SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
PROPOSING A BALANCED BUDGET AMENDMENT TO THE CONSTITUTION OF THE UNITED STATES
MONDAY, FEBRUARY 3, 1997
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, George W. Gekas, Charles T. Canady, Bob Goodlatte, Sonny Bono, Steve Chabot, William L. Jenkins, Asa Hutchinson, Edward A. Pease, Christopher Cannon, John Conyers, Jr., Robert C. Scott, Zoe Lofgren, Maxine Waters, William D. Delahunt, and Robert Wexler.
Also present: Diana Schacht, deputy staff director and majority counsel; Kenny Prater, clerk; and Perry Apelbaum, minority counsel.
Mr. HYDE. The committee will come to order.
We will defer making opening statements. And even at that, the Chair would limit opening statements to Mr. Conyers and himself. Other Members who have opening statements can also have them included in the record, but we have several witnesses this morning and we would like to move along. We will defer opening statements until this panel has completed its testimony.
It is the Chair's strong suggestion that this panel not be questioned because usually Members of Congress are afforded that perquisite. And besides, we will invite some very learned answers that perhaps might confuse us. So we don't want to do that. So we will commence with this very distinguished panel.
[The bill, H.J. Res. 1, follows:]
Page 2 PREV PAGE TOP OF DOC
INSERT OFFSET RING FOLIOS 1 TO 4 HERE
Mr. HYDE. Congressman Charles Stenholm from Texas will be the opening witness.
And welcome, Congressman Stenholm.
STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you very much, Mr. Chairman.
I commend you for holding this hearing and I appreciate very much the courtesy you have extended to allow me to be here and to testify.
Mr. HYDE. Would you put your mike on, Mr. Stenholm, please?
Mr. STENHOLM. I have a very lengthy statement that I would like to insert in the record, a section-by-section analysis. To the best of our knowledge, most of the questions that have been asked about H.J. Res. 1, we have answered and provided for the record. We hope that all those who have questions today might benefit from some 10 years of questions being asked and answered concerning the bipartisan, bicameral balanced budget amendment.
On behalf of Dan Schaefer, Joe Kennedy, Bob Smith, Tim Roemer, Mike Castle, and all other supporters of H.J. Res. 1, I am here this morning to testify in behalf of such resolution.
I have committed much of my congressional career to the message of this constitutional amendment, and I have done this for three simple reasons, now four: My two sons, Chris and Cary, my daughter, Courtney Ann, and now their wife and husband, as well as one grandchild.
Amending the Constitution is a serious step, one that I do not take lightly. We have taken great care in crafting our amendment. H.J. Res. 1 is the product of years of careful review and refinement, much of which has come from this committee.
This committee review process has produced an amendment that is workable, we believe, flexible and enforceable. There are others and you will hear from them.
Page 3 PREV PAGE TOP OF DOC
I am encouraged that we have reached a point where far more than two-thirds of the House agree that we need a constitutional restraint to balance the budget.
In addition to our bill, the tax limitation amendment, offered by Mr. Barton and Mr. Hall, the capital budget amendment, which will hear from our friend Bob Wise, there may also be a simple majority amendment offered by the minority leader. Details do matter, particularly on an issue as serious as amending the Constitution.
Although I believe very deeply in the need for a constitutional requirement for a balanced budget, I believe just as strongly that enacting an amendment that does not provide effective fiscal discipline is worse than not enacting any amendment at all.
There are three fundamental tests that any balanced budget amendment must meet to determine whether it will provide effective fiscal discipline and is an appropriate addition to the Constitution. First, an amendment must have enforcement to make it more difficult for Congress to borrow money. Second, the amendment must not include any loopholes that could be used to circumvent the amendment. And finally, a constitutional amendment should be timeless and reflect a broad consensus, not make narrow policy decisions.
Allowing Congress to waive the balanced budget requirement by a majority vote would gut the amendment. To be effective, an amendment must require a substantially higher threshold to support deficit spending. A supermajority vote to increase the debt limit is critical to ensure that gimmicks are not used to circumvent the amendment.
Second, taking the Social Security Trust Fund or capital expenditures out of budget calculations would open up a tremendous loophole to the amendment. This loophole makes it possible for the Government to fund any number of programs off-budget by redefining them as Social Security or capital expenditures. This would make the constitutional amendment meaningless.
Finally, we must ensure that the language of any approved amendment passes constitutional muster. A balanced budget amendment reflects a consensus that Congress and the President should set priorities through the regular legislative process.
Page 4 PREV PAGE TOP OF DOC
Items such as capital budgeting, the treatment of the Social Security Trust Fund, and specific budget plans represent narrow policy issues on which there is not necessarily a consensus. These issues do not belong in the Constitution.
I agree that we should be extremely judicious in proposing changes to the Constitution. I have been convinced that an amendment limiting the ability of Congresses and Presidents to borrow money is a necessary and appropriate addition to the Constitution. The same deficits are the result of a fundamental change in the understanding of the role and responsibilities of the Federal Government under the Constitution since the Constitution was first adopted.
A constitutional amendment restricting the ability of the Government to borrow money is an appropriate response to the fact that the Government has a much larger role in society today than the framers envisioned.
The threat of economic and political harm from continued deficit spending is the type of governmental abuse proscribed by the Constitution. This point was made by Thomas Jefferson, who said: ''The question whether one generation has the right to bind another by the deficit it imposes is a question of such consequence as it places it among the fundamental principles of government.''
Now, regarding the placing of economic policy in the Constitution, I would speak briefly to that. The argument that economic policy should be kept out of the Constitution ignores the history of the drafting of the Constitution. Economic issues provided much of the impetus for the drafting of the Constitution. The Constitution is replete with economic policy. The Constitution recognizes that the impact that Government decisions have on the economy today and in the future is a subject that should be addressed.
The test is not whether or not an amendment is economic policy, but whether it encompasses broad and fundamental principles and its importance as far-reaching in scope and over time. The need for a balanced budget amendment meets this test.
Page 5 PREV PAGE TOP OF DOC
Let me address further the question of the need for a constitutional amendment requiring a balanced budget. Some opponents of a balanced budget argue that the experience of the 104th Congress, in which the President proposed a balanced budget and the overwhelming majority of the Congress voted for balanced budget alternatives, demonstrated that a balanced budget amendment is unnecessary. In fact, the opposite is true.
Congress and the President failed to enact a balanced budget amendment, or plan, rather, because there was no consequences for inaction and gridlock. The lesson of the 104th Congress is further evidence that a balanced budget amendment is a necessary tool to achieve a balanced budget agreement. A balanced budget amendment is necessary to convert the bipartisan goal of eliminating the deficit into the reality of a balanced budget.
We failed to reach an agreement because both parties could avoid compromise. We had a politically painless way out to avoid the need to compromise, something I have witnessed year, after year, after year, in which we get into endless debates about who is going to do what and we end up doing the most easy, and that is borrowing the money. And that is the purpose behind our amendment, stopping the ease of borrowing.
The balanced budget amendment is based on exactly the same principle as the rest of the Constitution: It would protect the fundamental rights of the people by restraining the Federal Government from abusing its powers. Requiring a higher threshold of support for deficit spending will protect the rights of future generations who are not represented in our political system but will bear the burden of our decisions today. The ability to borrow money in future generations is a power of such magnitude that it should not be left to the judgment of transient majorities.
The argument that the balanced budget amendment would undermine majority rule implies two presumptions, which I reject. One is that running a deficit and imposing debts on future generations is just another policy decision like every other appropriately made by simple majority. And No. 2 is that a real threat of minority rule looms because three-fifths majorities that would be necessary to maintain the status quo of deficit spending.
Page 6 PREV PAGE TOP OF DOC
The possibility of a three-fifths vote is a deterrent. Facing it is so undesirable that Congress and the President generally would do anything to avoid it.
This amendment does not represent the end of majority rule. A minority would have leverage in exactly one instance--a minority would have leverage in exactly one instance: When the majority advocates its responsibility to produce a balanced budget amendment.
The amendment does not affect the ability of a majority to spend on programs it deems important and to set budget priorities as it sees fit. It would not be difficult to obtain a three-fifths vote to borrow money in the event of a clear national emergency when this necessitated deficit spending. A minority that attempted to abuse its power under this amendment to prevent a response to a national emergency would face swift political consequences.
I will talk for just a moment about the threat of default. I completely agree with Secretary Rubin regarding the very serious harm that would result from default. It is in no way my intent, or the intent of any of the authors and supporters of this amendment, that a default or a shutdown should happen. I have come to the conclusion that the threat of such consequences is necessary to force Congress and the President to make the compromises necessary to achieve a balanced budget.
Those who object to a balanced budget amendment because of the risk of government default are missing the point of this amendment. It is the very risk of a government default or the inability of the Federal Government to meet its obligations that will force Congress and the President to go to whatever lengths are necessary to avoid the necessity of increasing the debt limit.
Elected officials are all too well aware of the political peril behind every specific proposal to reduce spending or increase revenues. Despite the fact that continued deficit spending poses a much, much greater risk to the long-term strengths of our economy and our country, the immediate political consequences to elected officials who vote for cutting spending or raising taxes are much worse.
Page 7 PREV PAGE TOP OF DOC
A balanced budget amendment changes these incentives by providing real and immediate political consequences for all public officials if a deficit occurs as a result of political gridlock. I can think of no greater incentive for Congress and the President to work around the clock than the warning that the Treasury Department will not be able to issue Social Security checks if we do not reach an agreement.
With all due respect to my friends on the other side of the aisle, I would simply point out that one of the lessons of the 104th Congress was that any political party or faction within either of our parties that attempts to use the threat of a government shutdown or default to achieve their goals will face severe political consequences.
Let me speak quickly about the flexibility to respond to economic downturns, which is one of the arguments that we hear quite often. H.J. Res. 1 has been carefully constructed to balance the need for increased discipline in the budget process with the flexibility to deal with recessions. The amendment preserves the ability to Congress to enact countercyclical policies in the event of a serious recession.
The requirement for a three-fifths vote to authorize deficit spending is simple enough to be enshrined in the Constitution yet flexible enough to respond to economic emergencies. In the event of a serious economic downturn, Congress would be able to muster, I believe, a three-fifths majority to enact a countercyclical package of tax cuts or investment spending as rapidly as it does currently. If Congress cannot obtain three-fifths support to respond to unbalance the budget, the situation probably is not a true emergency.
By providing a protection against the bias to spend and borrow in good times and bad, the balanced budget amendment will protect future generations from the straitjacket of structural deficits that have taken away the ability today to respond to economic emergencies.
In this amendment you will have ample opportunity to respond to natural disasters and other emergencies. The only major disaster relief bill in the last two decades that fell short of a three-fifths vote that would be required under the amendment was an appropriation bill that many Members believed did not warrant deficit spending. This exception proves itself rule.
Page 8 PREV PAGE TOP OF DOC
Now, a final word on enforcement. We have sought to draft an amendment that meets the constitutional standards of simplicity while providing for meaningful and enforceable fiscal restraint. Implementing legislation is the appropriate place to deal with many of the procedural details related to enforcement of the balanced budget amendment that are not appropriate for a constitutional amendment. Congress would have strong incentive to enact implementing legislation in order preserve its prerogatives in these areas and prevent the President or the courts from usurping its role in these areas.
The amendment is self-enforcing and impervious to accounting gimmicks and overlying assumptions. No matter what accounting techniques are used to depict a balanced budget and regardless of any rosy scenario, economic assumption, smoking mirrors or honest estimating mistakes, if actual outlays exceed actual receipts, the Treasury ultimately would need to borrow in order to meet the Government's obligations. This would require a three-fifths vote in both the Senate and the House to raise the debt limit. The three-fifths vote requirement of the debt limit provides a powerful incentive for truth-in-budgeting.
In conclusion let me say, Mr. Chairman, it is always a pleasure to come before this committee, particularly discussing an issue of such great importance as the balanced budget amendment. That having been said, I hope this is the last time I will come before you on this subject. My great hope is that this year not only will the House again pass this same amendment, but that our colleagues in the Senate will also, and it will be sent to the people of the 50 States for their ratification.
And as we begin consideration of the balanced budget amendment, I have several simple wishes for the debate over the next few weeks. One is that the level of this debate rise to the standard deserved whenever Congress considers amending our most precious national document, the U.S. Constitution; another is that the remarks which fill the debate of the few weeks, regardless of whether the Speaker be favorably or negatively inclined toward the amendments, reflect the seriousness of our endeavor; that we can for once go beyond the political demagoguery about certain sacred issues which push us farther and farther down the path of fiscal irresponsibility; and that intellectual honesty, moral integrity and personal responsibility would guide the words each of us speak to such a degree that political expediency and alarmist exaggerations are shamed into hiding. I appeal to both sides, let us deliberate this issue straightforwardly and honestly.
Page 9 PREV PAGE TOP OF DOC
And to the freshman Members I would say, please evaluate this issue on its merits, not on the internal or external politics. There is no such thing as an easy vote on a constitutional amendment.
We face a historic opportunity to add a solid, credible, meaningful amendment to the Constitution, at last responding to Thomas Jefferson's concerns. I urge my colleagues to take responsibility for the future we will hand our children and grandchildren, by approving this balanced budget amendment.
Thank you for your courtesy.
[The prepared statement of Mr. Stenholm follows:]
Prepared Statement of Hon. Charles W. Stenholm, a Representative in Congress From the State of Texas
Mr. Chairman, I commend you for holding this hearing and for your commitment to act quickly on a balanced budget amendment to the Constitution. On behalf of Dan Schaefer, Joe Kennedy, Bob Smith, Tim Roemer, Mike Castle and all of the other supporters of H.J. Res. 1, the bipartisan, bicameral balanced budget amendment, I would like to say that we look forward to working with you on a balanced budget amendment that can be passed by the House and the Senate and ratified by the states.
I have committed so much of my career in the House of Representatives to this effort for three simple reasons; their names are Chris, Cary and Courtney Ann, and those reasons happen to be my children. I now have one additional reason that I did not have the last time I testified before this Committee: Cole Stenholm, my first grandchild. Motivations don't come much stronger than that.
Page 10 PREV PAGE TOP OF DOC
Amending the Constitution is a serious step, one that I do not take lightly. I and the other sponsors of the bipartisan consensus amendment have taken great care in crafting our amendment. H.J. Res. 1 is the product of years of careful review and refinement. This is the consensus language that has been developed over the past decade--it has been scrutinized in hours of committee hearings, debated publicly and been put to the Constitutional test. The amendment has been improved over the years based on the advice of Constitutional scholars, budget experts, members of Congress, and others. Changes were made in the amendment to address criticisms that were raised in the numerous hearings on the amendment. This exhaustive review process has produced an amendment that is workable, flexible, and enforceable.
CRITERIA FOR AN EFFECTIVE BALANCED BUDGET AMENDMENT
As you know, Mr. Chairman, their are several different balanced budget amendment proposals before this committee. In addition to the bicameral, bipartisan amendment that Mr. Schaefer and I have introduced as H.J. Res. 1, there is the amendment offered by my Texas colleagues Joe Barton and Ralph Hall and the ''capital budgeting'' amendment offered by my friend Bob Wise who ''came to the altar'' on my Amendment in 1992 but has since updated his position. In addition, there may be a ''simple majority'' amendment offered by the Minority Leader. I find it extremely encouraging that we have reached a point where far more than two-thirds of the House Members agree that we need a Constitutional restraint to balance the budget. However, details do matter, particularly on an issue as serious as amending the Constitution. Although I believe very deeply in the need for a Constitutional requirement for a balanced budget, I believe just as strongly that enacting an amendment that does not provide effective fiscal discipline is worse than not enacting any amendment at all.
There are three fundamental tests that any balanced budget amendment must meet to determine whether it will provide effective fiscal discipline and is an appropriate addition to the Constitution. First, an amendment must have enforcement to make it more difficult for Congress to borrow money. Second, the amendment must not include any loopholes that could be used to circumvent the amendment. Finally, a constitutional amendment should be timeless and reflect a broad consensus, not make narrow policy decisions.
Page 11 PREV PAGE TOP OF DOC
First, allowing Congress to waive the balanced budget requirement by a majority vote would gut the amendment. To be effective, an amendment must require a substantially higher threshold of support to deficit spend. A requirement for a supermajority vote to increase the debt limit is critical to ensure that gimmicks are not used to circumvent the amendment.
Second, taking the social security trust fund or capital expenditures out of budget calculations would open up a tremendous loophole in the amendment. This loophole makes it possible for the government to fund any number of programs off-budget by redefining them as social security or capital expenditures. This would make the Constitutional amendment meaningless.
Finally, we must ensure that the language of any approved Amendment passes Constitutional muster. A balanced budget amendment reflects a consensus that Congress and the President should set priorities through the regular legislative process. Items such as capital budgeting, the treatment of the social security trust fund, and specific budget plans represent narrow policy issues on which there is not necessarily a consensus. These issues do not belong in the Constitution.
APPROPRIATENESS OF AMENDING THE CONSTITUTION TO REQUIRE A BALANCED BUDGET
Our Founding Fathers crafted a remarkable document that has served this nation extremely well. I share the view that we should be extremely judicious in proposing changes to the Constitution. That not withstanding, I have been convinced that an amendment limiting the ability of Congresses and Presidents to borrow money is a necessary and appropriate addition to the Constitution.
The genius of our Constitution is its timelessness and ability to adapt to changing circumstances. However, the Framers recognized that there could be unforeseen circumstances or changes that would necessitate amendments and therefore they provided not one but two ways of proposing amendments to the Constitution. While the Constitution should not be amended frivolously, amendments may be appropriate if there has been a fundamental change in the circumstances of society or the government to justify a change in our fundamental document of government. If such a change has occurred, Congress must decide whether the proposed amendment enforces a timeless principle. The balanced budget amendment meets this test.
Page 12 PREV PAGE TOP OF DOC
Our sustained deficits are the result of a fundamental change in the understanding of the role and responsibilities of the federal government under the Constitution since the Constitution was first adopted. Article 1, Section 8 of the Constitution grants to Congress relatively few powers (establish Post Offices, raise and maintain armies, etc.) that involve the potential for significant expenditures. The Framers clearly believed that this would serve as a check on the size of government. For example, President James Madison vetoed legislation authorizing federal funds for the construction of highways and canals because he believed it to exceed Congress' Constitutional authority. This ''fiscal Constitution'' limiting the activities of the federal government made an explicit limitation on the ability of the government to borrow money unnecessarily.
The advent of the New Deal and Supreme Court decisions finding that ''the power of Congress to authorize appropriations of public money for public purposes is not limited by the direct grants of legislative power found in the Constitution,'' effectively eliminated the fiscal Constitution that had limited federal expenditures. This change in the understanding of the role of the government was a revolution in Constitutional as well as economic policy. This opened the door to numerous government spending programs, most significantly entitlement programs. Without the check on government spending provided by a strict interpretation of the enumerated powers, Congress created numerous benefit programs with significant constituencies that have placed tremendous pressure on the federal budget. As the costs of these programs have risen exponentially, public officials have become increasingly unwilling to impose the level of taxation necessary to meet these costs and have instead resorted to borrowing. The framers of the Constitution could not have foreseen these circumstances, since they believed that the Constitution explicitly limited the scope of the federal government.
Page 13 PREV PAGE TOP OF DOC
I do not advocate the return to the narrow interpretation of the power of Congress that existed prior to the New Deal, nor do any of the proponents of the amendment. I do believe, however, that a Constitutional amendment restricting the ability of the government to borrow money is an appropriate response to the fact that the government has a much larger role in society today than the Framers envisioned.
The threat of economic and political harm from continued deficit spending is the type of governmental abuse appropriately proscribed by the Constitution. This point was made by Thomas Jefferson, who said ''The question whether one generation has the right to bind another by the deficit it imposes is a question of such consequence as to place it among the fundamental principles of government.''
Even Professor Laurence Tribe of Harvard, a leading opponent of the amendment, told the Senate Budget Committee in 1992 that ''The Jeffersonian notion that today's populace should not be able to burden future generations with excessive debt, does seem to be the kind of fundamental value that is worthy of enshrinement in the Constitution. In a sense, it represents a structural protection for the rights of our children and grandchildren.''
PLACING ECONOMIC POLICY IN THE CONSTITUTION
The argument that economic policy should be kept out of the Constitution ignores the history of the drafting of the Constitution. In fact, it was economic issues, specifically a dispute regarding fishing rights between Maryland and Virginia, that provided the genesis for the discussions that ultimately led to the drafting and ratification of the Constitution. Issues such as the regulation of interstate commerce, providing for the full faith and credit of revolutionary war debts incurred by the various states and other economic issues provided much of the impetus for the drafting of the Constitution. As a consequence, our Constitution is replete with economic policy. For example, it refers to private property rights; prescribes Congressional (and Executive) roles in federal fiscal activities such as raising revenue, spending, and borrowing; provides for uniform duties, imposts, and excises; discusses the regulation of interstate commerce; discusses the coinage and value of money; and deals with counterfeiting, patents, and other economic issues.
Page 14 PREV PAGE TOP OF DOC
Economics is politics and vice-versa. Governance inescapably involves addressing questions of economics. As I just noted, the Constitution recognizes that the impact that government decisions have on the economy today and in the future is a subject that should be addressed in the Constitution.
The test is not whether or not an amendment is economic policy, but whether it encompasses broad and fundamental principles, its relevance is not transitory, and its importance is far-reaching in scope and over time. The need for a Balanced Budget Amendment and the text of H.J. Res. 1 in response meet this test.
THE NEED FOR A CONSTITUTIONAL AMENDMENT REQUIRING A BALANCED BUDGET
Some opponents of a balanced budget amendment argue that the experience of the 104th Congress, in which the President proposed a balanced budget proposal and the overwhelming majority of Congress voted for balanced budget alternatives, demonstrated that a balanced budget amendment is unnecessary. In fact, the opposite is true. Congress and the President failed to enact a balanced budget plan because there were no consequences from inaction and gridlock.
The failure of the 104th Congress to enact a balanced budget agreement further demonstrates that a balanced budget amendment is a necessary tool to achieving a balanced budget agreement. Both parties were able to avoid compromise during the 104th Congress because they had a politically painless way out--a system that automatically borrows money from future generations whenever the political process fails. A balanced budget amendment is necessary to convert the bipartisan goal of eliminating the deficit into the reality of a balanced budget by eliminating the easy option of continued borrowing that provides an easy way out for Congress and the President when we face the inevitable disagreements arise on how to balance the budget. A balanced budget amendment would force consensus by making increased borrowing the option of last resort instead of being the option of first resort.
Page 15 PREV PAGE TOP OF DOC
A balanced budget amendment is necessary to ensure compliance with a long-term balanced budget plan. All balanced budget plans are based on long-term budget estimates that are and depend on the willingness of future Congresses and Presidents to adhere to the constraints of the budget plan. The failure of the 1990 budget summit agreement to fulfill its promise of a balanced budget by 1995 serves as a reminder that simply enacting a budget which projects a balanced budget several years into the future is not sufficient. The Balanced Budget Amendment provides a Constitutional backstop to ensure that Congress and the President take action to ensure that the budget stays on a path to balance by 2002 and remains balanced thereafter.
A balanced budget amendment is vital to obtaining political support for the sacrifices necessary in a balanced budget plan. Passage of the balanced budget amendment will allow Washington to prove that the sacrifices that we are about to ask of the American people in the name of a balanced budget will not be in vain, as have been the recent history of deficit reduction efforts. Passing a balanced budget amendment will send a message to an understandably skeptical electorate that the President and Congress are serious about following through on the promise of a balanced budget.
FUNDAMENTAL RIGHTS VERSUS MAJORITY RULE
The balanced budget amendment is based on exactly the same principle as the rest of the Constitution: It would protect the fundamental rights of the people by restraining the federal government from abusing its powers.
One of the explicit purposes the Framers had in writing the Constitution was to put certain rights and powers beyond the reach of the ''tyranny of the majority,'' and protect current minorities and future majorities from abuse by transient coalescing ''factions.'' The Balanced Budget Amendment is very much within that spirit. Because future generations lack input into the electoral process, their interests are undervalued in the budget process. Requiring a higher threshold of support for deficit spending will protect the rights of future generations who are not represented in our political system but will bear the burden of our decisions today. The fundamental premise of the amendment can be summed up by a single sentence: The ability to borrow money from future generations is a power of such magnitude that should not be left to the judgments of transient majorities.
Page 16 PREV PAGE TOP OF DOC
Senator Byrd made an eloquent statement on behalf of this principle during a debate regarding the supermajority requirement necessary to end a Senate filibuster, stating that ''There have come times when the protection of a minority is highly beneficial to a nation. Many of the great causes in the history of the world were at first only supported by a minority. And it has been shown time and time again that the minority can be right. So this is one of the things that's so important to the liberties of the people.''
Those who raise concerns raise about how the Balanced Budget Amendment would ''undermine majority rule'' imply two presumptions which I reject: (1) That running a deficits and imposing debts on future generations is just another ordinary policy decision like every other appropriately made by a simple majority; and (2) That a real threat of minority rule looms because three-fifths majorities that will have to be marshaled in order to maintain the status quo of deficit spending. The possibility of a three-fifths debt vote is a deterrent. Facing it is so undesirable that Congress and the President generally would do anything to avoid it.
This amendment does not represent the end of majority rule. A minority would have leverage in exactly one instance: When the majority abdicates its responsibility to produce a balanced budget. In that case, a 60 percent supermajority would have to go on record to approve a deficit. The Amendment does not affect the ability of a majority to spend on programs it deems important and to set budget priorities as it sees fit.
I would add that it is my firm belief that it would not be difficult to obtain a three-fifths vote to borrow money in the event of a clear national emergency that necessitated deficit spending. I do not share the view that 40% of Congress would explicitly vote to put their narrow personal interests above the national good in time of national crisis. A minority that attempted to use its power under this amendment to prevent a response to a national emergency in order to ''extort unreasonable indulgences'' would face swift political consequences.
Page 17 PREV PAGE TOP OF DOC
THREAT OF DEFAULT
Secretary Rubin, who will be following me before this Committee, has raised his concerns that the amendment would increase the risk of government default on our debt and jeopardize our ability to meet the obligations of the government. I completely agree with his position regarding the very serious harm that would result from a default. It is in no way my intent, or the intent of any of the authors and supporters of this amendment, that a default or shutdown should happen. However, I have come to the conclusion that the threat of such consequences is necessary to force Congress and the President to make the compromises necessary to achieve a balanced budget and remain vigilant in ensuring that the budget remains balanced.
Those who object to the balanced budget amendment because of the risk of government default are missing the point of this amendment. They are still stuck in the status quo, still assuming that deficit spending will remain the norm. It is the very risk of a government default or the inability of the federal government to meet its obligations that will force Congress and the President to go to whatever lengths are necessary to avoid the necessity of increasing the debt limit.
The public consistently demonstrates a demand, on a generalized level, that the government not spend beyond its means. In much the same way, Congresses and Presidents generally would prefer to do the right thing and reduce deficits. Instead, a seriously broken system of political accountability provides a perverse set of incentives that pull policymakers virtually irresistibly in the opposite direction. Elected officials are all too well aware of the political peril behind every specific proposal to reduce spending or increase revenues. Despite the fact that continued deficit spending poses a much greater risk to the long-term strength of our economy, the immediate political consequences to elected officials who vote for cutting spending or raising taxes are much worse.
Page 18 PREV PAGE TOP OF DOC
As a result, the generalized support for balancing the budget among members of Congress and the President has not translated into a balanced budget agreement because members of Congress as well as the President are reluctant to make compromises that require sacrifices from their political constituencies. The President, Congressional leadership and every member of Congress is able to insist on a balanced budget plan that protects every one of his or her priorities and refuse to make any compromises because there are no consequences for gridlock. A balanced budget amendment changes these incentives by providing real and immediate political consequences for all public officials if a deficit occurs as a result of political gridlock and an unwillingness to compromise. I can think of no greater incentive for Congress and the President to work around the clock to resolve their differences to reach an agreement on balancing the budget than the warning that the Treasury Department will not be able to issue Social Security checks if we don't reach an agreement.
Secretary Rubin has suggested that a minority in Congress may use the threat of default to hold the U.S. economy hostage to their demands. With all due respect to my friends on the other side of the aisle, I would simply point out that one of the lessons of the 104th Congress was that any political party, or faction within a party, that attempts to use the threat of a government shutdown or default to achieve their goals will face severe political consequences.
FLEXIBILITY TO RESPOND TO ECONOMIC DOWNTURNS
H.J. Res. 1 has been carefully constructed to balance the need for increased discipline in the budget process with the necessary flexibility to deal with recessions. The amendment preserves the ability of Congress to enact counter-cyclical policies in the event of a serious recession.
Page 19 PREV PAGE TOP OF DOC
In the event of a serious economic downturn, Congress would be able to muster a three-fifths majority to enact a counter-cyclical package of tax cuts or investment spending as rapidly as it does currently. The requirement for a three-fifths vote to authorize outlays in excess of receipts is simple enough to be enshrined in the Constitution yet flexible enough to respond to economic emergencies. If Congress cannot obtain three-fifths support to respond to unbalance the budget, the situation probably is not a true emergency. A legislative minority that blocked efforts to respond to real economic hardships would face swift and severe political consequences.
The automatic stabilizers built into the federal budget (unemployment insurance, etc.) would continue to operate under the Balanced Budget Amendment. The amendment will not repeal the existing countercyclical programs designed to respond to economic emergencies. However, if the budget is projected to become unbalanced as a result of increased spending on countercyclical programs, the amendment will force Congress to acknowledge the impending deficit and decide whether the economic circumstances justify deficit spending.
If spending is projected to increase or tax revenues are projected to fall resulting from the automatic stabilizers may cause outlays to exceed receipts, or if the Treasury Department reports that the debt limit may be breached because of lower revenues and higher taxes, Congress will be able to determine the reason for the deficit and act accordingly. Congress can authorize the excess by a three-fifths vote, enact offsets, or--if the excess is small and will not breech the debt limit--allow the stabilizers to operate without taking action.
In order to allow for an unexpected shortfall of receipts or an unexpected increase in outlays without triggering a three-fifths vote to increase the debt limit, Congress could provide for a surplus during periods of strong economic growth to reduce the actual debt held by the public below the debt limit by a sufficient amount to offset the amount by which actual receipts or outlays may differ from estimated receipts or outlays. The amendment will therefore give Congress an incentive to plan ahead by running surpluses in good times to avoid the need for painful choices during economic downturns.
Page 20 PREV PAGE TOP OF DOC
By providing a protection against the bias to spend and borrow in good times and bad, the balanced budget amendment will guarantee that future generations never again face the straitjacket of structural deficits that have taken away our freedom to respond to economic emergencies. The existing deficit problem prevents Congress and the President from effectively responding to recessions emergencies. We are already stimulating the economy through $100 to $150 in deficit spending each year. In this climate, the economic impact of any stimulus package enacted by Congress would be minimal. The political climate will continue to be hostile toward tax cuts or spending increases that are not offset until the budget is balanced.
ABILITY TO RESPOND TO NATURAL DISASTERS AND OTHER EMERGENCIES
The amendment provides this same flexibility to respond to natural disasters. I am confident that Congress would be able to muster a three-fifths majority to enact disaster relief as rapidly as it does currently. This confidence is based on a careful examination of the history of disaster relief legislation.
Since 1978, Congress has passed fourteen supplemental appropriations of more than $100 million for natural disasters. Of the fourteen disaster relief bills, all but one were supported by more than three-fifths of both Houses. Secretary Rubin suggested in an op-ed in the Washington Post that the federal government might not have been able to respond to Hurricane Hugo if the balanced budget amendment had been in place at that time. In fact, the Congressional response to Hurricane Hugo is the perfect example of how Congress would be able to respond to natural disasters under a balanced budget amendment. Less than two weeks after Hurricane Hugo had struck the Carolinas, an appropriations bill providing disaster assistance had passed both chambers unanimously and was signed into law.
Page 21 PREV PAGE TOP OF DOC
The only major disaster relief bill in the last two decades that fell short of the three-fifths vote that would be required under the amendment was an appropriations bill for Chicago and Los Angeles that many members believed did not warrant deficit spending. This exception proves the rule: the supermajority requirement in the Balanced Budget Amendment will force Congress to distinguish between serious emergencies such as the detestation of Hurricane Hugo that justify deficit spending, and smaller emergencies that can be funded within the context of a balanced budget.
Secretary Rubin also raised the specter that the Balanced Budget Amendment would prevent Congress from responding to other emergencies such as the Savings and Loan crisis of the late 1980's. I believe that the exact opposite is true. Enactment of a balanced budget amendment will provide a powerful incentive for Congress and the President to tackle the politically difficult issues associated with contingent liabilities such as government pensions and savings and loan insurance early, before it becomes prohibitively expensive to deal with them. Congress repeatedly postponed action on the S&L cleanup, even though that ultimately resulted in increased costs to the federal government. By restraining the government's ability to borrow, the amendment will provide a powerful incentive to deal with contingent liabilities honestly and promptly--before they result in unnecessary costs that require a three-fifths vote to authorize borrowing.
ENFORCEMENT OF THE BALANCED BUDGET AMENDMENT
The authors of the balanced budget amendment have sought to draft an amendment that meets the Constitutional standards of simplicity while providing for meaningful and enforceable fiscal restraint. H.J. Res. 1 meets this test. The amendment is self-enforcing and impervious to accounting gimmicks and overly-optimistic assumptions. Although the amendment anticipates that Congress will pass additional statutory procedures to enforce the amendment, even in the absence of such legislation, the provisions of H.J. Res. 1 will be self-enforcing both in forcing Congress and the President to take the actions necessary to bring the budget into balance and in ensuring continued compliance with the amendment.
Page 22 PREV PAGE TOP OF DOC
The amendment would require Congress to pass legislation implementing the details of how the amendment would operate. Implementing legislation is the appropriate place to deal with many of the procedural details related to enforcement of a balanced budget amendment that are not appropriate for a Constitutional amendment. Implementing legislation could address several issues, including the use of estimates in measuring compliance with the amendment; procedures for dealing with budgets that are projected to be unbalanced or when actual outlays exceed receipts; the role of the courts and the remedies available to the courts and other issues. Congress would have a strong incentive to enact implementing legislation outlining which estimates would be used in measuring compliance, detailing the procedures for dealing with an unbalanced budget and resolving other issues in order to preserve its prerogatives in these areas and prevent the President or the courts from usurping its role in these areas.
Even if in the unlikely event that Congress does not pass implementing legislation, the provisions of the amendment are self-enforcing through the three-fifths majority required in Section 1 to authorize outlays in excess of receipts and the requirement in Section 2 for a three-fifths vote to raise the limit on the debt held by the public. The amendment would essentially place an additional limitation on the ability to draw funds from the Treasury beyond that already provided in the Constitution.
The check on the government's ability to borrow money by creating immediate political and economic consequences for running a deficit will ensure compliance through accountability. For the first time ever, a deficit would be accompanied by Members of Congress explicitly voting for one.
No matter what accounting techniques are used to depict a balanced budget, and regardless of any ''rosy scenario'' economic assumptions, smoke and mirrors, or honest estimating mistakes, if actual outlays exceed actual receipts, the Treasury ultimately would need to borrow in order to meet the government's obligations. This would require three-fifths votes in both the Senate and House to raise the debt limit. The three-fifths vote requirement on the debt limit provides a powerful incentive for truth-in-budgeting, because Congress and the President could not escape the consequences of policies that increased the debt.
Page 23 PREV PAGE TOP OF DOC
The amendment does not require that a single document, a ''budget,'' be written in balance. It deals with how total outlays conform to total receipts. Taking an item ''off-budget'' in statute still could be used to give that item priority over others or give it certain protections in the budget process (as has been done with Social Security), but would not affect the operation of the Balanced Budget Amendment. The amendment would remove the current incentive to move items off-budget for the purpose of masking a deficit. The possibility of a three-fifths debt limit vote would deter moving deficit spending ''off-budget.''
Terms such as ''receipts,'' ''debt,'' ''revenue,'' ''whole number,'' and ''war'' already appear in the Constitution and have long-established meanings. Others, such as ''outlays,'' ''debt held by the public,'' ''budget,'' and ''declaratory judgment'' are universally and solidly understood, having been long-defined and used in OMB, CBO, Congressional, legal, and other documents.
Section 6 of the amendment recognizes that Congress and the President cannot plan for a coming fiscal year without making estimates. Section 1 provides the standard against which compliance with the amendment is measured: actual outlays may not exceed actual receipts. Section 6 clarifies that implementation and enforcement legislation may provide for the use of reasonable and appropriate estimates in the process of complying with Section 1. Section 6 is intended to support, strengthen, and aid the effectiveness of the other provisions of the amendment.
Section 6 must not be interpreted in any way that would weaken or allow evasion of any other provision of this amendment. Over the course of the fiscal year, outlays may not exceed receipts. To the extent that any reasonable and lawful action can be taken to prevent an excess, it must be taken. On the other hand, for example, a brief dip in receipts or jump in outlays need not trigger a sequester, rescission, or other offsetting action if it is reasonable to assume that such a ''glitch'' will be offset naturally in the near-term by normal economic or budgetary fluctuations. Congress and the President need not re-open the budget throughout the fiscal year simply because of month-to-month fluctuations in receipts or outlays. (E.g., A wave of last-minute tax payments could cause actual receipts to fall short of estimates in one month and exceed them in the next.)
Page 24 PREV PAGE TOP OF DOC
The threat of a three-fifths debt limit vote will enforce the accuracy of budget estimates. Any attempt to evade the requirements of Section 1 by using rosy economic assumptions would be exposed when the government incurs debt and Congress is required to muster a three-fifths vote to increase the debt limit. The political peril of a vote to raise the debt limit to finance a debt resulting from misestimates of outlays and receipts will provide an incentive for improving all budget estimates. To be safe, Congress should, and probably would, plan small surpluses in most years.
It is impossible to predict every decision Congress and the President will make to comply with a balanced budget. What the amendment would do is force Congress and the President to set priorities within a balanced budget and force an honest debate of what decisions and trade-offs are necessary to balance the budget. Currently, Members of Congress avoid setting priorities among competing programs and simply borrow money to pay for all of these programs. A balanced budget amendment would force Congress to decide which programs truly are priorities. Congress will be able to protect programs that are high priority.
The requirement for a three-fifths vote to allow the government to borrow money provides the teeth of the amendment. No matter what accounting gimmicks, timing shifts or other political games Congress and the President use to try to get around the amendment, the government would shut down at the point in which the government needs to borrow money to finance spending that exceeds revenues unless three-fifths of Congress have authorized a deficit. If the government runs a deficit, Congress would be required to vote by three-fifths vote to raise the debt limit to allow the Treasury Department to borrow money to finance the deficit to allow the government to continue to operate.
Page 25 PREV PAGE TOP OF DOC
Raising the debt limit is always a difficult task for Congress. The desire to avoid a situation in which three-fifths of Congress would have to vote to raise the debt limit will provide a powerful incentive for Congress--particularly the Congressional leadership--and the President to work together to ensure that the budget remains balanced. Congress would have a strong incentive to establish an ''early warning system'' to identify potential deficits before they occur to avoid the necessity of raising the debt limit. The debt limit provision provides what the budget process currently lacks--accountability and political consequences for running deficits.
As the nation's chief executive, the President would also be required to order that no funds be spent at the point in which spending would exceed revenues, unless a deficit was specifically authorized by a three-fifths vote of Congress. This duty is no different than the current duty of the President to prohibit funds from being spent if an appropriations bill has not been enacted by the beginning of a fiscal year.
The amendment does not broaden the current powers of the President over the purse in any way. In the absence of implementing legislation enacted by Congress providing the President with additional authority, the President would not have discretionary authority to stop funding for certain programs while allowing funding for other programs to continue.
As an absolute last resort, the courts will have a limited role in enforcing this amendment if both Congress and the President abdicate their responsibilities. The threat of any judicial involvement will provide a powerful incentive by itself. Congress and the President would face severe political consequences if courts became involved in the budget process because of a failure of the political branches to meet their Constitutional obligations.
The courts would have no role in sewing tax or budget priorities. They must only answer the yes or no question of whether a deficit was constitutionally authorized or public debt was constitutionally issued, preserving the appropriate role of the political branches in determining the priorities in bringing the budget into balance. The courts could make only a limited range of decisions on a limited number of issues. They could invalidate an individual appropriation or tax Act. They could rule as to whether a given Act of Congress or action by the Executive violated the requirements of this amendment. Indeed, a limited role is appropriate: In the words of Marbury v. Madison, the judiciary has a fundamental obligation to ''say what the law is.''
Page 26 PREV PAGE TOP OF DOC
It would be inappropriate for the courts, and it would be inappropriate to call upon the courts, to rewrite budget priorities and fiscal law. The ''political question'' doctrine of Baker vs. Carr, 369 U.S. 186 (1962), the requirement to a justiciable case or controversy (see e.g., Aetna Life Insurance Co. v. Haworth, 300 U.S. 227 (1937), and questions of standing would prevent the floodgates of litigation from opening upon the process in place under the Balanced Budget Amendment. For example, Riegle v. Federal Open Market Committee, 656 F.2d 873 (DC Cir. 1981), ''counsel[led] the courts to refrain from hearing cases which represent the most obvious intrusion by the judiciary into the legislative arena: challenges concerning congressional action or inaction regarding legislation.''
The traditional judicial doctrine of ''standing'' requires that a plaintiff has a direct and specific, personal stake or injury. A ''generalized'' or ''undifferentiated'' public grievance, such as would suggest ''taxpayer'' standing vis-a-vis macroeconomic policy decisions, is not recognized.
Absolutely no role for the courts is foreseen beyond that of making a determination as to whether an Act of Congress or an Executive action is unconstitutional and a court order not to execute such Act or action. A purely restraining role is anticipated for the courts and could be guaranteed by Congress in appropriate legislation specifying standing, jurisdiction, and remedies.
The courts have shown an ability and willingness to expedite their processes in an emergency. Recent examples are the reapportionment cases involving Massachusetts and Montana that went all the way to the Supreme Court and were resolved in a matter of months. Congress could further ensure expeditious handling, for example, giving the Supreme exclusive and original jurisdiction over cases arising under the Balanced Budget Amendment. The role of courts would be limited to stating whether a budget is in excess, striking down any action that violated the amendment, and requiring Congress and the President to take action. It would be up to Congress and the President to decide what should be done to bring the budget into balance.
Page 27 PREV PAGE TOP OF DOC
Members of Congress and the President do take seriously our vow to uphold the Constitution. Once the fundamental principle that current generations should not be able to burden future generations with excessive debt is enshrined in the Constitution, it will be clear whether or not Congress and the President have met their obligation established by this Amendment. The public will hold accountable any official who ignores this Constitutional mandate. This accountability will provide the ultimate enforcement of the amendment.
CONCLUSION
Mr. Chairman, it is always a pleasure to come before this committee, particularly to discuss an issue of such great importance as the Balanced Budget Amendment. That having been said, I hope this is the last time I will come before you on this subject. My great, great hope is that this year, at last, will be the final time to deliberate this issue.
All of the hours my staff and I, not to mention so many others, have been required to put into this issue notwithstanding, I know that our forbearers showed remarkable wisdom and foresight when they made it so difficult for us to amend the Constitution. This is no minor task we will be undertaking over the next few weeks.
When we Representatives take our oath of office, we swear to uphold the Constitution of the United States. That oath must not be taken lightly. This is no place for games-playing. It is no place for seeking political advantage. It is no place for irresponsible, short-sighted self-interest.
What I hope for above all is that the level of this debate rise to the standard deserved whenever Congress considers amending our most precious national document, the United States Constitution.
Page 28 PREV PAGE TOP OF DOC
I would wish that as a Nation we would look seriously at the hard work we have before us in protecting our children's future.
I would wish that we could, for once, go beyond the political demagoguery about certain ''sacred'' issues which push us farther and farther down the path of fiscal irresponsibility.
I would wish that intellectual honesty, moral integrity, and personal responsibility would guide the words each of us speak to such a degree that political expediency and alarmist exaggerations were shamed into hiding.
I hope that the remarks which fill the debate of the few weeks, regardless of whether the speaker be favorably or negatively inclined toward the amendments, reflect the seriousness of our endeavor.
I appeal to both sides, let us deliberate this issue straightforwardly and honestly. Especially to the freshmen Members I would say, please evaluate this issue on its merits, not on its internal or external politics. There is no such thing as an ''easy vote'' on a Constitutional Amendment.
We face an historic opportunity to add a solid, credible, meaningful amendment to the Constitution, at last responding to Thomas Jefferson's concerns. I urge my colleagues to take responsibility for the future we will hand our children and grandchildren by voting for the Balanced Budget Amendment.
Page 29 PREV PAGE TOP OF DOC
With the Committee's permission, I would like to submit for the record a few of the materials which we in our bipartisan, bicameral coalition supporting this consensus language have developed over the past few years.
Mr. Chairman, thank you again for this opportunity to appear before you today.
Mr. HYDE. I want to thank Mr. Stenholm for that excellent statement.
And while we are always delighted when he comes before us and testifies, I can guarantee him this will be his last visit on this subject if he uses his influence with his fellow Democrats and is as persuasive with them as you are with us.
Mr. STENHOLM. Mr. Chairman, we are going to work as hard and harder as we ever have to provide the necessary Democrat votes for this amendment.
Mr. HYDE. The essential, that is right, Democrat votes.
Thank you very much.
Next, in terms of balancing the arguments any way, we will hear from the former distinguished chairman of the Budget Committee. Martin Sabo of Minnesota.
STATEMENT OF HON. MARTIN OLAV SABO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. SABO. Thank you, Mr. Chairman, members of the committee. I was hoping the chairman would indicate he was open to options on this amendment.
Mr. HYDE. If the gentleman would yield?
I omitted to say it would be appreciated by the Chair if the witnesses could hold their testimony to around 5 minutes. We will forgo questioning you, but your full statements will certainly be part of the record.
Page 30 PREV PAGE TOP OF DOC
Mr. SABO. I thank the chairman, and I appreciate the willingness of this committee to listen to my views. I appreciate having the entire statement in the record.
And Mr. Chairman and members of the committee, I think I have some understanding of the unique difficulties of passing a large deficit reduction package. I was the author of the reconciliation bill in 1993, which was the largest deficit reduction package to pass the Congress.
I strongly support the balancing of the Federal budget. I believe we should do it. And as I look back over the years in Congress, some of the most important votes I made I think were in the early 1980's, for significant reform of Social Security, the bipartisan deficit reduction package of 1990, being involved in the passage of the 1993 deficit reduction package which managed to pass by one vote in the House and the Senate, and working with my friend Mr. Stenholm on the specifics of a deficit reduction package in 1995 that I, frankly, thought actually could have worked, in contrast to other proposals before us.
But, Mr. Chairman, the Constitution did not create our budget problems, and changing it will not solve them. Solving our budgets problems will always require an exercise of political will which is not dependent on the Constitution, cannot be engendered by the Constitution. The Constitution is our most valuable governing document and it should not be altered without extreme care.
It is my judgment that the constitutional amendment will prove to be either unenforceable or its enforcement will shift unprecedented budget powers to the courts and the President. It significantly increases the power of minority political blocks, not necessarily partisan blocks, within the Congress.
The Constitution currently only calls for supermajorities on three occasions: Approving a constitutional amendment, overriding a Presidential veto and declaring the President unable to perform his duties.
All three involve actions by the Congress without the President's participation. The requirement for a supermajority of both Houses and the President's signature is without precedent in the Constitution. Even declaring war does not have that kind of precedence.
Page 31 PREV PAGE TOP OF DOC
Mr. Chairman, let me speak to some of the practical problems. This amendment would assume that our ability to forecast is incredibly accurate. The reality is that they are over the long-term, but year-to-year forecasts can vary immensely.
I would suggest that all the Members read the summary and opening part of the CBO's analysis for the next 10 years; you will find every estimate hedged in significant uncertainty. I believe that the long-term is accurate but expect significant variation from year-to-year.
The reality is the National Government of the largest, strongest, most powerful economy in the world has special roles in stabilizing the economy, responding to emergencies at home and threats from abroad. And this does require some flexibility and budgeting.
Let me just mention some very specific practical problems that we would have faced if this amendment had been in place over just recent years. Persian Gulf--during the Persian Gulf vote, part of what we were told there was that our allies would pay most, or if not all, of the cost of the Persian Gulf, and in the end that proved to be accurate.
However, the cash-flow for that prediction did not flow with our normal expenditures. The reality was that the Congress had to appropriate significant budget authority so that troops could be deployed, could be supported, could be sustained; and at some point the actual cash flowed back from contributions from our allies. We would have been in a position where a majority vote could have sent the troops, but 60 percent required to accommodate the increase in debt ceiling.
Savings and loan industry crisis of the 1980's, clearly there was a responsibility of the Congress to respond to that.
Again we find a very significant mismatch in the cash flow as we responded to that crisis to make sure that people's savings were insured and that people didn't have their savings taken away from them. If this amendment had been in place, we would have had to either get a 60-percent vote, which was not very easy to do with anything dealing with the S&L's, abandon our commitments, or raise taxes or cut spending significantly more than the actual cost.
Page 32 PREV PAGE TOP OF DOC
The reality was as we dealt with the S&L's, the bulk of the cost came in the first 7 years. In the last 4 years we have recouped about 38 percent of the total cost of that program.
Would we have been able to respond under the Constitution with this amendment? I don't know. I think it would put it in serious doubt.
We also have other practical problems. Even if we achieve balance, we are then giving power to a minority 40 percent plus 1 to simply handle the cash-flow problems of the Federal Government on a year-to-year basis.
The reality is that even if we are in balance, we are going to most likely have to continue to increase the debt ceiling simply to pay our bills. The early months of a fiscal year, October, November, are low cash-flow months for the Federal Government. We enter the debt market simply to handle that cash-flow, and the problem is substantial in those early months. I see nothing in any of these amendments that would require anything other than a 60-percent requirement simply to handle the cash-flow problems of the Federal Government.
Another very practical problem that we face, Mr. Chairman, which I have never heard really addressed, is how we go about continuing the financing of the existing Federal Government debt. The reality is that that cost today is too high because of mistakes we made in the 1980's, but it is still there accounting for about 14 percent of our total spending.
One of the very significant variables in the Federal budget from year to year is the variation of short-term interest costs. If one is operating under the requirements of year-to-year balanced budget requirements, I would think the Federal Government would want to make sure that interest costs are stable from year to year. The only way you do that is switch totally to long-term borrowing so that you have that stability of knowing what interest costs are for the Federal Government.
That would mean two very different things. One, it would likely increase long-term cost of financing the debt, because historically long-term rates have been significantly higher than the more volatile short-term rates; or else the political temptation is every year to assume greater and greater short-term rates borrowing if the rates are low, increasing the volatility, which quickly can throw you out of balance.
Page 33 PREV PAGE TOP OF DOC
If we would do the smart budgeting things of assuring stability, of going to long-term borrowing, I would hope this committee would take some look at what that impact could be on long-term rates. It would be a significant shift in the basic debt structure of the country, and, in my judgment, likely to increase the cost of long-term debt not only for the Federal Government, but also for the private sector.
So, Mr. Chairman, let me conclude by saying I think there are very strong national interests, very strong basic governmental reasons for not changing our Constitution that go to the very heart and structure of how we govern ourselves. I think this amendment diminishes the ability, and capacity of the National Government to respond to crises both domestic and international that are the responsibility of a Federal Government in a country as large and rich as ours.
Plus I think there are whole hosts of practical problems that really have never been explored as we consider this amendment, which, in my judgment, started out originally as a statement of political will. A political statement, that we now find ourselves on the edge of having inserted into the most important governing document that exists in the world. I would just urge this committee to exercise extreme caution before taking such a drastic step.
Mr. HYDE. I thank the gentleman from Minnesota for his usual excellent statement.
[The prepared statement of Mr. Sabo follows:]
Prepared Statement of Hon. Martin Olav Sabo, a Representative in Congress From the State of Minnesota
Mr. Chairman, Members of the Committee: Thank you for the opportunity to appear before you. I appreciate your willingness to listen to my views.
Today you begin to hear from a variety of witnesses on adding a balanced budget amendment to the United States Constitution. As the author of the largest deficit reduction package to ever have moved through this Congress, I think I have some unique experience in the field of budgeting and I know how difficult it is to pass a reasonable budget.
Page 34 PREV PAGE TOP OF DOC
I support balancing the federal budget and believe very strongly that we should get on with the job, but I oppose putting this type of requirement in the Constitution and I would like to tell you why.
The Constitution did not create our budget problems and changing it will not solve them. Rather--solving our budget problems will require an exercise of political will which is not dependent on the Constitution and cannot be engendered by the Constitution. The Constitution is our most valuable governing document and it should not be altered without extreme care.
I believe there are some fundamental structural problems and some very serious practical problems with putting a balanced budget requirement in the United States Constitution. This addition would change the nature of our most sacred governing document--the Constitution. It would change the balance of power among the three branches of government, and some of the proposals would even change the balance of power within the legislative branch. On a more practical level, it could raise the cost of government well above what is needed for a given level of service and have a potentially harmful effect on long term interest rates.
I. THE BALANCED BUDGET AMENDMENT MAKES MAJOR CHANGES IN THE INSTITUTIONS OF DEMOCRACY
The Constitution is about fundamental rights and basic limits on the power of government. This amendment is essentially different from the other limits on government powers found in the Constitution. The existing limits tend to be commands ordering some branch of government not to do something--for example, not to pass laws abridging freedom of speech. This proposal, however, commands Congress and the President to do something very specific each year, namely to enact a package of spending and taxing legislation that balances the budget.
Page 35 PREV PAGE TOP OF DOC
I believe it will either prove to be an unenforceable promise, or its enforcement will shift unprecedented budgetary powers to the courts and the President.
One concern is that a President could assert broad powers to withhold spending or modify programs and benefits using the balanced budget amendment as justification. This could occur even if Congress, acting in good faith, had passed a balanced budget but the President did not believe it was balanced. This shift of power is in direct contradiction to the basic plan of the Constitution which assigns primary power over the purse to the people's elected representatives in Congress.
Secondly, a balanced budget amendment could give rise to a flood of litigation. I realize that there are some proposals that try to include language limiting the power of the courts, but I am not sure that is possible in this situation. And, if the courts do have to enter this area, they could find themselves embroiled in matters of spending and taxes that have always been the province of elected branches of government. This is a profound change in our system of governance.
In some of the proposals being discussed, the amendment would greatly increase the power of minority blocs within the House and Senate. This is because they require a supermajority to waive their various requirements. Consequently, in any year when Congress and the President are unable to eliminate a deficit completely, a minority of either chamber would be able to block budget-related legislation. This is contrary to the basic constitutional principle of majority rule, and could lead to brinkmanship and gridlock.
Page 36 PREV PAGE TOP OF DOC
The Constitution requires a super-majority vote in both the House and the Senate in just three situations: approving a constitutional amendment, overriding a Presidential veto, and declaring the President unable to perform his duties. All three situations involve action by Congress without the President's participation. The requirement for a super-majority of both Houses and the President's signature is without precedent in the Constitution.
II. THE BALANCED BUDGET AMENDMENT CREATES SERIOUS PRACTICAL PROBLEMS FOR GOVERNING AND RISKS TO THE ECONOMY
A. Practical Problems for Governing
In addition to the basic philosophical problems, I see several practical concerns. As anyone who has monitored the performance of various forecasters over the years can tell you, their accuracy is actually more reliable over the long term than in the immediate future. For instances those of you who follow the stock market are familiar with the conventional wisdom that the market returns on average 10% a year, but that doesn't preclude tremendous variation from one year to the next. And in fact, we are always being warned about this variability by market gurus. Why then do we expect forecasters of government spending, revenues, and the effects of the economy on the government to do any better? Yet this amendment would require that all our predictions and forecasts be right on target, or we could have serious constitutional problems.
In addition, there are other basic problems that emerge even if all forecasts prove to be 100% accurate. First, national governments have special roles to play, including stabilizing the economy and responding to emergencies at home and threats from abroad. These functions require a flexibility in budgeting which is inconsistent with a rigid balanced budget requirement in the Constitution.
Page 37 PREV PAGE TOP OF DOC
For instance, during the Persian Gulf crisis in the early 1990's our government negotiated a series of agreements with our allies to help defray the costs of our involvement in that conflict. But in order for the Pentagon to be able to act expeditiously, we needed to appropriate the Budget Authority to move our troops before the reimbursements arrived and in some cases even before the negotiations over the reimbursement were completed.
Another example of a situation involving serious government obligations which we would have been unable to meet under this amendment was the Savings and Loan Industry crisis of the late 1980's. The need to make good on government insurance obligations and protect critical parts of the nation's financial infrastructure involved spending large sums of money in the late 1980's but not collecting a return on the sale of S&L assets until 1993. In 1993 we started to see a surplus in the deposit insurance account, and in the last four years we have recouped 38% of the money we had to spend in the seven preceding years. I don't doubt that there were many mistakes made over the years in the S&L industry; but when the government assures people that it is insuring their money, it is necessary to honor that commitment.
If this amendment had been in place in 1987, we would have had to raise taxes significantly to meet our obligations even though we ultimately have been able to recoup significant portions of those early expenditures.
A third example of practical difficulties asses when we experience emergencies such as severe weather problems late in the fiscal year and the government is unable to cut other spending or raise the revenues necessary to pay the cost of dealing with the emergency.
A different problem asses when there are mismatches in cash flow within a given year. The fact is, there is almost no month of the year when the revenues we take in match the spending we do. And while our ability to predict these differences is very limited, it does appear that we regularly have much higher costs than revenues in the early months of a fiscal year.
Page 38 PREV PAGE TOP OF DOC
Even after the budget is balanced, it is very possible that we could need to raise the debt ceiling in the beginning of the year to get the cash necessary to pay bills even if the budget for the entire year is in balance. Because most of the balanced budget amendments require a 60 majority to raise the debt ceiling, this very normal feature of government cash flow could provide an opportunity for a small minority in Congress to impose its will on the country.
The threat of default is a very serious problem for our entire economy, not just the government sector. Because of that fact, this situation could create a real ''tyranny of the minority'' and is in direct conflict with the principle of majority rule on which our nation is founded.
B. Practical Problems for the Economy
My second practical concern involves the way we finance government debt. Interest costs are the only totally uncontrollable costs in our budget. This year they will account for 14 percent of our total spending.
It has been my experience--and I am sure many of you share this feeling--that I don't like unnecessary risk in meeting my governing responsibilities. Because we have very limited ability to predict the future accurately, there will be real pressure to make interest costs more stable. One way to do that is to use long term debt instruments that have fixed interest rates. Unfortunately, long term rates are almost always higher than short term rates, and reapportioning federal debt to rely too heavily on long term debt instruments could have the effect of making government much more costly than it needs to be.
Page 39 PREV PAGE TOP OF DOC
A requirement to balance the budget every year could create real pressures to finance all government debt over the longest possible terms. Not only could this increase our costs, I believe it could have the effect of increasing long term rates for all potential borrowers. This is clearly not what the authors of this amendment intend or want, but I fear it could be one of many harmful side effects.
III. CONCLUSION
I fear that we may do serious, although unintended, damage to our finances and to the institutions of democracy if we add a rigid balanced budget requirement to our Constitution. In flirting with this amendment, we are indeed ''playing with fire.'' I urge you to review the proposals before you very carefully.
Mr. HYDE. And next we will hear from the gentleman from California Congressman Chris Cox, who is chairman of the Republican Policy Committee, and who is a principal--was a principal sponsor of the version of the balanced budget amendment which this committee reported in 1995.
Mr. Cox, would you try to hold it down to 5 minutes, and your statement will be made a part of the record.
STATEMENT OF HON. CHRISTOPHER COX, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. COX. Thank you very much, Mr. Chairman, and I want to thank all the members of this committee who are showing special interest in this most important testimony. I want to thank you for the opportunity to participate in this panel, testifying on what I believe is the most important legislation that the 105th Congress will consider, a balanced budget amendment to the Constitution.
Page 40 PREV PAGE TOP OF DOC
We consider constitutional amendments with some regularity in Congress, but rarely do we actually pass them, and it appears that this time we are going to do so.
I would like to echo the comment that my colleague from Texas Mr. Stenholm just made to this committee. He offered compelling testimony on the enormous burden that the public debt places on our future, on our children, on our families. At the end of 1996, the public debt stood at $5.3 trillion. Ironically it was April 1st last year when it crossed the $5 trillion mark for the first time.
And sometimes people say, well, we just owe it to ourselves. Were that it were so that we could simply wave a magic wand and forgive the debt to ourselves. But, in fact, this is debt sold in the marketplace to investors, both domestic and foreign. Taiwan is the now the largest holder of foreign debt, and we must pay the interest on that debt.
How much is it? Well, if you pay income taxes, like every working American, it is half of your income tax. It is over half. In fact, for those of us who live in the Western United States, west of the Mississippi, we might say that it takes all of our income taxes because it takes more than 100 percent of all the income taxes paid by every single American living west of the Mississippi just to pay 1 year's interest on the debt.
What this means is that when we send in our check with our form 1040, or sign it to hope for a small refund against that large tax liability shown at the bottom, we can imagine that we take all of that money that we worked hard to earn and put it on a big bonfire, totaling $340 billion last year, and pour charcoal starter on it, lighter fluid, throw on a match, and watch it go up in flames. It buys no national defense, no environmental protection, no health care, nothing that we might look for from our Federal Government. Instead, in one of the most incredible tragic wastes in the history of mankind, it all goes to interest on the debt, which is effectively no government service at all.
It is worse for our children than it is for us because this problem is growing, and that is why I am here to talk about a particular version of the balanced budget answer offered by my colleague from Texas Joe Barton that would not only limit spending, but would limit taxes, because taxes and spending go hand and hand. It has been the explosion in tax collections and in spending that has been the hallmark of the growth of government during the 20th century. Limiting spending without limiting taxes is only doing half the job. It is the growth of government beyond our control that is the problem.
Page 41 PREV PAGE TOP OF DOC
When I was in college, which wasn't all that long ago, the Federal Government was one-sixth the size it is today. If you take a look at the years 1972 to 1975, for a convenient reference, marking the election of Richard Nixon in 1972 and the election of Jimmy Carter in 1976, and add up all the spending in 1972, 1973, 1974, 1975, 1976, in those 5 years you would fall $185 billion short of what this Congress will spend this year.
The growth of taxes and spending have been the hallmark of our 20th American century, and it has flown directly out of the ratification in 1913 of the amendment of our Constitution that the Founding Fathers never intended to be there, the income tax amendment.
Some people say passing a balanced budget amendment, particularly one with tax limitations, is tampering with the Constitution, but the Founding Fathers never put the income tax in the Constitution. In fact, there was a constitutional prohibition against one. And it was that change in the front end of the 20th century that gave us this explosion in taxes and in spending. And because the spending programs are so ingrained, Congress finds it easier to keep raising taxes than to stop that growth. That is why it is so important for us to limit both.
We are trying to maintain a historical perspective whenever we amend the Constitution because this wonderful document was given to us by some of the most enlightened people of the Enlightenment, of the Age of Reason, centuries ago. But as we try and look at history and look back so many years, it should make it easier for us to think of the 1950's as modern history, because compared to the time of Tom Jefferson, it was.
Think of how America was in the 1950's, when I was growing up as a child. In the 1950's, our Federal Government and our State government didn't consume the 40 percent of our gross domestic product we do today. It was half of that. Taxes, as a result, were concomitantly lower. We didn't have the overwhelming burdens of Federal spending and Federal taxes on the American family in those days.
The average American family making the average American income in those days paid income tax at a rate of just 2 percent. Their FICA tax rate was 1/2 plus 1 percent. That same average family when I was growing up, and many of you here, could afford a three-bedroom home with only one spouse working. That was the norm because they paid only 4 percent on their 30-year mortgage. All of this was possible because, despite major Federal Government projects like the GI Bill, the Korean War and the Marshall Plan, the Federal Government balanced its budget and, importantly, did so in a low tax environment.
Page 42 PREV PAGE TOP OF DOC
This is once again possible. Restoration of our constitutional norms, taking into account the massive change we introduced into our Federal life with the passage of the 16th amendment in 1913, is what this Congress should be all about. The kind of future that we can have is like our recent modern history if only we will go back to that original wisdom of our Founding Fathers. It is exactly what the tax limitation balanced budget amendment will provide and can provide.
I thank you for your time, and especially for your attention to this most important matter.
Mr. HYDE. Thank you, Congressman Cox, for your usual excellent presentation.
[The prepared statement of Mr. Cox follows:]
Prepared Statement of Hon. Christopher Cox, a Representative in Congress From the State of California
Mr. Chairman, I want to thank you for the opportunity to testify this morning on the most important legislation the 105th Congress will consider: a Balanced Budget Amendment to the Constitution.
I would like to begin by briefly echoing the comments of the previous speaker, my colleague from Texas (Mr. Stenholm), who offered compelling testimony on the enormous burden of public debt that our children stand to inherit.
At the end of 1996, the public debt stood at more than 5.3 trillion dollars, exceeding 20,000 dollars for every man, woman, and child in America. This year, over 340 billion dollars--representing fully half of the amount collected nationwide in federal income taxes--will be consumed by interest payments simply to maintain existing debt. It's as if we are taking every cent of the income taxes from every American living west of the Mississippi River and burning them up into smoke.
Page 43 PREV PAGE TOP OF DOC
To ensure that our children's freedom and opportunity will not be crushed by an overwhelming burden of debt and taxes, I'd like to speak today to the merits of the Tax Limitation Balanced Budget Amendment, which I've sponsored together with Reps. Joe Barton, Ralph Hall, John Shadegg, and others.
The Tax Limitation Balanced Budget Amendment will require a balanced budget. It will permit this requirement to be waived only if a two-thirds majority of each House of Congress agrees to overspend. Just as importantly, though, our amendment will also require a two-thirds majority of each House of Congress to approve an increase in any tax.
The Tax Limitation Balanced Budget Amendment would thus not preclude a tax increase in times of war or other national emergencies. Rather, the amendment merely ensures that a broad consensus, rather than a bare majority, is necessary to impose taxes on the American people.
Tax limitation is by no means a new idea.
I once taught a federal income tax course at Harvard University. I used to remind my students of Chief Justice John Marshall's celebrated dictum that ''The power to tax involves the power to destroy.'' Our Founding Fathers understood well the need to limit the federal government's power to tax, and wrote into the U.S. Constitution strong protections against unlimited taxes. The Founders also wisely prevented against an income tax in the Constitution itself. It took a constitutional amendment--the 16th Amendment, ratified in 1913--to permit what has developed into the most invasive and hated interference of the federal government into the lives of ordinary citizens.
Page 44 PREV PAGE TOP OF DOC
In 1916, the Congress enacted an income tax containing a $5,000 exemption, meaning that nobody who earned this amount paid any income tax at all. Adjusted for inflation, this $5,000 exemption would have been worth $82,000 today. But today, in the late 20th century, each of you here and each of your constituents pays several hundred percent more in income taxes than your mother and father did. Today, over 95% of all taxpayers who are forced to file income tax returns are people earning under $82,000--people who were promised by the sponsors of the 16th Amendment they would never be taxed at all.
What we have learned since 1913 should teach us what the Founders knew well: that the federal government simply cannot be trusted with unlimited power to levy taxes. The Tax Limitation Balanced Budget Amendment will ensure that Congress may only increase its powers to tax if there is a broad consensus for such an expansion.
When I was growing up in the 1950s, government did not consume the 40 percent of our gross domestic product it does today, but half that. As a result, the average American family, making the average national income, paid an income tax rate of just two percent. Their FICA tax rate was one and a half percent.
That same average family of my parents' generation could afford a three-bedroom home, even though the norm was that only one spouse had to work. They paid only four percent interest on their 30-year mortgage. All of this was possible because--despite such expenditures as the Korean War, the G.I. Bill, and the Marshall Plan--the federal budget was balanced in a low-tax environment.
Page 45 PREV PAGE TOP OF DOC
This is once again possible. And it is exactly what the Tax Limitation Balanced Budget Amendment can, and will, provide.
Mr. HYDE. And finally, but certainly not least, the gentleman from West Virginia Congressman Robert Wise is going to testify. He was the author of a substitute amendment offered on the floor during our consideration of the balanced budget amendment in the last Congress, and I am sure we will be enlightened by what he has to say.
And if you could hold your remarks to around 5 minutes, we can assure you your written statement will receive a prominent place in the record.
Mr. WISE. May I infer that I can disseminate all the enlightenment possible, but do it in 5 minutes?
Mr. HYDE. I think you're capable of that and even more.
STATEMENT OF HON. ROBERT E. WISE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA
Mr. WISE. Thank you very much, Mr. Chairman. I thank you. I think in this panel you have permitted a good range of viewpoints on the balanced budget amendment. Everyone here supports balancing the budget, supports decrease deficit reduction, supports decreasing the deficit. Mr. Stenholm certainly has been a leader in that; Mr. Sabo, Mr. Cox and others.
I was just visited by the Concord Coalition last week that presented me with a certificate for being in the 91st percentile on deficit reduction last year. I voted for the budget that Mr. Stenholm put forth, the Blue Dog budget, that requires balancing in 7 years, so everyone here is on record, but I believe you balance the record the old-fashioned way.
You don't have to, and you indeed should probably not, put it in the Constitution and it is locked in forever that says, incidentally you will do it in 7 years, and how you get there, we will figure it out along the way.
Page 46 PREV PAGE TOP OF DOC
But having said that, Mr. Chairman, if we are going to amend the Constitution, if we are going to commit this very, very serious act, then I would urge that at least we do it in a sane and fiscally responsible way.
Everyone here, I would suspect, has made the speech that I have made in the past that the Federal budget should be treated the same as the family budget or the business budget or the State budget and that they should be in balance. Well, fine, then let's do apples and apples and oranges to oranges. But don't try to compare apples and oranges. The difference is very simple that every business, every family and every State borrows for certain physical infrastructure, borrows for those things that they can't seem to pay for in 1 year but which are very important for their continued growth and prosperity.
Sandy and I have a mortgage on our house. I think I can safely say that most people aren't able to pay for a house in 1 year, nor can a State pay for a mile of highway, nor can a business pay for that expensive piece of equipment. If you force the State, the business or the family to operate the way the Federal Government does, you would have to pay for that house in 1 year, you would not be able to spread the cost out over the life of the asset.
So what I would urge, Mr. Chairman, if this committee is going to adopt a constitutional amendment to balance the budget, that it include our capital budgeting provision that says, as is the case in every State, as is the case of every business, as is the case with every family, that says very clearly, you can have a capital budget for physical infrastructure.
I have heard some complain and worry that there could be a loophole. Well, there is no loophole when you say physical infrastructure. Roads, bridges, water systems, sewer systems, airports, those things that are physical, not welfare, not veterans' payments, but physical.
Ask yourself this: Why is it that in the Federal Government that we consider a dollar spent for pencils bought for the courthouse or for a gallon of gasoline bought for the Federal vehicle to be the same as a dollar spent for the mile of highway? And yet that is the way this accounting system is.
Page 47 PREV PAGE TOP OF DOC
Every person on this panel, and I am looking at every State that is represented here, has some form of capital budgeting in your State. Your State could not operate if the terms of this amendment as proposed were actually put into your State constitution, nor could my State. And so that is why it is important to recognize that if you are going to require a balanced budget amendment similar to what States have, then you have to have it like States have, and you have to have a capital budget. You have an operating and maintenance account in every business that has to be balanced. You have a capital account for physical infrastructure, whether it is the big truck that has to be bought, the piece of heavy equipment or whatever.
I would even refer you to the January 29 issue of the Washington Times, certainly not a House organ for liberal Democrats, in which Bruce Bartlett for the National Center for Policy Analysis, and I believe a supporter of a constitutional amendment to balance the budget, states his support for that, but also points out the need for a capital budget.
Go home and look at your mortgage tonight. Look at the car payments and recognize the fact that in the Federal Government, the Federal Government could not buy that house because it would have to pay for it all in 1 year. So I would just urge this committee to look closely at that.
Very quickly, in two other areas, Social Security, this amendment--my amendment as well, or my substitute as well, would take Social Security off budget. If you had been in this Congress longer than the last 30 days, then what you know is that you have voted at some point overwhelmingly, in an overwhelming majority, to take Social Security off budget. This House has passed more resolutions, binding, nonbinding, concurrent, legislative, to say Social Security shall be off budget, does it every 2 years. It is just like clockwork. And so consistently this House has gone on record to say Social Security should be off budget. And if it was good enough every year up to now, why shouldn't it be in the Constitution?
Some people say that they are afraid that we will become a subject for loopholes, that if you take it off-budget, everything goes in there. Let me tell you what a lot more people are afraid about, particularly those in our districts. They are afraid that if you leave it in the budget, it is going to become that loophole that is used to do the deficit reduction that people say they really don't want it to do.
Page 48 PREV PAGE TOP OF DOC
And incidentally, if you adopt my capital budgeting amendment, the offset is just about the same to counteract the amount if you take Social Security off budget. That means about $60 to $65 billion worth of surplus would not be counted toward deficit reduction. Capital budgeting would actually give you about that much to make it even. So I would urge you to look seriously at this amendment.
We can't have it both ways. If we want our Federal budget and our Federal Constitution to be balanced in the same way that we say we want every State budget to be balanced, then we have to have the same structure in place, and that is for fiscal infrastructure. There is a reason why we are not building the roads and bridges and other physical infrastructure in this country that we ought to, or even maintain what we have got, and that is because we have got a disincentive in our Federal budget toward that. Well, if we want that investment, then we have to have the capital budget that permits it possible. If you are going to vote for a balanced budget amendment to the Constitution because you believe that is the way families budget their budgets, and you believe that is the way businesses do and States do, then at least balance the budget the way businesses and families and States do and have a capital budget in there that permits the kind of investment and physical infrastructure that is so necessary.
Thank you, Mr. Chairman.
Mr. HYDE. Well, thank you, Congressman Wise. And I want to thank this panel for leading off this very important discussion and adding to the sum total of our knowledge on it, and we are very grateful. Your statements will appear in the record. Thank you.
[The prepared statement of Mr. Wise follows:]
Prepared Statement of Hon. Robert E. Wise, Jr., a Representative in Congress From the State of West Virginia
Mr. Chairman, Members of the Committee, I want to thank you for the opportunity to testify before you today about the balanced budget amendment which I have offered the past three Congresses and the importance of moving toward a federal capital budget.
Page 49 PREV PAGE TOP OF DOC
Tomorrow, I will reintroduce legislation to balance the budget by 2002. My legislation is a positive, responsible alternative to H.J. Res. 1 and offers an approach that is modeled after the way families plan their budgets and the budgeting practices used in all of our states.
My amendment is different from H.J. Res. 1 in several ways. First, my amendment distinguishes between operating costs and long-term investments. Highways, federal salaries, health benefits and foreign aid, which are all examples of federal programs that are paid for through taxes and borrowing, are currently accounted for in basically the same way. But all borrowing is not created equal. Borrowing for physical infrastructure can be justified if it pays for itself in the long-run by increasing the nation's wealth and capacity for future economic expansion. Borrowing to meet the day-to-day expenses of government cannot.
Businesses know the difference between borrowing to consume and borrowing to invest. Borrowing is a smart move when the money is used to finance productive investments that help a business modernize its equipment, expand and become more profitable. But borrowing money to pay salaries or executive bonuses or to send employees to expensive conferences rather than to modernize would be foolish.
Proponents of H.J. Res. 1 say that the federal government should balance its budget the way every family must balance its budget. My legislation does just that. If we look at the way a family budgets, we see that monthly budgets are balanced, but long-term investments are something worth borrowing for. For example, a family will not borrow to pay grocery bills, but would not hesitate to borrow to buy a home or send a child to college. The Congress also needs to distinguish between a dollar spent and a dollar invested.
Page 50 PREV PAGE TOP OF DOC
Secondly, my amendment protects seniors and stops the Social Security shell game by taking Social Security out of the budget. Even though it is supposed to be an independent, self-financing program, Social Security and its annual surplus have been added to the budget year after year to make the real deficit look smaller. This threatens our senior citizen's economic security. My amendment will take this program out of the budget and prevent the gutting of the Social Security Trust Fund.
Finally, my amendment is tougher than the other alternatives. It allows deficit spending in only two limited circumstances: war and recession. Under my amendment the federal government may never run annual deficits except in times of imminent threat to the nation's security or two consecutive quarters of negative growth, both circumstances are subject to approval by a majority vote in both Houses.
All of us agree that the budget deficit must be reduced, but the United States must also continue to make investments that are critical to future economic growth. Rather than going from crisis to crisis, the federal government should have an institutionalized system of long-term investment planning. Adopting a federal capital budget would provide such a mechanism.
Mr. Chairman, Members of the Committee, this is a time of fundamental change in the way government serves the people. In order to be more responsive to taxpayers' needs and more responsible with taxpayers' money, I believe the federal government should reform its budgeting to distinguish between consumption and investment. Adopting a balanced budget amendment which includes a capital budget would begin to effect this critical change and I hope you will seriously examine and ultimately endorse this important budget reform.
Page 51 PREV PAGE TOP OF DOC
INSERT OFFSET RING FOLIOS 5 TO 6 HERE
[The prepared statements of Messrs. Castle, Barton, Archer, and Schaefer follow:]
Prepared Statement of Hon. Michael N. Castle, a Representative in Congress From the State of Delaware
Mr. Chairman, I am very pleased to have the opportunity express my strong support for House Joint Resolution One, to propose an amendment to the Constitution to require a balanced budget for the U.S. Government. I am proud to be part of a bipartisan team working for passage of the balanced budget amendment with my colleagues, Dan Schaefer, Charlie Stenholm, Bob Smith, Joe Kennedy and Tim Roemer. This effort demonstrates that there is broad support in both parties for making a balanced budget part of the basic principles of this great nation.
Mr. Chairman, when I came to Congress in 1993, after having the honor of serving as governor of Delaware for eight years, I enthusiastically joined the effort to pass a balanced budget amendment. I was an original cosponsor of the Schaefer-Stenholm Bipartisan Balanced Budget Amendment in the last Congress and I am proud to be part of this effort again this year. I want to make the following key points in my testimony today: 1.) My experience in state government has convinced me that a constitutional requirement to balance the budget is workable end necessary. 2.) H.J. Res. 1, the Schaefer-Stenholm-Smith-Castle-Kennedy-Roemer version of the Constitutional amendment is the legislation that has the best chance of passing Congress with bipartisan support and gaining the approval of the States, and, 3) this amendment poses no threat to the Social Security System, and in fact, will help ensure it is protected in the future.
My strong belief in the need for a constitutional requirement for a balanced budget is based on the experience of my own state. I lived through disastrous times in Delaware in the 1970's when we did not have a balanced budget requirement, and I have seen the tremendous economic recovery that occurred when a balanced budget amendment was added to our state constitution.
Page 52 PREV PAGE TOP OF DOC
Before we passed a Balanced Budget Amendment, the State of Delaware was an economic basket case. We had the highest personal income taxes in the country--19.8 percent--but the State could still not balance its budget; businesses were leaving Delaware as fast as they could get out. Delaware's State Government operated the way the Federal Government operates today.
When Delaware passed a balanced budget amendment in the 1970's, the state was forced to get its economic house in order. Since that time, Delaware has been one of the economic showplaces of the nation. We balanced our budget 18 straight times, reduced taxes 5 times; we have created more jobs on a percentage basis than virtually any other state; and reduced poverty more than any other state during the 1980's. Delaware became a financial success story. I do not believe this would have occurred without the fiscal responsibility imposed on the government by the balanced budget amendment.
The amendment forced state officials to make the tough decisions to reduce government spending: we froze state salaries; implemented early retirement programs; changed the way we delivered social services. It wasn't easy. We also changed our laws to attract new businesses and increase state revenue. Today, Delaware is one of the best run states in the country. Unemployment is below 5%, the state has a budget surplus and reduced taxes again under our current governor in 1996. That is what fiscal responsibility can accomplish.
I am absolutely convinced this is the course the Federal Government should take. Both Congress and the President have a right to be pleased that the deficit has declined over the past several years. We have begun to make better budgetary choices, but most of the difficult to reform and save Medicare and other entitlement programs remains to be accomplished. While we have had some short-term success, the Congressional Budget Office has just reported that the deficit will begin to climb again this year and will continue to grow far beyond $200 billion unless we act soon. We must make permanent the requirement for a balanced budget, and the most effective method to achieve this is with an amendment to the Constitution.
Page 53 PREV PAGE TOP OF DOC
Mr. Chairman, there has been a lot of debate on how a balanced budget amendment to the Constitution should be constructed. The amendment I am supporting, H.J. Res. 1, also known as Schaefer-Stenholm, has been the version of the amendment most carefully studied, refined and considered. It has bipartisan and broad support in both the House and the Senate.
H.J. Res. 1. would prevent our government from spending more than it takes in, unless 3/5ths of both Houses vote to do otherwise. It would also require a 3/5ths vote to raise the limit on the debt held by the public. These two measures will ensure that the Federal Government stays on the course of fiscal responsibility. The amendment also has effective protection against increased taxes by requiring that any tax increase be approved by a constitutional majority with a roll call vote. This is a higher standard than just the simple majority of those present and voting--with no roll call vote requirement--that exists under current law. This amendment has always been the leading alternative, consistently winning the most support among Republicans and Democrats.
Mr. Chairman and members of the Committee, H.J. Res. 1 has bipartisan support and will result in a balanced budget for the nation in a rational and responsible manner.
One of the most alarming arguments made against a balanced budget amendment to the Constitution is that it will jeopardize Social Security. This is simply not true. A balanced budget amendment will not threaten the existence of Social Security. In fact, a balanced budget amendment will help protect Social Security against the threat posed by continued federal deficits. The largest threats to Social Security are deficits and debt: Ballooning interest payments on the national debt are already squeezing out other fiscal priorities. Spending more on interest eventually threatens all programs, even Social Security.
Page 54 PREV PAGE TOP OF DOC
A BBA will protect Social Security now and in the future: Even studies by balanced budget amendment opponents show interest rates dropping immediately in anticipation of phasing in a balanced budget. Besides all their other benefits, zero deficits, a smaller debt, and lower rates would reduce the squeeze on Social Security caused by the need to pay interest on the debt.
There are those who argue that Social Security should be exempt from the Balanced Budget Amendment. This is a false argument and equivalent to the ''Medicare'' tactics of the 1996 campaign. Exempting Social Security from the Balanced Budget requirement would ultimately threaten the Trust Funds: The temptation would be irresistible to call other programs as essential as Social Security, exempt them from the balanced budget requirement, and pay for them by draining the Social Security Trust Funds. This would obviously undermine the integrity of the funds and threaten the purposes for which they were established.
Forceful statutory protection for Social Security can and will continue: Social Security currently enjoys unique statutory protections in the budget process. None of those would be changed by the BBA. Both political reality and the positive budget and economic effects of the BBA point to maintaining, not eroding, Social Security's priority status.
A Constitutional amendment is supposed to enshrine timeless principles, not address temporary situations: Social Security is running large surpluses today. However, the Public Trustees project that by the year 2013, the growing retirement needs of the Baby Boom generation will cause annual deficits in the Trust Funds, and begin drawing down previously accumulated surpluses. Unpredictable economic or demographic changes are always possible. The fact of the matter is that a balanced budget amendment will put our economic house in order. Our commitment to Social Security will remain unshakable and we will protect the program in a sound economic environment created by a balanced federal budget.
Page 55 PREV PAGE TOP OF DOC
The Federal Government has run deficits for over 26 years in a row. This is not a short-term trend, and points to a fundamental flaw in the political system that makes a constitutional solution both necessary and appropriate. To be sure, the 104th Congress made tremendous strides toward a balanced budget, and has helped lower the deficit. But not all Congresses will follow suit, and not all will want to make the tough decisions. As a result, we need a measure to ensure that responsible governing and fiscal discipline are not just a fad.
The only way to permanently change business as usual in Washington is to pass a balanced budget amendment to the Constitution of the United States. We owe it to the people of this country to send this amendment to them for ratification. I urge the Judiciary Committee to begin this historic process by approving H.J. Res. 1. Thank you.
------
Prepared Statement of Hon. Joe Barton, a Representative in Congress From the State of Texas
Thank you, Mr. Chairman, and other members of the committee, for letting me enter this statement into the record. I am glad you are holding hearings on the Balanced Budget Amendment proposals, and I urge you to consider the long-term effects of each amendment.
I am the lead sponsor in the House of Representatives for the Tax Limitation Balanced Budget Amendment, which combines a balanced budget mandate with a two-thirds supermajority requirement for net tax increases. My amendment has more than 120 cosponsors and is supported by many pro-taxpayer and pro-growth organizations. The other primary sponsors are Ralph Hall of Texas, John Shadegg of Arizona, and Gene Taylor of Mississippi.
Page 56 PREV PAGE TOP OF DOC
I absolutely agree with sponsors of other balanced budget amendment proposals that the Federal budget should be balanced each year. I also agree that Congress and the President must be forced to balance the budget. While no Constitutional Amendment is necessary to balance the budget in any one year, many Congresses and many Presidents clearly lack the will to get the job done.
The reason that the last twenty-nine budgets have been out of balance, Mr. Chairman, is that spending has been too high. The problem is not that taxes are too low.
I strongly believe that when the budget is required to balance, as it should be, the focus for balancing the budget should be on spending cuts, not tax increases. For that reason, I believe that any balanced budget amendment sent to the states for ratification should not have an inherent bias toward tax increases. My amendment, the Tax Limitation Balanced Budget Amendment, does not have such a bias.
The Tax Limitation Balanced Budget Amendment requires a two-thirds supermajority vote to borrow, a two-thirds supermajority vote to raise the debt limit, and a two-thirds supermajority vote to pass any net tax increases. I consider this the fairest and most ''balanced'' balanced budget amendment.
The other main amendment before you today, what I call the generic balanced budget amendment, is not what I would call ''balanced.'' It requires a three-fifths supermajority to borrow and raise the debt limit, but it only requires a simply majority to raise taxes. When it is just as easy to raise taxes as it is to cut spending, the path of least resistance will be tax increases.
Page 57 PREV PAGE TOP OF DOC
I believe it must be more difficult for Congress to raise taxes than to cut spending. Making tax increases more difficult is the primary concept of my Tax Limitation Balanced Budget Amendment. The supermajority requirement successfully balances the pressure in Washington to raise taxes. When a balanced budget is required, that pressure toward tax increases will be tremendous.
Experience in the states proves tax limitation works. The more than 68 million Americans living under state constitutions with tax limitation know they are better off. This one-fourth of Americans in the twelve states with a supermajority requirement have slower growth in taxes, slower growth in spending, faster growing economies, and a more quickly shrinking unemployment.
In a recent study conducted by the Heritage Foundation of the period between 1980 and 1992, taxes in supermajority states grew more slowly: by 102 percent per capita, compared to 112 percent per capita in non-supermajority states. Spending in supermajority states rose by 132 percent, while spending in other states increased by 141 percent.
Average per capita economic growth was 43 percent in states with tax limitation, while it was only 35 percent in other states. Per capita employment growth was 26 percent in states with supermajority requirements for tax increases, but it was only 21 percent in states without such requirements.
The implementation of tax limitation at the Federal level would undoubtedly have similar effects. With supermajority requirements for tax increases, American taxpayers would see fewer and smaller growth in taxes and spending, and a stronger economy and employment base.
Page 58 PREV PAGE TOP OF DOC
In fact, the American taxpayers would be taxed $666 billion less if tax limitation had been in effect during the last five major tax increases. Four of those five bills passed with less than a two-thirds supermajority.
No less an authority on our economy than Steve Forbes agrees that the Tax Limitation Balanced Budget Amendment is the best balanced budget amendment proposal being considered. He has written a short statement saying as much that I will include with my statement. As he puts it, Mr. Chairman:
Without this amendment, we may well see an era where the American people are forced to accept higher and higher taxes to meet the spending desires of many in our Congress.... This amendment will insure that all budget matters, especially spending matters, are given careful consideration and a thoughtful look as to what is necessary and what is required for the American people.
Because I believe that a thoughtful look at our budgetary practices will show us that spending should be cut, rather than taxes increased, I urge the Committee to support a Tax Limitation Balanced Budget Amendment. With this amendment, we can provide for fiscal responsibility, but protect against a bias that makes tax increases almost inevitable.
My son born in 1970, who has never lived under a balanced federal budget, certainly deserves a Nation that has outlays less than receipts. But he also deserves a tax burden that is livable and proper. I'm trying to give that to him the best way I know.
INSERT OFFSET RING FOLIOS 7 HERE
Page 59 PREV PAGE TOP OF DOC
Prepared Statement of Hon. Bill Archer, a Representative in Congress From the State of Texas
I would like to thank Chairman Hyde and the Judiciary Committee for the opportunity to submit testimony into the record in support of a Balanced Budget Constitutional Amendment. This legislation is a vital tool in addressing our large federal deficits and is essential to the future of our nation as we stand on the threshold of the 21st century.
I have long supported a Balanced Budget Constitutional Amendment. I recently authored H.J. Res. 7, a Joint Resolution to balance the budget and have introduced similar legislation in every Congress since I was first elected. My bill is very similar to the balanced budget amendment that was passed by the House during the 104th Congress. However, a few important items distinguish my bill from the passed legislation. First is the provision specifying the vote margin needed to waive the balanced budget requirement. Under the House-passed version, three-fifths of the whole House and Senate are required to waive the balanced budget requirements. My bill sets a more stringent requirement requiring two-thirds of those present and voting--the same margin necessary to pass a Constitutional Amendment. I also believe that the Judiciary Committee should closely consider requiring that if the public debt at the end of any fiscal year exceeds the debt at the end of the previous fiscal year, the excess must be repaid with interest over the next five years by adding one-fifth of the excess plus interest on the remaining balance to outlays in each of the five years. Such a provision would clearly spell out our commitment to balancing the budget and acting in a fiscally responsible manner.
Today, interest payments alone on the debt are the largest item in the budget, comprising over 20 percent of all federal spending. That has to trouble conservatives and liberals alike. Conservatives like me would like to give that money back to the American people in the form of a tax cut to raise take-home pay and help the economy. Liberals would probably love to use the money for the federal government program of their choice. Both groups would undoubtedly be happier if $1 out of every $5 of today's federal revenues was not lost to interest payments to service our debt. In addition, federal budget deficits and the massive amounts of borrowing they generate usurp the pool of capital available for investments in new equipment and technologies and impair our ability to increase productivity levels and compete effectively in world markets.
Page 60 PREV PAGE TOP OF DOC
From 1976 through the end of fiscal 1996, our national debt has increased by 700 percent to about $5.2 trillion. This dramatic increase means your individual share of the national debt over the last 20 years has jumped from $3,000 to just under $20,000.
We cannot continue to pass our debts to our children. My 12th grandson, born last year, already owes $189,000 just to pay off his share of the interest on the national debt.
If a balanced budget is good enough for Texas, along with 31 other states (and statutory balanced budget requirements for 11 others), why shouldn't one be good enough for the federal government? In 1992, President Clinton campaigned on the fact that every budget he introduced as governor of Arkansas was balanced. Then, as President, his first several budgets had deficits as far as the eye could see. The difference? Under Arkansas law (like Texas), the Governor must sign a balanced budget.
With the recent fall in the federal budget deficit, reaching $107 million last year, critics of a balanced budget amendment have argued that the amendment is unnecessary. However, it seems to me that they are forgetting how our deficit skyrocketed in the first place. Since 1969, despite massive tax increases, Congress has been unable to spend within its limits. Without a constitutional amendment, there is no assurance that we will either reach a balanced budget in a few years or have it again in the future.
For too long the federal government has spent far beyond its means at the expense of our future generations. We do not need more excuses for why we have failed to balance the budget for the last 30 years. Our Congress must act quickly and responsibly to balance the budget and a Constitutional Amendment is an essential part of achieving this goal.
------
Prepared Statement of Hon. Dan Schaefer, a Representative in Congress From the State of Colorado
Page 61 PREV PAGE TOP OF DOC
Mr. Chairman, I appreciate the opportunity to come before the House Judiciary Committee on behalf of the bipartisan balanced budget amendment that I and my colleagues Charlie Stenholm, Bob Smith, Joe Kennedy, Mike Castle, and Tim Roemer have introduced. As the lead Republican sponsor of H.J. Res. 1, the most popular bipartisan, bicameral version of the amendment, I am grateful for the opportunity to testify before the Committee again.
Amending the Constitution is a serious step that should never be taken lightly. As a matter of principle, I believe that a constitutional solution should not be sought until all efforts at statutory solutions have failed. Unfortunately, that is exactly where we are today. Congress has passed at least five statutes in the last 17 years that promised to balance the budget over time. Not a single one has succeeded. So I believe that an explicit balanced budget requirement is both a necessary and appropriate addition to the fundamental principles embodied in the Constitution.
Congress routinely waives or nullifies laws it writes concerning spending limits. In fact, the 1974 Budget Act, one of the first congressional efforts to create a rational budget process, has been waived over 600 times since its enactment. Clearly, it is time to turn to a more enforceable and permanent solution--which only the Constitution can provide.
Deficit spending has become intractable and ingrained problem of constitutional proportions. For 28 consecutive years, and 59 out of the last 65 years, Congresses and Presidents have failed to balance the budget. As a result, the national debt now stands at $5.3 trillion.
Presently, there is no political incentive to balance the budget. However, there is political incentive to borrow money. But a system that politically rewards deficit spending, as ours does, can no longer be tolerated.
Page 62 PREV PAGE TOP OF DOC
Mr. Chairman, each time that Congress debates the merits of a balanced budget amendment, critics contend that lawmakers only need to exercise fiscal discipline. Opponents of a balanced budget amendment claim that the declining deficits over the last four years prove that a constitutional solution to our nation's economic problems are not necessary.
But as the latest Congressional Budget Office (CBO) figures indicate, the deficit is expected to increase this year to $124 billion. That's a $17 billion increase over last year's deficit. What's more, the CBO projects the deficit to rise to nearly $300 billion in 10 years. So I believe, as do many of my colleagues on both sides of the aisle, that a balanced budget amendment to the U.S. Constitution is imperative for the future of our nation.
In my testimony before the House Judiciary Committee two years ago, I said that the language of H.J. Res. 1 has consistently garnered more votes--from Democrats and Republicans--than any other version. In fact, in the 104th Congress, the Schaefer-Stenholm substitute passed the U.S. House of Representatives with 300 votes. This morning, I'm pleased to say that H.J. Res. 1, the bipartisan Schaefer-Stenholm Balanced Budget Amendment to the U.S. Constitution has over 200 cosponsors--with over 50 Democrats supporting it.
Mr. Chairman, although many Republicans, including myself, support the relatively stronger tax limitation language that was contained in last Congress' Contract With America version of the amendment, every Republican can and should be comfortable continuing to support the language of H.J. Res. 1--as they have in the past.
We believe that H.J. Res. 1 has stronger tax limitation than exists under current law. Our version requires that any tax increase be approved by a majority of the whole number of each house and requires that Members go on record with a roll call vote. That is a higher standard than just the simple majority of those present and voting that exists under current law. In fact, had H.J. Res. 1 been in effect when President Clinton first took office, his 1993 tax increase would not have become law because the conference report on that bill did not have a majority of the whole number in the Senate.
Page 63 PREV PAGE TOP OF DOC
Under H.J. Res. 1, it will be harder to raise taxes than cut spending. The ''majority of the whole number'' language in our balanced budget amendment is as strong as, or stronger than, the tax limitation vote level in every leading balanced budget amendment considered in the House and Senate for over a decade.
Ultimately, the best guard we have against future tax increases is eliminating the deficits that drive the perceived need to raise taxes. As long as a deficit exists, the argument will be made by the pro-tax forces that Americans must ''sacrifice'' through higher taxes to bring the budget into balance. Once our nation has a balanced budget amendment--with or without the two-thirds super-majority requirement for tax increases--that argument will be gone. Voters will clearly associate a $1 tax increase with a $1 spending increase and reject both.
Mr. Chairman, I've discussed the practical aspects of a balanced budget amendment and economic consequences of the status quo. So now I'd like to talk about how a balanced budget amendment fits squarely within the purposes and functions of the Constitution as envisioned by the Founding Fathers.
A constitution is a document that enumerates and limits the powers of the government to protect the basic rights of the people. Within that framework, it sets forth just enough procedures to safeguard its essential operations. It deals with the most fundamental responsibilities of the government and the broadest principles of governance.
The framers of the original Constitution saw the moral imperative to balance the budget and promptly repay debt as fitting squarely within that framework. Failure to meet these goals was not simply considered economic folly, but a violation of a basic right of the people--the right to be free from the harms caused by the massive indebtedness of a spendthrift government.
Page 64 PREV PAGE TOP OF DOC
Thomas Jefferson said of balanced budgets: ''The question whether one generation has the right to bind another by the deficit it imposes is a question of such consequence as to place it among the fundamental principles of government. We should consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves.''
It has always been an obvious role of our Constitution to protect the basic rights of those Americans who may not be represented at the moment, perhaps because they are in the minority or because they belong to a generation that can not yet fully participate in the political process.
Our Constitution protects us from excesses of government that might infringe on our freedom of religion, of speech, right to keep and bear arms, and other rights. In exactly this same spirit, the Balanced Budget Amendment would protect the American people--especially future generations--from the burdens and harms created when a profligate government accumulates an intolerable debt.
As times have changed, so have the nature of government, monetary policy, and politics. The Founding Fathers never envisioned a federal government that could grow to a size and scope where its budgetary activities could profoundly affect the economy.
This nation of ours fought a revolution over taxation without representation. ''Saddling posterity with our debts,'' as Jefferson said, is an obvious example of taxation without representation. Our children and grandchildren who will pay the price through higher taxes for interest payments, as well as a lower standard of living, have no representation in the government making the decisions to borrow and spend their money.
Page 65 PREV PAGE TOP OF DOC
Mr. Chairman, we have a tremendous opportunity to put an end to rising deficits and to pay down the national debt. Let's make the most of it by passing a balanced budget amendment in both chambers and sending it to the states for ratification.
Thank you, Mr. Chairman, for giving me the opportunity to testify before the House Judiciary Committee.
Mr. HYDE. The next witness is the distinguished Secretary of the Treasury, the Honorable Robert E. Rubin.
We will commence with Secretary Rubin shortly, but we will have some opening statements. The Chair will take this opportunity to make an opening statement and then yield to Mr. Conyers, the ranking member, who will simply make an opening statement, and then we will hear from Secretary Rubin.
OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. Today the House Judiciary Committee revisits an issue of great importance, the proposed balanced budget constitutional amendment. The adoption of the balanced budget amendment would be more than a mere symbolic act, it would have a powerful impact on Federal fiscal policies. It would establish a binding legal framework, a disciplined structure requiring Congress to make the tougher choices that have to be made.
The current figures are both inescapable and staggering. The Federal debt is now $5.3 trillion. The Federal deficit for fiscal 1997 will be $124 billion, and by the year 2002, the first year that the constitutional amendment could take effect, it is projected to reach $188 billion.
In fact, the Federal budget has run budget deficits in 35 out of the last 37 years, and the last time a balanced budget was achieved was in 1969, 28 years ago. As a result the interest on the national debt in this fiscal year is $248 billion. Next fiscal year the interest on the national debt will increase to $253 billion. By 2002 the current estimates are that the interest on the debt will reach $279 billion.
Page 66 PREV PAGE TOP OF DOC
Interest on the national debt is now the third largest single item in the Federal budget after Social Security and defense. Each American's share of the national debt is $18,000, or $72,000 for an average family.
Critics of the balanced budget amendment argue that we must put Social Security off-budget so as to honor our obligations to our senior citizens. But balancing the budget and keeping the balance means less debt, lower interest costs, rising living standards, and more money made available for seniors' priorities. If today's debt had been paid off in years past, the Government would have run $134 billion surplus last year.
The best guarantee of economic of our seniors today and in the future would be the ironclad commitment of the Constitution to retain and to restore fiscal responsibility.
The argument that fiscal policy doesn't belong in our Nation's Constitution is spurious. Congress is granted the power to lay and collect taxes, to impose customs, duties and tariffs, and pay debts. Congress is also directed in article I to provide for the common defense and general welfare of the United States. Congress is specifically authorized to borrow money and to regulate interstate commerce. The 16th amendment to the Constitution authorizes the income tax. The Constitution is hardly a document devoid of economic policies and decisions. The argument that our Constitution must be neutral on economic matters simply disregards what the Constitution already says.
Fundamental changes in our national fiscal policies are essential. The American taxpayer deserves relief, and we need to act boldly to regain the confidence of the investment community both here and abroad. If more dollars are available to the private sector, saving rates would increase, interest rates would be lower, capital investment would be encouraged, and more jobs available for Americans.
The preamble of the Constitution states we are to promote the general welfare and to secure the blessings of liberty to ourselves and our posterity. Well, our posterity is our children, our grandchildren; and current Federal fiscal policies impose a severe and burdensome debt on those children and grandchildren. Because of the Government's deficit spending, a child born today owes nearly $200,000 in taxes just to pay the interest on the Federal debt. This situation hardly comports with either the spirit or the letter of the Constitution's grand Preamble.
Page 67 PREV PAGE TOP OF DOC
We have the opportunity to put this Nation's fiscal house in order, and we should not shirk that responsibility.
I now am pleased to yield to the distinguished ranking member, Mr. Conyers of Michigan for an opening statement, and in the interest of time, I ask that any other Member who wishes to make opening remarks submit them in writing, and they will be inserted in the record.
Mr. Conyers.
STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. CONYERS. Good morning, Chairman Hyde, and members of the committee, and to the Secretary of Treasury. I am pleased to be here because I want to indicate that I agree with Chairman Hyde with reference to every statistic that he cited in his opening comments. Those numbers are good and accurate.
I am pleased to be here because I want to state that I agree with Chairman Hyde with reference to every statistic that he cited in his opening comments. Those numbers are good and accurate. But this proposal that he advocates is a threat to American capitalism in its most direct form. And it sort of reminds me of the plight that President Roosevelt was in as he saved the American system from the bankruptcy and collapse of Wall Street, and was still pilloried by the merchants, the bankers, the businessmen, and the industrialists.
They never stopped hating him for one single minute during his lifetime, although he saved the American financial system. Well, friends of capitalism, we are about to throw away this system in its entirety. It is true that we can put anything in the Constitution that we want, including this amendment, no question.
Now, do you really want to do it? I am not talking about what the Contract With America obligates you to. I am not talking about the latest poll from wherever. I am talking about do we really want to take the Constitution and make it the instrument by which we balance the budget.
Page 68 PREV PAGE TOP OF DOC
Incidentally, the balancing of the budget is progressing, in case you haven't noticed, in a fairly reasonable, satisfactory way. Now, for those who have no respect for the Social Security system, this is a great way to get it. This is beautiful, tailor-made. Because I have noticed, colleagues, that there is a relationship between those who want to privatize Social Security and those who want a constitutional amendment to balance the budget. Coincidental? Not connected? Maybe.
Secondly, isn't this the classic dodge of a Congress trying to get out of a bad fix? I mean, who is going to be around here that got this thing through the several States to find out if it ever worked or not. Well, we did our job, and we left it. You mean it didn't work? Ah, to bad. They probably didn't enforce it correctly, not our fault. Who are these unelected, unknown judges that will now make legislative decisions? Well, we don't know yet. That is--don't worry.
Now, the three-fifths vote requirement cleverly placed within this bad idea could raise the public debt, could trigger a default of the U.S. Government on the public debt. That is not other competing nations or industries. That is us. We decide to do this or to make ourselves eligible for this, to send the financial markets of the world into a tailspin causing probable economic catastrophe and most likely permanently impairing the creditworthiness of the United States throughout the world. So let's do it anyway, Congress. We are $5.3 trillion--this is terrible, we can't go any further. We have got to do something today.
Two years ago this same committee sat in this same room and went through this same exercise and here we are again. Let's really get it together now. And what about in the event of a recession, when revenues decline. This amendment would aggravate an economic downturn and create a depression. You don't have to be an economic expert to know that much recent American history.
And then what about our State and local governments, which we extol to the highest. This would create havoc. Well, we are creating havoc on State and local governments already, if you haven't noticed, but with this amendment, their fate would be sealed. So I ask us to consider the consequences of this certainly well-intentioned amendment and I thank the chairman for this amount of time.
Page 69 PREV PAGE TOP OF DOC
Mr. HYDE. I thank the ranking member.
[The prepared statements of Ms. Jackson Lee, and Mr. Chabot follow:]
Prepared Statement of Hon. Sheila Jackson Lee, a Representative in Congress From the State of Texas
Mr. Chairman, If we should vote to send this resolution to the House Floor in its present form, we will be making one of the most serious constitutional mistakes in our history.
Our Constitution is the framework for our democracy. It was conceived by our founding Fathers with very fundamental and traditional purposes. Our original Constitution and its amendments were intended only to allocate the powers of government between its three branches and to protect fundamental individual rights.
This proposed amendment to the constitution now seeks to expand the purpose of the Constitution and to have the Constitution decide a political question, a question of budgetary policy of whether to balance the budget. It even creates a new super-majority within Congress to decide these questions of political and economic policy.
Mr. Chairman, as you know, we base our budget on estimates of numbers that are provided by the Congressional Budget Office. Unfortunately, since 1980, the CBO has proven to have a rather bad track record with its estimates an average error of $42 billion between its initial estimates and the real final numbers.
Under this proposal, the two-thirds super-majority would have to act or $42 billion would have to be slashed unnecessarily from the budget. That is a lot of cuts from education, the environment, and needed housing and welfare reform programs; not to mention it adds up to about double our foreign economic and military aid programs.
Page 70 PREV PAGE TOP OF DOC
Mr. Chairman, we are talking about political policy and economic policy with this amendment. This flies in the face of what our Founding Fathers intended to be the substance of our Constitution. They did not intend that the constitution be used as a vehicle for deciding questions of policy. Political questions and questions of policy are meant to be decided by this body of legislators, not by some constitutional mandate, and certainly not by a super-majority.
If we can pass laws making the commission of a crime punishable by death with a simple majority in our House, why do we now need a two-thirds majority to decide budget questions? By a simple majority we can decide how long a prison term our citizens have to serve for the commission of a crime. Why should a super-majority now be needed to raise taxes? This jeopardizes this nation's ability to be governed.
The question of risking a deficit is a political question. The Founding Fathers wisely left that kind of judgment to the majority rule of Congress. The Constitution does not undertake to resolve any political questions or questions of economic policy as this amendment proposes. The Constitution only speaks of super-majorities in connection with treaty-making, over-riding the President's veto and amending the Constitution. Now, do we really want to add to the ideas of the Founding Father's our own idea of only super-majorities raising taxes?
I think not. This amendment leaves many other disturbing questions unanswered. How will this amendment be enforced? Will the courts do it? Are we going to have to change the original jurisdiction of the Supreme Court, which we can not do? Will our federal courts be required to make economic policy? No one has yet to give us decent explanations of how this amendment will work if expenditures outran receipts because actual receipts fall short of honest and careful estimates.
Page 71 PREV PAGE TOP OF DOC
Mr. Chairman, I am saddened to see the day, once again, when we try to resort to this kind of political gimmickry rather than focusing on doing the work of the people. I believe the American people sent us here to figure out how to balance the budget and not to fundamentally change the Constitution. Like every one of us on this committee, I am in favor of a balanced budget. I have voted for several balanced budgets. But, what if we do not balance the budget with this amendment added to the Constitution? Is it not reasonable to expect to see cuts in social security checks? Will not funds for building bridges and highways be cut?
Not only does this amendment undermine the intent of the Constitution, its guaranties of achieving a balanced budget and enforcing its provisions are illusionary. It is just this kind of work that feeds the voters with distrust of government and the kind of cynicism we need to end. Let's begin the real work of the people and figure out how we are going to balance the budget.
The hearing today is supposed to provide answers and I will asses such answers in order to be fair. However, I still have many concerns. If the resolution is changed, it may warrant consideration. Nevertheless, the constitution should be amended only in the most dire of circumstances, if at all. Thank you Mr. Chairman.
------
Prepared Statement of Hon. Steve Chabot, a Representative in Congress From the State of Ohio
Mr. Chairman, I strongly support a balanced budget constitutional amendment, and I applaud you for holding these hearings.
Most of what goes on in this town involves taking and spending other people's money. That's what we do here in Congress; that's what the President and the bureaucrats do; and that's certainly what the legions of high priced lobbyists devote their energies to.
Page 72 PREV PAGE TOP OF DOC
Political power determines how much money is taken away from people who earn it, and political power determines to whom that money is given. Not surprisingly, the people who spend most of their time trying to earn a living--who don't have time to organize into special interest groups or hire fancy lobbyists--most of those average, hard-working folks don't have very much say over the taxing and spending power of the federal government. And they get ripped off, for reasons that the public choice economists have explained very well.
To cite but one egregious example, a big corporation that gets millions of taxpayer dollars to advertise its products overseas has a huge incentive to lobby to keep that transfer program alive; while the average taxpayer, on the other hand, who pays a small fraction of the costs of that one program, may not even be aware that this particular ripoff even exists.
But the problem is even worse than that. The group of Americans with the least political power, who have the least ability to defend themselves against political gamesmanship, are those Americans who are not yet able to vote. It is their money that is being spent when the government engages in deficit spending, and they are being victimized on a massive scale. Economists have estimated that a child born today inherits a debt of more than $180,000 just to pay the interest--the interest alone--on the national debt. For us to impose that sort of debt on our children is unconscionable. And of course, deficit spending and its perverse effects upon interest rates and the economy harm the rest of us as well.
As you are well aware, Mr. Chairman, this problem of groups with political power taking advantage of others who do not have that same power was well understood by the framers of our Constitution. James Madison devoted Federalist Paper number 10 to this grave concern, which he called ''the violence of faction.'' As he pointed out, ''the most common and durable source of factions'' has been the distribution of property and the desire of groups to convert the property of others to their own use. Madison and his colleagues further recognized that ''the causes of faction cannot be removed,'' but that structural, constitutional provisions can be devised to control its effects, consistent with the ends of popular government.
Page 73 PREV PAGE TOP OF DOC
Our experience with modern government, Mr. Chairman, demonstrates that further structural provisions are necessary to check the particular ''violence of faction'' that occurs when politicians spend money today by pledging the earnings of those people who are not yet of an age to vote against the scheme. We need to provide in the Constitution that, absent some national emergency such as a war, the federal government should not spend more than it takes in. And I would observe, Mr. Chairman, that under the language of the proposed amendments, even this modest restraint can be overcome when a significant majority in Congress so decides: this is hardly a straitjacket.
Before I conclude, Mr. Chairman, I would like to observe that for the very reasons I have already expressed, the version of the balanced budget amendment that I prefer contains tax limitation provisions. Federal taxes are already far too high and should not be raised further absent wide national consensus. We need to balance the budget, and we must do so not by raising taxes further, but by restraining spending on rip-off programs such as the ''Market Access Program,'' the ''Market Enhancement Program,'' and all other sorts of corporate welfare. Congressman Joe Barton has done a superb job in advancing the tax limitation balanced budget amendment, and I hope that at least when we get to the floor, that version of the amendment will be considered.
Thank you again, Mr. Chairman, and thanks to the witnesses on all sides who appear before us today.
Mr. HYDE. The next witness, as stated before, is Robert E. Rubin, the Secretary of the Treasury. We certainly welcome you here, Secretary Rubin, and as usual, your written statement will be in the record, but we would love to hear from you and we would hope you could hold it to about 5 minutes because we have another panel, but you use the time you feel is appropriate, Mr. Rubin.
Page 74 PREV PAGE TOP OF DOC
STATEMENT OF ROBERT E. RUBIN, SECRETARY, U.S. DEPARTMENT OF THE TREASURY
Mr. RUBIN. Mr. Chairman, thank you very much. I am grateful for the opportunity to testify regarding the balanced budget amendment.
Mr. Chairman, thank you very much and I am delighted to be here. I spent 26 years on Wall Street before joining this administration 4 years ago. During that time I developed a deep and abiding belief in the profound importance of fiscal responsibility to our national economy. I have now spent 4 more years working to implement this conviction, a conviction that I know many members of this committee share.
I have an equally strong conviction that a balanced budget amendment is a threat to our economic health, will expose our economy to unacceptable risk, and should not be adopted. Like the 11 Nobel Prize-winning economists and 1,000 other economists who signed a letter last Thursday, saying they condemn--that is the word they use, Mr. Chairman, not criticize, not disagree with, but quote, ''condemn''--the amendment. I believe it is strongly against our national interest. I also believe that such an amendment is unnecessary to achieve the critical objective of balancing our budget.
Throughout our history, with the exception of wartime, budget deficits, when they existed at all, were small. In the 1970's and 1980's, deficits began to grow sharply and the Federal debt quadrupled between 1980 and 1992. But after experiencing this period of fiscal indiscipline, I believe the atmosphere in Washington has changed.
The process of change began in 1990 with the passage of the Omnibus Budget Reconciliation Act, signed into law by President Bush. The Nation then took an enormous step forward with a deficit reduction program enacted in 1993 which has led to a reduction in the size of the deficit from 4.7 percent of GDP of the total economy to 1.4 percent of GDP in 1966. Last year, both the administration and Congress proposed budgets that would eliminate the deficit by 2002 and I believe you will see the same thing happen again this year.
Page 75 PREV PAGE TOP OF DOC
Moreover, not only has the atmosphere in Washington changed, but there is a new powerful enforcing factor at work, which is the emergence of global markets which are highly sensitive to a nation's degree of fiscal responsibility. Fiscal laxity will be severely punished by the markets with high interest rates which in turn are highly detrimental to a nation's economic health.
The forces are in place to balance the budget. We are not far apart. I believe we just need to sit down and get the job done. However, there is a great distinction between balancing the budget and passing a constitutional amendment. When we contemplate an action as significant and rare as amending the Constitution of the United States, we owe it to the American people to understand what the consequences of that act would be. I believe that the balanced budget amendment would subject the Nation to unacceptable economic risks in perpetuity.
First, a balanced budget amendment could turn slowdowns into recessions and recessions into more severe recessions. This is the issue that was addressed by 11 Noble Prize winners and in excess of 1,000 other economists in a letter they signed late last week; second, it could prevent us from dealing expeditiously with emergencies, such as natural disasters; third, it would seriously increase the risk of default on our national debt; fourth, the escape clauses it provides, at best, are likely to be far from fully effective; fifth, the amendment poses immense enforcement problems that might well lead to the involvement of the court in budget decisions, unprecedented impoundment powers for the President, or the temporary cessation of all Federal payments, and all of these acts could in turn disrupt Social Security and Medicare payments.
Alternatively, the balanced budget amendment might be unenforceable, and therefore have no effect at all, contributing to the cynicism about the process of government.
Let me expand briefly, if I may, on each of these issues with respect to the balanced budget amendment. As Secretary of the Treasury, I am deeply concerned that a balanced budget amendment could, as I said a moment ago, turn slowdowns into recessions, mild recessions into worse recessions, and severe recessions possibly even into depressions, and that is precisely the issue that the 11 Nobel Prize-winning economists and 1,100 other economists addressed in a letter they signed on Thursday which is carried as a full-page ad in today's New York Times.
Page 76 PREV PAGE TOP OF DOC
A balanced budget requirement in the Constitution would make recessions longer and more painful by eliminating automatic stabilizers that operate during a downturn, and by instead requiring measures to increase taxes or cut spending during slowdowns when the economy is already suffering from lack of demand. Under current law, on the other hand, if unemployment rises, unemployment insurance payments rise, tax revenues fall, all of which moderates a slowdown or recession.
Mr. Chairman, the extremes of the business cycle have declined sharply over the post-World War II period as compared to the prewar period. A balanced budget amendment, in some fair measure, would undo this progress by turning off these stabilizers and requiring measures that would actually exacerbate or worsen a recession.
Even were a three-fifths vote to waive the provisions of an amendment obtainable, slowdowns are very difficult to recognize as they develop and congressional waiver action, even if obtainable, would almost surely be, at best, months late by which time serious damage could have been done to our economy.
Inability to cope with crises: A balanced budget amendment could also prevent us from dealing quickly and effectively with crises, from a second S&L crises to a second Hurricane Hugo, to an escalating military threat. Under the balanced budget amendment, if the budget were otherwise in balance, none of these could have been dealt with until after a vote of 60 percent in both Houses if an agreement could not be reached on offsets and that kind of an impasse is a very realistic possibility especially when only one part of the country is affected.
Increased risk of default: As Secretary of the Treasury, I am also deeply concerned that the balanced budget amendment would increase the risk of default on the Federal debt. Our creditworthiness is an invaluable national asset that should never be subject to risk or question for any reason.
Furthermore, if we are unable to meet our credit obligations, we might be forced to fail to meet our other obligations as well, including military pay and Social Security and Medicare payments.
Page 77 PREV PAGE TOP OF DOC
The history of debt limit shows that raising the statutory debt limit is never an easy process. We all remember the enormous difficulties that surrounded this issue in 1995 and 1996. A requirement for a supermajority in both Houses could make this far harder.
The potential for gridlock from the supermajority requirement: Proponents of the balanced budget amendment argue that when necessary, Congress will waive the balanced budget amendment's provisions by obtaining a three-fifths majority vote. This is a risky assumption. The history of Congress shows it can be extremely difficult to obtain a three-fifths majority. I believe it would be especially difficult to obtain a supermajority to waive the Constitution of the United States, which is an awesome act.
It is true that 60 votes are usually required in the Senate because of its special rules. Nevertheless, recognizing that certain essential matters should not be held up but by a minority, Senate rules permit what is known as reconciliation to adopt a budget or increase the debt limit by a simple majority.
In contrast, under the balanced budget amendment's 60-percent requirement, a minority in either House could put the economic health of our country at risk by refusing to waive the balanced budget amendment or refusing to increase the debt limit unless that minority's agenda were satisfied, and that could be budget related or related to social policy or any other matter.
Finally, we cannot predict the political environment 10, 20, 30 or 40 years from today, and we should not create enormous minority leverage in the face of uncertain future political conditions.
The last of these issues I have raised, enforcement difficulties and gridlock occurs because there is no way to compel Congress and the President to enact legislation to balance the budget. Yet, there is also no way to compel enactment of legislation to waive the provisions of the amendment The amendment provides no method for resolving such an impasse.
Some proponents of the balanced budget amendment have suggested that under these circumstances, the President would simply stop issuing all checks, including those for Social Security benefits. Alternatively, judges might become deeply involved concerning whether Social Security or Medicare checks could be stopped. A future President might also impound funds of his choosing, or the amendment might simply be unenforceable, and therefore a nullity, reducing respect for the Constitution. All of these are extremely undesirable.
Page 78 PREV PAGE TOP OF DOC
Let me also add that if an impasse under the balanced budget amendment forces budgetary decisions into the courts or into unilateral action by the President, the existing special protections for Social Security that exist in the legislative process would not obtain. Thus, a balanced budget amendment in the form proposed that does not exclude Social Security does, without question, create additional risks for the Social Security system.
One additional observation, Mr. Chairman. Unforeseen events could lead to a large shortfall near the end of a year. In fact, such shortfalls happen in many years. That, in turn, could require massive cuts in programs that make very large payments in a relatively short period of time at the end of a year, in the last month or two, including, once again, Medicare and Social Security.
Let me conclude by saying we have no idea what economic conditions will be like in 10, 20, 30, or 40 years, and creating policy inflexibility in the face of that uncertainty is extremely unwise. We have discussed a number of facets of this inflexibility already. Let me add another example.
Proponents of separate capital operating budgets for the Federal Government argue that the absence of a capital budget has reduced investments in infrastructure that would increase future growth. I don't personally believe we should move to a capital budget at this time. But circumstances could change and the balanced budget amendment before you now would prevent us from moving to a separate capital budget for all time.
Mr. Chairman, as I said at the beginning of my testimony, I have a deep commitment to the importance of deficit reduction and fiscal discipline and the importance of our Nation's economic health, and I believe we must, can, and will put in place balanced budget legislation this year. But I have an equally strong conviction that a balanced budget amendment poses dangers of unacceptable risks and dangers for our Nation's economic future, and for this reason must not be adopted.
Page 79 PREV PAGE TOP OF DOC
I firmly believe that 10, 20, 30, 40 years from now, if we adopt this amendment, when historians look back at this era, they will say this is the most significant action taken in this era, and our country will rue the day this action was taken. Thank you, Mr. Chairman.
Mr. HYDE. Thank you, Mr. Secretary.
[The prepared statement of Mr. Rubin follows:]
Prepared Statement of Robert E. Rubin, Secretary, U.S. Department of the Treasury
Good morning, Chairman Hyde, Congressman Conyers and other distinguished members of the committee. I am grateful for this opportunity to testify regarding the Balanced Budget Amendment.
I spent 26 years on Wall Street before joining the Administration four years ago and, during that time, I developed a deep and abiding belief in the profound importance of fiscal responsibility to our national economy. I have now spent four more years of my life working to implement this conviction, and I know this is a conviction that many members of this committee deeply share.
I have an equally strong conviction that a balanced budget amendment is a threat to our economic health, will expose our economy to unacceptable risks and should not be adopted. Like the eleven Nobel prize winning economists and 1000 other economists who signed a letter last Thursday saying they ''condemn'' the amendment, I believe it is strongly against our national interest. I also believe that such an amendment is not necessary to achieve the critical objective of balancing our budget.
Throughout our history, with the exception of wartime, budget deficits--when they existed at all--were generally small. In the 1970's and 1980's, they began to rise and the federal debt grew sharply, quadrupling between 1980 and 1992. But after experiencing this period of fiscal indiscipline, I believe the atmosphere in Washington has changed.
Page 80 PREV PAGE TOP OF DOC
This process of change began in 1990 with the passage of the Omnibus Budget Reconciliation Act signed into law by President Bush. We then took an enormous step forward with the deficit reduction program enacted in 1993, which has led to a reduction in the size of the deficit from 4.7% to 1.4% of GDP. Last year, both the Administration and the Congress proposed budgets that would eliminate the deficit by 2002 and both are expected to do so again this year.
Not only has the atmosphere in Washington changed, but there is also a new enforcing factor at work which is the emergence of global markets that are highly sensitive to a nation's degree of fiscal responsibility. A nation that does not address fiscal matters will be severely punished by markets with high interest rates that could impair or even severely impair its economy.
The sum total is that politically, historically and economically, the forces are in place to balance the budget. We are not far apart. Now we need to get the job done.
However, there is a distinction between balancing the budget and passing a constitutional amendment. When we contemplate an action as significant as amending the Constitution to require a balanced budget, we owe it to the American people to understand exactly what the consequences would be. And those consequence are serious. I believe the balanced budget amendment proposal would subject the nation to unacceptable economic risks in perpetuity.
First, a balanced budget amendment could turn slowdowns into recessions and recessions into more severe recessions or even depressions.
Second, it could prevent us from dealing expeditiously with emergencies such as natural disasters or military threats.
Page 81 PREV PAGE TOP OF DOC
Third, it would seriously increase the risk of default on our national debt.
Fourth, the escape clauses it provides at best are likely to be far from fully effective. Under the amendment, the unpredictability of economic conditions means that, at best, there would often be a significant time lag from when an economic problem developed until we recognized it and reached a consensus on how to solve it. The escape clauses would also enable a minority in either the House or Senate to use its leverage to subject the nation to unacceptable economic risks; and
Fifth, the amendment poses immense enforcement problems that might well lead to the involvement of the courts in budget decisions, unprecedented impoundment powers for the President or the temporary cessation of all federal payments. Any of these options could disrupt Social Security and Medicare payments. Alternatively, the balanced budget amendment might be unenforceable and therefore have no effect at all, contributing to cynicism about the process of government.
For these and other reasons, I would like to expand on why I believe a balanced budget amendment would create unacceptable risks for our economy.
I. MORE SEVERE RECESSIONS
As Secretary of the Treasury, I am deeply concerned that a balanced budget amendment could turn slowdowns into recessions, mild recessions into worse ones and bad recessions into depressions. A balanced budget requirement in the Constitution would make recessions longer and more painful, first, by eliminating automatic stabilizers that operate during a downturn and, second, by instead requiring measures to increase taxes or cut spending during slowdowns and recessions when the economy is already suffering from lack of demand.
Since World War II, we have made immense progress in reducing the toll of the boom and bust cycle through the introduction of automatic fiscal stabilizers and effective use of counter-cyclical fiscal policy. Under current law, for example, if unemployment rises, unemployment insurance payments rise as well, moderating the slowdown or recession.
Page 82 PREV PAGE TOP OF DOC
Mr. Chairman, the extremes of the business cycle have declined sharply over the post-war period compared with the pre-war era. A balanced budget amendment in some fair measure would undo this progress by turning off these stabilizers and requiring measures that would exacerbate a recession.
To take just one example, without automatic stabilizers, Treasury has estimated that unemployment in 1992 resulting from the 1991 recession, might have hit 9 percent instead of 7.7 percent, in excess of one million more jobs lost. Even were a three-fifths vote to waive the provisions of an amendment obtainable, slowdowns and recessions are hard to recognize or anticipate, and congressional action would almost surely be at the very least months late, by which time critical damage to the economy would already have been done.
II. INABILITY TO COPE WITH CRISES
A balanced budget amendment would also prevent us from dealing quickly and effectively with crises, from a second S&L crisis to a second Hurricane Hugo to an escalating military threat.
For example, in September of 1989, Hurricane Hugo struck the Carolinas, causing billions of dollars of damage. After President Bush declared a major disaster, Congress took action by appropriating $2.7 billion in emergency supplemental assistance to help the area rebuild. Under the Balanced Budget Amendment, if the budget were otherwise in balance, none of these could have been dealt with until after a vote of 60% in both houses if agreement could be reached on offsets.
Page 83 PREV PAGE TOP OF DOC
III. INCREASED RISK OF DEFAULT
As Secretary of the Treasury, I am also highly concerned that the balanced budget amendment would increase the risk of default on the federal debt. Our creditworthiness is an invaluable national asset that should not be subject to question.
Default on payment of our debt would undermine our credibility with respect to meeting financial commitments, and that in turn would have adverse effects for decades to come, especially when our reputation is most important, that is, when the national economy is not healthy. Moreover, a failure to pay interest on our debt could raise the cost of borrowing not only for government, but for private borrowers from companies to homeowners making payments on an adjustable mortgage.
Furthermore, if we are not able to meet our obligations, members of our armed forces, retirees receiving Social Security, those who depend on Medicare and many others, could suffer as well. The risk of this happening must not be increased.
The history of debt limits shows that raising the statutory debt limit is never an easy process. We all remember the enormous difficulties that surrounded this issue in 1995 and 1996. A requirement for a supermajority vote in both houses could make it far harder.
IV. POTENTIAL FOR GRIDLOCK FROM THE SUPERMAJORITY REQUIREMENT
Proponents of the balanced budget amendment argue that, when necessary, Congress will waive the balanced budget amendment's provisions by obtaining a three-fifths majority vote.
Page 84 PREV PAGE TOP OF DOC
This is a risky assumption. In fact, the history of Congress shows that it can be extremely difficult to obtain a three-fifths majority. I believe it will be especially difficult to obtain a supermajority to waive the Constitution of the United States which is an awesome act.
It is true that 60 votes are usually required in the Senate because of its special rules and that, even more fundamentally, the Senate has long honored the rights of a minority to express its views and influence legislation. Nevertheless, recognizing that certain essential matters should not be held up by a minority, Senate rules permit what is known as a reconciliation to adopt a budget or increase the debt limit, to be passed by a simple majority. In contrast, this amendment would require a three-fifths majority to increase the debt limit or obtain a waiver from balanced budget provisions and would extend this supermajority requirement to both houses.
Thus, for example, 41 Senators or 175 Congressmen could throw the government into default; 41 Senators could stop Social Security checks from going out or could advance a special agenda. In effect, a minority in either house could put the economic health of our Nation at risk by refusing to waive the balanced budget requirement or refusing to increase the debt limit unless that minority's agenda was satisfied, and that agenda could be budget related or related to social policy or any other matter.
Let me add that a balanced budget amendment would also limit our ability to deal with national economic downturns in which only some regions were suffering, because many members would not be experiencing the economic problems making a 60% waiver more difficult to obtain.
Finally, we cannot predict the political environment, ten, twenty or thirty years from today, and we should not create enormous minority leverage in the face of uncertainty about future political conditions.
Page 85 PREV PAGE TOP OF DOC
V. ENFORCEMENT DIFFICULTIES
A balanced budget amendment may well be unenforceable. There is no way to compel Congress and the President to enact legislation to balance the budget. Yet there is also no way to compel enactment of legislation to waive the provisions of the amendment. It is not hard to imagine a situation in which a two-fifths minority of Congress opposes tax increases, a different two-fifths minority opposes spending cuts, and another two-fifths minority opposes a waiver of the balanced budget amendment to raise the debt limit. The amendment provides no method for resolving such an impasse.
Some proponents have suggested that under these circumstances, the President would stop issuing all checks, including those for Social Security benefits. Alternatively, judges might become deeply involved in determining whether Social Security or Medicare checks would be stopped. The President might also impound funds of his choosing. Or, the amendment might just prove to be unenforceable and therefore a nullity, reducing respect for the Constitution. All of these potential outcomes are extremely undesirable.
VI. ADDITIONAL PROBLEMS
Let me mention, finally, two other problems. First, by requiring that a majority of the whole Congress approve a revenue increase as opposed to just those voting, the amendment would make it more difficult to close special interest loopholes and eliminate obsolescent deductions and credits. Over time, this would reduce the fairness and efficacy of our tax code.
Second, unforeseen events could lead to a large end-of-the-year shortfall that could only be met in a very short period of time. Such shortfalls happen in many years. In fiscal year 1990, for example, CBO re-estimated the deficit upward by $60 billion in the last nine months of the fiscal year. In such a case, huge cuts would be needed in those programs that happen to have payments late in the year, or where cuts can be made quickly regardless of the consequences.
Page 86 PREV PAGE TOP OF DOC
VII. CONCLUSION
Let me conclude by saying that we have no idea what economic conditions will be like in 10, 20, 30 or 40 years, and creating policy inflexibility in the face of that uncertainty is extremely unwise.
For example, there has been a great deal of debate about whether the Federal government should move to a capital budget. The 35 states that have balanced budget constitutional requirements all have separate capital and operating budgets or count the proceeds from borrowing as receipts. Proponents of a capital budget argue that the absence of a capital budget has reduced investments in infrastructure and other capital improvements that would add to future growth. I don't believe we should move to a capital budget but under different circumstances in the future, others might want to do so. The balanced budget amendment before you now would prevent us from moving to a separate capital budget, even if we wanted to.
Mr. Chairman, as I said at the beginning of my testimony, I have a deep commitment to the importance of deficit reduction and fiscal discipline to our nation's economic health, and I believe that we can put in place balanced budget legislation this year. But I have an equally strong conviction that a balanced budget amendment poses real risks and dangers for our nation's economic future and, for this reason, must not be adopted.
Mr. HYDE. We will follow the 5-minute rule in questions, and so, Mr. Conyers, you are recognized for questioning.
Mr. CONYERS. Thank you, Mr. Chairman, I don't have any questions at this moment.
Page 87 PREV PAGE TOP OF DOC
Mr. HYDE. Thank you.
Mr. Gekas.
Mr. GEKAS. I thank the Chair and wish to thank the Secretary for the testimony which he has offered. As you know, Mr. Secretary, as everyone knows, the resolution that is at hand is exactly that, and when the Congress should successfully, as I wish it would, complete the cycle of this legislation, it will revert to the States for ratification.
Do you fear that the legislatures of 37 States will be equally as duped as you seem to feel that the Members of Congress would be in passing the constitutional amendment, which will be in front of them in due time? Do you fear that the 37 legislative bodies with the people they represent would be as foolish as the Members of Congress in the way you view the----
Mr. RUBIN. Well, I personally hope that the Members of Congress have the enormous wisdom, as I attribute to the Members of Congress, and don't pass it, but assuming the worst----
Mr. HYDE. The record will note that we did not put the Secretary under oath.
Mr. RUBIN. Mr. Chairman, had I been under oath, I might have framed that a bit differently. No, I would have said exactly the same thing. Thank you, Mr. Chairman.
Mr. GEKAS. The point is, Mr. Secretary, we are proposing here a well-reasoned and, over the years, highly acceptable notion on the part of the substantial majority of the American people that we must take strong measures to produce and to maintain a balanced budget for the fiscal sanity of our Nation and for the sanctity of each benefit that accrues to each member of society. So when we say we are going to pass this, we are saying we are going to give the opportunity to the people back home through their legislatures to adopt the amendment.
Mr. RUBIN. You raise a good question with respect to the Constitution and its structure, and the Founders, in writing the Constitution, said that they specifically set up a two-step process and invested the Congress in its wisdom with the responsibility for making a judgment about the amendments, and I do think it is in the first instance the responsibility of this Congress to determine whether or not they think this Constitution should be amended and I think that it is critically important that it not be amended.
Page 88 PREV PAGE TOP OF DOC
Mr. GEKAS. But do you feel if this Congress should pass this resolution, that the Treasury Department and administration will launch a program to appear in all 50 legislatures to advance its opposition?
Mr. RUBIN. This administration is firmly and strongly opposed to the balanced budget amendment. At the present time our discussions are in the context of this congressional process. I can't tell you what our activities would be if it passes Congress. My hope is we won't have to face that issue.
Mr. GEKAS. On another front, Mr. Secretary, I had a lump in my throat when I noted one of our associates in the Treasury Department in an interview singling out the defaulted Social Security as one looming crisis that might occur if we should pass a balanced budget amendment; not failure to pay contractors, not failure to meet our foreign aid, not our dues to the United Nations, not failure to build a bridge in mid construction or any of those, but rather a failure to pay Social Security checks.
In an era when the administration is attempting to put behind the scare tactics that were adamantly put forth in the last Congress during the last election cycle, should this be a time when we should be withdrawing the temptation to get the Social Security community all feared up, all scared on the balanced budget amendment situation? I ask that rhetorically and personally and with that lump in my throat.
Mr. RUBIN. Let me respond, if I may. I don't agree with respect to scare tactics with respect to Medicare. What we said was that the substantial reductions in Medicare that were being suggested were not to the Medicare system. With respect to Social Security, being purely analytic, I think there is no question that under the balanced budget amendment proposed, there would be risk to Social Security.
For example, two of the proponents of the balanced budget amendment suggested that if you run out of resources at the end of the year, the President would simply order at that time that all checks not be mailed out. All checks would include Social Security checks.
Page 89 PREV PAGE TOP OF DOC
Mr. GEKAS. I am saying a default under the worst consequences that you foresee, would mean a default in Medicaid, in foreign aid, and other functions of government. Isn't that so?
Mr. RUBIN. That is true, but under the existing legislative processes, as you know there are, in both the Senate and the House special protections in the budgetary process for Social Security. For example, in the Senate under the reconciliation rules and with respect to the present rules, there are special protections for only one issue, and that is Social Security. Those would no longer obtain, if either the budgetary process was forced into the courts, or if the President was forced to cease mailing all checks. So there is a very special effect on Social Security that is involved in the balanced budget amendment.
Mr. HYDE. The gentleman's time has expired. The gentleman from West Virginia, Mr. Scott.
Mr. SCOTT. Thank you, Mr. Chairman. I would like to follow up on the issue of Social Security and using your background on Wall Street, compare that to a company's pension fund where you have a young work force and you are building up a pension fund until a time where people can actually get their retirement. The balanced budget amendment would count the surpluses as we go along as part of the unified budget. Can you compare that if someone tried that in the private sector what your reaction would be?
Mr. RUBIN. Well, Mr. Scott, I think the unified budget, and this is a matter on which reasonable people could disagree, my own personal feeling is it is the right way to do the Federal budget under the present circumstances. But as I say, reasonable people could disagree about that. The issue that I have discussed in my testimony and that we were just discussing, is that very rightly, in my opinion, there are special protections for Social Security in the legislative processes to deal with the budget.
One of the problems with the balanced budget amendment is that it can force budgetary issues out of the legislative process and into the courts or into a unilateral action by the President. In those venues or fora, these special legislative protections no longer obtain, and that is a significant additional risk for Social Security, which is why there are those who propose that if we are going to have a balanced budget amendment, it should exclude Social Security. I personally feel we should not have any balanced budget amendment, no matter what kind we have, but one that excluded Social Security would at least address that one issue.
Page 90 PREV PAGE TOP OF DOC
Mr. SCOTT. And that way if you have the ups and downs, maintaining solvency, depending on the demographic waves, the ups and downs of a solvent Social Security system would not give you surpluses to spend and deficits to make up on an ongoing basis, essentially making the Social Security, making it impossible to make the Social Security Trust Fund a solvent fund. If it has its own budgets and you have to spend the surpluses in the good years and make up the deficits in the bad years, that has nothing to do with the solvency of the funds. And if a private company tried do that with its pension fund, when you have a surplus, spending the money and then trying to make it up at the end, you would question that----
Mr. RUBIN. Well, some companies have tried to do that, which is why they have underfunded pension funds. I think you are raising a very important question about a unified budget.
Mr. SCOTT. But if it is a unified budget without a balanced budget amendment, you don't have to address----
Mr. RUBIN. It is the balanced budget amendment that creates the issues about Social Security. I guess you have been addressing one set of issues and I another, but these all only arise under the balanced budget amendment.
Mr. SCOTT. As the proposal, as the gentleman from West Virginia, Mr. Wise, indicated, the people say you balance your personal budget, you balance the State budget, companies balance their budgets, that is all with a capital separate budget. Under the balanced budget amendment, how would a sale of assets be scored? Would that be scored as revenues that would be spent?
Mr. RUBIN. Well, that is kind of an interesting question. Outlays and receipts, and you have a sale of assets. I don't know the answer to that. We can get back to you with a view, but it is those kinds of questions and uncertainties that could put this whole budget process into the courts. And another concern which I did not raise in my testimony is that there will undoubtedly be many issues of uncertainty raised under the balanced budget amendment which will immediately take the budgetary process into the courts, and that is precisely where we should not have budgetary decisions being made.
Page 91 PREV PAGE TOP OF DOC
Mr. SCOTT. Under the balanced budget amendment, if you were to build a building, would it not be scored differently if you rented the building rather than bought the building?
Mr. RUBIN. That would be true under the existing budget certainly and under a balanced budget amendment. One of the problems----
Mr. SCOTT. But under the balanced budget amendment, you could save 90 percent of this year's cost by renting rather than buying, which over a 20-year life cycle, it wouldn't make any sense.
Mr. RUBIN. Yes. I think the problem with the balanced budget amendment, is while right now we don't have a capital budget, and I personally don't think we should have one, if in the future a Congress decides that a separate capital budget, which is what the States have, is a better way to run the Federal Government, once you have a balanced budget amendment in place, you can no longer make that change in policy. And that is one of the inflexibilities which, it seems to me, having been created by the balanced budget amendment, is a most undesirable possible position for this country to be in.
Mr. HYDE. The gentleman's time has expired. The Chair will announce that some committees permit questioning of witnesses in the order in which the Members appear in the hearing room. I find that very cumbersome and difficult to have our clerks with a stopwatch determine who is here early and who is here late. It is somewhat unfair, especially to our freshmen Members on both sides who were here, I am happy to say, early, but if they will indulge me it is much easier to go by seniority.
So Mr. Goodlatte is recognized for 5 minutes. I am sorry, Mr. Canady. Forgive me.
Mr. CANADY. None.
Mr. HYDE. No questions? I am sorry.
Ms. Waters.
I am sorry, Ms. Waters. I withdraw my invitation. While they are shuffling around as a result of the new Congress, it has confused me.
Page 92 PREV PAGE TOP OF DOC
Ms. Lofgren.
Ms. LOFGREN. Thank you , Mr. Chairman. Mr. Secretary, I think you've addressed the Social Security issue pretty thoroughly. I am interested in what the balanced budget amendment might do or encourage in terms of defaulting on our obligations. Do you think the amendment would potentially lead to default, and if so, why?
Mr. RUBIN. Well, I think you have a number of problems, but the fundamental problem right now is it is very difficult right now to get an increase in the debt limit. And yet, in order to meet our obligations, in order to pay interest to the principal on our debt, we, in fact, have to increase the debt limit when the debt hits that limit.
The balanced budget amendment has a supermajority requirement, that is to say it requires 60 votes in each House. At the present time it can be done with 50 votes in each House, in the Senate with a special reconciliation process. It is already difficult, it seems to me, and would become more difficult and that would give the minority the opportunity to use that leverage and an enhanced opportunity to use that leverage to accomplish budgetary or social or other purposes. And I think that creates a substantial additional risk of default and I do not think we should do anything that places the creditworthiness of the Nation at risk.
Ms. LOFGREN. As a native of California, I have seen that happen in the California State Legislature where there is a two-thirds voting requirement for the budget and I think one year they had certificates for payment, IOU's, for 4 or 5 months because they couldn't get an agreement.
Mr. RUBIN. It is important to remember the debt limit involves only the question of meeting our obligations that have already been incurred by the actions of Congress and the Federal Government. It has absolutely nothing to do with reducing the deficit. You only reduce the deficit through the budget process.
Page 93 PREV PAGE TOP OF DOC
Ms. LOFGREN. Let me ask you this. It has to do with something there was debate about last year or the year before when the Government was shut down and there was a discussion on whether or not a default would occur. What would happen if the United States were to default--could you describe the scenario, in terms of the worldwide markets and otherwise?
Mr. RUBIN. I think it is very hard to know what the short-term effects would be, but at the time if some question would be raised with respect to whether or not we would meet our obligations, the major credit agencies in the world, both here and abroad, put out analyses and the bottom line, if you put it all together, is that a default by the United States for failure to meet our obligations could have effects on our creditworthiness, how we would be viewed in the global financial markets, not only for years, but decades into the future. And that would cause the Government to have to pay higher interest rates to fund the Federal debt, and I believe would affect the private sector borrowers as well and would be a particularly serious problem at such a time when the economic situation in our country was most troubled and we most needed to rely on our reputation for creditworthiness.
It is a very, very serious act to default on your debt. It is not something we should ever contemplate and this balanced budget amendment would make it substantially harder to increase the debt and would increase the risk of that happening.
Ms. LOFGREN. Let me ask you a further question. One of the earlier questioners mentioned, maybe it was Congressman Wise, about his mortgage, and we have a mortgage as well. But the other major debt I incurred was loans for college and law school. What, if we were to take Social Security off-budget, or even if we didn't, what implications would the balanced budget have for the other long-term investment that we need to make to our country, to education, for the next generation, our next work force.
Page 94 PREV PAGE TOP OF DOC
Mr. RUBIN. Well, I believe we must go to a balanced budget----
Ms. LOFGREN. Not the budget, but the balanced budget amendment.
Mr. RUBIN. The problem with the amendment lies in the area of what happens when circumstances occur that we cannot presently foresee. I think the most likely scenario going forward as far as I care to look into the future is solid growth with low inflation. But some day we will have another slowdown. And what is happening in the post-World War II period is the automatic stabilizers, as I described in my testimony, have enormously moderated business cycles.
The fear here is if we go into a slowdown, then at that time, instead of unemployment insurance payments going up and tax revenues coming down, which offsets the loss of demand in the private sector, we would be forced to either raise taxes or cut unemployment insurance and other expenses, which would exacerbate the recession, and that could obviously at the same time affect student loans or whatever else Congress decided to do, in order to reduce expenditures during the recession, which is exactly the opposite of what you should do if you want to come back out of that recession.
Mr. HYDE. The gentlelady's time has expired.
The gentleman from Virginia, Mr. Goodlatte.
Mr. GOODLATTE. Let me start out by asking you what your general viewpoint is on the importance of balancing the budget. Should that be done in most years? By that, I mean, roughly, sometimes you might have a small surplus, others a small deficit, but leaving aside this issue, how often should we----
Page 95 PREV PAGE TOP OF DOC
Mr. RUBIN. I think fiscal responsibility is absolutely central to economic health. I think we got off track somewhere around the mid-70's. Whatever the reasons, the period 1980 to 1992 was terrible. The Federal debt quadrupled. I think we have taken enormous steps to get back on track and I think we have to continue on and go to balance.
Mr. GOODLATTE. I appreciate that. I think that was roughly the position that Alice Rivlin indicated when she was here to testify 2 years ago, and I commend, I understand the administration is going to offer a budget here shortly that will be in balance by the year 2002, and I commend the administration for that. I am sure the Congress is going to have some differences of opinion with regard to our own efforts in that regard, and I am optimistic that we will have a better chance of working them out than we have in the past.
Mr. RUBIN. I agree.
Mr. GOODLATTE. But I think this is a very unique set of circumstances based on the last several decades and it concerns me that this is the first time this administration will have done this. It was not done in the Bush administration. It was not done in at least the last 4 years of the Reagan administration, and, of course, reaching agreement on this, balancing the budget does not assure us that the budget will, in fact, be balanced by the year 2002.
We are going to have to live by that budget and any modifications made thereto between now and the year 2002 and then to live by your general agreement with me that generally balancing the budget rather than not doing it. It has been 28 years since we last achieved a balanced budget in 1969.
Page 96 PREV PAGE TOP OF DOC
Now, what do you propose to future Congresses and future Presidents that will assure us that this unique set of circumstances that we have arrived at here will survive in the future if we do not take the measure of saying, as most State governments have said, that you have got to balance the budget except under extraordinary circumstances.
Mr. RUBIN. Well, you have asked a series of questions. Most State budgets, almost all I believe, though probably not absolutely all, that require balance have separate capital and operating budgets.
Mr. GOODLATTE. Let me interject on that one point, and I recognize that and Mr. Wise from West Virginia, which is a State that is very interested in capital expenditures, I am sure has that provision in their constitution. But I wonder if West Virginia or any other State has an existing debt that works out to $19,000 per capita.
Mr. RUBIN. I don't think that is a separate issue. I am not in favor of the separate capital budget.
Mr. GOODLATTE. Again, at this point in time I am not either, but the reason is we have this enormous burden of $5.2 trillion that we are carrying into the equation before we ever get to----
Mr. RUBIN. As you said, that is at this point in time. I can envision a situation, 10, 20, 30, 40 years from now, when the then policymakers, because of shortfalls in the infrastructure or because we are in a much better fiscal position, make the decision we should have a capital budget.
Page 97 PREV PAGE TOP OF DOC
Mr. GOODLATTE. How do we get from now until then----
Mr. RUBIN. Prevent that from happening. I think we do it by Congress and the administration working together, as they have over most of our history, to have very small or no deficits. I also think, and I think that this is an enormously important new factor in the equation. We have today a different world than when I started on Wall Street 26 years ago. Now, 30 years ago, actually.
We have global financial markets that are not going to permit nations to get in the kind of fiscal laxity that we had in the early and mid-80's, and nations that get into that position, in my opinion, will be so severely punished, that they will basically be forced out. And we see that in Europe right now, as the European nations get into what they call congruence in order to put in place a common currency.
Mr. GOODLATTE. I am going to run out of time. Let me respond to that point because I think it is a legitimate point. The same point you raised earlier about having a requirement of a larger percentage of the vote in Congress to have a budget out of balance operates whether that is true or not.
Congresses are historically slow to react and we could be slow to react even under the current circumstances and have that kind of budget imposed on us for fiscal laxity and be too late getting back into the balanced budget process if we are going to go back to $250 $300 billion a year deficits.
Page 98 PREV PAGE TOP OF DOC
Mr. RUBIN. I agree with you, I think Congress needs to get in place a balanced budget. I think times are very difficult. But I don't think anything is worth the risks that are associated with the balanced budget amendment and that is what the 11 Nobel laureates and the 1,000 economists in the New York Times said today.
Mr. HYDE. The gentleman's time has expired and we thank the gentleman for not mentioning all the economists that support the balanced budget amendment.
Mr. RUBIN. I could read the list, if you would like.
Mr. HYDE. I have a list up here, too. The gentlelady from California.
Ms. WATERS. Thank you very much, Mr. Chairman. I would like to thank Mr. Rubin for his testimony this morning. I really always look forward to his testimony and appreciate not only his experience, but the way that he has been able to provide leadership on some very difficult issues that have confronted this Congress since he has been Secretary.
You alluded to, at one point in your testimony, that it is a serious matter to talk about amending the Constitution of the United States, and oftentimes, as I hear this argument, that is not discussed, despite the fact we will have many Members who will tell you how they revere the Constitution of the United States, this most important document, that has held us in good stead. And I, too, am amazed, when I began to hear loose conversation about a balanced budget amendment and amending the Constitution of the United States and then talk, oh, if we get into a crisis or an emergency by the supermajority vote we can fix it.
Page 99 PREV PAGE TOP OF DOC
So I hope that as you talk about this issue in the next, you know, few weeks to come, months to come, that you will even embellish on that part of your testimony the seriousness of amending the Constitution of the United States.
To answer a little bit of someone's question, even though it may have been asked in jest, I was in a legislature, one of the largest, full-time legislatures in the country for 14 years. I served the State of California, served on the budget committee. Six of us negotiated and finalized the budget each year for 10 years.
Yes, legislatures can be duped. No, we do not often take as much time to ferret out the issues. Many legislatures are only part-time, many only meet for short periods of time. So I would not take lightly the consideration that legislatures may act without all of the information, without all of the hearings, without full appreciation for the seriousness for amending the Constitution of the United States for a balanced budget. It is a very sexy political argument to talk about a balanced budget.
Everyone wants a balanced budget. So it is easy for elected officials to fall into the politics of this discussion and look good in their elections when they say I voted that we amend the Constitution in order to have a balanced budget. So I wouldn't take those issues lightly.
Let me just say that I have watched in this Congress since I have been here on things like the line item veto. It was a very sexy issue. It came from my friends mostly on the right joined by some friends on the opposite side of the aisle. But what do I hear today? They want to change it. They didn't really mean it. What they meant was it was the political thing to do for the moment and it is all right if my President is at the helm, but when the Democrats are there perhaps we need to change it.
Page 100 PREV PAGE TOP OF DOC
And again, would you please, in addition to all the wonderful factual information that you bring about the potential hazards of a balanced budget amendment and what it could do to Social Security and/or budgets, please continue to talk about the Constitution and the seriousness of the amendment.
Mr. HYDE. The gentlelady's time has expired. I might advise the committee that we have five more witnesses and it would be the intention of the Chair to proceed on through so we don't keep the five witnesses hanging around all day, so we will forgo the luncheon and I give you that as a guide to your future questioning.
The distinguished member from Ohio, Mr. Chabot. Oh, Mr. Bono, I am sorry. You are right in front of me. I didn't see the forest for the trees. The gentleman from California, Mr. Bono.
Mr. BONO. That is OK. That has happened to me since I have been a straight man most of my life.
Mr. Chairman, when everybody talks about this being a sexy issue, to me, it appears that it is not necessarily a sexy issue. It is just that we are at the edge of the cliff on this issue and the tolerance we had in the past doesn't exist any longer. Would that be a fair statement?
Mr. RUBIN. I believe, Mr. Bono, that the tolerance for laxity does not exist anymore and that is one reason why I have a high level of confidence that we will do the right thing over the years, although undoubtedly we will stray from time to time.
Page 101 PREV PAGE TOP OF DOC
Mr. BONO. So it is an urgent situation that has to be brought under control.
Mr. RUBIN. Well, let me say, no, actually it is much better than that. I think 5 years ago it was an urgent situation to be brought in control. We currently have the lowest deficit to GDP ratio amongst major industrial nations and the United States is the country to which capital flows--we are actually in a very strong position. What we have to do now is complete the job and go to balance.
Mr. BONO. What--say things are better. Then if they get better than that, it seems like you are coasting and things are better and Congress and the administrations in the past have gotten a little more lax or loose. Then the debts and the deficits start rising up again to the point where it is a desperate situation. Where is the guarantee that that won't happen again if we don't put some kind of lock on the box to say, ''OK, we have to hold this?'' What about the future Congress and the future administration?
Mr. RUBIN. Well, I don't think that there is a guarantee, and for that matter, I don't think the balanced budget amendment in all probability provides you with a guarantee. After all, if Congress really decided they didn't want to engage anymore in fiscal responsibility, they do have the waiver provisions, and I think they have problems, as I have discussed. I think the only assurance you have of fiscal responsibility is the hard work and hard tradeoffs you all have to make as you move to a balanced budget and attain fiscal responsibility over time.
The problem with the balanced budget amendment, is in an attempt to accomplish a good objective, balancing the budget, it creates, I think, unacceptable risks for our economy and risks that we should not take.
Page 102 PREV PAGE TOP OF DOC
Mr. BONO. Well, my personal concern is that politicians in the future will start spending more money and government will grow even larger. I agree with you that a balanced budget amendment might cause some hardships and it has to go hand in hand with cutting government hence at some point, like a family, you don't have the money so you can't buy it, so you can't exempt governments. At some point we have to stop saying we can increase or add to, and up the ante for the taxpayers to have to cover as far as the size of government. I think coupled with all of this is the growth of government, and as it grows, it is going to be more costly and will drive up the debt and the deficit.
Does the debt rely on the GNP? The GNP has to hold a certain position to cover the current debt; is that correct?
Mr. RUBIN. Well, I think a way of looking at that, in my judgment, the best way to look at the debt level is the debt relative to the GDP, the gross domestic product of the national economy, and in that respect we have started sliding a little bit, and if we continue on the track that the President's budget proposes, that will improve substantially over time.
Mr. BONO. But if that fails, then the debt would increase, it wouldn't cover the current debt if we continue----
Mr. RUBIN. Well, we can meet our obligations. That isn't the problem. The problem is the interest that requires more obligations, takes up a larger and larger portion relative to our GDP or budget, and takes resources away from our other activities. That is another very good reason why fiscal responsibility is so critical. The debt incurred from 1980 to 1992 generated interest in the amounts, requires interest in amounts such that if we didn't have to pay that interest, we would actually have a surplus.
Page 103 PREV PAGE TOP OF DOC
Mr. BONO. My time is up. Thank you.
Mr. RUBIN. Thank you.
Mr. HYDE. The gentleman from Massachusetts, Mr. Delahunt.
Mr. DELAHUNT. Thank you, Mr. Chairman, and I will respect your admonition so I will just ask one brief question. And, Mr. Secretary, I appreciate your testimony here this morning.
You spoke earlier about the threat to our national economic health, and you alluded to your concern about the elimination of some automatic stabilizers which would offset the impact of a downturn or recessions. Could you just give us one concrete example and maybe a potential scenario along those lines?
Mr. RUBIN. Sure. I think it is the heart of the problem, not the only problem by any means, but it is certainly a large piece of the problem with the balanced budget amendment. Right now if you come to the end of a year and start to have a slowdown, unemployment insurance and other payments rise and tax revenues come down. The result is that through the increased expenditure and reduction of the taxes taken out of the economy, you have additional demand that is being created, and that additional demand helps offset the loss of demand in the private sector.
And it is precisely that automaticity that has contributed so greatly to the enormous modevation of business cycles in the post-World War II period. It is really quite a remarkable thing to compare business cycles post-World War II and pre-World War II. Under the balanced budget amendment, when you start to have the conditions that I have just described, the Congress would be forced, by the amendment, to either raise taxes or cut unemployment insurance or other payments in order to get back in balance. Instead of the automatic stabilizers thereby moderating the slowdown and recession----
Page 104 PREV PAGE TOP OF DOC
Mr. DELAHUNT. They would exacerbate it.
Mr. RUBIN. That is exactly the problem.
Mr. DELAHUNT. And we could really find ourselves in very, very serious economic problems.
Mr. RUBIN. I think that it would reverse most of, if not all of--probably most of, not all of what we have accomplished in the post-World War period with respect to moderating business cycles, and that is why you have such an outpouring of concern on behalf of economists across the spectrum.
Mr. DELAHUNT. And this is why they sponsored that endorsement last Thursday.
Mr. RUBIN. That is what they set forth as the first of their reasons, although they do have a serious concern with respect to the balanced budget amendment.
Mr. DELAHUNT. Thank you, Mr. Secretary.
Mr. HYDE. Thank you, gentlemen.
The gentleman from Ohio, Mr. Chabot.
Mr. CHABOT. Thank you, Mr. Chairman. First of all, I would like to thank the chairman for holding these very important hearings, and I thank Mr. Rubin for his testimony here this morning. I agree with some of the things you said, Mr. Secretary, and disagree with others, and I certainly agree we ought to balance the budget.
Page 105 PREV PAGE TOP OF DOC
However, I strongly disagree with you in your opposition to the balanced budget amendment. I have heard a number of statements over the years, and I have heard some this morning, that all we need is the political will to balance the budget, and then we ought to do that vote by vote. People argue that we don't need this in the Constitution, that we don't need to amend the Constitution, which we have done only 27 times in our Nation's history.
But I would like to ask you, first of all, Mr. Rubin, are you satisfied with the track records of the Congress and previous administrations, over, say the last couple of decades, in balancing the budget without a constitutional amendment?
Mr. RUBIN. I think clearly, the country went off track, and while it began in the mid-70's, the great increase in national debt was in 1980 to 1992. As I said, we have now come back on track very substantially from 1993 to the present.
The problem is that--I guess, two problems. One is the only way we are going to do this is through the very hard choices of the budget process. One of the problems I have with the balanced budget amendment is it is attempting to accomplish a purpose which, and I am not sure that it does, of guaranteeing balance. It exposes the economy to enormous risks that I do not think this country should expose itself to.
Mr. CHABOT. Wouldn't you agree that the greatest danger to Social Security and Medicare, and the health of the economy, which you and others have mentioned this morning is the fact that we have built up this huge debt over years? Isn't it really the biggest risk that we haven't been able to get our fiscal house in order, to live within a budget? Isn't that the real risk to Social Security and Medicare?
Page 106 PREV PAGE TOP OF DOC
Mr. RUBIN. Well, I think Social Security and Medicare, each within their own problems have special problems that need to be dealt with, which the President proposes the bipartisan process should be dealing with. I think you have a more general problem, which I think is separate from the particular problems of those two entitlement programs, but with respect to fiscal responsibilities we are back on the path. As I said a moment ago, we have to go, and I think we have to stay on that path, and I am just repeating myself, but I will say it again. I just do not think that we should, to do that, incur the very substantial risks associated with the balanced budget amendment.
Mr. CHABOT. Let me ask you this. There are a lot of lobbyists in Washington, that is something we have up here on the Hill, very powerful groups up here on the Hill and that the administration deals with all the time. But it seems that the one group that is probably the least powerful, the one that is ultimately going to pick up the bill for this huge debt, is our kids, future generations of Americans, people who never got a vote on this deficit.
I am sure you have heard the figure that the average baby born today over his or her lifetime will pay $187,000, I think it is, in taxes just to pay the interest on the debt. Do you think it is fair to these kids to run up this debt and turn it over to the next generation?
Mr. RUBIN. I think from 1980 to 1992 was horrendous with respect to the economy and it is one of the reasons I left the private sector to come to the Government. I believe in the President's commitment to fiscal responsibility and I said I want to be part of it. And I might add, it is why he made that his threshold priority when he got into office in 1993, and I think the results have been very substantial. But that part of your analysis, I agree with.
Page 107 PREV PAGE TOP OF DOC
Mr. CHABOT. I guess in summary, I wish that I had more confidence in the administration and in the future Congresses and that we didn't need to amend the Constitution to balance the budget. The fact is, however, that the last time Congress and President got together and balanced the budget was the late 1960's, 27 or 28 years ago, and over that almost three decades now we have not had a balanced budget.
Everyone has talked about it, and everyone agrees we ought to do it, but the fact is the job hasn't gotten done and that is why I very much believe that we must act now at this historic time. We almost did it last time. We lost by one vote. I think for our kids, for future generations of Americans, we ought to pass the balanced budget amendment and I am hopeful we will do that.
Mr. HYDE. The gentleman's time has expired. The gentleman from Florida, Mr. Wexler.
Mr. WEXLER. Thank you, Mr. Chairman. I took very seriously some of the admonitions of some of the proponents of the amendment that opponents of the amendment should not engage in the scare tactics, especially with respect to our Nation's senior citizens. I appreciate that very much. So for purposes of my inquiry, I would like to assume two things.
One, this amendment to the Constitution was adopted in what now is its form, which in effect keeps Social Security a part of the process, and, two, once the amendment was adopted and Congress began to then formulate budgets subsequent to its adoption, I would trust that the proponents of the amendment would make certain that the Social Security Trust Fund surpluses are, in fact, not used to discount what would be deficits in other parts of the budget.
Page 108 PREV PAGE TOP OF DOC
Assuming those two things to be true, past as is, the Social Security Trust not used to discount other deficit funding, what would the ramifications be on the military's budget? Would the military be able to fight in two places at one time?
Mr. RUBIN. If I may, two comments. One is while I recognize your stipulation, assumption, the fact is there is no practical way to make that assumption. The proponents cannot assure that assumption if the balanced budget amendment has legal seniority in the legal structure. So no matter what you do, there is no way, at least in our judgment, to absolutely assure that. So while I hear your assumption and response to it, the assumption, in my judgment, cannot be realized in any practical fashion.
Having said that, if we are in a situation, just one example. There are enumerable possibilities as an example. All of a sudden you have a very large shortfall and the balanced budget amendment requires that Congress restore balance before the end of the year and you have 2 or 3 months in order to make up $100 or $150 billion for the year. The money is going to have to come from some place, either massive cuts in the military, or you are going to have to not make payments, not make payments to Social Security and Medicare, or you are going to have to do something else.
One set of proponents of the balanced budget amendment suggested that the then President in those circumstances simply cease sending out all checks. ''All checks'' would include military checks as well as all other checks.
Mr. CONYERS. Congressional checks?
Mr. RUBIN. That is something of significance that raises a whole other set of questions.
Page 109 PREV PAGE TOP OF DOC
Mr. CONYERS. OK.
Mr. WEXLER. May I ask one followup question? Assuming that the Social Security Trust Funds were not--I understand it is a tremendous assumption--assuming they were not used to discount other deficit spending and assuming the military budget was not equally cut, what--do you know, have any idea what the percentage of cuts then would be required in the rest of the budget to achieve a balanced budget?
Mr. RUBIN. Well, it depends what the shortfall was. The military budget is about $250 billion, and Social Security--Mr. Wexler, depending on how large a shortfall, in the programs that actually make very large payments at the end of the year, because those are the only ones that you can, you would have to totally discontinue payments on very large numbers of other programs totally, completely, 100 percent, for a period of time in order to meet the requirements of the balanced budget amendment.
Mr. WEXLER. Thank you.
Mr. GEKAS. I thank the gentleman.
The Chair recognizes the gentleman from Tennessee, Mr. Jenkins, for 5 minutes.
Mr. JENKINS. Mr. Secretary, most of the States that have balanced budget language in their constitutions have had it in place for decades--in the case of some States, for centuries. How many examples can you cite to us today of those States who have had that language in place for many, many years of defaults or calamities such as you envision with respect to the Federal Government?
Page 110 PREV PAGE TOP OF DOC
Mr. RUBIN. The States that have balanced budget amendments almost in every instance have different circumstances than we have today. There are some States that will count debt proceeds as receipts. Most of the States have separate capital budgets. None of the States have the effect on the Nation's economic health that the Federal budget has. So I think you are dealing with really a virtually nonanalogous situation when you talk about the State budgets.
Mr. JENKINS. But the principles are the same.
Mr. RUBIN. No, they are different.
The effect of the Federal budget, the automatic stabilizers, which is the single most important problem with respect to the balanced budget amendments, doesn't exist with respect to State budgets.
Secondly, this whole issue of the possibility that some day, maybe not in the distant future, the decision will be made to go to a capital budget, which doesn't pertain to the States, because most of them have capital budgets. The whole issue of protecting Social Security is not an issue as pertains to the States. I think you actually have a quite nonanalogous situation.
Mr. JENKINS. Thank you, Mr. Chairman.
Mr. HYDE. The gentleman from Michigan.
Mr. CONYERS. Thank you, Mr. Chairman.
Page 111 PREV PAGE TOP OF DOC
I am distressed that some of my Republican colleagues have not heeded the call to the barricades by the capitalists of America on this subject. I mean, I need to review with you, and who would know better, the position of some of our giants of the fiscal world.
Smiling Mr. Forbes, who I think his candidacy went down on this subject, if I remember correctly; Bill Gates, who has been lionized by those of both parties; and, of course, Mr. Perot, one of the wealthiest politicians in America; Warren Buffet; Michael Eisner.
Tell me, sir--I don't know if their names are on the list in the paper today--but could you kind of run through that list of luminaries whose concern we might take into consideration here today?
Mr. RUBIN. Mr. Conyers, I don't know where any of these stand on this particular issue. We could find out for you.
I do know that Chairman Greenspan; the Chairman of the Federal Reserve Board expressed great concerns about a balanced budget amendment in testimony about 2 weeks ago. And his predecessor, Paul Volcker, has expressed in the past his opposition to a balanced budget amendment. And, of course, we have, as I mentioned before, 11 Nobel Prize-winning economists who have expressed their opposition.
Mr. CONYERS. But what about the titans of Wall Street? Let's get with it. What are the big boys saying up there?
Page 112 PREV PAGE TOP OF DOC
Mr. RUBIN. Mr. Conyers----
Mr. CONYERS. Wait a minute. Your modesty is overwhelming this morning, Mr. Secretary. You came from Wall Street.
Mr. RUBIN. I did indeed.
Mr. CONYERS. I am glad you did.
Mr. RUBIN. I am sometimes glad; I am sometimes not.
But I think if you sit quietly and talk with thoughtful people on Wall Street, while you will find different views from different people, I suspect the predominant view would be very much like my own: enormous concern about fiscal discipline and commitment to the idea that we must balance our budget and an enormous concern that existed back some years ago about the fiscal health of the country 5 or 10 years ago.
And at the same time my guess would be, from the people I have spoken to about it, I would guess that most of them feel that a balanced budget amendment creates inflexibility with respect to the power in our Constitution that we shouldn't have, although I am sure there are people on both sides of the issue.
Mr. CONYERS. I suspect that you are right, and I am going to commit a small amount of my staff resources to contacting some of these people because, friends, look, if you are really worried about fiscal stability, I mean, let's listen to the people who have the most to lose, if I can put it that way.
Page 113 PREV PAGE TOP OF DOC
Mr. RUBIN. No, I think, Mr. Conyers, we all have the most to lose on both sides of this. If we don't have fiscal responsibility, I think it is going to punish all of us; and if we have a balanced budget amendment, it will punish all of us.
Mr. CONYERS. That is a great comment from you, and I believe it, and I approve of it, too.
Mr. Chairman, we have before us, I think, the most knowledgeable person in the Federal Government on the subject of fiscal and financial creditworthiness. The gentleman before us now fought for the 1993 deficit reduction plan when a lot of people, maybe some around him, didn't approve it. He is the most experienced man in government on balancing budgets. He staved off default when we did not want to raise the debt limit ceiling in January 1996. Some in this body, I shamefully admit, wanted him removed as a result of that. He did not budge.
He fought for the North American Free Trade Agreement--much to my chagrin--the Mexican loan guarantee. He saved the currency of our neighbor and friend single-handedly, and they paid us back. I think there was a profit realized.
But what I am just putting in the record, Chairman Hyde, is that this is not a matter of debating a witness. We are talking about the most experienced single human being in the Federal Government today giving us his reasoned opinion on a very difficult and emotional subject, and I thank you for joining us today.
Mr. RUBIN. Thank you, Mr. Conyers.
Page 114 PREV PAGE TOP OF DOC
Mr. HYDE. The gentleman's time has expired, and I would say to my dear friend from Michigan, I will join in pleading with the President to award this witness the Presidential Medal of Freedom. He is indeed unique. I see a little aura above him.
Mr. RUBIN. There is no aura, Mr. Chairman. I just try to get through each day. Some I make it; some I don't.
Mr. HYDE. The gentleman from Arkansas, Mr. Hutchinson.
Mr. HUTCHINSON. Thank you, Mr. Chairman.
Secretary Rubin, I enjoyed your presentation today, as I did your recent presentation at the School of Government at Harvard when I first met you. And I appreciated your comments because I have a very high regard for the Constitution and I am concerned about any language that would be put into that great document.
The joint resolution that has been proposed containing the balanced budget amendment provides in section 6 that the Congress shall enforce and implement this article by appropriate legislation. I think that is a very important clause because we don't want every scenario addressed in the Constitution. And you have raised a number of different scenarios that could be troublesome: if revenues are down, or expenses are up toward the end of a fiscal year.
Now, certainly, would you agree that Congress has the responsibility--if this is adopted by the Congress and ratified by the States, to put forward implementing legislation that hopefully would protect from these scenarios?
Page 115 PREV PAGE TOP OF DOC
Mr. RUBIN. Well, I don't know exactly what implementing legislation you would have in mind, but I think if the notion is that the issues that I suggested are serious issues but that they can be resolved through legislation, then it seems to me that--I guess I would make two points. One is, I think one should see the implementing legislation, since that now becomes part of the legislation. And I think that part of any implementing legislation--that some circumstances may exist that none of us can foresee 10, 15 or 20 years down the road and that legislation may not work and the balanced budget amendment always will have priority over the legislation.
Mr. HUTCHINSON. The amendment is there, but you can change legislation if it does not address all the problems.
But, for example, we were talking about the different States; and I know that former Senator Pryor from Arkansas talked about the Arkansas Revenue Stabilization Act. Under this legislation categories of spending are set to protect in the eventuality that all the revenues that are anticipated do not materialize. And one prioritizes to make sure that the Social Security recipients and the Medicare recipients and the veterans and our soldiers are paid in a timely fashion, and that there are other levels, perhaps the pay of Congress that might be put at a lower priority to be cut first.
Mr. RUBIN. The problem is prioritization is depending on the size of the whole; and the time that you have to make up the shortfall, it may simply be that prioritization is not sufficient to avoid having to deal with these very sensitive programs that you have just mentioned.
Page 116 PREV PAGE TOP OF DOC
Mr. HUTCHINSON. Mr. Secretary, I want to make sure I understand your testimony today. You have raised some different problems with the proposed amendment. Is the problem a drafting problem? In other words, if there was a Social Security set-aside or if it was reduced to a simple majority, would that be acceptable to you, or are you opposed to a balanced budget amendment as a matter of principle?
Mr. RUBIN. I think that the problems with the balanced budget amendment that I tried to discuss in my testimony would exist in any form of balanced budget amendment I have seen, and I would be very strongly opposed to any balanced budget amendment.
Having said that, if you are to exclude Social Security, you would at least address that particular issue, although all the other issues that I raised would still obtain.
Mr. HUTCHINSON. You oppose any balanced budget amendment?
Mr. RUBIN. I would oppose any balanced budget amendment that I have seen, because if it is going to be meaningful, it is going to create the inflexibilities that create the problems that I discussed.
Mr. HUTCHINSON. Is that the administration's position as well?
Mr. RUBIN. Yes, that is the administration's position as well. That is absolutely correct. Yes.
Mr. HUTCHINSON. Thank you, Mr. Secretary.
Page 117 PREV PAGE TOP OF DOC
Mr. HYDE. The gentleman's time has expired.
The gentleman from Indiana, Mr. Pease.
Mr. CANNON. Mr. Pease is not here.
Mr. HYDE. I am sorry. I couldn't see through Mr. Jenkin's head. He has no holes in his head.
Mr. Cannon.
Mr. CANNON. I would like to thank the Secretary for his thoughtful testimony on an issue that is very important and of deep concern and then try and set a precedent for others as you go into the next panel and not ask any questions.
Mr. HYDE. Thank you very much. You are in line for that medal, too.
Mr. Secretary, it has been very instructive and we do thank you for spending such time with us today and on this important issue.
Mr. RUBIN. Mr. Chairman, I thank you very much for having me. Thank you.
Mr. HYDE. The Chair would like to proceed with the last panel, and so if that panel would come forward. Our final panel consists of five witnesses.
Page 118 PREV PAGE TOP OF DOC
First, we are pleased to welcome our former colleague, Tim Penny of Minnesota, who after serving with us in the House for six terms, is now, among other things, a member of the board of directors of the Concord Coalition. He is also a fellow at the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota and teaches at Saint Olaf College.
Our second witness is Stuart M. Gerson, who was the Assistant Attorney General for the Civil Division during the Bush administration and Acting Attorney General at the beginning of the Clinton administration.
Mr. Gerson is now a partner in the law firm of Epstein, Becker & Green, an expert in complex litigation and in separation of powers issues. He was lead counsel for the United States in regard to all litigation challenging the authority of the President to commit troops to the Persian Gulf.
Then we will hear from Prof. Cass R. Sunstein of the Law School at the University of Chicago; and following Professor Sunstein will be Eugene Lehrmann, past president of the American Association of Retired Persons; and, finally, we will hear from John E. Berthoud, vice president of the Alexis de Tocqueville Institution at George Washington University.
And I might add, because of ill health, Dr. Martin Anderson, who was previously scheduled to testify, cannot be with us this morning; but his testimony will be made a part of the record.
[The prepared statement of Mr. Anderson follows:]
Page 119 PREV PAGE TOP OF DOC
Prepared Statement of Martin Anderson, Senior Fellow, the Hoover Institution
The debate on whether or not to place in our Constitution a small amendment that would require a balanced federal budget has been with us for a long time. The pros and cons of such a step have been laid out exhaustively, and they are well known to the members of Congress.
As a longtime student--and sometimes practitioner--of the economics and politics of the budget I am convinced that such an amendment, especially one requiring a supermajority vote to allow outlays to exceed receipts, would increase our prospects for steady economic growth.
Let me just briefly identify the reasons for this, and why I believe the arguments of the opponents of the balanced budget amendment, while plausible, fail to hold up on closer examination.
First, I think it is important to emphasize that Congress is not voting to decide whether or not to have such an amendment. The only power Congress has is to recommend the amendment to the states for their possible ratification.
Only after a great national debate, intensive media scrutiny, and ratification by three-fourths of the states, could such an amendment become part of the Constitution.
We have been debating this great issue for at least 20 years in Washington. Isn't it time to pass it on to the states for their decision?
Second, any balanced budget amendment is ultimately about whether or not future spending will be lower than it otherwise might be, whether taxes will be higher, or some combination of both.
Page 120 PREV PAGE TOP OF DOC
As with most things there are good balanced budget amendments and bad ones. The good ones balance the budget by leaning heavily on spending control rather than increased taxation. The three-fifths supermajority vote specified in the current amendment to allow outlays to exceed receipts or to increase the national debt is strong and workable.
Moreover, the requirement of only a simple majority to raise revenue provides more than enough flexibility should it be deemed necessary to pursue wise economic policy.
Personally, I think we should extend the idea of a supermajority three-fifths vote to raising revenue, and seriously consider making it a two-thirds supermajority.
The Senate requires a three-fifths supermajority vote to break a filibuster, and a two-thirds supermajority vote to ratify a treaty. We require a two-thirds supermajority vote to override a President's veto. We even require a super, supermajority of three-fourths of the states before changing a word of the Constitution.
We do so because these actions are of such import that we insist on more than a mere majority. I think most Americans would place increased taxation in that category of importance.
Obviously any amendment to our Constitution should be considered very carefully. There are legitimate concerns.
Some critics of the amendment have argued that technical constraints on economic policy have no place in the Constitution, and worry about the impact of future court judgments. But the amendment you have drafted is not a technical constraint; it is a powerful philosophical statement.
Page 121 PREV PAGE TOP OF DOC
The technical constraint argument could just as well be applied against those Constitutional words that guarantee freedom of speech, freedom of religion and freedom of the press. One could argue, Who is to define speech? What is a religion? And what are the limits of freedom of the press?
If the Founding Fathers had been as cautious as some of the critics of the balanced budget amendment are today it is unlikely that the Bill of Rights would have ever passed.
The most serious argument against a balanced budget amendment is that it would either force us to raise taxes, slow the growth of spending, or both, during a recession. To quote Secretary Rubin, an economic downturn could quickly turn into a recession, and a recession into something worse.
Those who express this concern seem to proceed on the premise that it would be impossible to persuade 60 percent of the members of Congress of the soundness of their position. In fact, the amendment as currently drafted is quite flexible on this point, allowing the amendment to be overridden if 60 percent of the whole number of each House vote to do so.
This is more than generous and prudent. To argue, as some have, that such a modest requirement could be a threat to our economic health ... a terrible, terrible mistake ... or (would put) the government at risk of being unable to pay its bills ... seems to me to be wildly off the mark.
The emotion and extreme statements of some of the critics are surprising. One prominent critic, Professor Eisner, professor emeritus at Northwestern University, goes so far as to write in an op-ed piece for the Wall Street Journal that he finds the balanced budget amendment personally offensive. I find that kind of economic analysis personally puzzling.
Page 122 PREV PAGE TOP OF DOC
On the other hand I think that everyone engaged in this debate would agree that steady, substantial economic growth is vital to the United States--not only for our future prosperity, but for our future national security. And I think most would agree that our economy would be stronger if the federal government did not consistently spend far more than it collects in revenue.
During the past four years we have seen the federal deficit shrink steadily. It was not easily done, but today the federal deficit is only 1.4 percent of our GNP. And we are clearly within striking range of a balanced budget. The challenge is to first achieve a balanced budget--and then to keep it balanced.
I firmly believe that an amendment that spells out a philosophical commitment to a balanced budget, while allowing outlays to exceed receipts when the economic circumstances are clear enough to persuade a substantial majority of the Congress, will go a long way to establish and then ensure fiscal responsibility for the federal government.
The amendment you have drafted will do that. It is strong enough to achieve a balanced budget in a few years, primarily through spending control, yet flexible enough to avoid the difficulties envisaged by its critics.
I strongly support it.
Mr. HYDE. Gentlemen, your written statements will also be entered into the record in their entirety so I respectfully ask that you limit your oral testimony to 5 minutes.
Page 123 PREV PAGE TOP OF DOC
The Chair recognizes Mr. Penny.
STATEMENT OF TIMOTHY PENNY, MEMBER, BOARD OF DIRECTORS, THE CONCORD COALITION
Mr. PENNY. Thank you, Mr. Chairman. It is good to see you again and so many others on this committee who I count as my friends.
I am here as a board member of the Concord Coalition, and my views are consistent with those of the Concord Coalition, and you do have the testimony for the record. I will summarize from that testimony this morning.
The Concord Coalition is a nonpartisan grassroots organization dedicated to educating the American people about the adverse impact of huge structural Federal budget deficits on the Nation's long-term economic future. We have local chapters in every State, working to make deficit reduction the top priority of their elected Federal officials.
Since its inception in 1992, the coalition has favored a balanced budget. Specifically, we support H.J. Res. 1.
The late Paul Tsongas, cofounder of the Concord Coalition, along with former Senator Warren Rudman, described the balanced budget amendment as a ''cry for generational responsibility.'' As he put it, ''deficit spending has become as American as apple pie. We have gone from tax and spend to a bipartisan addiction to spend and borrow. We have all argued over the merits of tax and spend, but there can be no argument about spend and borrow. It is generationally immoral.''
Page 124 PREV PAGE TOP OF DOC
Amending the Constitution is not a step to be taken lightly. Paul, Warren and I all share the distinction of having once opposed the idea of a balanced budget amendment; but, after service in the Congress, each of us came to the conclusion that we needed the fiscal discipline spelled out in the Constitution in order to direct the work of Congress on a year-to-year basis.
The Concord Coalition has weighed the pros and cons very carefully and has come down on the side of passage for these two fundamental reasons: First, we firmly believe that a balanced Federal budget is in the long-term interest of our Nation; and, secondly, we do not believe that the Congress and the President are likely to stay on the hard course to a balanced budget without the discipline imposed by such an amendment.
The facts speak for themselves. Our Nation has run budget deficits for 27 straight years, with no agreed-upon plan in sight to end them. Many in Washington have become so comfortable with deficits that they now celebrate achieving a deficit of ''only'' $107 billion. A long series of legislative reforms designed to stiffen political spines without amending the Constitution have fallen short, among them the Byrd amendments and the Gramm/Rudman process in the mid-80's and others.
It is true that amending the Constitution will not, in and of itself, balance the budget. On the day after the amendment is ratified all the same problems will exist along with the same reluctance to reduce spending or to raise taxes. The job of balancing the budget will not have become any easier. The only thing that will have changed is that Congress and the President will have to identify and act on the least objectionable way of getting to balance. The choice of doing nothing will have disappeared and the vacuum of political willpower will have been filled by a constitutional requirement.
Page 125 PREV PAGE TOP OF DOC
Although many legislators and interest groups prefer other variations, the Concord Coalition supports the provisions contained in H.J. Res. 1 because it is clean and straightforward. This version has the best chance of getting the required two-thirds majority support here in Congress, and it is free of special interest exemptions.
One variation that has received a great deal of attention is the idea of exempting Social Security income and expenditures from the balanced budget amendment requirement. This would be a terrible idea and is strongly opposed by the Concord Coalition.
Those who favor exempting Social Security focus on the fact that the Social Security system is presently running a surplus which is keeping the unified deficit much lower than it otherwise would be. Thus, the argument goes, the trust fund is being raided for purposes of masking the true size of the deficit and should be protected.
It is true that under current projections Social Security will be in the black for another decade or so, but constitutional amendments are not and should not be drafted for the short term. They should be statements of principle capable of timeless duration.
If we look out a few years beyond the traditional budget window of 5 to 10 years, it becomes apparent why exempting Social Security would blow a gaping hole in the constitutional requirement to keep the budget balanced. As illustrated in the chart to my left, Social Security surpluses are projected to peak around 2010 and thereafter head steeply downhill.
By 2020, under the trustee's intermediate scenario, the trust fund balance is projected to turn negative and the national operating deficit is projected to be $216 billion. By 2030, the year after the trust fund is projected to be depleted, the operating deficit is projected to exceed $700 billion in that one year alone.
Page 126 PREV PAGE TOP OF DOC
This is the sum that the Treasury Department would be able to borrow from the public and still remain true to the balanced budget requirement. A balanced budget requirement with an exemption that massive is obviously no requirement at all.
Furthermore, the exemption would provide an irresistible opportunity to turn the Social Security Trust Fund into the world's largest money laundering scheme. Because there would be no rule to keep the Social Security Trust Fund from running a deficit, Congress could engage in deficit spending any year it wanted by simply turning to a redefinition of those programs designated as part of Social Security.
This could be done by taking earmarked revenues out of the trust fund or by relabeling other Federal outlays and shifting them into the trust fund. All that would be required is a majority vote of Congress and the red ink could continue to flow without limit.
Even if one looks only at the short term, the Social Security exemption is badly flawed. If the exemption were to be enacted, Congress and the administration would have to save more from a smaller share of the budget to comply with the zero deficit requirement.
For example, in the year 2002, the earliest year in which a constitutional requirement might take effect, CBO projects that the unified budget deficit will be $188 billion. Barring any budget changes adopted by this year's Congress, the Social Security surplus would be $104 billion. Thus, Congress and the administration would have to agree on spending cuts or tax increases in that year of $292 billion, with the exemption, rather than the $188 billion without it.
Page 127 PREV PAGE TOP OF DOC
So the point is that, even in the near term, by this calculation we would face much deeper cuts in the rest of the budget if Social Security were exempted from the overall requirement to balance our Federal accounts.
Again, Mr. Chairman, this is an issue of such importance that it should and must be placed in the Constitution. We must make balancing the budget more than a political option; it should be one of the fundamental principles upon which our Government functions.
And this is a principle articulated best by one of our Founding Fathers, Thomas Jefferson. He said, ''the question whether one generation has a right to bind another by the debt it imposes is a question of such importance as to place it among the fundamental principles of our government.''
''We should consider ourselves unauthorized to transfer our debt to our children and morally obligated to pay for it ourselves.'' The Concord Coalition firmly believes in the virtue of a balanced budget, and we believe that the balanced budget amendment to the Constitution will not necessarily get us there, but once we get there it will help us stay there.
Thank you.
Mr. HYDE. Thank you, Mr. Penny.
[The prepared statement of Mr. Penny follows:]
Prepared Statement of Timothy Penny, Member, Board of Directors, the Concord Coalition
Page 128 PREV PAGE TOP OF DOC
The Concord Coalition is a non-partisan grassroots organization dedicated to educating the American people about the adverse impact of huge structural federal budget deficits on the nation's long-term economic future. We have local chapters in every state, working to make deficit reduction the top priority of their elected federal officials.
Since its inception in 1992 the Concord Coalition has favored a balanced budget constitutional amendment, and we do so again this year. Specifically, we support passage of H.J. Res. 1.
The late Paul Tsongas, co-founder of the Concord Coalition along with former Senator Warren Rudman, described the balanced budget amendment as ''a cry for generational responsibility.''
As he put it, ''Deficit spending has become as American as apple pie. We have gone from 'tax and spend' to a bipartisan addiction to 'spend and borrow.' We have all argued over the merits of tax and spend. But there can be no argument about spend and borrow--it is generationally immoral.''
It is this concern for the well-being of future generations that motivates me and the Concord Coalition to support H.J. Res. 1. The opportunity for coming generations to enjoy the prosperity and economic growth that previous generations have taken for granted depends heavily on whether our political leaders have the courage to make the tough choices necessary to balance the budget, and keep it balanced on a long-term basis.
Amending the constitution is not a step to be taken lightly. The Concord Coalition has weighed the pros and cons very carefully and has come down on the side of passage for two fundamental reasons. First, we firmly believe that a balanced federal budget is in the long-term best interests of our nation, and; second, we do not believe that Congress and the President are likely to stay the hard course on the road to a balanced budget without the discipline imposed by a constitutional amendment.
Page 129 PREV PAGE TOP OF DOC
1. SUPPORT FOR A BALANCED BUDGET
The Concord Coalition supports the present bipartisan consensus in favor of achieving a balanced federal budget. We believe that a balanced budget can readily be achieved by 2002 through gradual, fair and reasonable measures. Eliminating the deficit will help put our nation back on the path to lasting prosperity and a rising standard of living. Even if we don't do this for ourselves, we owe it to the generations that will succeed us.
2. SUPPORT FOR A CONSTITUTIONAL AMENDMENT
If all of us were angels, we might not need a balanced budget amendment. We should have the political will to balance the budget without it. We should, but we don't. It is time to stop kidding ourselves.
I have not always been in favor of a constitutional amendment to balance the budget. In fact, Paul Tsongas and Warren Rudman also once opposed the idea. But Senator Rudman summed up the feelings of many when he called the constitutional amendment ''a bad idea whose time has come.''
The facts speak for themselves. Our nation has run budget deficits for 27 straight years, with no agreed upon plan in sight to end them. Many in Washington have become so comfortable with deficits that they celebrate achieving a deficit of ''only'' $107 billion. A long series of legislated reforms designed to stiffen political spines without amending the constitution, from the Byrd amendments to the Gramm-Rudman process, ultimately failed.
As for self-discipline, the prospects are dim. Clearly, this route has failed in the past. Even now, when leaders of both parties agree on the goal of a balanced federal budget, strong pressures are emerging to exempt very large portions of the budget from serious scrutiny.
Page 130 PREV PAGE TOP OF DOC
Stronger medicine is needed to close the final gap between existing political will and the desired goal of a balanced budget. The Concord Coalition believes that a constitutional amendment will provide the needed medicine.
It is true that amending the constitution will not, in and of itself, balance the budget. On the day after the amendment is ratified, all the same problems will still exist along with the same reluctance to reduce spending or raise taxes. The job of actually balancing the budget will not have become any easier. The only thing that will have changed is that Congress and the President will have to identify and act on the least objectionable way of getting to balance. The choice of ''doing nothing'' will have disappeared, and the vacuum of political will-power will have been filled by a constitutional requirement.
3. SUPPORT FOR H.J. RES. 1
Although many legislators and interest groups prefer other variations, the Concord Coalition supports the consensus ''plain vanilla'' language contained in H.J. Res. 1. This version has the best chance of gaining the required two-thirds majority and is free of special interest exemptions.
One variation that has received a great deal of attention is the idea of exempting Social Security income and expenditures from the balanced budget requirement. This would be a terrible idea, and is strongly opposed by the Concord Coalition.
Those who favor exempting Social Security from H.J. Res. 1 focus on the fact that the Social Security system is presently running a surplus which is keeping the unified deficit much lower than it would otherwise be. Thus, the argument goes, the Social Security Trust Fund is being ''raided'' for purposes of masking the true size of the deficit and should be protected.
Page 131 PREV PAGE TOP OF DOC
It is true that under current projections Social Security will be in the black for another decade or so. But constitutional amendments are not, and should not, be drafted for the short-term. They should be statements of principles, capable of timeless duration.
If we look out a few years beyond the traditional budget window of five to ten years, it becomes apparent why exempting Social Security from the budget calculation would soon blow a gaping hole in the constitutional requirement of a balanced budget. As illustrated in the attached chart, Social Security surpluses are projected to peak around 2010 and thereafter head steeply downhill.
By 2020, under the Trustees ''intermediate scenario,'' the Trust Fund balance is projected to turn negative and the annual operating deficit is projected to be $216 billion. By 2030, the year after the Trust Fund is projected to be depleted, the operating deficit is projected to exceed $700 billion--in that one year alone! This is the sum that the Treasury Department would be able to borrow from the public that year and still remain true to the ''balanced budget'' requirement.
A balanced budget requirement with an exemption that massive is no requirement at all.
And the problem only gets worse the farther out you look. The demographic pressures which will soon produce sharp increases in Social Security spending do not go away once the Baby Boomers are fully retired. Indeed, the financing of Social Security has been graphically described as more akin to a python trying to swallow a telephone pole than a python trying to swallow an elephant (or donkey). It is a very long-term problem.
Page 132 PREV PAGE TOP OF DOC
After 2030, Treasury borrowing from the public could keep on growing without limit--to $2.1 trillion a year by 2040 and $5.1 trillion by 2050. True, Congress would have to change the law to allow the Social Security Trust Funds to become a net debtor. But why not? There would be no constitutional prohibition, and no more political will to control deficits than there is now. The Trust Funds could simply begin sending IOUs to Treasury rather than the other way around, as is the case now.
It is important to note in this regard that, given the long-term nature of the problem, borrowing money to pay for Social Security indefinitely is not an option. We are not dealing with a one-time crisis that will run its course in a couple of decades. We are, instead, about to enter a permanently changed demographic situation. Borrowing makes sense if the shortfall is temporary, but not when the change is permanent. Permanent change requires fundamental structural reform.
These reforms won't be easy. But if we start now, they can be gradual and need not require painful sacrifice from seniors who are already retired or in genuine financial need. Sooner or later, reform will come anyway. By blinding us to the full magnitude of the challenge, the Social Security exemption will merely make timely reform that much more difficult.
Further, the exemption would provide an irresistible opportunity to turn the Social Security Trust Fund into the world's largest money laundering scheme. Because there would be no rule to prevent the Social Security Trust Fund from running a deficit, Congress could engage in deficit spending any year it wanted to by the simple expedient of redefining what is designated ''Social Security.''
This could be done by taking earmarked revenues out of the Trust Fund, or by relabeling other federal outlays and shifting them into the Trust Fund. All that would be required is a majority vote of Congress and the red ink could flow without limit.
Page 133 PREV PAGE TOP OF DOC
Even if one looks only at the short-term, the Social Security exemption is badly flawed. For one thing, if the amendment were to be enacted with a provision exempting Social Security from the deficit calculation, Congress and the Administration would have to save more from a smaller share of the budget to comply with the zero deficit requirement.
For example in 2002, the earliest year the constitutional requirement might take effect, CBO projects that the unified budget deficit will be $188 billion and that the Social Security surplus will be $104 billion. Thus Congress and the Administration would have to agree on spending cuts or tax increases that year of $292 billion (with the exemption) rather than $188 billion (without it).
Ironically, there is only one place in the budget where additional cuts of that magnitude could possibly come from, and that is the health care entitlements--Medicare and Medicaid. Thus, those who believe that exempting Social Security from the unified budget calculation will somehow ''protect seniors'' are wrong.
A heavy dose of reality is also in order here. Very few, if any, in either party, in either the Congressional or Executive branch of government have come close to proposing (let alone agreeing to) the level of cuts required to balance the budget by 2002 without including the Social Security surplus.
Exempting Social Security from the balanced budget requirement would write a deficit allowance equal to the program's long-term operating shortfall into the Constitution. Quite frankly, any exemption to the balanced budget amendment would complicate its judicial interpretation and make its enforcement more difficult. If exemption is absolutely necessary (national emergencies for example) we of course will go along with it. But the exemption for Social Security is not necessary.
Page 134 PREV PAGE TOP OF DOC
Every federal tax brings revenue to the government, and every federal program costs money. No program, no matter how important or popular, should be freed from having to compete with other programs by giving it Constitutional stature. To do so would open up a whole new concept in budgetary ''entitlement.''
INSERT OFFSET RING FOLIO 8 HERE
Mr. HYDE. Mr. Gerson.
STATEMENT OF STUART M. GERSON, FORMER ASSISTANT AND ACTING ATTORNEY GENERAL, DEPARTMENT OF JUSTICE
Mr. GERSON. Thank you, Mr. Chairman. It is an honor for a former Justice Department official to be invited back to testify with regard to the proposed balanced budget amendment before the committee whose members spent so much time listening to me arguing for my own budget.
My area of greatest expertise and experience, and no doubt the thing that caused me to be invited here, lies in the 30 years that I have litigated constitutional issues in the Federal courts. My background is not just a theoretical one; it is a practical one. So I hope that I am qualified to discuss with you not just what the courts may do with regard to lawsuits that, in this overlitigious age, surely would be filed but, what they are likely to do.
You have asked me to discuss the issue of judicial review and specifically whether the amendment should contain a provision regarding review; whether enabling legislation should be drafted now and submitted to the States or whether it should be put off for a later time, as I suggest; and whether litigation with respect to actions brought under the amendment is likely to result in the Federal courts' interference in the budget process.
Page 135 PREV PAGE TOP OF DOC
And here I disagree sharply with Mr. Rubin, but I think I can document the opposite point of view in that regard.
I suggest that much of the discussion concerning judicial intervention is a cipher for opposition to the balanced budget amendment on its merits. In other words, judicial disruption of the budgetary process under the amendment is unlikely to the point that its probability cannot reasonably be held to be weighty enough to mandate opposition to an otherwise meritorious measure.
In this year's debate, one sees something of a recognition of at least the first part of this proposition--that excess judicial intervention is unlikely--by some of the amendment's critics who are more deeply rooted in the law. They are, however, left with an interesting contradiction.
I might say that the administration's position, as stated before this committee, embodies this suggestion. The critics countenance judicial intervention because they believe that the balanced budget amendment, and the statutes passed to implement it, would have such arbitrary effects that as a civil rights enforcement tool the courts would be able to intervene in dismantling the spending architecture.
Those who believe judicial intervention is unlikely or of limited effect at best make a different argument. They suggest that in the now assumed absence of judicial intervention, the balanced budget amendment will become a paper tiger, that the political branches will act irresponsibly unless the courts coerce them to do otherwise.
Page 136 PREV PAGE TOP OF DOC
These critics cannot have it both ways. Either the amendment is legally formidable or it isn't.
But, more to the point, these critics ignore constitutional law, which doesn't remove courts from the picture entirely where there is manifest abuse or disregard of unequivocal legal pronouncements. It is not the threat of judicial sanction that causes most of the actions by the legislature or the executive. Indeed, some of the weightiest actions that the political branches undertake, particularly making and funding war and conducting impeachment proceedings, have almost completely been insulated from judicial intrusion and yet the political branches act vigorously, often in conflict with one another and always in deference to the Constitution and the law.
It is not the threat of judicial coercion but respect for the law and for their constituents that generally motivates both legislative and executive undertakings, and there is no reason to expect that the political branches will attempt to act otherwise if the balanced budget amendment is passes.
This is not an issue of simple moral responsibility. The electorate has shown us in the brutal light of day, and all this stuff will be out in that light, that they are willing to act and act decisively.
Let me talk in brief terms and then defer to the question time about several specifics.
I believe, in sum, that the case-or-controversy limitations imposed by article III of the Constitution are sufficient to stem the tide of potential litigation, this chimera that I believe has been thrown up at us. Some proponents of the amendment, some opponents as well, have suggested that predictability might be enhanced if there was a judicial review provision within the amendment itself, either forbidding it or allowing under certain circumstances. There is no other amendment in the Constitution that has such a provision, and I would argue, for the reasons stated in my prepared testimony, that none should.
Page 137 PREV PAGE TOP OF DOC
Some suggest implementing legislation be written now. I think we benefit far more greatly from the State laboratories, about which many of you have commented, if we listen to them throughout the ratification period and then approach the issue of legislation.
Finally, there is one point where I think we ought to consider legislation immediately. As most of you I am sure know, the State court system can hear Federal cases unless there is a limitation but would not be held to the article III case-or-controversy bounds, at least wouldn't have to be held to them. And so it might well be a prudent thing to do in legislation to make sure that exclusive jurisdiction under actions which might arise under the amendment would be vested in the Federal courts.
Thank you.
[The prepared statement of Mr. Gerson follows:]
Prepared Statement of Stuart M. Gerson, Former Assistant and Acting Attorney General, Department of Justice
Mr. Chairman and distinguished members of the House Judiciary Committee. It is an honor for a former Justice Department official to be invited back to testify with regard to the proposed Balanced Budget Amendment before the Committee in front of which I spent so much time arguing for my own budget. During that time, the parties divided the political branches of government, but in the opposite way that things are divided now. Thus, my Democrat successors at Justice face a majority of interlocutors who are Republicans. And, I believe, that they, like I have found that, despite (really because of) vigorous debate, the occasional unfortunate loss of civility, and perhaps a bit too much repetition, good policy gets made.
There were days when I might have expressed great unhappiness with the grillings that I got from the likes of Mr. Brooks or my oversight subcommittee chairman, Mr. Frank, to name a couple of energetic opponents, but as I look back on things I think that when I made my case I won, which is as it should be, and when I didn't, I lost, and that is as it should be. The framers of the Constitution, after all, clearly intended that the political branches would vie with each other in order to make good policy and govern best by governing least. And it is with that view that I have come to testify in favor of the proposed Balanced Budget Amendment.
Page 138 PREV PAGE TOP OF DOC
My area of greatest expertise and experience--and the things that no doubt caused you to invite me here--lies in the nearly 30 years that I have litigated constitutional issues in the federal courts. My background thus, is not just a theoretical one, it is a practical one, and so I hope that I am qualified to discuss with you not just what the courts might do with regard to law suits that, in this over-litigious age surely would be filed, but what they are likely to do. Thus, you have asked me to discuss the issue of judicial review generally, and specifically whether the Amendment should contain a provision regarding review, whether enabling legislation should be drafted and submitted to the States along with the Amendment to serve as a guide during the ratification process, and whether, in any event, litigation with respect to actions brought under the Amendment are likely to result in the federal courts' interference in the budget process.
Like others who have opined on the Balanced Budget Amendment, I am reticent to predict the future of constitutional litigation. One need only look to a century and a quarter of equal protection jurisprudence to see the unintended and contradictory nature of much of the case law and conclude that constitutional prediction is not a scientific enterprise. Nevertheless, I believe that it is fair to conclude that, as the Balanced Budget Amendment has been formulated, it describes a judicial enforcement function that is necessarily limited in scope. Moreover, in the event that the judiciary might intrude in the federal budgetary process, the Amendment provides that the Congress can remedy the situation by statute. In the end, though, one should expect the Congress itself to obey the law and, if it does, there will be very little as to which any justiciable case or controversy might arise.
Some proponents of the Amendment, and some opponents as well, have suggested that predictability and security might be advanced if the Amendment itself stated specifically whether judicial review will be permitted. I strongly disagree, and not for reasons affecting the probability of congressional passage of the Amendment. To the extent that judicial review is described at all in the Constitution, it is in Article III. None of the amendments speaks to judicial review, and I would argue that none should.
Page 139 PREV PAGE TOP OF DOC
The case-or-controversy and political question doctrines, among others, adequately describe the predicate for proper review. To install a provision, for example, proscribing judicial review altogether, might suggest to courts that this inclusion reflects a congressional understanding that review might now be permissible under other constitutional provisions that never have admitted of much or any judicial intervention before. A provision describing limited review would almost certainly lead to litigation within litigation (and unintended results) over whether a given case implicates (or can be stretched to fit) the licit area of review. Contrariwise, there is a category of case--that involving whether objective statutory terms have been satisfied--which always has been cognizable and will remain so under the Balanced Budget Amendment.
In the end, passage of the Amendment should be determined on the policy and political merit of mandating a balanced budget (unless super-majority support for extraordinary action can be mustered under described contingencies). In the absence of any judicial review provision, actions taken under the Amendment will be judged by traditional constitutional principles, and these principles should prescribe a very-limited role for the courts in the budgetary process.
As my friend and former colleague, the Honorable William P. Barr, previously has described to this Committee, there are several basic constraints which should prevent the courts from intruding into the budgeting functions of the other branches of government. Preeminent among these constraints are the Article III ''case or controversy'' limitations on the jurisdiction of the federal courts, particularly standing and ripeness. Secondarily, even in cases that might theoretically be cognizable, the courts afford Congress considerable deference under existing constitutional doctrines and should be expected to do so here in view of section 6 of the Amendment, which expressly confers enforcement responsibility on Congress. Finally, there are the limits on judicial remedies running against coordinate branches of government including self-imposed restraints under the mantle of the political question doctrine, and congressionally imposed restraints through statute.
Page 140 PREV PAGE TOP OF DOC
In examining constitutional constraints on judicial intrusion, I note that the language of the Balanced Budget Amendment is specific to a degree that, even if one assumes the theoretical inclination of a given court to intervene for ulterior policy reasons, there is not a great deal to interpret with regard to budgetary action. For example, Sections 1 and 2 of the Amendment would create new limits on Congress' power to increase the national debt and to expend borrowed funds. However, the borrowing power is definitively limited (subject to super-majority override) and the spending limits (again subject to three-fifth's override), neither mandating nor proscribing any specific type of spending. And Section 3 lays down a specific requirement as to the nature of the Executive's annual budget transmission, but the terms of this requirement are specifically defined by Section 7.
The override provisions of Sections 1 and 2 and the majority and rollcall-vote provisions of Section 4 of the Amendment do admit of some level of judicial review, but there should be nothing novel or alarming about such activity. Section 4 merely adds further procedural requirements for the passage of revenue bills and, as noted, the override provisions of Sections 1 and 2 describe specific majorities needed to take exceptional action. Courts are currently empowered, as they should be if there is a genuine case or controversy, to entertain claims that revenue bills (either taxes or user fees) do not comply with clear constitutional procedures. The Balanced Budget Amendment would not abrogate that responsibility, and it would not add to it either. As I shall discuss, one could envision causes of action mounted with regard to the definitional aspects of Sections 1 and 2, but these actions likely would founder upon the rocks of traditional and proper constitutional interpretation.
Section 6 describes the right of Congress to implement the proposed amendment, and this type of provision is common among post-Bill-of-Rights constitutional amendments. Finally, Section 8, which avoids the caviling that surrounded the ultimate ratification of the 27th Amendment, merely describes the new amendment's effective date.
Page 141 PREV PAGE TOP OF DOC
I. ARTICLE III LIMITATIONS
Article III of the Constitution limits federal court jurisdiction to ''actual cases or controversies.'' Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 37 (1976). See, Lujan v. Defenders of Wildlife, 112 S.Ct. 2130, 2136 (1992); Valley Forge Christian College v. Americans United For Separation of Church & State, Inc., 454 U.S. 464, 482—83 (1982). This requirement dictates that a plaintiff demonstrate, as an ''irreducible minimum,'' that it has suffered an injury in fact, that the injury is ''fairly traceable'' to the challenged action and that the injury is likely to be redressed by a favorable result in litigation. Valley Forge Christian College, supra; Allen v. Wright, 468 U.S. 737, 751 (1984). Plaintiffs ''must clearly and specifically set forth facts sufficient to satisfy these Art. III standing requirements.'' Whitmore v. Arkansas, 495 U.S. 149, 155 (1990); Warth v. Seldin, 422 U.S. 490, 517—18 (1975). The courts properly enforce these requirements strictly and, without such a showing, plaintiffs have no standing. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990).
''Allegations of possible future injury do not satisfy the requirements of Article III. A threatened injury must be 'certainly impending' to constitute injury in fact.'' Whitmore v. Arkansas, 495 U.S. 149, 158 (1990) quoting Babbitt v. Farm Workers, 442 U.S. 289, 298 (1979). See also O'Shea v. Littleton, 414 U.S. 488, 494 (1974) (the plaintiff must be ''immediately in danger of sustaining some direct injury''); Los Angeles v. Lyons, 461 U.S. 95, 105 (1983). Thus, the injury component of standing counsels courts to impose limitations on exercising jurisdiction to ensure sufficient adversity between the parties. Valley Forge, 454 U.S. at 474.
Courts should refrain from ''adjudicating 'abstract questions of wide public significance' which amount to 'generalized grievances' pervasively shared and most appropriately addressed in the representative branches.'' Valley Forge, 454 U.S. at 475 quoting Warth, 422 U.S. at 499—500. The plaintiff must also demonstrate that any alleged injuries fall within the ''zone of interest'' protected by the statute in question. See Air Courier Conference v. American Postal Workers Union, ------ U.S. ------; 111 S. Ct. 913, 917 (1991) Individuals do not have standing if their challenges to governmental action are merely abstract and generalized grievances felt in common by all citizens concerned about the ''conduct of government.'' Schlesinger v. Reservists to Stop the War, 418 U.S. 208, 218 (1974); see Allen, 468 U.S. at 754.
Page 142 PREV PAGE TOP OF DOC
The Supreme Court has consistently ruled that such generalized grievances are not sufficient to confer standing. In Valley Forge, plaintiffs challenged the Department of Health and Human Services' conveyance of property to a seminary of the Assemblies of God, alleging that it violated the separation of church and state and deprived them of a fair and constitutional use of their tax dollars. 454 U.S. at 476. The Court ruled that ''the expenditure of public funds in an allegedly unconstitutional manner is not an injury sufficient to confer standing, even though the plaintiff contributes to the public coffers as a taxpayer.'' Id. at 477. The Court went on to observe that ''assertion of a right to a particular kind of Government conduct which the Government has violated by acting differently, cannot alone satisfy the requirement of Article III without draining these requirements of meaning.'' Id. at 483.
Similarly, in Allen v. Wright, in addressing an assertion that Internal Revenue Service regulations did not sufficiently ensure that tax exempt status was being denied to racially discriminatory private schools, the Court noted that ''[t]his Court has repeatedly held that an asserted right to have the Government act in accordance with law is not sufficient, standing alone, to confer jurisdiction on a federal court.'' Allen, 468 U.S. at 754. In United States v. Richardson, 418 U.S. 166 (1974), the Court found that an allegation that plaintiff was unable to vote intelligently due to his inability to obtain information about the budget of the Central Intelligence Agency was a generalized grievance insufficient to confer standing. Id. at 176—77.
Only once, in Flast v. Cohen, 392 U.S. 83 (1968), has the Court found an individual's status as a taxpayer sufficient to grant jurisdiction, and did so, it should be noted, with respect to the Taxing and Spending Clause, Article I 8, of the Constitution. There the Court allowed a taxpayer to mount an Establishment Clause challenge to federal aid to parochial schools. This however, is the only instance where the Court has departed from its rigorous restriction on taxpayer standing, and Flast plainly has no application to the present context. Clearly, Flast would not authorize general taxpayer standing to seek judicial enforcement of the Balanced Budget Amendment.
Page 143 PREV PAGE TOP OF DOC
First, the Court has never identified any constitutional restriction on the powers of Congress other than the Establishment Clause that might support an exception to the general prohibition on taxpayer standing. Moreover, as noted, by its terms Flast is limited to cases challenging congressional action taken under its tax-and-spending power (Art. I, Sec. 8, Cl. 1) when the expenditure of tax revenue is made for an illicit purpose. By contrast, Sections 1 and 2 of the Balanced Budget Amendment limit Congress' borrowing power (a separate power, enumerated in Art. I., Sec. 8, Cl. 2) and contains no restriction on the purposes of congressional expenditures.
As my earlier case citations suggest, Flast, even confined to its Establishment Clause context, is aberrational. The Court has expressly declined to extend it beyond the issue of the exercise of Congress' power under Art. I, Sec. 8, Cl. 1 to other fiscal provisions. See, e.g., Valley Forge Christian College, 454 U.S. at 480. Most importantly, in the subsequent cases cited, the Supreme Court has consistently reaffirmed the need for all plaintiffs to demonstrate particularized injury, and just as consistently has cast doubt on the continued vitality of Flast. Given the specific definitional nature of the Balanced Budget Act, it would seem unlikely that Flast would be a suitable lever, even for an unduly-activist court, to lift away firm and traditional notions of standing.
Flast aside, there remains the question whether, by virtue of their office, Members of Congress might establish standing where a private citizen could not. The Supreme Court has never recognized congressional standing, and forceful arguments have been advanced against it. See Barnes v. Kline, 769 F.2d 21, 41—51 (D.C. Cir. 1986) (Bork J., dissenting), vacated as moot sub nom. Burke v. Barnes, 479 U.S. 361 (1987). Even where congressional standing has been recognized, it has been limited in ways that would greatly restrict its use in efforts to enforce the Balanced Budget Amendment.
Page 144 PREV PAGE TOP OF DOC
First, Members must demonstrate that they have suffered injury in fact by dilution or nullification of their congressional voting power. In addition Members must still satisfy the other requirements of Article III standing, including the traceability and redressibility requirements. And finally, under the doctrine of ''equitable discretion,'' recognized by the D.C. Circuit, Members must show that substantial relief could not otherwise be obtained from fellow legislators through the enactment, repeal or amendment of a statute. See Melcher v. Federal Open Market Comm., 836 F.2d 661, 663 (D.C. Cir. 1987).
Within these extremely-narrow perimeters (and assuming that the doctrine of congressional standing were to be recognized definitively), application of the Balanced Budget Amendment would seem unlikely to trigger such standing short of a case in which a congressman's right to vote has been obviated entirely by another branch (and this seems even more improbable given the specific voting provisions incorporated in Sections 1, 2, 4 and 5 of the Amendment).
Even where a Member might present a surface showing of the basic standing prerequisites, it is not unlikely that, absent a serious and clear abuse, the equitable discretion doctrine would militate strongly against allowing congressional standing in any event. The hypothetical congressionally-brought claim under the Balanced Budget Act is decidedly unlike the Pocket Veto cases where the Executive allegedly ''nullified'' a Member's vote. Here, there is no inter-branch action: it is Congress itself that is taking the challenged action. Under such circumstances, equitable discretion and, indeed, the larger political question doctrine itself, would have little meaning if it could not be applied to limit judicial actions by individual Members who wish to challenge enforcement of the Congress' own budgetary decisions, since the real grievance of the congressional plaintiffs in such a case would be their failure to persuade their fellow legislators of the correctness of their point of view. See Moore v. United States House of Representatives, 733 F.2d 946, 966 (D.C. Cir. 1984), cert. denied, 469 U.S. 1106 (1986); Riegle v. Federal Open Market Comm., 666 F.2d 873 881 (D.C. Cir.), cert. denied, 454 U.S. 1082 (1981).
Page 145 PREV PAGE TOP OF DOC
Properly applied, the case-or-controversy/standing requirements of Article III is the greatest bulwark against undue judicial intervention into budgetary matters, but, as Flast must compel one to conclude, it is not an impregnable barrier. However, though standing might improperly be applied in an unduly-plastic and outcome-determinative manner, the courts generally, and most recently consistently, have applied standing doctrine strictly. See Lujan v. Defenders of Wildlife, supra; Valley Forge Christian College, supra. They should be expected to do so with regard to the Balanced Budget Amendment, which involves a field--budget and debt matters--where it is unlikely that courts would be eager to exceed their expertise or stretch the doctrinal boundaries of standing.
These budgetary and borrowing matters are quite unlike the sensitive area of individual rights where courts have been wont to extend their reach. Still, there is no absolute insurance policy against judicial over-activism. Such intervention can be minimized by minimizing statutory ambiguity. All courts at least pay lip service to governance by plain statutory language; most courts take it very seriously. The Amendment itself, as noted, is very clearly drawn. Congress, however, should take great care in the wording of future implementing statutes to avoid giving rise to colorable claims of standing or private rights of action.
II. HOW TRADITIONAL CASE-OR-CONTROVERSY DOCTRINE WILL DISPOSE OF LITIGATION
It today's over-litigious society, one should never discount the ability of an imaginative plaintiff to conjure up a cause of action. My previous discussion has anticipated much of what is likely to happen even in the wake of such imagination. It might be useful, though, to examine a few specific scenarios to assess the probability that judicial intervention could become over-intrusive, i.e., that fear of it constitutes a plausible rationale for rejecting the Balanced Budget Amendment, even if it were otherwise supportable as a governmental policy. Notwithstanding my view that most theoretical cases have been ''defined out'' by the clear definitions set forth in the Amendment, such cases might arise, I shall assume, arguendo, that a plaintiff might cavil about compliance. Thus, we might anticipate two types of judicial challenge relating to Sections 1 and 2 of the Balanced Budget Amendment:
Page 146 PREV PAGE TOP OF DOC
In the first hypothetical, a plaintiff might claim that a particular budgetary action (such as a spending or borrowing measure) violates the Amendment or its implementing statutes by ''unbalancing'' the budget or by exceeding the applicable debt limit. In the second hypothetical, a plaintiff might claim that one of the implementing mechanisms enacted by Congress pursuant to section 6 of the Amendment is itself in violation of section 1 or 2. In neither case would it be likely that a plaintiff would be able to establish the requisite standing to establish federal-court jurisdiction.
The previously-described ''injury in fact'' requirement alone would constitute a formidable barrier. As noted, the case law, save Flast (though the Court nods to the requirement even while honoring it in the breach) stringently requires that a plaintiff must show ''injury in fact.'' He or she may not rely on generalized grievances and burdens shared by all citizens and taxpayers, but rather must show a particularized injury that he has distinctively sustained. Nor would a private interest group be able to obtain judicial enforcement of the Amendment sole solely by virtue of its status as a citizen or taxpayer. The burden of deficit spending and increased debt is shared by all taxpayers and is precisely the kind of ''generalized grievance'' to which the judicial power does not extend.
As the Supreme Court has reiterated: ''As an ordinary matter, suits premised on federal taxpayer status are not cognizable in the federal courts because a taxpayer's 'interest in the moneys of the Treasury ... is shared with millions of others, is comparatively minute and indeterminable; and the effect upon future taxation, or any payments out of the funds, so remote, fluctuating and uncertain, that no basis is afforded for [judicial intervention].' '' Asarco. Inc. v. Kadish, 490 U.S. 606, 613 (1989) (quoting Frothingham v. Mellon, 262 U.S. 447, 487 (1923)).
Even where a plaintiff might establish ''injury in fact'' by showing, for example, that a specific budgetary action causes particularized and distinct harm to him--say, by allegedly leading to the termination of a program that he or she, but not everyone, benefits from, e.g., a welfare benefit or a scholarship, it would still be difficult for that plaintiff to satisfy the traceability and redressibility requirements of Article III.
Page 147 PREV PAGE TOP OF DOC
Given the multitude of elements of the federal budget, it would be immensely difficult for a plaintiff to show that a particular spending measure caused the breaking of the budget (or necessarily was occasioned by the need to balance it) hence is ''traceable'' in the sense described under Article III law. Moreover, the ''redressibility'' element also would be difficult to establish because the political branches would have numerous ways to achieve compliance with the Amendment other than by eliminating the specific measure harming the plaintiff. In sum, there would be no legitimate basis for a court either to strike down a specific spending measure or to mandate one that allegedly has been underfunded.
As I move to other matters, let me join General Barr in his concern that state court review is an area which Congress might want to address. Inasmuch as Article III limitations do not apply to state courts, which are courts of general jurisdiction, those courts are not bound by case-or-controversy/standing requirements even when deciding issues of federal law, including the interpretation of the Federal Constitution. Asarco, Inc., 490 U.S. at 617.
Accordingly, it is possible that a state court could entertain a challenge to a federal statute under the Balanced Budget Amendment despite the fact that the plaintiffs would not satisfy the requirements for standing in federal court. Absent an applicable provision in federal law for exclusive jurisdiction in the federal courts, the state court in such a circumstance would have the authority to render a binding legal judgment. The only avenue for federal review would be by certiorari to the Supreme Court, which has held that it may exercise its discretionary jurisdiction in such cases ''if the judgment of the state court causes direct, specific, and concrete injury to the parties who petition for ... review, where the requisites of a case or controversy are also met.'' Id. at 623—24.
Congress can avoid state court entanglement in the federal budgetary process by specifically providing for exclusive federal jurisdiction in any implementing legislation enacted pursuant to section 6 of the Amendment. Such a provision should be carefully worded so as not to create inadvertently any implied right of judicial review in federal court and so as not to affect any of the otherwise applicable limitations on justiciability discussed in this statement.
Page 148 PREV PAGE TOP OF DOC
III. JUDICIAL DEFERENCE
Traditional notions of standing should negate virtually all litigation under the Amendment and the statutes passed to enable it. But even where standing might technically be established and a court were to examine the merits of a claim under the Balanced Budget Amendment, it is unlikely that a court would eagerly second guess decisions made by the political branches. Indeed, long-established doctrine, as well as the Amendment's own explicit dictates, are likely to influence a court's according great deference to congressional choices made to carry out its responsibilities under the Amendment
This judicial deference would be strongest in cases challenging the implementing mechanisms adopted by Congress. The Balanced Budget Amendment, in essence, mandates certain results (balanced budgets and capped debt) and leaves it to Congress to put in place mechanisms to achieve those results. It is well-established that where the Constitution requires a certain ''end,'' Congress will be given the widest latitude in selecting ''means'' to achieve that end.
Thus, for example, the courts have accorded broad deference to Congress in its selection of appropriate enforcement mechanisms under section 6 of the Fourteenth Amendment. See Katzenbach v. Morgan, 384 U.S. 641 (1966). And in the context of the apportionment process, where the Constitution mandates in fairly precise terms that Representatives shall be apportioned among the several States ''according to their respective Numbers'' (Art. I, Sec. 2, Cl., 3), the Supreme Court has deferred to Congress' choice of the method for apportionment, even though a State adversely affected court demonstrate that another method might yield a more accurate result. See U.S. Dep't of Commerce v. Montana, 112 S. Ct. 1415, 1429 (1992).
Deference would be even more likely in cases under the Balanced Budget Amendment, since the language of the Amendment explicitly confers on Congress, in mandatory terms, the responsibility for implementing the Amendment and specifically allows Congress in so doing to ''rely on estimates of outlays and receipts.'' Unless the implementing and enforcement provisions adopted by Congress are plainly incompatible with the Amendment, it is unlikely a court would substitute its judgment for choices made by Congress.
Page 149 PREV PAGE TOP OF DOC
Courts generally presume that Congress has acted constitutionally and hold to that presumption unless a constitutional violation is clear. See Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984). The vitality of that presumption is augmented by the Amendment's explicit assignment of implementation responsibility to Congress in section 6, including the express recognition that Congress may rely on estimates--a process that inherently involves discretionary and expert judgments. The technical matters inherent in the budgetary process are precisely the sort of things that courts usually deem are beyond their expertise and as to which, therefore, they defer to the experience and abilities of the political branches.
While it is unlikely that a court will reach the merits of a claim under the Balanced Budget Amendment because of case-or-controversy/standing barriers to jurisdiction, in those few cases in which courts could elect to undertake review, they are more likely to defer to, rather than second guess, the determinations of the Congress, except in clear cases of abuse where probabilities are not the issue, and a court properly might intervene.
Case law and common sense suggest that the federal courts will entertain very few lawsuits challenging congressional actions under the Balanced Budget Amendment, and that in the few cases actually considered the courts will be inclined to defer to the judgments and agreements of the political branches. However, taking things one step further and assuming both intervention and judicial unwillingness to defer to the political branches as a matter of competency and responsibility that might lead a court to hold some action to be unconstitutional under the Amendment there are still further judicial constraints making it unlikely a court will order intrusive remedies in such a case.
At one level such constraints are prudential, that is they reflect courts' wariness in supervising decisions and processes that are essentially legislative in character. While one could envision a district court straying from this judgmental limitation, it is far more certain that the appellate courts, particularly the Supreme Court, will hesitate to impose remedies that could embroil it in the displacement of the policy-making responsibilities of the Congress in determining what particular adjustment of expenditures might bring the federal budget back into compliance with the Amendment. Even where the Court might find a violation, it is unlikely to mandate a specific result. The more-likely course for a court faced with a violation of the Amendment would be to take the less-intrusive route of simply declaring the particular action at issue unconstitutional and leaving it to Congress to choose the appropriate remedy.
Page 150 PREV PAGE TOP OF DOC
This is a course that the Supreme Court often has followed. For example, in Buckley v. Valeo, 424 U.S. 1(1976), the Court declared the composition of the Federal Election Commission unconstitutional as a violation of the Appointments Clause, but stayed the Court's judgment to ''afford Congress an opportunity to reconstitute the Commission by law or to adopt other valid enforcement mechanisms'' that would remedy the violation. Id. at 143. The Court mandated a similar result in Harper v. Virginia Dept. of Taxation, 113 S. Ct. 2510 (1993), where it retroactively invalidated a discriminatory tax that had been levied by Virginia, but refused to order refund of the amounts improperly collected and held instead that the fashioning of an appropriate remedy was properly left to state authorities. See Id. at 2519—20. Even in cases where there has been a proven violation of the Fourteenth Amendment, the Court has required the same respect for a legislature's ability to devise remedies involving the exercise of the legislature's taxing authority. In Missouri v. Jenkins, 495 U.S. 33 (1990), the Court confirmed that ''the imposition of a tax in crease by a federal court,'' even as a remedy for racial segregation by a stab school district, must be an ''extraordinary event.'' Id. at 51. ''In assuming for itself the fundamental and delicate power of taxation,'' the Court held, ''the District Court not only intruded on local authority but circumvented it altogether. Before taking such drastic step the District Court was obliges to assure itself that no permissible alternative would have accomplished the required bask.'' Ibid. According to the Court ''the very complexity of the problems of financing and managing a ... public school system suggests that ... the legislature's efforts to tackle the problems should be entitled to respect'' and that ''local officials should at least have the opportunity to devise their own solutions to these problems.'' Id. at 52 (internal quotation marks removed). The Court in Jenkins upheld the district court's power to order a local school district to levy its own taxes because such a levy was the only means by which the school district could raise funds adequate to comply with the court's desegregation order. See id. at 55—58. That could never be the case with any potential violation of the Balanced Budget Amendment, which imposes cap on spending and the public debt, rather than an obligation to raise revenues. There will always be a myriad of policy choices available to Congress for avoiding infringement of the budget cap.
Page 151 PREV PAGE TOP OF DOC
Jenkins is also readily distinguishable from the context of the Balanced Budget Amendment on the ground that Jenkins did not involve ''an instance of one branch of the Federal Government invading the province of another,'' but instead involved a court order ''that brings the weight of federal authority upon a local government and a State.'' Id. at 67 (Kennedy, J., concurring in part and concurring in the judgment). The distinction is critical because under Article I, Section 1, ''[a]ll legislative Powers'' granted under the Federal Constitution are vested in Congress, and the enumeration of legislative powers begins by providing that ''[t]he Congress shall have Power To lay and collect Taxes'' (Art. I, Sec. 8, Cl., 1). Based on these provisions, the Court has stated that ''[t]axation is a legislative function, and Congress *** is the sole organ for levying taxes.'' National Cable Television Ass'n v. United States, 415 U.S. 336, 340 (1974). See Missouri v. Jenkins, 495 U.S. at 67 (Kennedy, J.).
A second source of limitations on the courts' exercise of their remedial powers is found in the Amendment itself. Under section 6, which provides that ''[t]he Congress shall enforce and implement this article by appropriate legislation,'' Congress will have the authority to adopt remedies for any purported violation of the Amendment. Congress, for example, could provide for correcting a threatened budget imbalance or overspending through sequestration, rescission or other devices. In addition, section 6 logically gives Congress the power to limit the types of remedies that might be ordered by a court. This power is consistent with Article III's delegation of authority to Congress to define and limit the jurisdiction of the federal courts, and would allow Congress, for example, to deny courts the ability to order injunctive relief for violations of the Amendment. Congress has adopted such limitations in other contexts. See, e.g., Norris-LaGuardia Act, 29 U.S.C. 101—115 (prohibiting courts from entering injunctions in labor disputes); Federal Anti-Injunction Act, 28 U.S.C. 2283 (prohibiting federal courts from enjoining stab court proceedings); Tax Injunction Act, 26 U.S.C. 7421(a)) (prohibiting suits to restrain the assessment or collection of taxes).
Page 152 PREV PAGE TOP OF DOC
These powers given to Congress will compound the courts' self-imposed prudential concerns, with the result that the courts will be even more hesitant to order intrusive remedies for ostensible violations of the Amendment. Courts regularly defer to remedies that have been crafted by Congress. This deference is shown even in cases involving the vindication of individual rights. The Supreme Court, for example, has held that Congress may adopt procedures limiting the remedies available in so-called Bivens actions, winch are actions brought against federal officials for the violation of an individual's constitutional rights. See Bush v. Lucas, 462 U.S. 367, 388—90 (1983). Similarly, in devising a judge-made remedy for violations of the Fifth Amendment privilege against self-incrimination in Miranda v. Arizona, 384 U.S. 436 (1966), the Court recognized that ''Congress and the Stabs are free to develop their own safeguards'' to redress violations of the privilege and that such alternative remedies would be respected by the courts. See id. at 490. Moreover, even if Congress does not exercise the authority granted to it under section 6, the courts will undoubtedly be aware of Congress' ability to limit the relief that courts may grant, and this awareness in and of itself will likely check any tendency on the part of the courts to develop their own creative remedies for violations of the balanced budget requirement.
IV. THE VIABILITY OF THE BALANCED BUDGET AMENDMENT AS AN INSTRUMENT OF LAW
I suggested earlier that much of the discussion concerning judicial intervention is a cipher for opposition to the Balanced Budget Amendment on its merits. In other words, judicial disruption of the budgetary process under the Amendment is unlikely to the point that its probability can be reasonably held to be weighty enough to mandate opposition of an otherwise meritorious measure. In this year's debate, one sees something of a recognition of at least the first part of this proposition--that excessive judicial intervention is unlikely--by some of the Amendment's critics who are more deeply rooted in the law. They are, however, left with an interesting contradiction.
Page 153 PREV PAGE TOP OF DOC
These critics sought or countenanced judicial intervention in the first place because they believed that the Balanced Budget Amendment, and the statutes passed to implement it, would have such arbitrary effects that, as a kind of civil rights enforcement tool, the courts should be able to intervene to prevent the dismantling of the federal spending architecture. Now, however, the better-informed critics having recognized that judicial intervention is unlikely, or of limited effect at best, they make a different argument. They suggest that, in the now-assumed absence of judicial intervention, the Balanced Budget Amendment will become a ''paper tiger,'' that the political branches will act irresponsibly or, worse, duplicitously unless the courts coerce them to do otherwise. Of course, the critics cannot have it both ways; either the Amendment is legally formidable or it isn't. But more to the point, they ignore not only constitutional law, which does not remove the courts from the picture entirely (where there is manifest abuse or disregard of unequivocal legal pronouncements), they ignore constitutional tradition.
It is not the threat of judicial sanction that causes most actions by the legislature or executive. Indeed, some of the weightiest actions that the political branches undertake, particularly making and funding war and conducting impeachment proceedings, have almost completely been insulated from judicial intrusion. And yet the political branches act vigorously, often in conflict with one another as the Framers envisioned, and always in deference to the Constitution and the law. It is not the threat of judicial coercion but respect for the law and for their constituents that generally motivates both legislative and executive undertakings and there is no reason to expect that the political branches will attempt to act otherwise if the Balanced Budget Amendment is passed and ratified.
Nor is this a simple issue of moral responsibility, although I might argue that that should be enough. At the end of the day, congressional undertakings will be subject to the most powerful enforcement tool that our system of government provides: the conscience and will of an American public whose interest in the core governmental issues implicated by the Balanced Budget Amendment is so profound that actions taken pursuant it simply will not escape public notice--or public retribution if there is misconduct. Ultimately, therefore, considerations of judicial intervention or the lack of it should be laid aside because they are not particularly compelling. The policy merits of the proposed Amendment are fairly and properly debatable, and the weight of those merits, not the make-weight of a judicial chimera, should determine the outcome in this House.
Page 154 PREV PAGE TOP OF DOC
Thank you, Mr. Chairman.
Mr. HYDE. Professor Sunstein.
STATEMENT OF CASS R. SUNSTEIN, PROFESSOR, UNIVERSITY OF CHICAGO SCHOOL OF LAW
Mr. SUNSTEIN. Thank you, Mr. Chairman and members of the committee. It is a pleasure to be here. I, too, will be addressing the legal issues raised by this proposal and not discuss the issues of economics and policy. This will be strictly a discussion of constitutional law.
My conclusion is very simple. It is that judicial or Presidential enforcement of the balanced budget amendment would create, from the constitutional point of view, extremely serious and I think as yet unanticipated problems.
Unelected judges lack the competence or electoral legitimacy to implement fiscal policy, and this provision might well put them in the fiscal domain. If the courts are not involved in enforcement, then this would be the most dramatic addition to the power of the President of the United States in a long time. It would make the line-item veto look trivial by comparison, as a grant of broad-based Presidential power of impoundment; and no one thinks that that would be a very good idea.
If this provision is not enforceable by the Federal judges, and it shouldn't enforceable by the President of the United States, then it is a constitutional anomaly, an unenforceable Constitution reminiscent of a conception of constitutionalism very different from our own.
Page 155 PREV PAGE TOP OF DOC
It is natural to think that this provision is enforceable by the Federal judiciary, given our traditions; and let me just read to you from a recent discussion of the amendment, a very brief passage.
It says, courts could invalidate an individual appropriation or tax act. They could rule whether a given act of Congress, or by the executive, violated the amendment. They could issue a court order not to execute the act or the action.
That is not a quotation from an opponent of the amendment. That is a quotation from Representative Stenholm's very detailed and very candid testimony this morning. That is a statement by a proponent of the amendment.
What remedies would be available for a court if this issue were to be litigated? Well, the court would have to determine, first, whether the budget was in balance; and that is an exceedingly complicated issue on which courts lack competence and on which experts disagree. We really don't want that in the hands of the Federal judiciary.
If that issue does get in the hands of the Federal judiciary, then there is the question of remedy; and here things get worse. The judges might be forced to issue an injunction against the disbursement of Federal funds or they might be required to require taxes to be raised, something that has actually happened in our history.
This seems like a matter of detail. I hope it is clear by now that it is not. This is a problem that the current text does not fix. Many people have suggested, as has Mr. Gerson, very reasonably, that the Federal courts wouldn't get in this business. That is possible but highly speculative. If we don't want Federal courts to get into this business, then the amendment should be amended itself to provide that the courts will not get in this business.
Page 156 PREV PAGE TOP OF DOC
As it now stands, it is a great risk to the separation of powers. If the Federal judges are not going to be involved in enforcement, then it is natural to say that the President of the United States is given, by this provision, the power of impoundment. This has been suggested by President Reagan's Solicitor General, Charles Fried as well as President Clinton's current Solicitor General.
The Presidential power of impoundment would be even worse than judicial power. This would give the President the authority the Congress has always had, the authority to decide how Federal funds would be disbursed.
The line-item veto grants the President new authority, but it is targeted and precise. This provision would give the President a roving commission to veto, effectively, those expenditures of which he disapproved, and now I am not talking about speculation. This is the view of President Reagan's Solicitor General, President Clinton's Solicitor General, and indeed Representative Stenholm from just a few minutes ago.
If Presidential power and judicial power seem not to make sense, then the only way of enforcing this provision is by a Congress' own will. That is the best of the three. But there are two problems with it.
First, if this provision is just for congressional obedience and not for the courts and not for the President, then it doesn't add much to the situation as it now stands. It is a symbol.
Second, and worse than that, if the provision is just a symbol, it reflects a conception of constitutionalism very different from our own. The American Constitution is not just written but also enforceable. It is very different from the Constitutions of China, the former Soviet Union and Eastern bloc countries which were not worth the paper on which they were written.
Page 157 PREV PAGE TOP OF DOC
It is the case that former Eastern bloc countries are starting to produce constitutions that are not only written but meaningful. This is not happening in China. It would be a cruel irony if our own constitutional amendment in the year 1997 were to go in the direction from which Eastern Europe is now attempting to escape.
These are, Mr. Chairman, enforcement problems. They are not decisive. They do, I suggest, raise serious doubts and objection from the constitutional standpoint.
Thank you.
Mr. HYDE. Thank you very much.
[The prepared statement of Mr. Sunstein follows:]
Prepared Statement of Cass R. Sunstein, Professor, University of Chicago School of Law
Dear Mr. Chairman and Members of the Committee, I am grateful for the opportunity to appear before you today to discuss some issues relating to H.J. Res. 1 (hereinafter balanced budget amendment), designed to add a constitutional amendment providing a balanced budget for the United States. I will be addressing strictly legal issues and will not explore the complex issues of economic policy that are also raised by H.J. Res. 1.
In brief, my conclusion is that the proposed amendment would create exceedingly difficult enforcement problems. Those who favor the amendment probably do not support a dramatic increase in judicial or presidential power, and either judicial or presidential enforcement of the balanced budget amendment would raise serious concerns from the standpoint of separation of powers. Indeed, judicial and presidential enforcement appears unintended by the proponents of the amendment. H.J. Res. 1 should therefore be amended to say that it would not entangle courts in the budgetary process or give the president broad new impoundment authority. Thus amended, however, H.J. Res. 1 would be unenforceable, and an unenforceable constitutional provision would add little to the budgetary process as it now stands. An unforceable amendment would also be a constitutional anomaly. These concerns about the amendment, constitutional in character, raise fundamental doubts about the wisdom of the amendment. Now let me offer a few details.
Page 158 PREV PAGE TOP OF DOC
Many people believe that a balanced budget is desirable, and it is clear that the simplest and most direct way to produce a balanced budget, under the constitutional system, is for Congress not to create deficits. A balanced budget amendment is of course more complex and indirect that this simple route. By itself, a constitutional amendment would not produce a balanced budget; after ratification the question would soon become how the amendment is to be enforced. There are three possible enforcement mechanisms: judicial, presidential, and legislative. Each of them contains serious problems from the constitutional standpoint.
Judicial enforcement. Our constitutional tradition of course allows courts, in the context of cases or controversies, to require compliance with the Constitution, and hence it is natural to suggest that the balanced budget amendment might be enforced by courts. But this route would be extremely troublesome as a constitutional matter insofar as it might give (a) standing to citizens to litigate issues of fiscal policy that do not belong in courts and (b) authority to courts to decide whether Congress has complied with the mandates of the amendment. The prospect of (a) is troublesome to the extent that well-organized interest groups, with their own agendas, might be able to seek to stop, delay, or change legislative budgeting processes. The prospect of (b) is troublesome insofar as courts--unlikely to know a great deal about the subject at hand, not democratically elected, and perhaps with their own agendas--would be authorized to oversee the budgetary process. Judicial entanglement with fiscal matters would raise unforeseen and novel problems. It is probably best avoided.
Judicial review would create many specific problems. If judicial enforcement is available, courts might well be required to determine if budgets are in fact balanced. Thus H.J. Res. 1 would require that ''total outlays for any fiscal year shall not exceed total receipts for that fiscal year,'' subject to a three-fifths override. People (including specialists) greatly disagree about how ''total outlays'' and ''total receipts'' are best calculated. Would courts be permitted to oversee the relevant calculations? This is a determination for which judges lack much competence. Even worse, the amendment could require courts, in the event that a budget is unbalanced, to intrude in an unprecedented way into policymaking at the national level. Thus courts might be require to take steps to raise taxes, decrease spending, or both. It is hard to imagine how such a situation could be made to work well. Might courts issue an injunction against the expenditure of federal funds? Would declaratory judgments be sufficient? Might courts require Congress to change the Internal Revenue Code so as to increase tax revenues?
Page 159 PREV PAGE TOP OF DOC
Responding to such questions, many of the proponents of the Balanced Budget Amendment have made it clear that they do not want courts to be involved. Thus it is urged that courts would use doctrines of standing and reviewability so as to avoid participating in budgetary matters. This prediction is not implausible, but it is far from guaranteed. The Amendment might itself generate new standing doctrines. See Flast v. Cohen, 392 US 83 (1968) (allowing taxpayer standing under the Establishment Clause). Indeed, it is far from obvious that federal courts would, in light of our constitutional heritage, stand by in the event of constitutional violations by Congress. Section 6 of H.J. Res. 1 says that ''Congress shall enforce and implement this Article,'' but that section does not necessarily preclude judicial review. Section 5 of the Fourteenth Amendment also calls for congressional enforcement, but it is nonetheless judicially enforceable.
To be sure, there has been relatively little judicial activity on the state level with respect to balanced budget amendments. But some courts have in fact intervened, see, e.g., Chiles v. Children, 589 So. 2d 260 (Flat 1991); Wein v. State, 347 NE 2d 586 (NY 1976). In any case there are sufficient differences between state and federal systems as to make it hazardous to draw lessons for one from the experience of another. Some governors, for example, have impoundment authority and are able to enforce the relevant amendments in that fashion, thus relieving the pressure for judicial review.
Instead of making controversial and speculative predictions about the likelihood of judicial intervention, there is a simple solution to this problem. If judicial review does not seem desirable--and few people are urging that it is--H.J. Res. 1 should be amended to make clear that courts ought not to play a role. It might be provided, for example, that ''No court, state or federal, shall have jurisdiction or authority to enforce the provisions of this amendment, or to decide any questions of law or policy that might arise under this amendment.'' Language of this kind (favored by some amendment supporters in the past years) would be far superior to Committee Reports, which are entitled only to minimal weight in the interpretation of constitutional amendments. But this approach--foreclosing judicial review--raises problems of its own, as I will shortly suggest.
Page 160 PREV PAGE TOP OF DOC
Presidential enforcement and the impoundment problem. If courts are not well-suited to enforce a balanced budget amendment, perhaps enforcement would come instead from the President. This approach would make it unnecessary to involve unelected judges in the budgetary process. But there are serious problems with this interpretation. In light of the background of the balanced budget problem, it is extremely doubtful that the goal of the amendment is to give the President broad new powers over the budget and to put those powers in the Constitution. Nonetheless, this is a possible presidential interpretation of its likely effect. If a budget appears to the President to be unbalanced, the President's constitutional duty might seem to be to impound federal funds. (It is notable that the current Department of Justice believes that this interpretation is quite likely.)
This approach would of course lead to predictable and serious enforcement difficulties.. The President would be duty-bound to impound funds, but as the amendment stands he would have no legislative guidance for deciding which funds to impound. In essence, then, the President could be empowered and perhaps obligated to defund those programs of which he disapproves, even in the face of a congressional appropriation subject to a specific legislative decision that those programs deserve to be funded.
Needless to say, this step would greatly unsettle the constitutional plan, which puts budgetary matters in the hands of Congress and grants the President no authority of this kind; as I have suggested, a dramatic increase in presidential authority is also likely unintended. Recent debates over the line-item veto have raised some related questions, and the line-item veto is far simpler and more targeted, a much narrower grant of authority to the President. New impoundment authority would be extremely troublesome from the constitutional point of view, and thus it might well make sense to add a provision of this sort to H.J. Res. 1: ''Nothing in this amendment shall be interpreted to give the President the authority to impound funds, or otherwise to change the allocation of authority between the President and Congress under this Constitution.''
Page 161 PREV PAGE TOP OF DOC
Legislative enforcement and the problem of hortatory constitutional provisions. If judicial enforcement would be troublesome, and if presidential impoundment is not intended, then the only remaining enforcement mechanism is the court of public opinion. In other words, the balanced budget amendment might be enforceable only by Congress itself, subject to the ordinary political checks, reinforced as these might be by new constitutional text. On this view, the importance of the Amendment lies in the clear ''message'' that it sends to Congress, accompanied by political punishment in the event that it is violated.
This understanding of the amendment seems the least disturbing of the three possibilities. If it were necessary to choose among the three, a version of the amendment that denies a dramatic increase in judicial and presidential authority would make the best sense. Perhaps an amendment of this kind would have salutary effects on the budgetary process and the economy without raising tangled question of separation of powers.
From the standpoint of constitutional law, however, there are serious problems with this approach as well. First, it is not clear how much an amendment of this kind would add to the status quo, for there are, even now, strong political pressures in the direction of a balanced budget. An unenforceable amendment might not be much different from the status quo; it might even breed cynicism. Second, and more important, a constitutional provision of this kind would be a striking anomaly. We should recall that one of the distinctive features of the American Constitution is the general understanding that its provisions are real and fully enforceable in the courts of the land. Many nations lack this understanding. Soviet-style Constitutions, for example, were replete with constitutions signalling general social aspirations and goals; the relevant provisions were not worth the paper on which they were written. Unfortunately, the same is true in many Eastern European Constitutions today, guaranteeing a range of desirable goals (environmental protection, leisure time, cultural safeguards, minimum welfare guarantees, and so forth) but providing little in the real world. It is very doubtful that the United States should replicate this experience in the context of budget deficits.
Page 162 PREV PAGE TOP OF DOC
A judicially unenforceable balanced budget amendment would almost certainly be better than a judicially enforceable amendment. But an unenforceable amendment would be hortatory and in that sense reminiscent of a conception of constitutionalism that is very different from America's traditional understandings. It would give rise to the suspicion that the Constitution is being used as a vehicle for largely symbolic measures, replacing the hard work of making sound budgetary policy--via cuts, tax increases, or both--with unenforceable paper guarantees.
Structures and than economic policies. There is a final, related, but more general point. A balanced budget amendment would fit quite poorly with our constitutional heritage. As a rule the Constitution does not mandate social and economic outcomes. Instead it creates structures for decision and imposes checks, in the form of individual rights, on what government may do. Certainly the Constitution does not enshrine particular economic policies. As proponents of the Amendment have correctly noted, many of the Constitution's framers were entirely aware of the problem of budget deficits and spoke out strongly against them. But notably, they did not place a ban on public debts in the constitutional plan. This was part of their general project of using the Constitution not to impose particular economic theories, but to produce a structure for decision and a set of individual rights that would constrain choice.
Conclusion. A balanced budget amendment of the sort proposed in H.J. Res. 1 would create serious enforcement problems. Such an amendment should not be understood to grant unprecedented fiscal authority to the courts; if it did so, it would be highly undesirable from the standpoint of the traditional judicial role. Nor should the amendment be understood to impose new duties on, or to grant large new powers to, the President in the appropriations process.
If the amendment is to be unenforceable by the judicial and executive branches, it should be redrafted to make these points clear. But if the amendment is to operate as an unenforceable admonition to Congress, it would be an anomaly from the constitutional point of view.
Page 163 PREV PAGE TOP OF DOC
These points do not address issues of economic policy and hence may not be decisive against the proposed amendment. They do, however, raise serious concerns from the perspective of constitutional law.
I would be happy to answer any questions that you may have.
Mr. HYDE. Mr. Lehrmann.
STATEMENT OF EUGENE LEHRMANN, PAST PRESIDENT, AMERICAN ASSOCIATION OF RETIRED PERSONS
Mr. LEHRMANN. Thank you.
I am Eugene Lehrmann, the past president of the American Association of Retired Persons. We appreciate this opportunity to present our views regarding a balanced budget amendment.
AARP members support efforts to achieve a balanced budget. However, AARP firmly believes amending the Constitution is not the way to achieve a responsible deficit reduction.
Bringing the Federal budget into balance is very different from mandating it in the Constitution. AARP believes an amendment could seriously restrict the Government's ability to invest in the future and to respond to changing economic conditions or unforeseen events like natural disasters, and the amendment could lead to arbitrary cuts in vital family support programs like Social Security and Medicare.
The vast majority of Americans oppose a balanced budget amendment if it means reducing popular programs like Social Security, Medicare and education. Indeed, a large majority of Americans support a specific exemption of Social Security.
Page 164 PREV PAGE TOP OF DOC
Mr. Chairman, AARP believes that the balanced budget amendment is a bad idea, even with a Social Security exemption. But the strong support for a Social Security exclusion reflects the high regard of most Americans as it relates to this subject.
And that regard is well placed. Social Security provides benefits to 44 million people of all ages, including almost 4 million children. It keeps 15 million recipients out of poverty. Three in five beneficiaries depend on Social Security for at least half of their income. One in four count on it for at least 90 percent of their income. Four in eight--or one in eight--it is the sole source of income.
Because Social Security represents the largest share of most beneficiaries' income, any reduction in benefits would be devastating to millions of vulnerable Americans, particularly older single women. Surely a nation as rich as ours can achieve fiscal discipline in a more compassionate manner.
As I travel around the country, many AARP members complain that Congress has already spent the trust funds and fear that Congress will cut Social Security to help balance the budget. They know that Social Security is not the budgetary culprit. Quite the contrary, it is a self-sustaining program financed by contributions from employees and employers. The Social Security Trust Funds currently have an estimated reserve of more than $550 million, and they are growing. In fact, the annual increase in trust fund assets masks the size of deficit in the rest of the budget.
AARP agrees that we must ensure fiscal responsibility. Indeed, since the start of the decade, Congress and the President have shown they can reduce the budget; and we know more can and should be done. To those who say we need a constitutional guarantee to bring the budget into balance, we would point out that the constitutional amendment cannot substitute for the willingness of Congress and the President to work together and make the necessary choices to achieve balance.
Page 165 PREV PAGE TOP OF DOC
The American people deserve more than an amendment that promises a balanced budget. We need to see the fine print. Which programs will be cut? What taxes, if any, will be raised?
And we need to know what would happen if the budget is not balanced. How would the amendment be enforced in fiscally responsible behavior ultimately results not from changing the Constitution but by the actions of our elected leaders with input from the Nation. We urge you to set aside this amendment to our Constitution and move on to the work of balancing the budget.
Mr. HYDE. Thank you.
[The prepared statement of Mr. Lehrmann follows:]
Prepared Statement of Eugene Lehrmann, Past President, American Association of Retired Persons
The American Association of Retired Persons (AARP) appreciates the opportunity to present its views regarding a constitutional amendment requiring that the federal budget be balanced annually. The Association believes that amending the Constitution is not the way to achieve responsible deficit reduction, and enactment could have serious repercussions on our national well-being.
Like many Americans, AARP members generally support a balanced budget. They worry about the impact of continuing large federal deficits, particularly on their children and grandchildren. The Association shares this concern and has supported many deficit reduction bills in the past. But, bringing the federal budget into balance is very different from mandating a balanced budget in the Constitution. AARP firmly believes that enshrining fiscal policy in the Constitution is a flawed and potentially perilous strategy. This approach endangers our economic health by restricting the government's ability to respond to important national needs, economic downturns, or other unexpected emergencies, including natural disasters. The amendment also could lead to arbitrary reductions in vital programs, like Social Security and Medicare, upon which all Americans depend.
Page 166 PREV PAGE TOP OF DOC
PUBLIC ATTITUDES
We often hear the argument by proponents of the balanced budget amendment: the American people support a balanced budget amendment. But, to a considerable extent, public support for a balanced budget amendment reflects a misunderstanding of federal spending. A Louis Harris poll shows the American people think 20 percent of federal dollars are spent on foreign aid and 30 percent on defense, making it appear ''easier'' to balance the budget without ''hurting'' individuals. Also, many Americans believe that cutting congressional salaries and perks and eliminating waste, fraud and abuse would achieve significant deficit reduction. Not surprisingly, 56 percent of those polled in January 1995 by the Wirthlin Group believe that cutting foreign aid and congressional salaries by 25 percent would go a considerable way towards balancing the federal budget. Comparable findings have been reported in other surveys.
Misconceptions about federal spending lead many to believe that balancing the budget can be achieved without reducing spending on popular programs, like Social Security, Medicare, and education. In fact, support for a balanced budget amendment drops dramatically when people are asked to juxtapose the amendment with cuts in highly regarded federal programs. For example, 79 percent of Republicans, 85 percent of Democrats, and 90 percent of Independents polled by Wirthlin in 1995 favored exempting Social Security from a balanced budget amendment. Opposition to including Social Security in a balanced budget amendment is consistent and strong. A 1995 poll for ABC News found that 67 percent of Americans believe it is more important to protect the Social Security system than to pass a balanced budget amendment that includes Social Security.
Similarly, support for a balanced budget amendment declines considerably when respondents are asked about reductions in Medicare. A January 1996 NBC News/Wall Street Journal poll showed that while 14 percent of the respondents would favor balancing the budget over 7 years even if it meant cutting Medicare, 41 percent preferred balancing the budget over 8 or 9 years without any reductions in Medicare, and another 40 percent wanted a balanced budget without any or only small program reductions. An August 1996 poll by Princeton Survey Research Associates confirms that 77 percent of those interviewed oppose ''making major reductions in future spending on Medicare to balance the federal budget.'' These findings are generally consistent with the views of our members and are found across polling data.
Page 167 PREV PAGE TOP OF DOC
Since support for a balanced budget amendment drops dramatically if it entails reduced spending for Social Security, Medicare and other popular programs, supporters should first explain the budgetary trade-offs. They should then demonstrate to the American people how the amendment can be implemented before adopting this amendment, not after. The elements of a balanced budget are critical to the public, and the proposed amendment does not provide insight into these details.
DEFICIT REDUCTION
Following a decade of increasing federal deficits, the American people have now seen that the legislative process, coupled with a moderately healthy economy, can bring down the deficit. The large deficit reduction packages enacted in 1990 and 1993, other more modest spending reduction legislation, and an improved economy have reduced the deficit significantly. We now have the smallest deficit since 1979--in both dollars and relative to Gross Domestic Product (GDP)--and one of the lowest debt to GDP ratios in the western world.
With continued budgetary restraint, the downward slope in the deficit can continue because elements of the budget process help curb federal spending. Annual caps in the discretionary area have limited appropriated spending. Moreover, despite the constant claims of ''runaway entitlements,'' PAYGO rules have limited benefit expansion for entitlements. Last year's controversial welfare bill reduced overall spending for many entitlements. And, the 1990 and 1993 budget packages reduced spending on Medicare. In addition to overall PAYGO rules, the two largest entitlements, Social Security and Medicare (Part A) have built in fiscal restraint through the programs' trust funds. Future spending for Social Security and Medicare Part A is restrained by the assets in their respective trust funds, i.e., spending should not exceed the trust fund's ability to finance it. In addition, the House and Senate have enacted ''firewalls'' around Social Security to limit spending and help ensure the continued buildup of the trust funds.
Given the obvious progress toward restraining federal spending, and the commitment by Congress and the President to bring the federal budget into balance, even supporters of a constitutional mandate to balance the budget should concede that the amendment has lost a good deal of its symbolic value. Indeed, even with a constitutional amendment, Congress and the President still must hammer out the details of a balanced budget--which programs will be cut and by how much, and what, if any, revenue will be raised.
Page 168 PREV PAGE TOP OF DOC
SOCIAL SECURITY AND THE BALANCED BUDGET AMENDMENT
Congressional consideration of a balanced budget amendment has included vigorous debate over whether or not to exempt the revenues and disbursements of the Social Security trust funds. This important issue has serious ramifications for current and future Social Security beneficiaries. There isn't any question that exempting Social Security from a balanced budget amendment is solidly supported by the American people. In a December 1996 NBC News/Wall Street Journal poll, 71 percent believe that if a balanced budget amendment were to pass, it should include ''a provision that would prohibit Congress from using funds from the Social Security trust funds to balance the budget.'' Support for this exclusion rose from 62 percent when the question was asked in March 1995.
There are many reasons why the public does not want to reduce Social Security spending. Social Security is our nation's most effective and popular program, and it enjoys strong support among Americans of all ages. It represents a compact between generations in which workers pay into the system with the expectation that they will receive benefits when they become eligible. Currently, the program provides benefits to 44 million people of all ages, including almost 4 million children. Social Security keeps 15 million beneficiaries of all ages out of poverty. Today, 13 percent of recipients rely on Social Security for all of their income; one in four count on it for at least 90 percent of their income; and three in five beneficiaries depend on it for at least half their income. Given this widespread reliance on Social Security, any reduction in Social Security would be devastating to millions of vulnerable Americans, particularly older, single women, and the reductions could undermine the economic independence of many other beneficiaries. We should not force financially vulnerable beneficiaries to make painful choices about how to allocate limited financial resources because the federal budget is not in balance. Surely a nation as rich as ours can achieve fiscal discipline in a more compassionate manner.
Page 169 PREV PAGE TOP OF DOC
Social Security not contribute one penny to the deficit and should not be cut to remedy a shortfall elsewhere in the budget. This self-financed program is funded by earmarked contributions from workers and employers, which, in turn, are credited to the Social Security trust funds. They are the largest of all the federal trust funds and have a estimated reserve of over $S50 billion at the end of 1996. The trust funds not only cushion current beneficiaries against a serious economic downturn in the economy, but also serve as a nest egg to help finance future benefits, particularly for the 75 million members of the Baby Boom generation.
This year the Social Security trust funds will increase by $70 billion, and by almost an additional $500 billion through 2002. The trust funds were officially taken ''offbudget'' in 1990; in practice, the annual increase in the trust funds masks the true size of the deficit in the rest of the budget. If the trust funds are part of the balanced budget amendment, their continued buildup will create the illusion that the budget has been balanced, and they will effectively remain ''on budget.''
Despite their pronouncements otherwise, politicians could look to Social Security to achieve deficit reduction savings. That is one reason why some people want to politicize the Consumer Price Index and legislatively reduce cost-of-living adjustments. Reductions in Social Security, however, simply increase the size of the trust funds, thus masking an even larger portion of the ''on budget'' deficit.
AARP believes that while Social Security is currently in good financial condition, its longterm shortfall should be addressed within the next several years. However, the long-term problems should be addressed within the confines of the program so as to ensure that a comprehensive solvency package is adopted, not a piecemeal solution crafted to reduce an imbalance in the rest of the budget.
Page 170 PREV PAGE TOP OF DOC
MEDICARE, MEDICAID AND OTHER IMPORTANT PROGRAMS
The balanced budget amendment threatens the Medicare program because it could force even larger reductions than might otherwise be needed to restore the program's solvency over the next decade. Since Medicare and Medicaid continue to be growing portions of the budget, significant cuts to reduce the overall deficit are already on the table, and reductions of at least $100 billion over 5 years are likely.
Medicare provides health coverage to 37 million elderly and disabled Americans. Significant budget cuts in Medicare in the last decade have stretched the Medicare program's ability to provide adequate health coverage for beneficiaries.
A balanced budget amendment to the Constitution could force severe cuts in Medicare, significantly restraining program growth. This would occur despite the continuing growth in the number of people enrolling in the program and the fact that they are living longer. Therefore, cuts in the growth rate of the program result in a number of changes in the program that could hurt beneficiaries by: increasing out-of-pocket costs, which already are burdensome; reducing access to medical care; reducing choice of care; reducing quality of care, reducing Medicare services, and continuing cost-shifting.
The balanced budget amendment would also impact other domestic discretionary spending--particularly programs benefiting low-income persons. One analysis of changes enacted during the last Congress reveals that a disproportionate share of budget cuts occurred in programs for low-income families, including the low-income elderly and disabled. While the report estimates that one-third of nondefense reductions came from nonentitlement programs for people with low incomes, these programs accounted for only 21 percent of funding at the start of the 104th Congress. Low-income individuals are at continued risk to bear the brunt of the budget scalpel in the event that a balanced budget amendment clears Congress and is ratified by the States.
Of particular concern would be the increased pressure to cut energy assistance and housing programs which are so critical to low-income families of all ages. For example, in the last Congress, appropriations for the Weatherization Assistance Program and the Low Income Home Energy Assistance Program were reduced significantly. Older households make up some one-third of all those served by both of these programs--many of them frail elderly women living alone.
Page 171 PREV PAGE TOP OF DOC
A BALANCED BUDGET AMENDMENT AND THE CONSTITUTION
Many analysts have articulated the consequences of a balanced budget amendment for our government's ability to counteract recessions or deal with other pressing economic needs, to make long-term investments that promote economic growth, and to respond to unforeseen crises, including national disasters. The Association wishes to remind this committee of another important reason to reject the balanced budget amendment: the Constitution and the principles it established.
For most Americans, the Constitution symbolizes our government and our national heritage. This hallowed document should not be trivialized or used to achieve narrow political or economic goals. If Congress and the President believe a balanced budget is critical, they should work together to achieve that end. A constitutional amendment cannot substitute for the willingness to work together and make the necessary choices, nor will the amendment prescribe how to achieve budgetary balance.
Even if a balanced budget amendment is added to the Constitution, the thorny issue of enforcement remains. Here, constitutional scholars have posed a number of questions which remain unresolved:
What happens if the President and Congress cannot agree on the specifics of a balanced budget?
Will the courts have to enforce the amendment?
Do we want unelected officials to decide when and how to cut programs and by how much to raise taxes? While judges are appointed for life, Congress and the President are at least accountable to the American people through the ballot box.
What effect would the amendment have on the constitutional division of power?
If the judicial branch has no enforcement authority, what other enforcement tools would be used?
Would the President act unilaterally to ensure that the budget is balanced?
What options would Congress have if the President invoked the authority of the Constitution to justify his actions?
Page 172 PREV PAGE TOP OF DOC
Would a constitutional crisis develop?
Depending on the answers to these and similar questions, we might in the not too distant future regret having adopted a balanced budget amendment that is difficult to enforce and could result in a constitutional deadlock.
The amendment undermines another constitutional principle: majority rule. The current version of the amendment requires a 60 vote supermajority to waive the prohibition against deficit spending and to increase the debt limit. These stipulations cede enormous power to a minority. A minority--of the ''right'' or of the ''left''--could withhold its votes for a waiver or an increase in the debt ceiling unless certain conditions were met. While the requisite 60 votes might be garnered, the process of obtaining them could be dangerously long and create fiscal uncertainty in the markets and abroad. Just as a state's bond rating constrains its actions, the federal government's creditworthiness affects its budgetary dealings.
THE ILLUSION OF BALANCE: THE STATES AND INDIVIDUAL BUDGETS
Many people ''contrast'' the federal government's failure to balance its books with the behavior of state governments and individual households. In reality, neither states nor individuals balance their budgets. Both borrow money, and many states engage in creative bookkeeping to comply with a balanced budget requirement.
The experience of the states in ''balancing'' their budgets is instructive. As the General Accounting Office and a recent study by the Twentieth Century Fund conclude, while most states operate in a fiscally responsible manner and are able to balance their operating budgets, they do not balance their overall budgets. States, which generally have less restrictive balanced budget requirements than those proposed in the federal amendment, maintain the aura of balance by employing a variety of tools. They use capital budgets, rainy day funds, off-budget ventures, as well as bond issues that enable them to borrow additional funds. In this way, they can address immediate needs or make longer-term investments and still comply with constitutional requirements. Furthermore, state balanced budget requirements actually vary, and some mandates are quite broad. Some states merely require the submission of a balanced budget, others allow deficits to develop during the year, and some permit a deficit to be carried over to the following year.
Page 173 PREV PAGE TOP OF DOC
Even if the states did ''balance'' their budgets, it is inappropriate to assume from this that the federal government could and should do the same. The federal government's responsibilities are considerably broader, its jurisdiction more extensive, and its problems more wide-ranging. States do not have to provide for the common defense, conduct foreign affairs, regulate monetary policy, stabilize the economy, or address a range of regional and/or national needs.
While the analogy to state fiscal behavior is problematic, the comparison to personal spending habits is neither compelling nor correct. Individuals do not balance their budgets in the way that would be required by the proposed amendment. Most people borrow to pay for costly items they could not afford out of savings and earnings: a home, a car, and education costs. Many of these investments have a long-term payoff. The important question is not immediate balance, but whether the family can afford to repay its loans and the accrued interest. Similarly, a nation must borrow in order to make long-term investments that will help the economy grow. As many families who borrow to purchase a home or finance their children's education know: not all debt is bad. In fact, some debt is necessary and proper in order to pay for costly but important purchases.
In addition, some households use a credit card to enhance purchasing power. Even if the outstanding charges eventually are paid off, some families find themselves temporarily short of cash and have to carry an outstanding balance. If families were forced to operate under the conditions of the proposed amendment, they might find themselves unable to carry outstanding balances over from December of one year to January of the next year even though they plan to pay off all the charges in a few months. Shouldn't the federal government be able to exercise some of the same options available to families?
CONCLUSION
Older Americans recognize that continued deficits threaten our nation's economic future. They know that Congress and the President must continue working together to bring the deficit down further. However, a desire to achieve greater fiscal discipline does not justify a constitutional amendment requiring annually balanced federal budgets. Public support for the idea of a balanced budget may be more a reflection of public dissatisfaction or frustration with the inability and/or unwillingness of Congress and the President to work together to reduce the deficit.
Page 174 PREV PAGE TOP OF DOC
For much of our nation's history, peacetime budgets were largely in balance. Only in more recent history have large deficits become commonplace. However, these deficits do not reflect a constitutional shortcoming, but a failure to act on the part of those sworn to uphold the Constitution. More recently, we have seen the deficit addressed legislatively, and we have seen it move steadily downward. Continued action will be needed from Congress and the President to maintain that path. AARP will continue to work with the Congress and the Administration, on a bipartisan basis, to achieve further deficit reduction that is effective, fair and balanced.
Mr. HYDE. Mr. Berthoud.
STATEMENT OF JOHN BERTHOUD, PH.D., VICE PRESIDENT, ALEXIS DE TOCQUEVILLE INSTITUTION
Mr. BERTHOUD. Thank you, Mr. Chairman and distinguished members of the committee.
I am John Berthoud, the vice president of the Alexis de Tocqueville Institution a public policy research group in Arlington, VA. I come here this morning to offer testimony in favor of a balanced budget amendment.
I will argue that a BBA will improve the fiscal process of the United States of America and is in our long-term best interest, economically and politically. I will discuss the issue of Social Security as it relates to a BBA, a topic of great concern to many.
Large Federal deficits have plagued the United States for decades. The problem as we know it largely emerged, as I view political history, in the 1960's and began to get particularly acute after 1980 when net Federal debt as a percent of GDP, the most meaningful measure of our debt and deficits, when that measure began to rise. At the end of 1996, debt as a percent of GDP stood 49.9 percent, almost double where it was in 1980, an astounding change in our fiscal stance.
Page 175 PREV PAGE TOP OF DOC
I would argue that this change in our fiscal policy is detrimental for four fundamental reasons.
There are serious intergenerational issues. The debts and deficits, on top of large long-term funding and financing problems of our entitlement programs, places a huge and detrimental legacy on future generations.
The general consensus is that large deficits do crowd out investment which lowers long-term economic growth in this country, something which I will argue is critical to the long-term solvency of Social Security.
Third, I think it leads to a breakdown or adds to public cynicism. And, contrary to what I think some of the opponents have said this morning, I think large deficits, rather than the BBA, are more a danger to create government inaction on needed, pressing issues.
Finally, I believe that the deficits lead to more government than otherwise would be the case. This is the position long held by Nobel Laureate Milton Friedman, a supporter of the BBA. Simply put, taxes are a price we pay for government services. Whenever we buy government services and defer some of those costs, we will buy more government services than if we had to undertake honest budgeting and pay for what we choose to purchase. This has been the thesis of Dr. Friedman; and looking over the past 35 years, the evidence is that the Friedman thesis is correct.
In 1962, total nondefense spending as a percent of GDP was about 9.5 percent. By 1996, nondefense outlays were 17.2 percent of GDP, which is an increase of 81 percent.
There is a growing body of evidence which links high government spending to lower economic growth; and I think, because of this nexus, the best thing we can do for the long-term issues that we face with Social Security today is enact fiscal policies maximizing long-term economic growth.
Page 176 PREV PAGE TOP OF DOC
The balanced budget amendment will get us there. I think a large part of the testimony that you have heard this morning is that this has been--we have made a lot of progress in the past 3 or 4 years toward achieving the balanced budget. I think some of this is, unfortunately, illusory.
A large part of the progress we have made has come about because of the extraordinary circumstances provided to this country by the end of the cold war. If you look at the figures, three-quarters of all the deficit reduction achieved over the past 10 years has come about because of, I would argue and I think the numbers bear it out, reductions in defense spending.
Statutory measures as mentioned, be they the Byrd amendment or Gramm-Rudman-Hollings, have been tried and have not succeeded. The biggest weakness is that they are not constitutional and merely statutory. In the case of Gramm-Rudman, when it got too hard, the Congress and the President could override them. It is clear that only a constitutional amendment will permanently balance the budget.
Finally, let me say a word about Social Security, which again is a top concern, perhaps the most pressing concern of this Congress vis-a-vis the BBA.
I think--as I have stated, I think my written testimony elaborates more on this, in the long-term in the huge financing problems that the Concord Coalition and others have very well enumerated over the years, the most important thing we can do with fiscal policy is maximize long-term economic growth. Enactment of the BBA and diminution of borrowing will add to net savings. A BBA, by forcing down Federal dissaving, will by force of the Constitution do what many, who apparently forgot the nature of politicians, would hope the creation of the Social Security surpluses would do, which is to maximize long-term economic growth.
Page 177 PREV PAGE TOP OF DOC
I think a second objection that many supporters of a subsection of the budget or an offbudget Social Security provision support is that they say that this will protect Social Security and prevent any cuts from happening. I think the biggest problem with this argument is, again as I see it, balancing the budget and keeping the budget continuously balanced is in the best long-term interest of our country and of Social Security and putting Social Security offbudget would open up to a huge invitation for budget fraud.
We could easily envision shifts of huge government programs such as SSI, portions of Medicaid spending that benefits the elderly and other programs being shifted into that trust fund which would totally negate any economic or political benefit we might see from a balanced budget amendment.
While fixing the long-term fiscal imbalances of Social Security will require a herculean undertaking by this Congress and the President, I think we can facilitate that task through budgetary choices in the non-Social Security part of the budget. A balanced budget enforced by a properly designed BBA coupled with lower taxes will accelerate growth rates, provide a higher standard of living and help us meet our obligations to America's seniors.
Many have said that we need capital budget. I would simply point out that in the spiraling deficits and debts we have seen in the past 20, 30 years, for the most part, all those funds have gone to current consumption. So the argument that we need deficit spending to ensure long-term investment has not been proved out by recent history as the deficits have been used to fund current consumption spending.
Page 178 PREV PAGE TOP OF DOC
In conclusion, there are no magic solutions in public budgeting or in public policy in general, Mr. Chairman. I do not pretend that the BBA will instantly cure all the Nation's fiscal problems or all long-term imbalances. But I will tell this committee that the fiscal regime under the rule of a balanced budget amendment would produce superior results to the fiscal policies of the preceding decades.
Thank you.
Mr. HYDE. Thank you. And forgive my mispronunciation of your name.
[The prepared statement of Mr. Berthoud follows:]
Prepared Statement of John Berthoud, Ph.D., Vice President, Alexis de Tocqueville Institution
The Alexis de Tocqueville Institution (AdTI) is a non-partisan public policy research organization founded in 1986. AdTI conducts research on five key areas of concern to policy makers: 1) taxes & economic growth, 2) education, 3) immigration, 4) national defense, and 5) deregulation.
I come here this morning to offer testimony in favor of a Balanced Budget Amendment (BBA). I will argue that a BBA will improve the fiscal process of the United States and is in our long-term best interests both economically and politically. I will also discuss the issue of Social Security as it relates to a Balanced Budget Amendment, a topic that has been of great concern to many.
I. THE PROBLEM OF DEFICITS
Page 179 PREV PAGE TOP OF DOC
Large federal deficits have plagued the United States for decades. The problem as we know it largely emerged in the 1960's and began to get particularly acute after 1980 when net federal debt as a percent of GDP began rising. At the end of 1996, debt as a percent of GDP stood at 49.9%, almost double where it was in 1980.(see end note 1) This change in American fiscal policy is detrimental for several fundamental reasons.
Inter-generational Issues. First, federal deficits add to our mounting generational imbalance the huge fiscal burdens we are leaving for our children. Large federal deficits and debt on top of entitlement programs that are facing grave long-term financing problems are a terrible legacy for the future.
The inter-generational aspects of debt have been a concern of leaders in this nation since the beginning of our country. To Jefferson, if one generation incurred a public debt, it was in violation of ''natural law'' because it raised ''the question of whether one generation of men has a right to bind another.''(see end note 2)
Research in the relatively new field of generational accounting by scholars such as Larry Kotlikoff shows that the burdens of our fiscal policies that we have adopted over the past decades will place huge and unfair burdens on the youngest Americans. According to one recent analysis, the lifetime net tax rates (the present value of lifetime net taxes paid/present value of lifetime labor income) of future generations will be 126% higher than the net tax rates of those born in 1992.(see end note 3)
Savings and Investment. While different studies have come to varied conclusions on the impact of deficits, most economists would agree that deficits are a problem insofar as they reduce investment. Herbert Stein summarizes the thinking of much of the economics profession:
Page 180 PREV PAGE TOP OF DOC
the important effect of the absolute size of the deficit or surplus is the effect on private investment. That is, I think, the view now held by most, although not all, economists. The argument is simple. Private savings equal the sum of private investment plus the government deficit. Private saving is totally absorbed in these two uses. The larger the government deficit is, the smaller private investment will be unless the larger government deficit is matched by an equally larger total of private savings.(see end note 4)
Although the evidence is often difficult to sort through, it is my reading of the economic literature that there has been a finding of some crowding out of investment by government deficits.
Public Cynicism and a Break-down in Government. Certainly, and unfortunately, the public has many reasons to be cynical about Washington and American politics. Rising levels of distrust of government are poison to a democracy. While there are other causes, I believe that large and continuous federal deficits are a central reason for this rising cynicism.
Beyond turning off the public, large and continuing deficits lead to less responsive government. While some have made the case that a Balanced Budget Amendment would limit the flexibility of the country to respond to public crises, in reality, deficits are a far greater impediment. Comptroller General Charles Bowsher observed a number of years ago that: ''The deficit has severely hampered the ability of the Congress and the administration to deal with emerging issues that are of growing importance to the American people.''(see end note 5) Bowsher cited AIDS as one example of a problem not dealt with promptly because of our large deficits.
Distorting the Budget Decision-making Process. Finally, deficits lead to more government than would otherwise be the case. This is bad for two reasons: besides leaving society with a nonoptimal mix of government and private sector, larger government also means lower economic growth.
Page 181 PREV PAGE TOP OF DOC
How does deficit finance expand government? Nobel Laureate Milton Friedman said in 1984 that, ''As a strong supporter of a constitutional amendment requiring the federal government to balance its budget and limit spending, I clearly share the aversion to deficits that politicians of all shades of opinion have been expressing so loudly. But my reasons are quite different from theirs. In my view, the key question to deficits is political, not economic. The economic harm attributed to deficits whether high interest rates, inflation or economic stagnation comes not from the deficits but from the high level of government spending that those deficits help to finance.''(see end note 6)
Taxes are the price we the citizenry pay for government services. When government pays for programs through deficit finance, the price of government for today's citizens declines. Given this subsidy from future generations, it is only natural that we as a society will thus opt for more government than we would have chosen if we had to pay the full price for it. By analogy, if a consumer is weighing whether to buy a Pepsi for $1 or remain thirsty, it may be a tough choice. If that consumer can pass half the cost of that Pepsi onto some unknown person living in the future, the choice to consume becomes very easy.
The evidence is suggestive that Friedman is correct that deficits lead to higher spending. In 1962, total non-defense federal outlays were 9.5 percent of GDP. By 1996, non-defense federal outlays were 17.2 percent of GDP, an increase of 81 percent.(see end note 7)
And there is a growing body of evidence linking high government spending with lower economic growth. For example, a Rand Corporation study found that for every 10 percent of a nation's total annual income that is spent by government, the average growth rate of that nation's economy is reduced by one percent annually.(see end note 8)
Page 182 PREV PAGE TOP OF DOC
Because of the inverse relationship between government spending and economic growth, through holding down deficits and spending, we can expect a Balanced Budget Amendment to lead to substantially higher long-term economic prosperity.
II. AN EBBING PROBLEM?
We have seen substantial recent progress against the deficit. Secretary Rubin states that he believes ''the atmosphere in Washington has changed.''(see end note 9) But I would suggest that most of the progress has come about not because we have found a new breed of politicians who are somehow more responsible, but rather as a result of the extraordinary ''peace dividend.''
Consider that from 1986 to 1996, the federal deficit fell from 5.1 percent of GDP to 1.4 percent of GDP,(see end note 10) a reduction of 3.7 percent of GDP. During that same period, defense spending as a percent of GDP fell from 6.3% of GDP to 3.6% of GDP, a reduction of 2.7 percent of GDP.(see end note 11) Thus, 73 percent of the deficit reduction we've seen in the past decade has come about because of the extraordinary opportunity to lower defense spending which has been afforded us by the demise of the Soviet Union.
There is talk now of balancing the budget by the year 2002. This may or may not happen. But if history is any guide, we should be cautious in our optimism. The list of promised dates of a balanced budget made by leaders of both parties is long indeed. Only with a guarantee of a Balanced Budget Amendment will we definitely get to balance and stay there.
Given that the improvement in our deficit situation has largely been brought about by this extraordinary reduction in the need to spend on defense, we should in no way conclude that today's leaders are any more virtuous or responsible when it comes to deficits or that deficits cannot go rocketing back up in the years ahead.
Page 183 PREV PAGE TOP OF DOC
III. STATUTORY MEASURES JUST WON'T SUFFICE
In light of the difficulty of passing a constitutional amendment, there have been numerous efforts since adoption of the Budget and Impoundment Control Act in 1974 to statutorily change the budget rules to fight deficits.
The most ambitious of these efforts was the Gramm-Rudman-Hollings experiment of 1985—1990. This effort may have modestly reduced deficits on the order of $15 billion per year, mainly through limiting spending.(see end note 12) But the same factor that undermined the law's effectiveness ultimately killed it--Gramm-Rudman-Hollings was a mere statute. Congress and the President could roll-back and in the end terminate the deficit targets when the political decisions got too hard.
Alice Rivlin and others have made the case that rather than procedural changes, we need better leadership.(see end note 13) This is not a new plea in American politics and unfortunately, proponents of better leadership for the nation have yet to offer ideas that have advanced us towards this goal.
Only a constitutional guarantee will get the United States to balanced budgets.
IV. SOCIAL SECURITY AND THE BBA
Social Security has been a hot topic during the past several debates over the Balanced Budget Amendment (BBA) and this year is no different. Opponents of the amendment argue that enactment of a BBA will devastate Social Security. At a minimum they will claim that Social Security should be exempted from the amendment and put ''off-budget.''
Page 184 PREV PAGE TOP OF DOC
But the fact is that enactment of the BBA would be one of the best things we could do in 1997 to protect the long-run solvency of Social Security. And any ''off-budget'' schemes would at best provide illusory security.
First, let's remember that surpluses or no, the retirement of the Baby Boomers will be quite costly to that era in which it happens. For example, if the Social Security Administration redeems with the Treasury Department the hundreds of billions of dollars of Treasury bills it has bought all these years, taxpayers will have to come up with all that cash through federal fund revenue sources such as individual income taxes, corporate income taxes, and excise taxes.
Rather than being a ''nest egg'' as some imply, the only long-term value of the Social Security surpluses comes from reducing net federal borrowing in the private sector, thereby adding to our nation's total net savings (federal deficits after all are a form of dis-saving), facilitating higher capital investment. This higher investment today would permit the American economy in the 21st century to afford to make good on its commitments to future retirees, while also sustaining a rising standard of living for other Americans.(see end note 14)
Unfortunately, ever since the adoption of the Greenspan Commission package (facilitating the huge surpluses in the system over the final part of this century) Social Security surpluses have been basically used to simply finance (and mask) even larger deficits in the non-Social Security part of the budget. As Former Assistant Comptroller General Harry Havens observed, ''The fact that large and growing trust fund surpluses are now being used to help finance even larger federal funds deficits has become a central element in the nation's fiscal problems.''(see end note 15)
Page 185 PREV PAGE TOP OF DOC
Last year's budget deficit of $107 billion sounded pretty good. But if it weren't for the Social Security surplus, the deficit would have been $172 billion. It's not hard to imagine that were it not for the presence of Social Security surpluses making the deficit figures look respectable, Congress and the President would probably have been forced to do more in the battle against deficits in the rest of the budget. Social Security surpluses notwithstanding, net federal borrowing has probably been changed very little from it might otherwise have been.
Enactment of a BBA and the consequent diminution of federal borrowing should add to net savings and thus increase our capital investment. A BBA, by forcing down federal dis-saving, will by force of the Constitution do what many--who apparently forgot the nature of politicians--had hoped the creation of Social Security surpluses would do. And again, as I noted above, requiring honesty in budgeting--i.e., programs must be paid for now, not by future generations--will impose a discipline on federal spending that will restrain it. This lower spending will lead to higher economic growth, another plus for Social Security's long-term financing problems.
Of course, the second element of the Social Security argument against the Balanced Budget Amendment is whether to give the program special status and place it off-budget to ''protect'' it from any cuts. This is classic politician double-talk--if we just pretend we won't ever touch it, then we won't. The fact is, no matter where politicians place the Social Security trust fund won't change the fundamental long-term structural imbalances in the system that must be faced. If economic and demographic projections indicate the program must be reformed (and they currently do) then it will have to be--the only question is when.
In reality, giving Social Security some type of privileged status will probably only be detrimental to the program in the long term by delaying needed action. And as Robert Samuelson has written of Medicare reform, ''The sooner we start, the gentler [the needed reforms] will be.''(see end note 16) Thus, those who claim to be the biggest supporters will, if they have their way, end up hurting the program the most.
Page 186 PREV PAGE TOP OF DOC
Beyond this, putting Social Security ''off-budget'' would surely be an invitation to budget fraud. By establishing an area of the budget exempt from the requirement of balance, we provide politicians a big easy out to a true balancing of the budget. They could easily shift entire government programs to the Social Security part of the budget. At the top of any list for shifts would be programs such as veterans' benefits and pensions, Supplemental Security Income, and the portion of Medicaid spending that benefits the aged. Alternatively, Social Security revenues could be earmarked for other programs. And these changes could all be made with a simple majority vote in Congress.
Of course, beyond intentional gaming of the Social Security account, early in the next century when Social Security starts running deficits, a Balanced Budget Amendment with a Social Security exemption would be completely meaningless. We will be able to borrow hundreds of billions of dollars annually and still be within the parameters of a Balanced Budget Amendment with a Social Security exemption.
While a BBA admittedly may spawn some types of budgetary games, creating an off-budget non-balanced Social Security account would surely lead to so much fraud that the net economic benefit of a BBA (to society and thus to the long-term health of Social Security) would be nil. In sum, to enact a BBA with a Social Security exemption would be meaningless and defeat the purpose of the amendment.
While meeting the long-term fiscal imbalances of Social Security will be a Herculean undertaking, we can facilitate that task through our budgetary choices today in the non-Social Security part of the budget. A balanced budget enforced over the long-haul by a properly designed BBA--coupled with other fiscal changes such as tax reform and lower taxing and spending will accelerate our growth rates, provide a higher long-term standard of living, and help us meet our obligations to America's seniors.
Page 187 PREV PAGE TOP OF DOC
A. Capital Budgeting
A related debate surrounds establishment of a capital budget. Opponents of the BBA also make the case that the BBA in no way accounts for needed capital spending which is more appropriately funded through debt finance.
In the ideal non-politicized world that BBA opponents imagine, it may be correct to include a capital budgeting provision. But just as politics intruded to destroy the Keynesians' vision of using deficits and surpluses strategically to counter the business cycle, so too politics would intrude here. In this case, we can well imagine all sorts of creative accounting and politicking to make non-capital expenditures be labeled as capital outlays.
While there is some gamesmanship with capital budgets on the state level, I would expect to see much greater abuse of a capital budget on the federal level. For example, in recent years it has been common to label all types of education spending whether they are capital expenditures or not--as investments. We can shortly expect to see calls for placing education and many other types of non-capital expenditures into the newly-created federal capital budget, thereby greatly diminishing the benefits of a BBA.
Opponents argue that a capital budget is needed to ensure that long-term investments are made. In fact, the history of recent decades indicates that deficit finance has been channeled into current consumption. Jonathan Rauch, author of Demosclerosis, makes this point:
If government were running deficits to finance productive investments--roads and bridges, say--this wouldn't be a problem. But the deficits haven't financed investment. Since the early 1960s, federal long-term investments (excluding defense) have run at about 2 percent of the gross national product; but short-term benefits, as defined by the government itself, rose from 6 percent of GNP in the early 1960s to more than double that percentage in 1992. So the worst is really true: budget deficits are being used exclusively to finance consumption.(see end note 17)
Page 188 PREV PAGE TOP OF DOC
V. CONCLUSION
There are no magic solutions in public budgeting or public policy in general. I do not pretend that the BBA will instantly cure all the nation's fiscal problems or correct all long-term financial imbalances. But I would tell this committee that a fiscal regime under the rule of a Balanced Budget Amendment would without a doubt produce superior results to the fiscal policies of the preceding decades.
Thank you.
-
Mr. HYDE. I thank this panel for really an excellent and instructive series of testimonies.
And Mr. Conyers asks unanimous consent to insert this letter from the National Committee to Preserve Social Security and Medicare into the record; and, without objection, it will be so ordered.
[The information follows:]
INSERT OFFSET RING FOLIOS 9 TO 10 HERE
Mr. HYDE. Now, we will do questions. It is 10 to 1, and I am sure brevity will be the rule, but we will see.
Page 189 PREV PAGE TOP OF DOC
Mr. Conyers.
Mr. CONYERS. Thank you, Mr. Chairman. Do you mean that if we needed more than 5 minutes you would test our intelligence by having us ask you for it?
Mr. HYDE. Last year on this same issue I moved the previous question. That furor lasted about a month, so I don't propose to repeat that. And you take all the time you want, if that is the kind of guy you want to be.
Mr. CONYERS. I hear a message in there somewhere, Mr. Chairman.
Thank you very much, and I thank the members of this important panel for gathering. I am most especially pleased to see Prof. Tim Penny, my dear colleague for many years.
Tim, I only wish you were on this side of the room for the debate that is going to go forward. Some of your friends could use you now, even more than in the very important role that you serve in with the organization. I am sure they miss you.
We also--well, I don't know what we will do with Michael Patrick Flanagan of Chicago, who is not in this term, but he did propose as a supporter of the balanced budget amendment, carving it out. Mr. Lehrmann would probably have a few words for him.
But, Tim, you know the polls. You know what happens to a poll on the balanced budget, when they say, but what if it hits Social Security? You know what happens. I know what happens. Every Member of this Congress knows what happens. A few former Members of this august body knows what happens.
Page 190 PREV PAGE TOP OF DOC
So what are we here for? What is this? I mean, are we just saying, as the National Committee to Preserve Social Security and Medicare keeps saying, H.J. Res. 1 includes the Social Security Trust Funds in its balanced budget requirement and would effectively overturn the 1990 Budget Enforcement Act provisions which took Social Security off-budget.
Now, come on, guys. Let's level on this. You are not going to sneak through the 105th Congress trying to jive the people on Social Security. It will not fly. I don't care how many panels we have that tell 44 million people to relax, don't worry. That balloon that Penny describes, yes, it will be tempting, but just trust us. We won't touch it. We will go hit the military. Oh, yeah. What is wrong with this picture?
Mr. PENNY. That is not a rhetorical question?
Mr. CONYERS. I need some guidance from you, Tim. We miss you.
Mr. PENNY. Well, I testified of Concord's position on the question of exempting Social Security from the calculation. In a very real sense, Social Security is not exempted now. We are using Social Security surpluses to mask the size of the overall Federal budget deficit. And in the nearer term, if Social Security were to be exempted from the balanced budget requirement, it would pose--well, it would impose deeper cuts on all other budget categories, defense, discretionary domestic programs. I don't think many--I don't think most of those who advocate exempting Social Security from the balanced budget amendment really want in the near term to be faced with that prospect.
Page 191 PREV PAGE TOP OF DOC
So as a practical matter in the near term, those who are favorably inclined toward other domestic initiatives from nutrition programs to education programs to environmental programs should argue for the inclusion of Social Security in the overall budget and should be opposed to a Social Security exemption in this balanced budget amendment.
Longer term, we face the reverse in that Social Security will begin running a deficit by, well, by the early--in the year 2012, we run out of annual payroll taxes to pay Social Security benefits. By the year 2019, we run out of interest on the so-called surplus. By the year 2029, we run out of the surplus. So, as time goes by, Social Security really overspends. It is over budget and becomes a problem in that regard.
I think that the virtue here is one of brevity. It is one of making it clear that all revenues and all expenditures are related, that they are all part of the basic picture.
Mr. CONYERS. Tim, Concord is on record for cutting Social Security and cost of living allowances. Now, you know it and I know it.
Mr. PENNY. Yes, we are. We are on record in support of some adjustment in the cost of living allowance.
Mr. CONYERS. And that is what this amendment would facilitate.
Mr. PENNY. I think that you are faced with that prospect in any event because the cost of the Social Security program is growing at an almost exponential rate. The ability to support the program is going to be diminished with each passing year. We once had 16 workers for every beneficiary. We now have three workers for every beneficiary. That goes down to two workers for every beneficiary by year 2030.
Page 192 PREV PAGE TOP OF DOC
In any event, I think you are going to face pressures in that program with or without a balanced budget amendment. But what we believe is that all revenues of the Government ought to be treated the same and that all programs in the Government from Social Security to the Head Start program to defense programs ought to compete on a year-to-year basis and allow the Congress to set priorities among those programs as revenues become available.
Mr. HYDE. The gentleman's time has expired. The gentleman from Pennsylvania, Mr. Gekas.
Mr. GEKAS. I thank the Chairman. When I came to the Congress, I was resolved to the proposition that the Social Security benefits and really all the benefits that the Federal Government, with the consent of the people, confers back to the people, that all those benefits are based on what we hope is a sound economy. And the next theorem that comes into play, then, is that a sound economy is in danger when we run up deficits; that the economy begins to fall apart or to become fragmented if we allow the deficits and deficit spending to be a part of the day.
So when we come to the question of the balanced budget and Social Security, I ask Mr. Lehrmann, does he tell the same people when he goes around the countryside that we must have a strong economy and therefore we must eliminate deficits, come to a balanced budget, which he says he does, so that we can preserve the Social Security benefits?
And Mr. Lehrmann further says that the reduction in benefits is something that we don't want to hear about, of course. But then the concomitant questions come, what programs will be cut and what taxes will be instituted if we adopt this amendment?
Page 193 PREV PAGE TOP OF DOC
And then the question occurs, as several panels have said, that the same question obtains right now that, in order to preserve all these benefits, we have to ask what other programs are going to be cut, what taxes are going to be imposed.
So there is no big question except philosophically to say, will it not only help us to pass a balanced budget amendment so that we can have that constraint with new Members of Congress who come in in the next several Congresses, who will come into the Congress, unlike this Member, with the balanced budget amendment full force and effect in the mind and heart and soul and in the political regimen of the new Congresses that have to grapple with these problems? Isn't that worth the chance, the proposition that we ought to adopt the constitutional amendment?
I ask Mr. Berthoud--whatever. It is hard to pronounce Gekas, too, so I apologize in advance. Do you agree that, if for no other purpose, that if future Congresses come in--Members come into their first year of service into the Congress knowing that there is a budgetary amendment in the Constitution for a balanced budget that that will help a constraint that will be built into the actions of the new Congresses?
Mr. BERTHOUD. Representative, you ask an excellent question. And I think it gets back into some of the testimony we heard this morning. Both ends of Pennsylvania Avenue are currently in favor of a balanced budget. And I think I am hopeful that we will indeed get there by the year 2002. The question is what happens in year 2003, 2004, 2005?
And I would also remind the panel that the promises in years past--and this is not to impugn any statements by Members of their sincerity--but we certainly have seen many promises in years past that we will get to a balanced budget in year x, and numerous times the American people and future unborn generations have been disappointed because we have not gotten there.
Page 194 PREV PAGE TOP OF DOC
So I think that for future Members, as you talk about, having that guard of the Constitution there as this force standing over them keeping watch on as yet unborn generations, I think, is a very important prohibition.
Mr. GEKAS. And in the long run that helps the Social Security program.
Mr. BERTHOUD. Absolutely.
Mr. GEKAS. It helps to maintain the benefits. That is the irony we are talking about. Nobody wants to cut the Social Security benefits. We want to preserve Social Security. And balancing the budget is the best way to preserve the economy on which the Social Security benefits are founded.
One other question on judicial review. I take it to heart and have marked it down and will try to maintain the posture of supporting judicial review on the Federal basis for any kind that would be in the offering once an amendment is adopted. I worry about whether or not the Federal courts can get into it at all, as Mr. Sunstein said----
Mr. SUNSTEIN. Something like that.
Mr. GEKAS [continuing]. Mr. Sunstein said. But did we worry about it when the Nixon papers were in question? Do you remember when the Supreme Court decided that the President, who was asserting executive privilege, must turn over these documents? That wasn't a situation where nobody had an ability to act in a question of separation of powers. The court did get into it.
Page 195 PREV PAGE TOP OF DOC
Mr. SUNSTEIN. Right, that was a big constitutional crisis. And, fortunately, I think, the court was there to say whether the President's claim of executive privilege was valid. But it is one thing to say that the President has a limited power to withhold documents from the public. It is another thing to say that whether outlays are equivalent to receipts is going to be determined judicially.
So if you don't want the courts involved with this, then wouldn't it be best to have a prohibition on judicial review? That way fiscal management by the Federal judiciary would be excluded. Now, that would raise questions about an unenforceable constitutional provision, but doesn't it seem like an improvement?
Mr. GEKAS. But assuming we have to have judicial review, would you repose it exclusively in the Federal judiciary?
Mr. SUNSTEIN. I agree with Mr. Gerson on that.
Mr. GERSON. As you heard from Professor Sunstein and me, we disagree in a relatively narrow area. So let me talk about what that narrow area is.
Mr. GEKAS. I ask unanimous consent for an additional 1 1/2 minutes.
Mr. HYDE. Without objection, so ordered.
Mr. GERSON. I don't think that under normal standing jurisprudence that many people could have the ability to bring a case of the kind Professor Sunstein hypothesized. I don't know that he disagrees with that either. Nor do I suggest that the Federal courts are absolutely closed.
Page 196 PREV PAGE TOP OF DOC
What I do suggest is that, for the very reasons that he describes, the Federal courts abhor getting involved in areas where they have no expertise and where they are far away from the people. War powers and impeachment were two areas that I cited.
What the Federal courts are likely to do in a situation like this is to the remote extent they were to become involved is not to impose a remedy, but to kick it back to the political branches. That is what differentiates this case from the one case that Professor Sunstein cited, which he didn't name, which is Missouri against Jenkins, which is the one where a tax increase was required to keep a school system desegregated.
You only reach that situation where there is no other resort than a tax increase. Under this amendment you have all sorts of other resorts built right into the amendment. You can't have that situation be replicated. So there is a very narrow window here and you get something that is a plus. And here is why I differ with Secretary Rubin.
Mr. GEKAS. Redistricting also enters into that mode of thinking.
Mr. GERSON. It could.
Mr. GEKAS. But there was a court that went into the business of political boundary drawing.
Mr. GERSON. Well, one might argue that that is a big mistake. But in terms of talking about areas like micromanaging the budget, other than Missouri against Jenkins, which is a special case, there is no precedent that would support that view. Nor is there any precedent that would support impoundment, I might add.
Page 197 PREV PAGE TOP OF DOC
But what you get at the end of the day--no one suggests that life under the balanced budget amendment is going to be easy. What I do suggest is that it is better that the two political branches will have to work in the vigorous, sometimes contentious way that the Framers had in mind in a dynamic Constitution. You can't let things slide. You have to pay attention in advance. We can't have gas bag politics where people are out making lengthy speeches that they don't have to back up. I am not just speaking about in this chamber.
Mr. GEKAS. Why are you looking at me?
Mr. GERSON. I am thinking of the executive and the Congress. You have got to govern vigorously and all the time in order to make this work, and that is what the people deserve.
Mr. HYDE. The gentleman's time has expired. Mr. Scott wants to go as the last Democrat, so we yield to Mr. Delahunt from Massachusetts.
Mr. DELAHUNT. Thank you, Mr. Chairman. And, again, the panel was very enlightening this morning. I would like to again go back to the principles in terms of our jurisprudence here that both Professor Sunstein and Mr. Gerson were discussing earlier.
It is interesting to listen to Mr. Gerson talk about the reluctance of our Federal courts to intervene and impose remedies. That certainly hasn't been the experience in Massachusetts. Mr. Sunstein, the scenario that you describe--and just respond, if you would, to whether I am accurate in this statement, really fundamentally is a real shift in terms of the balance of power between the judiciary, the legislative and the executive if this particular amendment were passed and really is a tremendous change in terms of the balance of power in our Nation.
Page 198 PREV PAGE TOP OF DOC
Mr. SUNSTEIN. Yes. It is called the balanced budget amendment. It could, as well, be called the alter the separation of powers amendment.
Mr. DELAHUNT. Right.
Mr. SUNSTEIN. The risks I see here are twofold. One is that the President would now have not just the power, but the duty to impound Federal funds if the budget is going to be unbalanced. Now, maybe that is desirable. Maybe not. It is a very large change. It is not really about balanced budgets, it is about Presidential discretion.
Mr. DELAHUNT. Would you concede that if this amendment should pass that Congress, in effect, has ceded significant power to the other branches?
Mr. SUNSTEIN. Absolutely. Certainly, there is no trivial risk to both of these.
Mr. DELAHUNT. And we could usher in, if you will, an era of judicial activism unlike any we have ever seen in our jurisprudence, I would presume.
Mr. SUNSTEIN. Judge Bork, maybe our most public critic of judicial activism and no fan of unbalanced budgets, thinks this amendment is a bad idea for exactly your reason.
Mr. DELAHUNT. Thank you.
Mr. HYDE. Thank the gentleman.
Page 199 PREV PAGE TOP OF DOC
Mr. Canady from Florida.
Mr. CANADY. Thank you, Mr. Chairman. I want to thank you for conducting this hearing, and I would like to express my gratitude to each of the witnesses for their contribution.
Mr. Lehrmann, let me ask you, would you support a balanced budget amendment if it excluded the Social Security program from the calculations?
Mr. LEHRMANN. No, we would not. It is a bad idea and we think there is too much risk involved.
Mr. CANADY. Let me ask you if you believe that there is a danger in excluding Social Security from the balanced budget amendment that would arise from potentially shifting other programs under the Social Security program. This is a point that was raised by Mr. Penny. Do you see any danger in that if a balanced budget amendment with a provision excluding Social Security were passed?
Mr. LEHRMANN. I am sure that possibility exists. But remember, we think it is a bad idea.
Mr. CANADY. I understand that, and I understand that you would oppose the amendment in either case. But I was curious if you saw that there might be a potential for mischief that would arise from such a provision in the amendment?
Mr. LEHRMANN. I am not that familiar with the details. I expect there is a possibility of that, but I certainly haven't studied it to the extent that I could answer that effectively. We would be glad to send on to you, though, our response to that question.
Page 200 PREV PAGE TOP OF DOC
Mr. CANADY. That would be helpful. I appreciate it. I have no further questions.
Mr. HYDE. Thank you.
Mr. Goodlatte.
Mr. GOODLATTE. Thank you, Mr. Chairman.
I welcome all of you.
Mr. Gerson, would you like to respond directly to Mr. Sunstein's criticism of the judicial review process that is called for here?
My understanding is that you believe, as I do, that this would, without saying so in the amendment, entail some limited judicial review, and my belief is that, politically, the first time that happens will be the last time that it happens, because the ability of Members of Congress or the President to explain to the voters why it is they allowed this supremely important matter to wind up in judicial hands would be exceedingly difficult and would result in rather dramatic turnover in Congress.
Mr. GERSON. Let's keep in mind where Professor Sunstein and I agree, that it would be a terrible idea for the judiciary to be involved in micromanaging the budget. We don't disagree about that at all.
Page 201 PREV PAGE TOP OF DOC
Mr. GOODLATTE. I don't believe that Congress would allow it to happen.
Mr. GERSON. I understand that, too. The courts understand that as well. I respectfully disagree with the gentleman from Massachusetts who suggested that in his State or anywhere else that the courts have become involved in micromanaging budget activities. They simply haven't.
There is only one decided Supreme Court case in the history of the country which remotely can stand for that proposition, and it is not applicable, for reasons that I explained in the current circumstance.
So where Professor Sunstein and I might disagree is the extent to which courts can permissibly intervene and what they do if they did.
What I suggested is, if you look at the cases--and I described them in my testimony--in that narrow range of cases where courts do intervene where somebody has standing, in most cases where everybody suffers the same way, nobody can bring a case. You have to have a particularized injury, redressable under the law, in order to satisfy the case or controversy requirement, the standing requirement of article III of the Constitution. That gives you a pretty narrow range.
But in those very few cases where a cognizable case would get in front of the court, the precedents really suggest that the courts aren't going to impose a remedy.
Let me give you an example of just one such case. When this body passed the Federal Election Campaign Act of 1972, it was immediately challenged, as well it should have been, I might say, and the Supreme Court decided the case of Buckley v. Valeo in which it held that the Federal Election Commission was unconstitutionally comprised, and, according to the plaintiffs in that case, there would have been an open invitation for the Supreme Court to involve itself, in a micromanagement way, in the conduct of the supervision of election activity.
Page 202 PREV PAGE TOP OF DOC
While the Court had jurisdiction in that case that fit in within the narrow range of cases with which the Court had jurisdiction--indeed it had to have jurisdiction because it was part of the law that created the Federal Election Commission--the courts didn't impose a remedy. They kicked it back here, where it belonged, in order that the political branches do that. And that is what generally happens.
As I say, where Professor Sunstein and I disagree, and I will acknowledge that disagreement, is in the probability in cases--of large numbers of cases getting in front of the court. I think the precedence suggests that the number would never be high, and where they do, I believe that precedents suggest that the courts would be extremely reluctant to impose any remedy.
Mr. GOODLATTE. Mr. Penny, we very much welcome having you back with us and your strong support for this amendment, which I also strongly support, a balanced budget amendment to the Constitution.
One of the objections that has been raised is that having a supermajority, a 60-percent majority, for having the budget out of balance or raising the debt ceiling, if you will, under certain circumstances would be very risky. That seems to be Secretary Rubin's principal argument against the balanced budget amendment.
Isn't it true, however, that right now we have that same risk in our current system, because if you had a President--if the Congress voted today to have deficit spending and you had a President who didn't want to do that--in fact, I wish there were some Presidents in the past who had exercised this--but they could exercise a veto requiring a 67-percent majority overriding that veto and effectively accomplishing that right now. What is wrong with having the Congress have the same effective power to accomplish that?
Page 203 PREV PAGE TOP OF DOC
Mr. PENNY. It could happen under current circumstances if this were a top--if balancing the budget were a top priority for a President, and of course it would then require Congress to summons a two-thirds supermajority to override a President's position.
Mr. GOODLATTE. Even more difficult than the 60-percent that this amendment requires?
Mr. PENNY. But the 60-percent is a threshold that I think is manageable.
Bear in mind that this isn't going to be a regular occurrence. Seldom will we find ourselves in a case where a majority in Congress have voted for military involvement overseas. Even fewer would be the times where we actually have a declaration of war.
And rescissions are cyclical. I suppose you get one every 7 years or so, some deep, some not so deep.
In my 12 years in Congress, we went through natural disasters and a national recession every couple, 3 years, and in virtually every instance, whether we were voting hurricane relief or whether we were voting to extend unemployment compensation benefits or food stamp benefits to respond to an economic downturn, those initiatives were achieved quite easily with a well more than 60-percent majority.
So I don't believe that we have placed a straitjacket on Congress or on future Congresses in imposing this requirement. We just make it very clear that balancing the budget is going to be the normal procedure and that in circumstances such as economic recession or other emergencies in which it may be impossible on a year-to-year basis to keep the budget in balance, that we want a larger consensus within the Congress to respond to those circumstances. And I think the 60-percent margin is one that can be achieved if circumstances are right.
Page 204 PREV PAGE TOP OF DOC
Mr. GOODLATTE. Could I have an additional 30 seconds?
Mr. HYDE. 30 seconds, without objection.
Mr. GOODLATTE. Thank you, Mr. Chairman.
I would just like to say that I take it what you are saying is that the 60-percent majority is a reasonable safety valve that is very manageable and that the problem that we have today is, we don't simply have a budget that is out of balance in times of recession, we always have it out of balance.
Mr. PENNY. This balanced budget amendment, once implemented, would put an end to that annual deficit spending practice, would make deficit spending be the exception to the rule, and would allow an exception to that balanced budget requirement only when a supermajority can be achieved.
But I am here to assure those who are worried that we won't respond appropriately in times of recession or national emergency that in my 12 years of experience in those very circumstances, we almost--I can't think of an exception. I think without exception we achieved supermajority support for extension of unemployment benefits and the other sort of things that flow from these national emergencies.
Mr. GOODLATTE. I agree. Under the current law, it is conceivable that you could even have a more insurmountable burden if you had a President----
Page 205 PREV PAGE TOP OF DOC
Mr. PENNY. Under current law, if a President were trying to impose a balanced budget, it would be more difficult than this constitutional amendment to unbalance the budget.
Mr. HYDE. The gentleman's time has expired.
The gentleman from California, Mr. Bono.
Mr. BONO. Thank you.
In response to Mr. Conyers' question about the big boys on Wall Street, asking how they feel, I wonder why they would be upset, because what they did a couple of years ago was balance their budgets. Eisner, IBM, all the big boys do not exceed their cash-flow. Their costs don't exceed their cash-flow. So if they balance their budgets, why won't we as well? I don't see what the mystery would be there.
Keeping that in mind, I do have one question: Why is everything focusing on Social Security? It seems to me, again, going with that structure, private enterprise, that you would talk about cutting government. The President, in his last address, said the year of big government is over. Why wouldn't we look at cutting government cost to balance a budget rather than the whole direction being at Social Security? Anyone can respond to that.
Mr. BERTHOUD. I think, Congressman Bono, in response to your question, you are absolutely right. I think that the President and others have made the statement that the era of big government is over.
Page 206 PREV PAGE TOP OF DOC
Interestingly, one of the most important claims is that there are fewer Federal employees today than there were several years ago. But almost all those cuts have come in the Department of Defense.
In fact, under an analysis that we did about a year ago when we looked at the 1996 budget, it showed that we had more non-Defense civilian employees in the Federal Government at that time than we did in 1990. And I remind you, during that time in 1990 and 1993, we had supposedly draconian deficit reduction measures.
So I guess I would concur with your assessment that there are many other places to look long before we get to Social Security.
Mr. CONYERS. Mr. Bono, would you yield to me for just a moment, please?
Mr. BONO. Yes.
Mr. CONYERS. Thank you so much.
Would you be willing to entertain a brief meeting in your office with myself and Alan Greenspan on the question that you proposed initially?
Mr. BONO. Sure, of course.
Mr. CONYERS. All right. Thank you, sir.
Page 207 PREV PAGE TOP OF DOC
Mr. BONO. Thank you.
And the last statement I have is, I wonder if this concern would be here if somebody announced that every Member of Congress and the President took an oath that they were going to balance the budget and it was a fait accompli as a mandated budget. Would this panic be here then? I think everybody would say hooray. You know, it is interesting.
Do you want to respond?
Mr. SUNSTEIN. Yes, sir. That is a very good point. If there was an oath, my concerns wouldn't apply because the big boys that the constitutional lawyers are concerned with aren't the corporate executives, they are the big boys on the courts of appeals and the new impoundment office in the Executive Office Building.
Now an oath would be something that fits with our constitutional traditions. This sort of thing just doesn't----
Mr. GERSON. We disagree slightly on that. I think this is an oath for the ages. If you pass this amendment, that is just what you would have done.
And if I might respond to the last point that was raised, to look at some of the little boys for a second, those who are the increasing number of Social Security beneficiaries that we have in our society. I am pretty active in the health care area, and I have a sense of the burdens that our senior citizens are facing, and we are getting more and more of them because of the inversion of the demographic pyramid.
Page 208 PREV PAGE TOP OF DOC
It is well and good to talk about Social Security, and the generational equity issues that Mr. Penny's organization raises are important too.
But with regard to Social Security, holding it sacrosanct, not to diminish it in any way, let's not lose sight of the fact that the weight of the Federal debt on senior citizens is immense. Those are the people who increasingly, on fixed incomes, are faced with the burden of all this. But give them some spending power too.
Mr. PENNY. Mr. Chairman, if I might respond to Mr. Bono's first question.
Mr. HYDE. Without objection.
Mr. PENNY. The mission of the Concord Coalition is that all items of the budget--domestic, defense, entitlement--ought to remain on the table and that savings should be achieved from all of those categories.
Specifically to the question of Social Security, if you exempt Social Security from the balanced budget requirement in the near term while Social Security continues to run a surplus in its account, it will force deeper cuts on defense and domestic programs. And so for that reason we would say why would you want to impose a heavier burden on other parts of the budget simply by exempting Social Security.
However, if you choose to favor Social Security, fine. I mean, if that is the collective wisdom of the Congress to protect Social Security and to place deeper cuts on those other categories, that is a judgment that you can make. We firmly believe that it should not be enshrined in the Constitution that that one program be protected and taken off the table while all others remain on the table.
Page 209 PREV PAGE TOP OF DOC
Mr. BONO. I understand.
My question was why don't we look at the entire cost of
government, not just defense. But there are so many other
various areas that we can look at. As Mr. Berthoud stated, I
think we have more employees here than anywhere else, and we
can certainly take some hard looks at those, and have
tremendous cuts.
Thank you. Thank you Mr. Chairman.
Mr. HYDE. Thank you. I wonder if we could use up our last Democrat Mr. Scott. I know you want to go at the end, but I am kind of reluctant to give you the last word.
Mr. SCOTT. Mr. Chairman, I was hoping a Republican would be the last, and I will be next to the last.
Mr. HYDE. Next to the last, that is a deal.
Mr. Chabot.
Mr. CHABOT. Thank you Mr. Chairman. I for one don't care too much what the ''big boys'' think about this issue, whether they are the Wall Street moguls or a few CEO's of major companies. I think what we really ought to look at and what I care about is who is going to pay most of this bill, and that is our kids and future generations of Americans.
Page 210 PREV PAGE TOP OF DOC
What has happened over the years, with previous Congresses, and previous Presidents failing to step up to the plate and meet their responsibility to the American people and balance the budget, has been irresponsible. And the kids are the ones who ultimately are going to pay the bill for this, and I care about them more than the Wall Street types.
Mr. Lehrmann, you mentioned something about Social Security, too, and your concern about senior citizens in this country and those on fixed incomes, and I share that concern. I agree with you on looking out for seniors in this country. My mom and dad are both on Social Security, both on Medicare.
I do, however, believe that the greatest risk to our seniors, particularly middle class seniors where the Social Security payment is really important, for whom maybe that is most of their income or all of their income, is this huge deficit. The fact is that when people pay into Social Security, they think that it is being put aside in a trust fund for them, when, in fact, the money is going out the back door, and Congress has been spending this money for years.
So we really do have to balance the budget. We may disagree on whether we need an amendment or not, but I think we agree that we need to balance the budget, and failure to do that is the biggest threat.
Mr. Penny, something I wanted to ask you. You spent 12 years here as a Democrat in Congress, and from what I have been able to ascertain you have a very good record as far as deficit issues. You and John Kasich offered the Penny-Kasich bill. Wasn't that a balance----
Mr. PENNY. Well, no, not quite, but it was about $90 billion in spending cuts spread over 5 years. It would have been a good down payment.
Page 211 PREV PAGE TOP OF DOC
Mr. CHABOT. Certainly a step in the right direction. And I commend you for putting this forward in a bipartisan manner. After your 12 years here, what is your level of confidence; how much can we trust future Congresses without a balanced budget amendment to consistently, year after year, balance the budget unless we are required by law to do so? Do you have much confidence in Congress?
Mr. PENNY. I had more confidence in Congress before I was elected in 1982. By the end of my first term, I had reversed my position on the balanced budget amendment, and I think that is the best answer I can give to your inquiry.
Mr. CHABOT. Well, I share that lack of confidence in Congress. We passed the balanced budget in the last Congress, which was ultimately vetoed by the President, but even this last Congress was unable to get the job done, because unless the President signs it into law, the budget isn't balanced.
We may get a balanced budget this year. I hope we do. But I really do think that we do need to be required by law to pass a balanced budget.
Would you like to comment on that?
Mr. PENNY. Well, just to say that getting to a balance is something that will need to be accomplished between now and the time that this constitutional amendment takes effect, because it will take several years to ratify. I think the date of implementation is no earlier than the year 2002. So we have to get there without the balanced budget amendment. But this amendment will help us maintain balance in future years because what it will require of the Congress is then to come up with a budget law with sequestration, or whatever the enforcement provisions are, that will help us on a year-to-year basis to comply with the constitutional requirement.
Page 212 PREV PAGE TOP OF DOC
I agree no self-respecting Member of Congress is going to want these provisions to be dumped into the court system. We will find a way to put enforcement provisions in place under law. But without a balanced budget amendment, those laws can be easily set aside or amended and changed in order to allow deficit spending.
The constitutional amendment will hold us to a higher standard.
Mr. CHABOT. A final point I would like to make, because I am running out of time here, is that, in the most rosy scenario, looking at the best thing we were able to pass in the last Congress, the budget balances in the year 2002, which, at that point, was 7 years out in the future. But even that doesn't start to pay down the debt. We are still going to--from trillions and trillions of dollars of debt that have to be paid off, we are still paying 14 cents on every dollar to the Government just to pay the interest on the debt. So that is even a bigger challenge that we all have in the future to pay off the debt.
Yield back the balance of my time.
Mr. CONYERS. Chairman, could I ask for 15 seconds to be added to the gentleman from Ohio?
Mr. HYDE. Without objection, so ordered.
Mr. CONYERS. When you were referring about the distinguished record of Mr. Penny, you jog my memory that he was a chief supporter of the Chief Financial Officers Act, which was one of the first humble efforts to enforce accounting strategies that we could all understand. And I remember that very gratefully the vigor with which you joined the Government office.
Page 213 PREV PAGE TOP OF DOC
Mr. PENNY. And I appreciated your leadership on that, and I am glad that you brought it up because I was afraid that you would think that I was sucking up if I brought it up.
Mr. HYDE. The gentlemen will put their bouquets away. And Mr. Jenkins of Tennessee.
Mr. JENKINS. Mr. Chairman, I don't have any additional questions for these gentlemen. Thank you.
Mr. HYDE. Thank you, Mr. Jenkins.
Mr. Pease of Indiana.
Mr. PEASE. Mr. Chairman, I have no further questions either.
Mr. HYDE. Thank you, Mr. Pease.
Mr. Cannon of Utah.
Mr. CANNON. Thank you, Mr. Chairman. I have no additional questions.
Mr. HYDE. Very well. Then next to last, because I have a couple questions, I will yield to Mr. Scott of Virginia.
Mr. SCOTT. Thank you, Mr. Chairman.
Page 214 PREV PAGE TOP OF DOC
I would like to make a couple comments on the last questions. One, we have had some suggestion that we ought to compare what the Federal Government does with the State government. Secretary Rubin pointed out that States have capital budgets where they go into debt. I think he said some States count debt proceeds as revenue. I found that a little bizarre on any kind of balanced budget concept.
But there is another important fact that states any time they have an emergency, turn to the Federal Government. If there is a recession, they turn to the Federal Government to increase the unemployment compensation. If there is an earthquake or flood, you turn to the Federal Government. Unfortunately, the Federal Government doesn't have anywhere to turn to.
We have also heard about the big boys balancing their corporate budgets. If you look at the Standard & Poor sheet on most companies, they have run up debt that they never paid off and don't intend to pay off because investing in machinery, R&D are the kind of things that generate profits.
I guess my first question would be to the constitutional experts on judicial review and just ask a specific question. We have had a debate about whether we should do the OMB estimate or CBO estimate. If the President and Congress agreed to revenue estimates that were patently absurd, would there be any availability for judicial review?
Mr. GERSON. Simply because the agreement was on something absurd?
Mr. SCOTT. If the budget is, in fact, unbalanced, but we claimed that the CBO or some other politically-appointed group says that there is projected revenues, with overly optimistic to the point of being absurd interest rates or growth projections, would there be any opportunity for judicial review?
Page 215 PREV PAGE TOP OF DOC
Mr. GERSON. There might be.
Let me say in the first instance, perhaps Justice Holmes said it the best, or at least said it the most often: It is not the role of the courts appropriately played, no matter what one has as a judicial philosophy or indeed a political one, to correct the simple policy mistakes that a political branch might make. I think that is a caveat. You could reach an absurd result, and it could still be legal.
There is a range--as I have contemplated in my testimony, there is a small range of cases where I think one could have cognizable jurisdiction, but where, in any event, for prudential reasons, for deference reasons, given the weight of precedent, I think it is highly unlikely that the courts would tend to impose a remedy in the worst case.
Mr. SUNSTEIN. In the case you give, there is a very good chance courts will become involved. It will be a very complicated litigation. Maybe the way to put it that will bring the point home is if you like Roe against Wade, from the standpoint of the judicial role, this is a constitutional amendment that you will love.
Mr. SCOTT. Mr. Penny, Tim, I want to congratulate you on your hard work during Congress. You were one of the stalwarts in fiscal responsibility. And I want to congratulate you on that work and join the others that have suggested that we wish you were on this side to help us out on that.
I have just two questions. One, in your Social Security example, if the Social Security Trust Fund, in making it separate, we required it to be solvent, that wouldn't--that graph would not apply; is that right?
Page 216 PREV PAGE TOP OF DOC
Mr. PENNY. No this graph--you are correct. This graph extends current law, so if you made changes in the program, tampering with COLA's, raising payroll taxes, any other adjustments, this graph would change.
Mr. SCOTT. The fundamental question I have is we made an assumption so far that legislators don't have the spine to do the right thing. People kind of jump past this. I have had the idea that by requiring 60-percent, to reduce the deficit in half would take a 60-percent vote. Why does anybody think that we are more likely to get people in that case to reduce the deficit in half rather than double the deficit?
Mr. PENNY. You would still allow all of the major decisions to move us toward balance to be accomplished by majority vote. That would not change. The only vote that would require a 60-percent, a supermajority, would be a vote to borrow money. So on a year-to-year basis, Congress, by a majority vote, could cut spending, raise taxes, do all the things that would contribute to balancing the budget. You would only need to achieve a supermajority vote on the question of borrowing money.
Mr. SCOTT. Does that mean raise the debt ceiling? Is that what you mean?
Mr. PENNY. Yes, debt ceiling vote.
Mr. SCOTT. Well, why would we think--because basically you are talking about a budget that is in deficit, passing that budget. If you are going to have a deficit, why would we be more likely to cut the deficit rather than increase the deficit when the politically popular things to do are cut taxes and increase spending? And the fact is we have a hard time getting a simple majority together to do that, and if you had to get to 60 percent--if you wanted to flat out balance the budget, if you required instead of a 60-percent vote a 35-percent vote, you would be more likely to balance the budget.
Page 217 PREV PAGE TOP OF DOC
Mr. PENNY. I get your point.
Mr. SCOTT. Because we have had a budget that actually passed, balanced the budget overnight and got about 35 percent of the votes in the House. If you really want to balance it, that is how you do it. Why do you think we are going to have more backbone if you need to get more people involved, knowing that you are going to get more votes by reopening the supercollider, building new weapons systems that we don't need, to cutting taxes, and that is how you get people on board.
Mr. PENNY. You are correct that typically the tough stuff passes with a narrow majority. That was true in 1993, when you and I voted for President Clinton's budget, which included tax increases, cuts in the Pentagon budget; frankly few cuts anywhere else. But it did help to control deficits in the years in which it was in place.
The Republicans, when they came to power and passed significant cuts in the domestic programs, I think almost 20 million in cuts in 1 year alone, did that with few, if any, Democratic votes, so that was passed by a narrow majority, and that will continue to be the way in which deficit reduction programs are cobbled together.
So we are not requiring any new calculus for passing a deficit reduction plan. We are, however requiring----
Mr. SCOTT. You're requiring a 60-percent vote, which is harder to do than----
Page 218 PREV PAGE TOP OF DOC
Mr. PENNY. In order to borrow. In order to borrow. My assumption is that the plan that actually gets us in compliance with the balanced budget amendment will continue to pass by a narrow majority----
Mr. SCOTT. And the point I am making is if you have to borrow, you are more likely to have a higher deficit than a lower deficit if you have got to round up 44 more votes in the House.
Mr. PENNY. Well, if you have to borrow, it would narrow the circumstances in which you would borrow. And I articulated from my experience the times when we have done that to extend unemployment compensation during times of recession. But I doubt that you would get a 60-percent majority to borrow year in and year out. So for that reason you would be more likely to keep the budget in balance. And I would suggest those legislative packages, those reconciliation bills would be passed by very, very narrow margins.
Mr. SCOTT. Has it been your experience that when you try to get those last few votes, that you end up spending money or cutting taxes to go get them?
Mr. PENNY. Well, I think in the past you have often seen the budget numbers fudged and a little more money spent. I don't think that would be true if the balanced budget amendment were in place because then the standard would be higher, as I said earlier.
Mr. HYDE. I thank the gentleman, and we have now reached the bottom of the barrel; that is, the last questioner, and I will just ask Mr. Lehrmann a question.
I want to thank you for your organization, the AARP--I know you are a past president--complying with the new rule 11, clause 2(g). And it is interesting, I note that AARP in 1995 received $79,233,500 from the Federal Government. Now, that was to fund programs that I am sure are immensely useful. The Senior Community Services Employment program got 51 million; Senior Environmental program, 24 million; and Internal Revenue Services Tax Aid, 3,468,000.
Page 219 PREV PAGE TOP OF DOC
Now, I can understand why your organization would not support a balanced budget amendment because it might impact on these substantial grants, and I am not objecting to that because I am sure tax aid for seniors, employment programs for seniors, are very useful. There are others that are lesser funded. You have got a legal assistance support project.
But it is interesting that AARP and other similar organizations, I am sure, across the spectrum receive really substantial money from the taxpayers to do things that maybe public agencies ought to do; although, I am sure, for private agencies doing them as well. But if the taxpayers are paying for them, maybe the taxpayers ought to get some credit, too.
But I congratulate you on providing that information to us. It is very useful.
And I want to thank this panel. You have indicated the immense complexity of this issue. There are so many questions, questions of enforcement, questions of predicting income, and questions of interpretation, consequences which are not predictable.
I think the one thing that we might agree on is that we are not in such good shape in terms of getting from here to there, and it is going to take some discipline, and that discipline perhaps psychologically is better from the outside than waiting and waiting for internal discipline to take over.
I think we will have a long wait. But this is the beginning of the House debate on this issue. There will be more, and we will get to the floor and be quite interesting. But you are all--you have all made a great contribution to moving this legislation along, and I thank you very much.
Page 220 PREV PAGE TOP OF DOC
The committee is adjourned.
[Whereupon, at 1:50 p.m., the committee adjourned.]
A P P E N D I X
Material Submitted for the Hearing
INSERT OFFSET RING FOLIOS 11 TO 29 HERE
38—951CC
1997
PROPOSING A BALANCED BUDGET AMENDMENT TO THE CONSTITUTION OF THE UNITED STATES
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
Page 221 PREV PAGE TOP OF DOC
ON
H.J. Res. 1
PROPOSING A BALANCED BUDGET AMENDMENT TO THE CONSTITUTION OF THE UNITED STATES
FEBRUARY 3, 1997
Serial No. 1
Printed for the use of the Committee on the Judiciary
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
Page 222 PREV PAGE TOP OF DOC
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
Page 223 PREV PAGE TOP OF DOC
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
ALAN F. COFFEY, JR., General Counsel/Staff Director
JULIAN EPSTEIN, Minority Staff Director
C O N T E N T S
HEARING DATE
February 3, 1997
TEXT OF BILL
H.J. Res. 1
OPENING STATEMENT
Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary
WITNESSES
Berthoud, John E., Ph.D., vice president, Alexis de Tocqueville Institution
Conyers, Hon. John, Jr., a Representative in Congress from the State of Michigan
Cox, Hon. Christopher, a Representative in Congress from the State of California
Gerson, Stuart M., former Assistant and Acting Attorney General, Department of Justice
Lehrmann, Eugene, past president, American Association of Retired Persons
Penny, Timothy, member, board of directors, the Concord Coalition
Page 224 PREV PAGE TOP OF DOC
Rubin, Robert E., Secretary, U.S. Department of the Treasury
Sabo, Hon. Martin Olav, a Representative in Congress from the State of Minnesota
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas
Sunstein, Cass R., professor, University of Chicago School of Law
Wise, Hon. Robert E., Jr., a Representative in Congress from the State of West Virginia
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Anderson, Martin, senior fellow, the Hoover Institution: Prepared statement
Archer, Hon. Bill, a Representative in Congress from the State of Texas: Prepared statement
Barton, Hon. Joe, a Representative in Congress from the State of Texas: Prepared statement
Berthoud, John E., Ph.D., vice president, Alex de Tocqueville Institution: Prepared statement
Castle, Hon. Michael N., a Representative in Congress from the State of Delaware: Prepared statement
Chabot, Hon. Steve, a Representative in Congress from the State of Ohio: Prepared statement
Conyers, Hon. John, Jr., a Representative in Congress from the State of Michigan: Letter dated February 3, 1997, from Martha A. McSteen, president, National Committee to Preserve Social Security and Medicare
Cox, Hon. Christopher, a Representative in Congress from the State of California: Prepared statement
Gerson, Stuart M., former Assistant and Acting Attorney General, Department of Justice: Prepared statement
Page 225 PREV PAGE TOP OF DOC
Jackson Lee, Hon. Sheila, a Representative in Congress from the
State of Texas: Prepared statement
Lehrmann, Eugene, past president, American Association of Retired Persons: Prepared statement
Penny, Timothy, member, board of directors, the Concord Coalition: Prepared statement
Rubin, Robert E., Secretary, U.S. Department of the Treasury: Prepared statement
Sabo, Hon. Martin Olav, a Representative in Congress from the State of Minnesota: Prepared statement
Schaefer, Hon. Dan, a Representative in Congress from the State of Colorado: Prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas: Prepared statement
Sunstein, Cass R., professor, University of Chicago School of Law: Prepared statement
Wise, Hon. Robert E., Jr., a Representative in Congress from the State of West Virginia: Prepared statement
APPENDIX
Material submitted for the hearing
end note 1 return
1. CBO, The Economic and Budget Outlook: Fiscal Years 1998—2007, Appendix F. Table F—1.
end note 2 return
2. Peter G. Peterson, Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream (New York, NY: Simon & Schuster, 1993), Page 223.
end note 3 return
3. ''Generational Accounting,'' Budget of the United States Government (FY 95): Analytical Perspectives, Table 3—3. Note: Net taxes are taxes paid to the government less transfers received.
end note 4 return
4. Herbert Stein, Presidential Economics: The Making of Economic Policy From Roosevelt to Clinton (Washington, DC: The American Enterprise Institute, 1994), Pages 350—351.
end note 5 return
5. Charles Bowsher, ''The Disinvestment of Government,'' The GAO Journal, Number 4, Winter 1988/89, Page 60.
end note 6 return
6. James Savage, Balanced Budgets & American Politics, (Ithaca, NY: Cornell University Press, 1988), Page 9.
end note 7 return
7. CBO, The Economic and Budget Outlook: Fiscal Years 1998—2007, Appendix F. Tables F—9 and Fell.
end note 8 return
8. Charles Wolf, Jr., Markets or Government: Choosing Between Imperfect Alternatives (Cambridge, MA: MIT Press, 1988), Page 146. Lewis Uhler extrapolates from these findings: ''Assume that the United States were to reduce the proportion of its spending at all levels of government from 40 percent of our Gross Domestic Product (GDP) to about 20 percent. Assuming a current average annual economic growth of about two percent, we would double the average annual rate of growth of our nation's economy-and compound that every year.'' (Lewis Uhler, Setting Limits: Constitutional Control of Government, Washington, DC: Regnery Gateway, 1989, Pages 83—84.)
end note 9 return
9. Robert Rubin, ''Amending the Constitution Will Shackle Us Forever,'' The Washington Post, February 2, 1997, Page C1.
end note 10 return
10. CBO, The Economic and Budget Outlook: Fiscal Years 1998—2007, Appendix F. Table F—5.
end note 11 return
11. CBO, The Economic and Budget Outlook: Fiscal Years 1998—2007, Appendix F. Table F—11.
end note 12 return
12. See John Berthoud, Gramm-Rudman-Hollings: The Fiscal Weapon of Public Choice? (New Haven, CT: Yale University Doctoral Dissertation, Department of Political Science, 1992); SungDeuk Hahm, Mark S. Kamlet, David C. Mowery, and Tsai-Tsu Su, ''The Influence of the Gramm-Rudman-Hollings Act on Federal Budgetary And Fiscal Policy Outcomes 1986—1989,'' Paper presented to the Annual Meeting of the Southwestern Political Science Association, March 27—29, 1991.
end note 13 return
13. Alice Rivlin, ''Reform of the Budget Process,'' American Economics Association Papers and Proceedings, May, 1984.
end note 14 return
14. To the extent that this balance has come from ever increasing payroll taxes, there is an offsetting elect however. Steve Entin of the Institute for Research on the Economics of Taxation notes, ''By reducing the labor supply and employment, the payroll tax indirectly reduces the productivity and earnings of capital and discourages saving and investment. Insofar as people still believe that they will receive substantial benefits when they retire, the program cripples one of the biggest motives for personal saving.'' (Steve Entin, ''Social Security Retirement and Disability Programs Need Help Now,'' IRET Congressional Advisory No. 54., May 14, 1996, Pages 1—2.)
end note 15 return
15. Harry Havens, ''The Budget Dilemma: Searching for A New Consensus,'' The GAO Journal, Winter, 1988/89, Page 15.
end note 16 return
16. Robert J. Samuelson, ''Who's Right About Medicare?'' The Washington Post, August 30, 1995, Page A23. Social Security expert Carolyn Weaver has observed, ''if the Social Security reform package offered by Sen. Robert Kerrey and former Senator John Danforth to the now-defunct Entitlement Commission seemed premature or 'Draconian,' just wait a decade or two and see what kind of proposals are on the table.'' (''Social Security: Solvent Until When?'' The Washington Post, March 7, 1995, Page A17).
end note 17 return
17. Jonathan Rauch, Demosclerosis (New York, NY: Times Books, 1995), Pages 149—150.