AIMD-99-250.
[14] U.S. General Accounting Office, Budget Issues: Budget
Scorekeeping for Acquisition of Federal Buildings, GAO/T-AIMD-94-189
(Washington, D.C.: Sept. 20, 1994).
[15] See U.S. General Accounting Office, Budget Surpluses:
Experiences of Other Nations and Implications for the United States,
GAO/AIMD-00-23 (Washington, D.C.: Nov. 2, 1999).
[16] GAO-02-467T.
[17] 2 U.S.C. 632 (i), and U.S. General Accounting Office, Medicare
Reform: Issues Associated With General Revenue Financing, GAO/T-AIMD-
00-126 (Washington, D.C.: Mar. 27, 2000).
[18] See GAO/T-AIMD-96-129 and U.S. General Accounting Office, The
Deficit and the Economy: An Update of Long-Term Simulations, GAO/AIMD/
OCE-95-119 (Washington, D.C.: April 26, 1995), among others.
[19] OMB, Budget of the United States Government, Fiscal Year 2002,
April 9, 2001; CBO, The Budget and Economic Outlook: Fiscal Years 2002-
2011, January 2001; GAO-01-385T; and U.S. General Accounting Office,
Medicare: Higher Expected Spending and Call for New Benefit Underscore
Need for Meaningful Reform,GAO-01-539T (Washington, D.C.: March 22,
2001).
[20] U.S. General Accounting Office, Budget Issues: Budgeting for
Federal Insurance Programs, GAO/AIMD-97-16 (Washington, D.C.: Sept. 30,
1997).
Chairman Nussle. Mr. Spratt.
Mr. Spratt. Let me say to all three of our witnesses, you
made an excellent contribution to this hearing. I have to go; I
don't have questions to put to you, but I particularly want to
thank Mr. Kogan for coming and then enunciating ``Kogan's
Rule,'' that only Richard Kogan can show how, as revenues go
up, spending comes down. [Laughter].
Thank you very much.
Chairman Nussle. That was actually my observation, too.
But, you know, I guess going to what--I do think he did
make a very good point about ``they'll spend it,'' first of
all. We all know who ``they'' are; all we have to do is look in
the mirror and we can see who that is.
If you are interested in a revision to, ``if there is a
surplus, they will spend it and they will tax-cut it,'' I am
willing to stipulate that that is true, that there is that
desire on both ends.
I guess I would add one other thing, and you did state
this, that when there is lack of control--varying degrees of
lack of control, but I do think that you would also agree that
if not all of the controls were in force, whether it's budget
caps, PAYGO, or as you stated--I do agree with you that caps
and PAYGO after 1990 were much more effective than Gramm-
Rudman-Hollings or deficit target practice.
But I guess that is the point that I'm concerned about, and
the reason for this hearing is that we're losing all of them at
this point in time. It's not a matter of just losing some. We
don't have a budget, we won't have caps, we won't have PAYGO,
we'll have nothing, and as you said, it will be down to a
budget process that will not be able to control spending or tax
cuts or whatever. It's a matter of, can we even put a process
in place that can control us? And that's what we're trying to
do, and I think all of us have correctly stated today that when
it comes right down to it, the ability of Representatives
themselves to control themselves, either in a partisan or a
bipartisan way, is about the only way to get this done.
So you have all made excellent points. Some of them have
been--and I apologize to make it seem as though this was a
retreat job from last year; it's still important to talk about
it, and we wanted to give you the forum to do that because we
believe it's at a pretty important juncture, to discuss that.
With that, are there any other members who wish to make any
comments or have any questions? Mr. Gutknecht.
Mr. Gutknecht. I don't so much have questions. I want to
thank the witnesses for coming. I want to thank you for this
hearing. My observation is that we are very soon going to be
fighting two wars. One is the war against terrorism, which I
think everybody agrees is important and we have to give our
troops and the Defense Department what it needs to execute that
so that Americans feel secure in their homeland.
But the other war that we're going to be fighting is over
spending. And frankly, I am pretty encouraged by the way the
war on terrorism is going; I am not encouraged about how our
war against wasteful spending is going. We are going to need
help, and I frankly wish that more of our Democratic friends
were here because I think we're going to have to do this on a
bipartisan basis. We have to have some way to put discipline
back into the budget, because we're going to have a fight here
in the next several weeks about whether or how much of an
emergency supplemental we're going to have; if we don't have a
farm bill, we're going to have to have another emergency
supplemental to deal with farm issues. It really strikes me
that we've got some very, very serious budget issues that we're
going to have to resolve, and anything that groups on the
outside can do to help us in that ware, we would very much
appreciate. Otherwise, I think we're going to be back in a very
difficult circumstance in another year or so, where we're going
to be back into significant deficits that I think are going to
be indefensible with the American people and indefensible with
future generations of Americans.
So I will help in every way I can, Mr. Chairman, and I know
that you are more than acutely aware of the problems we face
relative to the budget battles and where we're going to go, but
we're going to have to have some help from folks on the outside
to get that story told.
Chairman Nussle. I thank the gentleman.
There were other members here earlier. I do believe it's a
bipartisan struggle; I get that sense from my conversations,
and I think Mr. Spratt would echo that as well. And like I say,
I did not mean that in a disparaging way; I really meant that
we have to sit down and work together on some kind of spending
caps or some kind of formulas or some form of spending
discipline. Otherwise, this thing is just going to continue to
spin out of control, because it will get worse from here.
Mr. Culberson, do you have anything you would like to add?
Mr. Culberson. Mr. Chairman, just to say how much I
appreciate the focus you have maintained as the chairman of the
Budget Committee on preserving budget discipline and making
sure the Congress--particularly the members of this committee--
understand how important it is that we maintain budget
discipline and to recommit to you, as to the people I
represent, my complete support for your efforts and my
admiration for the work you've done as chairman and my
appreciation to the witnesses for being here. We've all had a
number of committee hearings going on at the same time this
morning, but I am completely committed to supporting Chairman
Nussle and doing whatever is necessary to preserve budget
discipline, because that is what gave us the balanced budget
and the tax surplus that we have enjoyed these last several
years. It is only by continuing that discipline that we will be
able to see a tax surplus return in the future. I just thank
you for your good work, Mr. Chairman, and I am committed to
helping you in any way that I can.
Chairman Nussle. Do our witnesses have anything else they
would like to add?
Ms. Irving. I might just add one thing.
Chairman Nussle. Certainly.
Ms. Irving. When you talk about the need for caps to
control yourselves, you sell yourselves a little short. One of
the arguments for caps in an overall deal, as opposed to just
letting discretionary spending be the result of 13
appropriations bills, is I think it strengthens Congress' hand
vis-a-vis the executive branch. And as an employee of the
legislative branch, I am always interested in the Congress
being able to assert its legitimate role in fiscal policy.
Chairman Nussle. Well, I would agree, and there are other
reforms that could help us do that, too, as Mr. Frenzel had
suggested earlier. I happen to believe that a joint resolution,
putting any of this--whether it's caps, or the budget, or
however we can accomplish that--and giving it the force of law
does not cede power to the administration, but rather brings
them in as an accountable player in this process and requires
accountability on their part.
So I think, as you stated, there are many ways that we can
help ensure that and strengthen Congress' hand, and I would
agree that this may in fact be one of them. And I particularly
enjoyed and appreciated your comments on PAYGO. I think you are
exactly right; the trade-off, when PAYGO was first put into
place, did not anticipate some of the challenges that we had,
and I think a revision and a new understanding of how that
might work--not to game the outcome, but rather to have more
consideration of the outcome--would be appropriate.
Anything else? Mr. Kogan.
Mr. Kogan. I'd like to make a point which I think follows
logically from my suggestion that if we really want to do
something about the present fiscal situation, we need to start
with a summit and then use a budget process, like caps and
PAYGO, to enforce the outcome of the summit.
My point is that the Budget Committee is only as effective
as the leadership above it wants it to be. I was struck
forcibly by this when I went back and opened the report on the
first budget resolution I worked on, the budget resolution for
fiscal year 1979, I believe. And at the time, Congressman
Giaimo, a longtime and senior member of the Appropriations
Committee, was chairman of the Budget Committee, which means
that appropriations and the budget had a natural senior person
speaking with one voice. And the next three Democrats on the
Budget Committee at that time were Tom Foley, Jim Wright, and
Dick Gephardt. Those were the next three in line. What that
indicated to me was that at that time, the Democratic
leadership believed that it had a big stake in getting a budget
that its party could live with, and then enforcing that budget.
The leadership and the Budget Committee were not working in
opposite directions then.
I think that times have changed a lot. It was very gradual,
over the course of 20-plus years, but now I think that you
don't get the support from the leadership, and I think that no
committee chairman, in fact, in this Congress gets the support
from the leadership that used to be the norm. It used to be the
case that committees ran the place, and it is now the case that
the leadership runs the place. So no matter how good a job you
do, the Rules Committee, it turns out, at the behest of the
leadership, simply waives everything. For the last 4 years, all
points of order against appropriations bills and against tax
cuts have been waived. Last year's tax cut, for example,
violated the budget resolution that this Congress agreed to--
not by a lot, but it did--and the leadership waived the points
of order, instead saying, ``Make it fit.'' Likewise with all of
the appropriations bills for 4 years.
So there is just a limit to what this committee can do. I
don't know how you get the President directly engaged and the
leadership directly engaged, but I think that that's what it
would really take to restore the prominence that the Budget
Committee once had, when I first started.
Thank you.
Chairman Nussle. Point well taken I'm not sure I would
agree totally with your characterization. I believe we do have
the support of the leadership in many regards, but I think your
point is well taken. It certainly was a different Budget
Committee back in the 1970s and early 1980s, and I think we can
get back to that. We will have to if, in fact, the budget
process is going to be meaningful in the future. And that's not
only with regard to taxes, but with regard to spending. We're
trying to do that.
Let me give you one example. For one of the first times,
the Budget Committee was appointed to the Farm Bill Conference
Committee, and the sole purpose of that was to enforce the
budget. And at least from what we've been able to glean from
the tea leaves, that has been accomplished. Now, there may be a
couple more runs at the fence before we're done, but at least
to start with, I think that's a good indication of not only the
willingness of the leadership to appoint members of the Budget
Committee to conferences in order to rein in--or to enforce the
budget, but also I think it demonstrates, at least to some
extent, the kind of support that I do get from the leadership
on these issues. Not always; that's part of the process, but
just for your information.
Anything else?
With that, we appreciate the testimony of the witnesses
today. This is obviously a continuing battle that will not
cease with today's hearing, and we will be back in touch.
The hearing is adjourned.
[Whereupon, at 11:15 a.m., the committee was adjourned, to
reconvene at the call of the Chair.]