Hearings of the
Committee on Rules
The committee met, pursuant to call, at 9:30 a.m. in Room H-313, The Capitol, Hon. David Dreier [chairman of the committee] presiding.
Present: Representatives Dreier, Goss, Linder, Hastings, Sessions, Reynolds and Moakley.
The Chairman. The committee will come to order. Today the Rules Committee embarks on the first of two original jurisdiction hearings on H.R. 853, the Comprehensive Budget Process Reform Act of 1999. The committee today will receive testimony from three of the lead sponsors of the reform bill as well as analysis by the Congressional Budget Office, the General Accounting Office, the Concord Coalition, the Center on Budget and Policy Priorities and other noted witnesses. Tomorrow we will hear more testimony from many of our colleagues on both sides of the aisle.
This bill is the product of 2 years of work between members of the Rules and Budget Committees and also represents the first time in almost a decade that the two committees of jurisdiction in the House have come together in a bipartisan manner to construct a comprehensive budget process reform package. This is largely due to the leadership of Porter Goss, who has united the two committees behind a common-sense reform plan which we are committed to bring to the full House for consideration in the near future.
Make no mistake, the current budget process does not work. It is a disorganized patchwork of decades-old rules and laws. This comprehensive bill increases efficiency, improves accountability and strengthens enforcement in the budget process.
Coming from California, let me highlight just one example. We have learned that natural disasters are a fact of life, whether it is hurricanes in Florida, ice storms in New York, floods in Iowa or an earthquake in my home State. We know that there will be some impact on the budget each year. This bill will reform the budget process to require the President and the Congress to face reality and set aside a disaster reserve fund in the budget. We don't need to pit the victims of Mother Nature against those who desire sound fiscal policies, and this is just one of the many sensible reforms included in the bill. Again, it is a very bipartisan measure. We have Democrats who have joined in cosponsoring the bill.
I look forward to the testimony of our distinguished witnesses today and tomorrow to engage in this important debate.
[The statement of Mr. Dreier follows:]
The Chairman. With that, I am very happy to call on what looks like a brilliantly written opening statement by my good friend from south Boston, Mr. Moakley.
Mr. Moakley. Thank you, Mr. Chairman. I have a medical appointment right after this, and then I have the rule on the floor.
The Chairman. I have one of those two things.
Mr. Moakley. You have the medical appointment.
The Chairman. That's right.
Mr. Moakley. Ever since the Congressional Budget Act became law in 1974, people have blamed it every time they don't get their way. I think if anyone is to blame, it is the actors and not the act. The Budget Act can only set up incentives to do the right thing, it can't force a majority of House Members to make budget decisions against their will.
Mr. Chairman, the bill we are discussing today makes three major changes in the Budget Act, all of which I oppose. First, this bill guts the pay-go rule. Under the current law, as entitlement increases, tax cuts must be paid for. This bill says you don't have to pay for tax cuts or entitlement increases. If there is a surplus, this provision encourages Members to rush out to spend the surplus before anyone else can use it. Any hope of reserving the surplus for debt reduction would be totally lost. So the resources we could be using to fix Social Security and Medicare would be used to pay for a tax cut.
Secondly, the automatic continuing resolutions will set a permanent appropriations level. This will encourage Members to choose between the regular appropriations bills and the automatic continuing resolution.
Third, the joint budget resolution and fall-back will create more incentives for political posturing and delay.
So let's face it, Mr. Chairman, the congressional budget resolution and the President's budget are both political documents, and as long as one party controls the Congress and one party controls the White House, there won't be much negotiation on budget resolutions. No one has any reason to compromise at such an early stage. But if Members can see the fall-back, and if they know that the automatic continuing resolution is in place, the Majority has every reason to pass a budget that forces a Presidential veto and delineates the difference between the parties.
I agree with my colleagues that the 1997 changes to the system for designating emergency spending is in a shambles, but I don't believe these are the ways to fix them. I object to the extraordinary power granted to the Budget Committee Chairman to determine what constitutes an emergency, and I find the definition of emergency unrealistic. For example, Kosovo is neither sudden nor unanticipated, but it certainly is an emergency. Nor do I believe this appropriation lockbox proposal will work any better than lockbox proposals in the past. Everyone agrees that the appropriation caps are working well, maybe just a little too well, and I don't think that we need any more downward pressure on appropriations.
Mr. Chairman, there are a handful of smaller ideas in this bill, some of which are good, such as Mr. Cardin's proposed changes to the budget treatment of insurance programs, and of course my proposal to make unreported measures subject to Budget Act points of order. But some of the smaller ideas are dangerous, such as the definition of the pocket veto. This definition implies, contrary to the long-standing view of the House, that only the budget joint resolution cannot be pocket-vetoed during the session.
Mr. Chairman, despite the inclusion of Mr. Cardin's proposal and mine, this bill contains a lot of dangerous changes to our budget process. We should either leave well enough alone or go back to the drawing board.
[The statement of Mr. Moakley follows:]
The Chairman. As I said, we are very pleased that this bill enjoys wide bipartisan support.
Mr. Moakley. It is not wide enough.
The Chairman. I am pleased to call on Mr. Goss.
Mr. Goss. Thank you, Mr. Chairman. I have a prepared opening statement.
The Chairman. Without objection it will appear in its entirety in the record.
Mr. Goss. First of all, the distinguished gentleman from Boston knows I never have dangerous thoughts --
Mr. Moakley. Not lately.
Mr. Goss. And we didn't start out with the idea --
The Chairman. Why don't you go to your doctor's appointment.
Mr. Goss. I think the concept of "leave well enough alone" doesn't pass the laugh test, and I remember some of the comments from the gentleman from Boston's party regarding the omnibus bill last October. And I heard more comment that rather than "leave well enough alone", "never again" would have been the appropriate description for that process.
The other areas that you have raised in your opening remarks I think are appropriate areas and have received a lot of attention, and we have tried to come up with what we thought was a good working solution. Obviously we are having these hearings to deal with that. I want to particularly thank Chairman Dreier for pushing forward on this, bringing this to some kind of conclusion and taking our legislative shot at it. I think it is long overdue that we do something in this area. If we haven't got it right, perhaps this process will make it better. I think we have a good product.
As to the definition of emergency and things like that, I submit that two months ago there was not an emergency in Kosovo. The reason that there is one today is because of actions that have been taken, not because of the situation that was. I think there is some room to negotiate what an emergency is, but I think we ought to do it up front, and I think a lot of us feel that it encourages, like Kosovo, that before we do them, we know better what we are getting into.
As for the automatic CR, that is something that we discussed a number of times and have had regular discussion on.
As for the pay-go, I think it makes a lot of sense that all of the playing field be equal when we talk about surplus. I think that is what this bill does. Having said that, no matter how you look at this, any reasonable observer would say that we can make the rules through a budget process.
The Chairman. Thank you very much.
[The statement of Mr. Goss follows:]
Mr. Linder. I have only one comment. I think it is long overdue to fix this process. Thank you.
The Chairman. Mr. Reynolds.
Mr. Reynolds. As a cosponsor of this legislation, I look forward to the discussion in the hearing. I have had the honor of serving at town and county and State government levels before being elected to Congress. I now use some of that strength of 25 years that local governments must produce a balanced budget, and the Governor of New York is required by the State constitution to present a balanced budget to the legislature, and then for the legislature to adopt a balanced budget within that. So the State and county and local governments simply must balance their budgets and are required to do so by a cohesive and time-line process.
Congress needs to reform the existing budget process to make the necessary changes to get a more accurate picture of what we are dealing with in the new millennium.
The Chairman. Mr. Sessions, you have missed a load of brilliant opening statements.
Mr. Sessions. Mr. Chairman, I did miss some, and when my colleague from New York speaks, we speak with one voice.
The Chairman. Thank you all very much, and let me say that it is a privilege once again to see Dan Crippen and to formally congratulate him. He is the fifth Director of the Congressional Budget Office, having been appointed to the that post just a couple of months ago in February. From 1987 to 1988, he served as the President's advisor on all issues relating to domestic policy, including the presentation of the Federal budget. From 1981 to 1985, he served as chief counsel and economic policy advisor to the Senate Majority Leader, working on major tax and budget bills.
Prior to joining the CBO, Mr. Crippen was a principal with the consulting firm Washington Council. He has also served as executive director of the Maryland International Advisory Council and senior vice president of the Duberstein Group.
Let me welcome you. I look forward to your testimony.
I apologize right now, I don't have to go to the doctor like Mr. Moakley, but I have to make a call, and then we have to be down on the floor on our Y2K bill, which is coming up, and Mr. Goss is going to be presiding.
Obviously as a cosponsor of the bill, I think it is very clear that I do have a great interest in bringing about this reform, and we are going to try our darnedest to make it more bipartisan.
If you have any lengthy prepared remarks, we will include those in the record without objection.
Mr. Crippen. I have a 2-minute version and a 10-minute version.
The Chairman. Gosh, should we flip a coin.
We will look forward to your 2-minute version.
STATEMENT OF DAN L. CRIPPEN, DIRECTOR, CONGRESSIONAL BUDGET OFFICE
Mr. Crippen. Mr. Chairman, and Members of the Committee, thank you for the opportunity to testify on the Comprehensive Budget Process Reform Act of 1999. It responds to many of the concerns that have been voiced by Members of Congress and others in recent years.
A joint budget resolution inviting the President to negotiate early in the year on the budget has merit, but it is no panacea. If there were wide disagreements, the joint resolution might delay the process, having to go through a veto and the fallback mechanism. If there were no wide disagreements, the joint resolution would be unnecessary.
An automatic continuing resolution has substantial merit, especially to avoid a government shutdown. Working out a suitable determination for an appropriate funding level will require the concurrence of the appropriators, in which case you may want to consider a number of alternatives to the current levels. You might choose the average between the House and Senate or some other level.
Insurance reform is great in theory but difficult to carry out. The six years envisioned for implementing reform is a minimum, although some types of insurance might be scored earlier than that.
If you were to do nothing else on emergency spending, simply codifying the definition would be helpful. Without a definition, it matters little what else you do.
Finally, Mr. Chairman, the extensive changes proposed by the bill suggest a broader issue of budget process reform that should be addressed. It is time to convene a new Commission on Federal Budget Concepts. In general, federal budget concepts are based on the recommendations of the 1967 President's Commission on Budget Concepts. Although the commission's guidelines continue to apply broadly in the budget process, they do not address certain fundamental issue that lawmakers and budget scorekeepers currently face. For example, various proposals to reform Social Security, especially those that call for personal retirement accounts, raise thorny questions about the appropriate budgetary treatment. Further, the dividing line between federal spending and revenue law has become blurred, as evidenced by the increasing use of refundable tax credits as a device for expanding budgetary resources. The use of public/private partnerships, such as those involved in military housing and various leaseOpurchase agreements also raises questions of budgetary treatment for which the 1967 Commission's recommendations provide little or no guidance.
These and other issues put budget scorekeepers in a difficult position as they seek to apply outdated or incomplete concepts to novel budget policies. That situation suggests the need to reevaluate the current budget concepts and to try to reach consensus on changes that will make them clear, comprehensive, and more effective. I encourage the committee to consider that enough has changed in the past 30 years to warrant another look at our rules.
The Chairman. Thank you very much. That is very helpful. We appreciate it.
[The statement of Mr. Crippen follows:]
The Chairman. Let me jump right into the issue that I raised in my opening remarks, that being this emergency reserve fund. Do you have any thoughts about that? We were talking in a meeting yesterday about the Oklahoma situation, and last Thursday the Federal Emergency Management Agency indicated that they had everything necessary fundingwise to deal with that. Over the weekend and the last couple of days when the President went there, he came back and requested $372 million. Now we have been told that there is a request for nearly three times that amount, approaching a billion dollars, to go to the Federal Emergency Management Agency.
My personal response to that is we should proceed with what is necessary rather than all of a sudden just building up a huge surplus there for emergencies, but the proposal that we have in this measure obviously calls for us to move in the direction of setting up a fund there. What thoughts do you have about that version?
I will tell you that I have tried to get us to a point where the American people don't immediately come to Washington every time there is a disaster, natural or man-made, and we have worked in the past on legislation which would set up a joint public-private partnership with the insurance side. We are still working on that and hoping that we can move on that. But as we try to approach this question, would, in fact, building up a reserve there create a situation where people would more naturally be inclined to draw on it? What thoughts do you have about that?
Mr. Crippen. You can limit that, depending on the definition of emergency and what conditions you delegate to the Budget Committee Chairmen in order to designate something an emergency.
The most important issue is the definition of what constitutes an emergency. Once a definition has been reached, the only other concern is how a reserve fund might work, particularly in floor debates. For example, how quickly could the Budget Committee Chairmen make these determinations? So how a reserve fund might work is unclear, but we don't have any evidence from states that have contingency funds and rainy-day funds, or whether such funds encourage emergency designations.
The Chairman. How many States have that?
Mr. Crippen. Almost all. I think well over 40 do. Amd most have constitutional or statutory requirements that they have a balanced budget. So as part of that process, they tend to do contingency budgeting.
We have had a wide range of emergency designations in the recent past -- from about a $1.5 billion to $21 billion (in fiscal year 1998). Whether or not you think all of the $21 billion was for emergencies is another question, but the range is big in terms of the amount of funds required.
The Federal Emergency Management Agency (FEMA) tends to go out and address an emergency or a disaster and come back and request a replenishment of funds. So in some sense, FEMA works on the notion of a reserve basis already. Expanding that approach to other agencies that become involved in emergency situations might be an alternative to having the Congress establish a reserveOfund procedure.
The Chairman. Do you want to respond to any of the specific concerns on pay-go and other issues raised by Mr. Moakley in his opening statement?
Mr. Crippen. Whenever you begin to change these processes, you may be changing the dynamics, political power, and other things. The only concern I have -- and it wasn't addressed quite directly by Mr. Moakley, is that we take care not to shift power away from the Congress in dealing with these matters.
The Congress established this whole process -- in the wake of the Nixon impoundments and called it the Budget Impoundment and Control Act. It is not just a budget act. The tension between the President and the Congress prompted the establishment of the Congressional Budget Office. I think we need to take care not to give up Congressional power in the interest of expediency.
But I am not as concerned as Mr. Moakley is about automatic continuing resolutions. There are a lot of issues about how they would work and, in turn, who the balance of power would go to -- the appropriators, the President, or the Congress.
The Chairman. There is some bipartisan concern about automatic CRs.
Thank you very much, Dan. I will turn the opportunity to question and the Chair over to Mr. Goss.
Mr. Goss. [Presiding.] Thank you, Mr. Chairman. I wish you success in your rule.
I wanted to ask a little bit on the emergency. We looked a lot at that, and there are any number of definitions that you could use, and I am in agreement with your testimony that we ought to try to corral it a little bit. We may not get it exactly right, but anything we do would be an improvement.
In that spirit I am mindful of the Federal insurance agency and flood insurance, FEMA, and relocation revolving funds, and all of those mechanisms that are out there. I am not talking about how you do it. What I am trying to say for budget purposes so we don't have surprises every year that break the bank up here, and in addition to the surprise the opportunity to break the bank even further because of the practices that go on now, can we make an improvement? And I think the answer is yes.
One of the things that I am concerned about besides the definitional questions that have been raised is the amounts, the numbers. How much is the right amount for a rainy day fund? We have some language about a five year rolling average. Does that make any sense?
Mr. Crippen. Sure.
Mr. Goss. Is there a better way to do that?
Mr. Crippen. Probably not. It is arbitrary. The amount has ranged from about $1.5 billion to $20 billion in the recent past. The average has been $5 billion, but as with all averages, it depends on your experience. The amount put in is arbitrary, but the rolling average seems to make sense.
Mr. Goss. The fence you build around that, it seems to me, is going to be very important as well. And when we talk about the rolling averages, we need to define emergency, because we don't want to count the underexpenditures that get added onto emergency legislation because it is passing. Is that a reasonable conclusion?
Mr. Crippen. Yes. That is why I raised the one concern -- How does it get worked out on the floor when you have an emergency supplemental and amendments are being added? How does the Budget Committee address that issue. Saying this is an emergency but that is not, might complicate floor consideration of the proposed measures.
Mr. Goss. Fair enough.
There are a couple of responses I would like to get for the record. We are trying to complete a record which has been going on for some time. In your testimony you mention the Catch-22 between trying to encourage more authorization of spending while at the same time discouraging more authorizations. In reference to the timetable for reauthorizations that committees would establish, you suggested some form of staggered program with the schedule. Would you please comment further on that, on your suggestions in that area?
Mr. Crippen. The notion I was trying to convey: is pretty simple if you have a 10Oyear sunset on major authorizing bills, you would not want them all to expire at the same time. It is a notional idea, but we have to be careful about how you do that, and once you get started on the schedule, you would want to stagger how the operations would come up and be required.
Mr. Goss. How much information does CBO have on this subject right now?
Mr. Crippen. Each year we compile a report, which we issue in January, on how many programs were appropriated for the current fiscal year without authorization.
Mr. Goss. So this is information that is readily available?
Mr. Crippen. Yes. And for other agencies, too.
Mr. Goss. Thank you very much. That is very helpful.
Mr. Linder.
Mr. Linder. I would like you to comment on what I have seen pursuant to the Federal rules on tax cuts, the result of that.
Mr. Crippen. We clarify the ability to use surpluses for tax cuts, and the answer would be yes, the bill does that.
Mr. Linder. When you talk about the fiveOyear rolling average, in your observation of the history going from $1 billion to $20 billion, are we getting more and more disaster claims?
Mr. Crippen. On a fiveOyear rolling average, $21 billion was clearly out of the normal range, but last year was an unusual year. So I don't know that there is a trend. There may be a slight trend, but if you drop last year, the $5 billion average is a good place to start with adjustments.
Mr. Linder. I have watched more and more money shifting from appropriated categories to other categories, such as the supplemental bill last year for Strategic Defense Initiative. Is there anything in the Budget Act to solve that?
Mr. Crippen. No. The rules are designed to allow those kinds of funding changes. In this instance, if you have the votes, you can do it. I can't see an easy way of --
Mr. Linder. What about if there are no votes? It was appropriated directly for SDI.
Mr. Crippen. I am sorry, I don't know the answer. But the numbers should prevent that from happening.
Mr. Linder. Is there ever a time when we are treating emergencies for private insurance or rate insurance?
Mr. Crippen. To some extent, yes. You do that in public/private partnerships, flood insurance and other things. There will always be unforeseen risks -- instances in which the losses are so large that it becomes very difficult for an actuary to decide what the premiums are and, in turn, to encourage citizens to buy that kind of insurance because the events are so rare. Short of mandates from the federal government, buying insurance is difficult to get the kind of inclusive coverage for those, but it is certainly possible. There has been consideration to ask for insurances, but it takes a fair amount of guidance from the Federal Government.
Mr. Linder. Thank you.
Mr. Goss. Mr. Hastings?
Mr. Hastings. I don't have any questions, Mr. Chairman.
Mr. Goss. Mr. Reynolds?
Mr. Reynolds. No, I am fine. Thank you.
Mr. Goss. We have a couple of unanswered questions which we would like to submit for the written record, if that is satisfactory. They are straightforward and basically follow your commentary in your prepared statement.
Mr. Crippen. Okay.
Mr. Goss. We want to thank you very much. No doubt we will be talking about this more.
We are joined by our colleagues from Minnesota and Iowa. This will be called panel one. It will be followed by Dr. Susan Irving, and she will be followed by panel two.
We welcome you here, gentlemen, and thank you for the positive contribution you have made to the process which has been ongoing now for a number of years, and we all know that it is appreciated and valued and part of the product we are dealing with.
The good news is that we are planning to go forward with legislation. The bad news is, for some at least, that is hardly a surprise. I think everybody has an opinion on whether it is doable, and that is what we are presenting at this point.
We welcome your views, your participation. Your prepared statements will be accepted for the record without objection, and your wisdom on top of that will be encouraged eagerly at this time by this meeting.
STATEMENT OF HON. JIM NUSSLE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA
Mr. Nussle. Mr. Chairman, thank you so much for conducting this hearing, and, similar to hearings before the Budget Committee on this subject, we are singing to the choir so to speak. Your leadership in moving this bill forward, your participation in crafting this bill as well as the rest of the Rules Committee in a bipartisan way, the bipartisan nature of the Budget Task Force and the Budget Committee in drafting this legislation, I think, has been part of the reason why we have been able to bring this bill to this point. So we truly appreciate your leadership.
I am sorry Ben Cardin is not here to start off with, because as you know, Mr. Chairman, he put in so much spadework in getting us to this particular point, Mr. Minge as well, and other members of our Budget Task Force that basically sat down with a couple of ideas and just for the record -- and also it kind of goes to Mr. Linder's line of questioning as well. Let me just touch on a couple of things.
Number one, we decided that the process had to be bipartisan. There are certainly things that while David and I would agree on, not everybody in the Congress, not everybody from both parties would necessarily agree to do, and so we had to do a lot of listening, and we came up with a process that we believe is bipartisan, one that both parties can enjoy and support.
The second is we did not try and game outcome, substantive outcome of a particular issue. Just an example, the question that Mr. Linder was asking about the pay-go scorecard and on-budget surpluses and could they be used for tax cuts, the answer is yes, but there is a corollary answer that it could also be used for spending increases. So there is nothing in our bill that necessarily games the outcome that says because of the rules, something substantively must occur. It still allows for -- and I think this is the beauty of our bill -- it doesn't necessarily work against tax cuts any more than it works against increasing or decreasing spending. It still allows the Congress to work its will and make a decision that is in the best interest of the country.
I think the biggest reason why we are here is, number one, we had the poster child of all reasons for budget reform come in 1998, and that was a broken process in which almost nobody from any particular party or from whatever your point of view could suggest that the process worked.
As the Task Force for Budget Reform sat down and tried to look over the last many years since the 1974 Budget Act, we could not find many years when the exact process was followed. If we could pick all of the years from 1974 on and try and take whatever worked and try and codify it, what year would we use? We found that in 1997, we had agreement with the President and the Congress up front early in the process. The aggregate decisions, the big numbers were chosen very early in the process, and the result was contentious. It obviously will be in an appropriation and tax process, but we knew the rest of the fight could be on detail, on discussion and majority rule, and on amendments and an open process that everybody could follow. So we tried to codify that in this particular bill.
The first thing we did was made this budget have the force of law with a joint resolution as opposed to our current process, which, as you know, is a concurrent resolution. What this suggests is that the President and the Congress have to be real early in the year. There are many Democrats who are frustrated with our current process because they thought that our current process is not real. We as Republicans are finding that it is going to be difficult to make that budget real. But no matter what perspective you bring to it, having the President and the Congress in January and February, and by the deadline of April 15 come up with an agreement that has the force of law is an important perspective to bring to this.
The second big area, I believe, is in the area of emergencies. We for the first time budget for emergencies on a rolling average, which sets aside a rainy day fund, which just about every family, big business, farm, many States in this country have as a way to deal with unforeseen, yet predictable emergencies that will occur this year. And we are currently and maybe possibly the poster child of emergency and supplemental problems with the process that we are currently in.
Finally, let me just suggest that what we are also doing is looking toward the future. We begin to budget toward the unfunded liabilities and other long- term obligations of this government. At the point in time where we find ourselves in the era of surpluses, when you take a new measure of your -- not only your budget process, but those priorities that the country has to take a look at, and our unfunded liabilities which have never been managed, some of the insurance programs have never really been taken -- as you know, we operate on a cash budgetary process as opposed to an accrual process, and it does not take into consideration some of those liabilities. So we begin the process of looking toward the future and how we can better manage budgetary decisions later on.
Now, is this the best process bill we can come forward with or at least the strongest one? As Mr. Linder is suggesting, will it solve every single problem? No, it can't. When I explained this to kids back home in government classes because they study this, some of our more mature constituents in the district glaze over when you talk about budget reform, but kids are learning about this. This is an interesting subject to them because it shows the way that Congress works.
I tell them all we are doing in this bill is writing the rules on the back of the box that you play Monopoly on. The rules are the same every time you play the game. We are not deciding the outcome, or determining who is going to win the game, or who gets what property, or how many hotels you have on the game board. What we are saying is every time you turn that game box over, every time you look at the rules, they ought to make sense and make the process fair, and we believe that we have brought forward a bill that will do just that.
With that, I appreciate the time, and I will turn it over to my colleagues.
[The statement of Mr. Nussle follows:]
Mr. Goss. I am happy to welcome and acknowledge Mr. Cardin, who has joined us as part of this panel. His testimony is prepared and already accepted into the record.
You missed the accolades that we were heaping on the panel before you came in.
Mr. Cardin. You can repeat those.
Mr. Goss. We welcome you.
STATEMENT OF HON. BEN CARDIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND
Mr. Cardin. Thank you, Mr. Goss, for those kind comments, and I appreciate the opportunity to testify on our budget reform bill, and I thank the committee for holding early hearings on this subject, and hopefully we will be able to move some legislation during this session of Congress.
As Mr. Nussle pointed out, this process started with the Budget Committee looking last year at setting up a special task force to take a look at our budget process. Mr. Nussle chaired it. I was the Ranking Democrat on it, and we really looked at all of the proposals that Members of Congress had come in with. We worked on a very bipartisan way. There was a lot of give and take, a lot of compromises that were made in order to try to move legislation that could be enacted and become law.
I must tell you as a way of background, I started in the State legislature 32 years ago, and I served on the committee that had the State budget. I later became a chairman of the Ways and Means Committee and later speaker of the house and was speaker for 8 years.
When I came to Congress in 1987, I was appalled by the way that we used to deal with the Federal budget. My own experience in the State showed that there was a better way in which for us to handle the fiscal policy of our Nation.
I must tell you that the objectives that we looked at in the Budget Reform Task Force were several. First, in my view, I wanted to make the Congress a more effective entity in dealing with the fiscal policies of this country. I don't think we have much to say in this institution about the fiscal policies of the Nation. I think we have given too much to the executive branch because of our way that we are so disorganized in our consideration of the fiscal policy of this Nation. So many of our recommendations are aimed at making Congress a more effective entity, not whether it is controlled by Republicans or controlled by Democrats or split control, or whether the White House is of a different party than the Majority in Congress. We want to make this institution work better so that all of us who are elected can have more to say about the fiscal policies of the Nation.
That is one reason why we recommended a joint resolution signed by the President, so that we engage the President earlier. Under the current system when we have a disagreement, and we have one again this year with the White House, if we resolve that late in the process, the executive branch is going to have a lot more to say than the legislative branch on the fiscal policy of our Nation. We, as members of this institution voting in our committees and voting on the floor, are going to have much less to say about an appropriation bill or an entitlement bill when that decision is made with the last vote of the session, where you have to vote for it or not in order to go home. That is not carrying out the will of the people that I represent. So a joint resolution is to engage the President earlier in the process so we can have a fiscal program that reflects the will of the people of this country.
I must tell you one of the changes that we made was to have what is known as a soft landing on the joint resolution. If we are unable to agree with the President, he vetoes the bill and we can't override the veto, rather than paralyzing Congress, we said, okay, we will go back and work on our legislation. So we are not trying to make Congress weaker, we are trying to make Congress stronger to give us an opportunity to work more effectively.
The automatic and continuing resolution is an acknowledgment that if we need a continuing resolution, we fail. We fail. We should pass our appropriations bills. The fact that we provide for automatic continuing resolutions, we are trying to take the politics out of a gridlock so it is more likely that we will get our appropriations bills done. If we know that there is an automatic CR, the likelihood of using it is more remote because the appropriators want to have their will. That is their career. They are not going to want a CR to become law. Knowing that the fall-back is an automatic CR, we take away penalizing our constituents, and we make it more likely that Congress, in fact, will succeed.
Our second major objective in addition to increasing the role of Congress is to work in a true bipartisan way to make this really a bipartisan product. Here I want to congratulate Mr. Nussle for the work that he has done. Mr. Nussle has kept us focused on a bipartisan product. He has taken a lot of lumps on the Republican side of the aisle in order to keep us together in a true bipartisan way. I really want to applaud him in those efforts because there are many times during that process where I know the pressure he received, and he stood up to it and said, no, we are going to continue with the commitment we made.
So first, we have limited the resolution to only deal with the general budget parameters and the extension of debt if it is required by the budget resolution. That is all the budget resolution can deal with.
Secondly, the CR is neutral. It doesn't increase or decrease. I know that there was a lot of pressure to have it as a reduction. That would have caused a partisan backlash, and we stuck true to keep the CR neutral at the current level.
Third, the current budget rules are applied to budget surpluses, as was interpreted by OMB. We decided not to take on any real change in the use of the surplus. That was extremely controversial last year when we talked about ways in which we could finance additional tax cuts or spending.
When we came up with that recommendation, the surpluses were nowhere near as large as they are currently being projected, both on- and off-budget surpluses. I helped develop in our State what is known as spending affordability, and I think it might be worthwhile for us to look at what we can afford to spend on new spending or tax cuts as we look at large surpluses in the future, because I think all of us want to make sure that those surpluses are real, and it would be very nice to reduce some debt while we are having a strong economy, and we may want to look at large surpluses in the future, how we achieve those surpluses and reduce debt at the same time.
We use the current budget rules on entitlement spending. There was a lot of pressure to change that particular issue, and we stuck true to our bipartisan commitment in that regard.
And then on emergency spending, we provided that we would use the same budget rules as relates to the budget caps on emergency spending until we adopt new budget spending caps.
And then the third point I want to mention, in addition to trying to improve the role of Congress in working in a bipartisan way, we want to make the process more fiscally accountable. There we adopted many changes. Many are technical, and I will not go through them, but I will answer any questions you might have.
On emergency spending, it is ridiculous, it is wrong, so we developed a way to use a 5-year average. Mr. Nussle explained it in the normal budget process to have a new definition, a true definition of what emergency spending is to bring the Budget Committee into that process and have some checks and balances on the way that we handle emergency spending. It is very timely considering the debate going on on the floor this week.
And then we developed some accrual accounting. I talk to my business leaders, and I tell them that the Federal Government is too small an entity to use accrual accounting. So we start down the path of doing true accounting, accrual accounting with insurance programs.
I think these reforms clearly move us in the right direction. They move to make this institution a stronger institution. They are truly bipartisan recommendations, and I am proud to be part of this effort.
Mr. Goss. Thank you, Mr. Cardin. Those are helpful.
[The statement of Mr. Cardin follows:]
Mr. Goss. Mr. Minge.
STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. Minge. I feel all I have to do is sit here between two giants in the process. I have a statement which has been circulated. My statement attempted to pick up on two or three things which I felt that they would neglect to mention. It turns out that they have mentioned everything.
The only comment I would like to make is that this product in a way, I believe, represents the best of the types of efforts that we can produce in Congress.
I have heard the statement quite often, don't let the best be the enemy of the good, and I would say here let's not let the best be the enemy of the best from somebody else's group's perspective. We really have a product which I think is responsible and credible. Yes, as you indicated earlier, Mr. Chairman, there are things that each of us would do differently, I am sure, in some detail if we were the one solely response for drafting this. I am pleased to be included in this effort and to be associated with it. I look forward to its prompt consideration by this committee and on the floor.
[The statement of Mr. Minge follows:]
Mr. Goss. I thank you all. I am sorry that we don't have a fuller committee to see the bipartisan and professional quality of the testimony and work which has been done on this. A lot of people have a commitment to it and an understanding of the subject. It is a refreshing moment.
There are many points of view on this process. We are hearing them on our side of the aisle and on the other side of the aisle, and as recently as opening statements this morning we had a discussion about whether leaving well enough alone is a better idea than plunging forward.
Obviously the reason that we are not leaving well enough alone is because we do not think it is very good. We all went through that last year and decided that -- in fact, we didn't decide, we promised, we pledged to go forward. We filed the bill last year symbolically before the close of the 105th in order to ensure our colleagues and the American people that we were going to try and do better, and I consider this is moving forward on that promise, and it would not be happening were it not for you gentlemen and the work that you are doing.
I have a couple of questions, and we are going to hear some testimony, and these are by way of alerting you to the kinds of things that we are hearing here. I understand that the testimony that we are going to be hearing a little later in the two days of this, is that this measure is going to lead to increased delays in consideration of the appropriations bills, undue pressure on the discretionary process of the Federal budget and have detrimental impacts on Social Security. In fact, we have already heard some of those statements in some of the opening remarks. These are the types of things that we are going to be talking about. Clearly these will be debate-type items. If any of you wish to comment on any of them now, your comments are welcome. We can discuss them when we get this legislation to the floor. I am not concerned. I think we have a good product.
Mr. Cardin. We cannot do any worse in a delay in considering the appropriations bills. In the 12 years that I have been here, I can't tell you how many times we have passed appropriations bills in a very disorganized way at the end of a session. Sometimes we have lumped them into one final vote, as we did last year. It is the wrong way. The current way is the wrong way to consider it.
Yes, we have had a couple orderly years in my 12, but that has been the exception rather than the rule. What we have proposed is a way that we can have an orderly process between the executive and legislative branch. It may work, and it may not. It is possible that we may run into differences that we cannot resolve early.
I think it is much more likely that we will have an orderly process with this bill. You can't guarantee that under any procedure if you have a sharp difference between the executive and legislative branches of government, but I think the chance of success are much greater.
On the issue of Social Security, we preserve the current budget rules on surpluses. Let me repeat that. We preserve the current budget rules on surpluses. OMB met with us early and told us what we were doing was their interpretation of the current budget rules. I understand that they may have changed some of their views because budget surpluses are a lot larger than we anticipated, but there was a lot of pressure on us to change the budget rules to make it easier for a tax cut and using all surpluses. We didn't do that.
So I think those criticisms are unfair, and I regret that people that I admire greatly have raised those issues because I think it is an effort to not have us discuss the merits of these proposals.
Mr. Goss. Any further comments?
Mr. Nussle. I would not be surprised if there are those out there who want to, for their own particular advantage substantively, I am not talking partisan, because they want to be able to accomplish something for themselves, their committee, their own jurisdiction, to try and stick something in here to gain the outcome, skew it toward one direction or the other, and that is exactly what we tried to avoid. And this is more a comment toward the amendment process than anything else. And I don't know how the Rules Committee will look on this kind of a bill toward the amendment process, but whether it is an open rule or whether it is -- however it might be described, I am going to argue that anybody who wants to argue on technicalities -- in other words, the increased delay argument is one that is a valid discussion. Let's have a discussion on that, concern about how long the process will take. But to say substantively it is going to skew the outcome for Social Security or Medicare or the Aviation Trust Fund or this trust fund or that trust fund or certain tax cuts, I think, would be a mistake.
Those who have looked at this can find fault in many areas. One area that has been brought up is the whole question of the joint resolution. There are those who are suggesting that this gives too much power to the President. It is a legitimate discussion point that we need to have.
But to suggest that it skews the outcome of a substantive issue before the House today I think would be a mistake, and I think those experts that have looked at the bill would agree that it really doesn't game the system.
You may disagree with the way that Congress is approaching this, and you may disagree with the way -- the balance between the Congress and the President in this instance, but to suggest that it skews a substantive issue before the House would be a mistake. There are very few who can hold that argument.
Mr. Minge. I would simply like to point out that on page 17, beginning at line 15 of the bill, there is a point of order that can be raised by the Senate when the Senate considers the concurrent resolution, which would compromise the Social Security program. For those that would like to raise the specter of the Social Security program being at risk here, I think this is just one sort of modest example of how this bill tends to protect Social Security. We should not let that type of red herring be blown out of -- made of whole cloth into something that someone would consider an issue. It is not.
Mr. Goss. I appreciate your bringing that up. I think it is current law as well, as you just basically referred to it.
The point of my alerting you is that we all can have a budget discussion this year or any time soon without talking about Social Security, or about anything else, not just Social Security, it seems. So I think we need to be prepared to answer factually what the provisions are; and I think obviously the quality of the testimony where you have acknowledged the depth of this and understanding and fairness among your colleagues that this is not going to be that kind of a problem.
But it does lead to the question of are we doing the right thing with bipartisan support on both sides? We are proceeding to move this legislation on that assumption, and we hope that is true. I have no reason to believe otherwise, and obviously those are guesses that we all make in judgments on legislation.
We want this very much to be a bipartisan effort; we are emphasizing that. The bipartisan nature of the effort that has gone so far is remarkable, exemplary, I would say, for this institution.
Mr. Linder.
Mr. Linder. I agree that the later we finish the work, the more power the executive branch has in getting its way. By requiring the executive branch's signature on the budget early on, a lack of agreement between the legislative and executive branches could presently delay this game and just force everything late in the season.
Mr. Cardin. Well, understand that the resolution will contain just very, very broad instructions, broader than our current resolution, so that if the President vetoes it, he is vetoing it on a very specific issue; that is, that there is too much spending or not enough spending, too many tax cuts or not enough tax cuts. It is going to be on a very broad matter.
If he vetoes it, the Congress has basically one of two choices. It can work with the President, as we hoped it would, to resolve this issue so that we can have appropriations bills that are going to be signed into law that don't have to be modified later, that we are going to have a tax bill or an entitlement bill that will be signed into law; or will be fighting over the policy, not the dollar amounts, and that we can have a much more intelligent debate in Congress, a more sincere debate, one which Members are going to spend a lot more time on because they know it is going to become real.
So I think it makes the whole process work a lot better.
But let us say, if we just have a President and Congress that are out of step with each other and don't want to work together for whatever reasons, their political agenda, then we are basically stuck with the current system; we are not in any worse shape. Congress goes on and does its work as it does today. There is no delay. We just move forward, as we would under the current budget rules.
And then, of course, in the fall of the year, we will have a problem, but we hope that is not the case. We set up a process where we can avoid it, but we would know right up front that there is a disagreement between the President and the Congress on the size of spending or on the amount of money in entitlements or taxes.
Mr. Linder. Are you all considering at any point a capital budget as well as an income and outgo budget?
Mr. Minge. I think that was discussed. I should really let Jim speak to this, but my -- just speaking for myself, one of the concerns was that the array of things that could be taken up and the impact it would have on the appropriations process and the budget process here was vast, and that it made more sense to do something that we could realistically hope could be passed by this institution than the more ambitious reform efforts which, at least in my short experience here, I have seen flounder and just never carried forward.
Mr. Nussle. I think that is a good answer. It does lead me to one thing that I did neglect, and that is, you know, there are many who have given us -- and that includes the Rules Committee -- credit for coming up with this, and I would just suggest that the first thing all of us did was research and talk to all of the other giants in this institution that have been concerned about budget reform in the past, including those that have written legislation on capital budgets and others; and then we gleaned from all of those people and their bills the best, or what we consider to be the best that they came up with.
So, yes, this is an original document that we came up with, but as happens around here, if you see something good, you steal it and you make it your own and that is what we have done here. We have taken -- we stand on the shoulders of people who are no longer in the institution, that have been waiting for the day to try and make some positive changes; and so, yes, we considered it, it was part of the hearings.
However, we decided that -- at the end, as David said, that we wanted something that seemed a little bit too drastic. This was something that could gain the kind of support that we thought was necessary to move it not only through the House, but when we were holding these hearings, the Senate. The other body didn't seem to be as interested in reform, and as you know, earlier this year they made the commitment to budget process reform as well. So the realistic chance became much more realistic, much more prevalent than it had been while we were writing the bill.
Mr. Linder. Thank you.
Mr. Goss. Mr. Hastings.
Mr. Hastings. I want to follow up on something that John Linder mentioned regarding the potential for slowing the process down, and it could be the difference of the markup between the Congress, the House and the Senate; it is not confined to the presidency.
Ben, at least you suggested that one of the solutions to that is having a budget resolution that is very broad, which I agree, that would be part of the solution. What sort of incentives do you have in the bill to ensure that it stays broad, or is it just political will that you would have to go through to make that happen?
Mr. Cardin. The budget law, if this were to become law, but the resolution is limited to basically two items. One is the overall -- and I think Jim has a chart that shows the difference.
Mr. Nussle. I will just show you the difference between the two budgets. This will be the -- this is the current budget bill and the way we currently do it. This will be the new one.
Mr. Hastings. Okay.
Mr. Nussle. We have this in a handout that we give you, so you don't have to look at the chart. I apologize; there is no place to put this so everyone can see it.
Mr. Goss. We would like the record to include the handout as well.
Mr. Nussle. We will do that.
Mr. Cardin. So the point is it is less likely that there would be a difference between the House and the Senate in bringing a budget resolution forward than under the current rules. It is less likely you are going to have a disagreement between the White House and Congress on a budget resolution. It still can happen, but it is less likely. And in the event that you don't reach agreements, you are in no worse shape than you are today.
What we are trying to do is have a process where we do reach an agreement, and we think it is more likely that we will have these issues resolved early. There is enough to fight over in the budget itself. I mean, I would love to have a good debate on some of the specifics on the appropriation bills where not the dollar amounts, but how we actually spend money -- and that would be, I think, a better use of our time than going through a process where most people say, well, we have to put this in for leverage for the final negotiations that will take place in October -- September, October between the President and the Congress.
Mr. Hastings. The only reason I say that, and I recall having seen this before, but I can see down the line one entity or the other that is involved in this could then have some sort of report language that that line item will have -- I guess my concern is, I can see how this can steamroll, and I just wonder if you discussed that and if there is any way that perhaps you could reduce those things, other than just political will.
Mr. Cardin. I think it is a very good point. Remember, the President in signing the resolution would only be signing what is in the resolution. The President would be fully within his right to say, look, I am signing this resolution because I agree with what is in it, but I understand some of the assumptions that the Budget Committee put in their report that I can tell you would be very difficult for me ultimately in agreeing to a bill that carried out that policy.
Mr. Hastings. Suggests that the House or the Senate had that report language rather than the President.
Mr. Cardin. Right.
Mr. Hastings. I just bring this up --
Mr. Cardin. Remember, we have report language right now in appropriations bills that do not have the force and effect of law, so that is a current prerogative of Congress, and it is an effective way that sometimes we can get different types of administrators to respond.
Mr. Hastings. Thank you.
Mr. Nussle. This happened in 1997 with the memorandum of agreement between the Congress and the President. Again, the aggregate numbers, similar to the ones that I just showed you, which will be part of the new budget resolution, were agreed to, but none of the details were agreed to. In fact, many, on both sides, were able to read whatever they wanted into that, into that final agreement and say, well, it means we can have this much for tax relief; well, it really means we can do this in spending.
What happened was, the normal process then took hold and eventually we did reach a successful conclusion. But at least the big discussion, the big aggregate numbers were done ahead of time.
One other observation I would just make as a member of the Budget Committee and someone who very much enjoys my membership on the Budget Committee, after April 15th, we are done, and from April 15th until the next time the President submits the budget, we don't have all that much to do on the Budget Committee; and thankfully, we all have other committee assignments, to do that work.
I believe that if you pass this kind of an approach, as you know, OMB and CBO continue the budgeting process throughout the rest of the year without Members involved. All of a sudden, almost as a surprise and in a very political document, both the President and the Congress submit their budgets then the next year, without any discussion. I mean, unless there is something to force that discussion, it is just all of a sudden some mysterious political document that comes down, both sides can harangue the other, both can say it is dead on arrival, and then the process really begins.
If you force a bill that needs to be signed in order for it to be effective, you will see what happened in 1997 where, at that time, Chairman Kasich and OMB and the chief of staff sat down -- I believe, if I am not mistaken, as early as November; and this was without any mandate or law to force that -- sat down in November and December of the year prior -- of 1996 to begin working out the details of that memorandum.
And I believe that process you will see begin April 15th; as soon as that next year's budget passes, you have to start the process on the next budget. It begins for everyone else; it should for the Budget Committee and for the Congress as well.
Mr. Hastings. Good. I thank you for your comments on that. I obviously hope that that is followed in that broadest sense; I think that is the key.
What you mentioned, Jim, leads to another question that I have, and that is the whole process of oversight of government programs. It seems to me that we don't do a very good job. When you look at the budget process, like you say, the Budget Committee works hard until April 15th and then they exhaust it, they go out and we pass it, and then the appropriators do their job; and finally in October we are totally exhausted, we go home, and we come back in January and start the process all over again, and no oversight, really good oversight, exists.
To me, one of the solutions to do that would be a biennial budget. Did you discuss that at all? Where are you with those discussions? Is that just one of those -- go ahead.
Mr. Nussle. We did discuss it. It was -- we received testimony on that, and to be quite honest, we decided that we weren't going to pursue a biennial budget. There is nothing in here that would suggest that you couldn't make this a 2-year process as opposed to a 1-year process, an annual process.
I would agree with you, it may in some instances give more opportunity for oversight. The converse to that and the reason we didn't put it in is we felt that it was more of a Senate -- it was something the Senate was obviously very interested in from Chairman Domenici's standpoint; and from a House perspective, when you have only a 2-year term, and as a result, get only one shot at a budget which the next day is out of -- not out of balance, but almost out of date, certainly by the rest of the year, whether it is through emergencies or through changes in our economy, can be out of date -- we didn't want to automatically give it a 2-year stamp of approval without having some opportunity to make changes in priorities throughout the rest of our term in the next year.
So I think for those in the Senate that have a 6-year perspective, it is probably a little bit more attractive than for those of us who have a 2-year perspective.
I don't disagree that long-term planning can be a part of that. That is why we adopted a 10-year approach to the numbers, similar to the Senate, so that we can start taking a more forward look as well as adopting the provisions for accrual accounting and beginning to test our unfunded liabilities.
I think that will help in answering your question, but we didn't -- we decided not to put the 2-year in here until we had a chance to meet with the Senate and discuss that.
Mr. Minge. The only other comment I would make is, much like the capital budget, I have heard many people on the Appropriations Committee say, we don't like this, we don't like that; and the next thing you know, you have the full committee organizing on a bipartisan basis to oppose something.
I think we already faced the threat that some of the troops within Congress on a bipartisan basis, the committees are going to -- it is sort of a delicate balance between what is politically possible to pass within the institution and what would be best for us to do. Where that balance is struck each time is sort of a tough call. But I would certainly compliment both Jim and Ben for trying to stick within the bounds of what is realistic.
Mr. Cardin. Let me say that I have no objections to a biennial budget, but I think in a legislature that meets every year, it is unlikely that we would do a biennial budget even if we put it into law. I would think the Appropriations Committee would probably put out a product every year regardless of what we try to do with a 2-year budget. So, as a pragmatic approach, I think it is one that is not a high priority in what we are trying to get done, because I am not sure it would be enforced.
Mr. Hastings. I appreciate the fact that the Senate has taken a pretty strong position on this. I am one that happens to believe that it is also good policy, and I can see the second year for Congress, however, having a number of supplementals.
I mean, we have annual budgets. How many supplementals do we have floating around and potentially another one coming up? So we have a lot of supplementals under any case, but it at least puts you in a position that all political parties at one time or another would not be faced with a government shutdown in an election year where you really turn over at that point all of the power to the presidency, no matter who is in power, if you have a disagreement; and it seems to me a biennial budget would be one way to resolve that, because you work it out as much as you can in the first year, and the supplemental in the second year.
Thank you.
Mr. Nussle. In some respects, that is what we did last year. We basically kept the budget in force because we didn't have a budget. So you almost saw last year what a 2-year budget was like. I am not suggesting it was; I am just saying that the budget kept its effect. And so you can do it, but I think the fact that we have never gotten the numbers right -- and it is no reflection on CBO or OMB or anybody; it is impossible to forecast as big as we are, and so getting it right for 1 year I think is something we ought to try and do first. You know, let's walk before we run.
But 2 years is a possibility, although we don't include that under what we have written.
Mr. Hastings. I suspect the Senate, their position will be that that is something that we talk about. So thank you.
Mr. Goss. Mr. Sessions.
Mr. Sessions. Thank you, Mr. Chairman.
Ben, I would like to go first to a question to you to make sure I understand. You said that the CR would be neutral if we were unable to agree. That means that you take which year's --
Mr. Cardin. Last year's.
Mr. Sessions. The prior year. So you just take the prior year and keep moving forward until we are able to --
Mr. Cardin. Right. There are some who think that there should be an inflator to it, some who think there should be an automatic reduction. By using neutral, we took last year's number without an deflator or inflator.
Mr. Sessions. The last one that had presumably been utilized and agreed to?
Mr. Cardin. Correct.
Mr. Sessions. And that just automatically happens and does not require any act of Congress, the President knows it, we know it?
Mr. Cardin. Right. There is no new appropriation bill enacted into law, that is passed by the Congress and signed by the President; and then it would be an automatic continuation of the current budget.
Mr. Sessions. The reason why I asked this is because I believe last year we were unclear as to really what would happen and what needs to take place to avoid shutting down the government, at least some suggestions that I had.
I would like to direct some of my questions, and I will confess to you I have not read the bill yet. Do we have a copy?
Mr. Goss. Yes. Do you want it?
Mr. Sessions. Do we have one?
Oh, that is theirs? Okay. It sure is. Excuse me, I thought that was the prior testimony.
Do you talk anywhere in this budget about scoring dynamic versus static and make any changes?
Mr. Nussle. No.
Mr. Sessions. No?
Mr. Nussle. No.
Mr. Sessions. Okay.
Mr. Nussle. Just if I could comment on that, that has been an oversight purview of the Budget Committee as an unsettled issue; and it is one that, as you know, is somewhat contentious between the parties, or has been contentious, and we wanted to avoid that, again in the name of bipartisanship.
Mr. Sessions. Okay. Do you anywhere in here -- and it kind of goes back to Ben's comments, which I do agree with, about having the legislative branch have some say in how the money will be spent -- do you in any sense talk about walling off money? I looked at your charts that are here, and it looks like, look, this is a budget resolution we will worry about when things are actually appropriated.
But do you in any way talk about the walling off of money, because I think in particular, it has caused --
Mr. Minge. Walling off money for what?
Mr. Sessions. Well, for instance, let's suppose -- and we could take current circumstances with the war -- there was a question about what the President used money for, where he got the money to do things. Is there a provision for tightening up?
Really, Congressman Cardin, I am going on your comments.
Mr. Cardin. Right. Well, we do have the lockbox provision which has been passed by this House on several occasions on a bipartisan vote.
Mr. Sessions. For Social Security?
Mr. Cardin. No, no, lockbox for cuts that we make in appropriations bills that we don't want to just get recycled, that it would be actually used to reduce the deficit. We do provide for that provision. I think Mr. Minge was very actively involved in the development of that proposal.
As far as the legal use of money, we have not changed the definition of how appropriated funds can be used, but there are certain legal restrictions today on how monies that are appropriated for one purpose can be used for any other purpose other than what it was appropriated for. Whether we need to look at enforcing that is a good question.
You raise a very good question on that, but I think all of us who served on this task force would like to see appropriated monies used for their intended purposes and would support efforts that you might want to look at.
Mr. Sessions. Does it say that in here or reinforce that in any way? Did you address that really is my question.
Mr. Cardin. No. It was not brought to our attention. We did not take a look at it, but I think we share your concern that appropriated monies be used for its intended purposes.
Mr. Sessions. And only for that intended purpose?
Mr. Cardin. Correct.
Mr. Sessions. Good. I thank the Chairman.
Mr. Goss. Ms. Pryce.
Ms. Pryce. Thank you, Mr. Chairman. I am sorry I missed most of the substantive testimony. I just had one quick question. The CR, is that similar to the Gekas proposal?
Mr. Nussle. Almost identical. I would hate to say it was identical without matching it, but it is almost identical language, yes; and Mr. Gekas knows about that and has been supportive in putting that provision into our legislation.
Ms. Pryce. I had long thought that he had a great idea, and I am glad that you incorporated it.
I have no other questions. Thank you for your hard work.
Mr. Goss. To be completely fair, I think there is also a provision in this bill identical to the Crapo and Harman lockObox.
Mr. Nussle. Yes. The problem is, we have gleaned so much, so much of this has been gleaned from others that have worked so hard. So we must make sure we give credit where credit is due.
Mr. Goss. One of the reasons we are trying to bring this to a conclusion and pass legislation at this point is, we do feel we have had a lot of good testimony over the years, a lot of good ideas, and the time has come to pass it, take it out and see how we go.
Along the line of Doc Hastings' question, I would just point out that I was very much impressed that when I read the compilation in Title IV, the accountability and the incentives to start getting order into the process, as Mr. Cardin has stated, but particularly the 401 provision, the fixed year authorization request, and then the 10-year congressional review and the continuing additional budget process reforms, I mean all of these things go to bringing order to a process now.
I think that the debate frankly is going to boil down to, do you want order or do you want political flexibility? And I think the institution is better served by a little more order in this area, so I think that is what we should shoot for.
I want to thank you all very much. This is a very distinguished panel and we are going to count very much on your participation as we move along. Thank you all.
We have had reference to giants in the testimony we just had, and we have written testimony from one of those giants, Former Member Bill Frenzel, the cochairman for the Committee for a Responsible Federal Budget. Without objection, I am going to submit his full statement for the record.
[The statement of Mr. Frenzel follows:]
Mr. Goss. At this time, Chairman Linder is going to call the next witness.
Mr. Linder. [Presiding.] Dr. Irving, welcome. We are pleased to have you here.
Dr. Susan J. Irving from the General Accounting Office oversees work on the structure of the Federal budget, the budget process, the U.S. fiscal position, and related issues. Dr. Irving has served as a Legislative Assistant and Legislative Director to members of the Senate Finance Committee, as Staff Director to the President's Council of Economic Advisers in the Executive Office of the President, and as Vice President of the Committee for a Responsible Federal Budget. Dr. Irving was a Fellow at Harvard's Institute of Politics and has taught public management at the John F. Kennedy School of Government at Harvard University.
Welcome.
STATEMENT OF DR. SUSAN J. IRVING, ASSOCIATE DIRECTOR FOR FEDERAL BUDGET ISSUES, GENERAL ACCOUNTING OFFICE
Ms. Irving. Thank you. It is a pleasure to be back. In fact, attached to the back of my written formal statement, which I would like included in the record, is a list of a number of testimonies I have presented here or in the Senate or House Budget Committees dealing with the budget process. We have gone through several years of looking at issues around this process.
I think it is really important to start this discussion with the recognition of how important the budget process is. In some ways, it is one of the most important things all of you do, because it is through the budget debate that you make decisions, with the President, about how to juggle and balance the sometimes conflicting desires of the American people about how much of the wealth we produce in the country shall be used collectively for goals that we can only reach together, and in what form it should be collected and in what form it should be spent.
It is not really a surprise that it takes you some time to think about how to restructure the process, because it is so important. It is also because it is so important that we ask a great deal from that process, and it is never going to measure up in every way to make everybody happy.
On the other hand, you now face a very different situation than you faced in the last decade when the process was last changed greatly. It is important to remember the 1974 act was designed to be outcome-neutral. The goal was to reassert the role of the Congress vis-a-vis the President. Remember, in 1974, we were only 5 years away from our last balanced budget, so deficit reduction didn't look like a big issue for the process. It was not until the mid-1980s that the process was rewritten with an eye toward achievement of a particular goal, a goal you have now reached.
So for the first time we look at an interesting mix of outlooks. We have budget projections for a surplus as far as the eye can see beyond our normal projection period, combined with the certainty that, absent policy changes you will be faced with a demographic tidal wave which will overwhelm those surpluses.
So what do you want your budget process to do? You want it to allow you to look at the long term, to think about the trade-offs and the big drivers, and to think of that not solely in terms of the ones we think of as long-term commitments -- not just Social Security and Medicare -- but also other issues. For example, the decision to be the world's superpower carries with it some long- term cost implications that we sometimes fall into the trap of pretending are annual decisions.
We like a budget process that gives you all the information and structure to consider tradeOoffs. Should we spend more or invest more on consumption? You would like to be able to make trade-offs between missions and tools, and you would like a process that is enforceable and permits you to control results, hold all of us accountable, and at the same time is transparent. These are not consistent goals.
I would like to focus specifically today on the two elements of the bill before us which we had a fair amount to do with developing. One is its focus on the very long term, and the second is its approach to budgeting for insurance. I have some technical comments on some other parts of the bill in the written statement, and we would be happy to continue to work with your staff as you move ahead in markup.
The focus on the long term has long been an interest of the General Accounting Office. Indeed, in 1992, we were the first of your support agencies to do some modeling, looking out 50 years at what would happen if you imagined a computer that could just make the budget keep going, but you allowed some interaction with the economy. Now, this is an unrealistic set of assumptions -- let me be clear about that -- and sure enough, it showed you couldn't do it. The world explodes.
What we see if you update the model to reflect the current situation which we have done periodically at the request of various Members, is that the combination of a good economy and some very tough decisions by all of you has, in fact, dramatically changed the situation. But we still face an unsustainable long-term fiscal policy, and I think the benefit of the provision in this bill to look out over the very long term for everything is that it permits all of you to look ahead and see what are implied commitments, what the budget looks like as a whold, not just parts in isolation.
The Social Security Trustees' report tells you what Social Security looks like. They do a very good job of telling you the system has a problem on its own terms, but they do not in the Trustees' report tell you what happens if you fix it on its own terms to the rest of the budget, to the economy.
We have a great many programs where we don't look out that far because we feel ourselves limited to things where we can measure precisely, and no 75-year projection would be better than giving you a sense of direction and order of magnitude. But I think this is critically important as you begin to look further and further ahead and make more and more commitments that, in fact, have long-term implications.
I would like to talk a little more specifically about insurance. For a lot of reasons having to do with control, we use what is loosely referred to as a cash-based budget. Cash is harder to game, you can count it and frankly, the difference between accrual and cash for things like your salary and my salary is trivial. But we discovered in the 1980s that for credit, the difference between cash and accrual was a dramatic difference. The budget in the 1980s showed a direct loan just like a grant. All the money went out and we ignored that it would be repaid. Conversely, loan guarantees looked free; you could put any loan guarantee you wanted in the budget, and it was free. The fact that some of those would be defaulted and money would flow out later, well, that was the future, somebody else's problem.
So in 1990, as part of the Budget Enforcement Act, you all enacted the Credit Reform Act, and we now try to look at the estimate of what the government is actually on the hook for in credit programs: what is the subsidy. These estimates are not great, but they are a lot better than what we used to do.
Insurance is harder. Right now the Pension Benefit Guarantee Corporation looks like a cash generator to the Federal Government. It is a profit center, because we count the premiums that come in on a cash basis, and in the years we don't have to pay out, it doesn't look like it costs us any money. I would suggest there is almost no plausible scenario under which, over the long term, PBGC is a profit center, it is not set up to be a profit center; and it makes much more sense for us to begin to think about the insurance commitment the Federal Government is making when it issues insurance.
What kind of risk are we assuming for the Federal budget? In the abstract, a model that is almost exactly based on credit makes a lot of sense. The problem is, we know how to do it for credit -- not very well, but we know how to do it. There is lots of experience out there with estimating loss ratios. We can look at cohorts, you know, one group alone versus another, until it makes sense.
Insurance is a lot harder to model. And an accounting analogy doesn't work precisely. So the approach taken in this bill has a lot to recommend it.
There is a fairly slow phaseOin period during which OMB and CBO are required to attempt to do the numbers, to display them as additional information. It requires that OMB, CBO and GAO comment on progress. It sets FY 2006 as a date certain for putting those into real budget numbers. I presume that is to create a huge incentive for the agencies to get it right.
However, I think there are problems with a twoOyear sunset. It puts insurance in for 2006 and it triggers off at the end of 2007. I think you may wish a sunset, that is, you may wish a trial period at which point Congress votes explicitly on whether they think this is working, but I think 2 years is probably too short.
Those are the two areas of this bill on which your staff asked me to focus. I will be glad to answer any questions you may have.
[The statement of Ms. Irving follows:]
Mr. Linder. Just the fact that we are looking at long-term potential liabilities is a plus. Do you have a number at GAO in terms of what our underfunded liabilities are with respect to retirement programs?
Ms. Irving. The answer on the Federal is, we can find it. I don't have it off the top of my head.
Mr. Linder. We have had numbers bandied around here for years of 6 to 12 trillion.
Ms. Irving. Many estimates are made using different assumptions. Some estimates of Social Security are based on a, closed system, which assumes you are getting no new entrants. Those numbers tend to be the highest.
I know there is a debate in the community of people who are interested in improving the numbers. I think using huge scary numbers makes it worse. I think it is better to look realistically at the fact that you have some pension liabilities that you know how to count, and Social Security, which is sort of a different animal, and then you have sort of the implied commitments that we don't know how to account for: deposit insurance, some of the other insurance programs.
Let me be clear. The numbers that you would use under risk assumed will probably be wrong, but they will at least be in the right direction. I mean, I don't think it matters if it is 10 when it really should be 12, but it matters if it is plus 3 when it should be minus 5.
But I will get you what we have on that, sir.
Mr. Linder. The question was raised earlier, by Mr. Sessions I think, about dynamic versus static scoring; and my understanding that is not a legislative solution, that is a solution determined by the various agencies that do estimating based on their best judgment. But we learned, I think, a pretty big lesson on the cuts in capital gains taxes that brought dramatic increases in revenues. You see nations since 1984 to 1996, Caribbean nations, dramatically cutting marginal tax rates, increasing their revenues. We have had some experience here with that.
Are we moving toward more dynamic scoring, a more honest assessment of the tax burden that we impose on business and individuals? Does it have an impact on the future size of the economy?
Ms. Irving. The discussion of "dynamic" versus what is misleadingly called "static scoring" I think is often a misleading discussion because we fall into the trap of implicitly accusing CBO and Treasury of doing really static scoring. Really static estimates would be -- to use a really bad example -- taking a 50 cent cigarette tax per pack and, multiplying it by the number of cigarette packs bought last year to get a revenue estimate. No one does that kind of static scoring. Estimators would assume that there will be a reduction in the number of cigarette packages bought, so that, to that extent, what I would call "first order effects" are generally taken into account.
In terms of the longer-term issues or the broader issues of impact on the economy, there are of course two sides of this issue. It is mostly raised in terms of tax cuts, but there are a great many people out there who believe that there are some spending increases that also should be scored dynamically once you start down that road.
In addition, capital gains is a really interesting one because the other way to get an increase in capital gains receipts is to announce a prospective capital gains rate increase. We know that if you enacted a tax increase for two years from today, you would get dramatic realizations over the next two years. One of the issues in other countries is that in many of the countries where you see dramatic responses from changes in tax burdens, their tax burdens are so much higher than the ones we are discussing now, and these things tend to have decreasing marginal impact. There is a real difference going from a 90 percent tax rate to a 50 percent, compared from going from 50 to 40. For most estimators it feels like a slippery slope when one person calls up an amendment saying it will generate investment and another person says, "Oh, but if it is spent on airports, we will get more."
CBO did an interesting paper on this about two years ago.
I am glad to say at GAO one hard and fast rule is, we don't score. You don't need a third set of numbers.
Mr. Linder. We may have some questions submitted to you later for your review.
Mr. Linder. Mr. Hastings.
Mr. Hastings. I just wanted to understand what you were saying about long-term planning and forecasting. The two obvious ones of course are Medicare and Social Security. The assumption is that there will be no changes, but if there are some changes, then of course the dynamics will change.
Give me some examples of other long-term commitments that we have that we don't address fully. I think I heard you say that we don't do a good enough job on that, so give me some examples of that.
Ms. Irving. Social Security and Medicare are obviously the 800-pound whatever you want to call them in the budget, and they are the ones that would have the greatest effect on the macroeconomy. In terms of choices within the government, we do a mixed bag on our Federal pension obligations; that is, we have begun to include them within the budget to recognize those cost estimates. I think even though we write insurance contracts as 1-year contracts sometimes, I think it defies belief to think of flood insurance as a 1-year commitment and renew it every year. So I think it would make much more sense to think about most insurance programs as long-term commitments, and we don't. We just show those on a cash basis.
I also think that there is this interest -- the reason I like the idea of the broad budget as a whole simulation out for 75 years, making some assumptions about discretionary, is that there are an awful lot of things that are in fact annually appropriated, but are de facto long-term commitments.
We need to take into account our role in the world. We may change how much we spend on defense every year, but we are never going to go to a tiny defense budget. We are not going to give up our role in the world as a leading power.
I think it is unlikely we will shut down the FBI or the Justice Department or the Immigration and Naturalization Service, and yet by modeling only the long-term legal commitments, we pretend those are annual decisions that could be as low as zero.
One of the things I think is a good idea in this bill is showing longOterm estimates for the budget as a whole. It is not that the numbers are right, but it gives you some rough idea of what the size of it would look like and how the composition would change if you just kept everything even.
Do not misunderstand me. These are not real estimates; these are order of magnitude and progression and scope, context providers.
Mr. Hastings. Projecting into the future is an inexact science. If anybody here could do that with some certainty, we wouldn't be sitting here.
Ms. Irving. Exactly.
Mr. Hastings. Thank you very much.
Mr. Linder. Mr. Sessions.
Mr. Sessions. Thank you, Mr. Chairman. I probably would be sitting here and we would be in trouble if we could project that.
I note at the very beginning that I am impressed with not only your testimony, but also that you serve on the Board of Directors for The Concord Coalition. I admire that --
Mr. Linder. You have the wrong one.
Mr. Sessions. You are not Martha Phillips? I am just having a tough day. This is what happens when you have your staff guy not here. There is nothing wrong with me.
That is what struck me that I was going to go into because I have, following along with what Mr. Linder said, I heard your discussion and debate that you had about what I thought was very interesting, that John followed up on, where I was talking about the circumstance where we have a tax cut and it raises revenue rather than costing money; and I was interested that you turned that around where you almost wanted to turn us into tax collectors, rather than being for the taxpayer.
Ms. Irving. Actually, I am glad you raised that. If I --
Mr. Sessions. Well, I heard you say, as a matter of fact, since you are interested in revenue, if you are going to raise taxes, you get more money.
Ms. Irving. Well, but I was pointing out --
Mr. Sessions. That is why I found it interesting.
Ms. Irving. I can understand it. I was actually attempting only to make an analytic point: if the question about dynamic scoring was that someone had scored a capital gains tax cut as losing money, and then the next year it brought in more money --
Mr. Sessions. And that did happen.
Ms. Irving. Yes, I was trying to say that it is also true that that does not, in and of itself, tell you that a capital gains tax is a good or bad idea.
Mr. Sessions. Why is that?
Ms. Irving. Because if your reason for supporting a capital gains tax cut was that you were going to get more revenue the next year, that would also be true if you announced a future raise.
Mr. Sessions. But why would we turn this Republican Congress into tax collectors when we are the opposite?
Ms. Irving. Well, Mr. Sessions --
Mr. Sessions. It is not to get revenue.
Ms. Irving. But I presume that the reason to advocate a cut in capital gains taxes is not because it produces more revenue the next year, but because you think it does something for the economy. The analytic question I was presented with was really a multiplication issue.
Mr. Sessions. Here is why we would, because we could do it without having to pay for it. Yes, it does produce all of those things, but we are really not doing it to produce revenue. We want it to be neutral.
Ms. Irving. Mr. Sessions, I was presented with the arithmetic statement that pushing this button gets you this much more revenue; I was merely saying that you also get more money by pushing a different button. Therefore the debate between those two buttons is a debate broader than whether you get more revenue; it is a debate having to do with what would be an appropriate tax level.
Mr. Sessions. That would lead us to the next question. There is an estimate that 62 percent of taxes in this country will be paid by 1 percent of the tax -- of the citizens.
Mr. Linder. Thirty-three. The top 1 percent pay 33 percent of the taxes.
Mr. Sessions. The figure I have seen is 62 percent will pay 1 percent of the taxes this year.
Mr. Linder. I think the numbers are wrong. I think the number is the top 1 percent.
Mr. Sessions. Well, let's say that I can produce something that says that, and I can get it sent over here; regardless of whether I am right or wrong, would your philosophy be that we should have 40 percent, 30 percent, or 1 percent of people in this country paying taxes?
Ms. Irving. Mr. Sessions, except as a private citizen, I would not have a philosophy on that issue. There is a very clear line --
Mr. Sessions. But you are an economist. I am not trying to attack you at all.
Ms. Irving. Actually, my degree is in public policy, which is a mixture of economics and government. But there isn't an analytically single right answer to that number; it is fundamentally a value and a policy call.
I don't have a view on that as an analyst. That is a decision about the appropriate tax structure for the United States, which is appropriately a decision for our elected representatives to make.
Mr. Sessions. Well, what is interesting is that we don't even know what the correct answer is.
Ms. Irving. That actually is probably an answer Treasury could give you.
Mr. Linder. The numbers I have seen, the bottom 50 percent of the income earners pay about 4 percent of the taxes. The top 1 percent pay 32.5.
Mr. Sessions. Thank you.
Mr. Linder. Thank you very much.
Ms. Irving. Thank you.
Mr. Linder. Our last panel this morning is comprised of Professor Tim Muris, Martha Phillips and Robert Greenstein.
Ms. Phillips is a member of the Board of Directors of The Concord Coalition, a bipartisan, nationwide grass-roots organization founded by former Senators Warren Rudman and Paul Tsongas. She served as the Executive Director during the Coalition's first 6 years, October 1992 to 1998. Ms. Phillips is also currently a member of the Medicare Advisory Committee of the National Academy of Social Insurance; the Advisory Board of The Brookings Institution's Economic Studies Program; and the Advisory Committee of the Commonwealth Fund's Program on Advancing the Well-Being of Elderly People.
Before joining Concord, Ms. Phillips was a Republican Staff Director for the House Committee on the Budget from 1986 through 1992. From 1977 through 1985, Ms. Phillips was the Deputy Minority Staff Director of the House Ways and Means Committee, where she also served as Staff Liaison to the Budget Committee. From 1974 to 1976 she was the Staff Director of the Republican Policy Committee, and from 1969 to 1973 she worked for the House Republican Research Committee, where she served as the Committee Staff Director as well as staff to several task forces. Prior to that, she worked for the U.S. Office of Education and for Representative Melvin Laird.
Mr. Greenstein is the Founder and Executive Director of the Center for Budget and Policy Priorities. Considered an expert on the Federal budget and, in particular, the impact of the taxing budget proposals on low-income people, Mr. Greenstein has written numerous reports, analyses, op-ed pieces and magazine articles on poverty-related issues. He appears on national television news and public affairs programs and is frequently asked to testify on Capitol Hill.
In 1996, Greenstein was awarded a MacArthur Fellowship. The MacArthur Foundation cited Greenstein for making the Center "a model for a nonpartisan research of policy organization." In 1994, he was appointed by President Clinton to serve on the Bipartisan Commission on Entitlement and Tax Reform.
Prior to founding the Center, Greenstein was Administrator of the Food and Nutrition Service at the U.S. Department of Agriculture, where he directed the agency that operates the Federal food assistance programs with a staff of 2,500 and a budget of $15 million.
Mr. Greenstein received his undergraduate degree from Harvard and has done graduate work at the University of California, Berkeley. In May of 1991, Mr. Greenstein received one of the six Public Achievement Awards awarded by Common Cause. In 1995 he was one of the two recipients from the Center on Law and Social Policy's 25th Anniversary. Professor Muris has been teaching law at George Mason University since 1988 after serving three years as Executive Associate Director of the Office of Management and Budget. Prior to that he served in various capacities at the U.S. Federal Trade Commission and in the office of the Vice President. He has also taught at the University of Miami and was the Law and Economics Fellow at the University of Chicago School of Law.
You all have been very busy, and I am tired.
STATEMENTS OF MARTHA PHILLIPS, THE CONCORD COALITION; PROFESSOR TIM MURIS, GEORGE MASON SCHOOL OF LAW; AND ROBERT GREENSTEIN, CENTER FOR BUDGET AND POLICY PRIORITIES
Mr. Linder. Please begin, Ms. Phillips.
STATEMENT OF MARTHA PHILLIPS
Ms. Phillips. Thank you. I am pleased to be here today on behalf of The Concord Coalition in support of this bill. We commend the bill's sponsors for this set of proposed reforms.
Some people look at a bill and think the glass is half full; others say it is half empty. We think that although there are some things that we might change in this bill, on balance, it is a very useful piece of legislation. The Concord Coalition is pleased to support it and pleased also that it has been developed on a bipartisan basis.
The budget process no longer focuses on reducing or eliminating gaping economically damaging deficits, so the central problem is maintaining sufficient control to prevent the off-budget Social Security surpluses from being diverted to other purposes in the name of emergencies or just good old fashioned pork and to prevent temporary surpluses in the rest of the government accounts from being used as down payments on expensive, long-term commitments that will continue long after those surpluses disappear.
A second problem that this bill really doesn't touch on is the need to act very soon to prepare for the retirement of the baby boom generation. As previous witnesses have said, we know it is coming and we have to get ready. At least this bill provides a foundation to help us get ready, although it doesn't directly deal with it.
The last Congress gave us several examples of what is wrong with the budget process and what needs to be fixed: the costly and appalling end-game bargaining -- which really is a budgetary game of chicken rather than a deliberate, careful allocation of taxpayers' hardOearned dollars, the emergency provision abuses, the tendency of Congress to expand entitlements or even create new ones, whether on the tax side of the ledger or on the spending side, and the failure to recognize long-term unfunded liabilities.
The bill proposes several changes to address these problems. Concord likes changing from a concurrent resolution to a joint resolution. We think that makes a lot of sense. Realistically, however, the bill anticipates that sometimes a joint resolution might not be possible, to achieve, and so it provides fallback of a concurrent resolution.
I very much like the idea of streamlining the budget resolution to get away from what, frankly, are sort of hokey 20 functional categories are not very useful. It is kind of interesting to go through the tables and look at the functions, but they do not have anything to do with enforcement later in the game. Each functional category is a mixture of credit, mandatory, discretionary, all mixed up. While it is useful to have that information, it is not an enforcement tool.
So pare back the budget resolution to the things that really count, which are the big aggregates -- spending, taxes, deficits and debt, or surpluses; and then your control areas -- entitlements or mandatory, whatever you want to call it; defense, nondefense, and then this new idea of creating an emergency fund. I think that makes a lot of sense.
I agree with those who say it will take a little longer perhaps to reach agreement on a joint resolution. Even getting both ends of Pennsylvania Avenue to agree only on how much spending, and how much revenue there should be might not be done quickly. Therefore, Concord would favor a two year process. When a new Congress comes in, produce one budget plan at a summit at the beginning of the two year cycle; decide on what the aggregates are going to be. You can still have an annual appropriations sequence if you want to within that framework, but once every two years is often enough to produce a budget plan.
One thing for sure is, that a two year cycle would cut in half the chances for fiscal mischief. You would have the budget resolution locked in, and it would run for the duration of the Congress. So I wouldn't dismiss the two year budget out of hand.
I very much like the automatic CR. It changes the "or else" from one that says, "or else we will close down the government and blame it on you," to one that says, "or else you are going to be stuck with last year's level."
Frankly, there are going to be people who want more money than last year for this and less money than last year for that, and they are going to be stuck with last year's level if they ca not get an agreement. From a taxpayer's point of view and the perspective of people who need government services, being stuck with last year's level is a lot better than some of the things that we have witnessed in recent years either with government close-downs or the gluttony of $24 billion of emergency spending, most of which is not emergency, but merely the price that has to be paid to get out of town. An automatic CR avoids all of that.
I would suggest, though, that you might want to change the language when you set the automatic CR at last year's level not to count last year's emergency appropriations. If you had the proposed automatic CR this fall, for example, you would be stuck with last year's level, including most of that $24 billion. So you might want to redefine that when you make up the bill.
Abuse of the emergency procedures has become the most egregious and flagrant disregard of the spirit of the budget process that there is. This loophole has become large enough to accommodate not only a Mack truck or a Sherman tank, but even an entire bachelor enlisted housing complex at a base in Bahrain. This is not the way to go.
There are two problems with emergency spending, an old one and a newer one. The old one is that we pretend we aren't going to have any emergencies next year, and so we don't appropriate any -- or very much -- money for them to occur. That is ridiculous. Scarcely a year goes by without a catastrophic fire, flood, drought, earthquake, tornado, hurricane somewhere in the Nation; and in America, we respond by helping the victims.
But rather than setting aside sufficient funds in advance in the Appropriations Committee through the appropriations process, we give disaster relief just the smallest maintenance diet; spend all the rest of the money that is allowed under the cap on other, higher priorities; and then when emergencies happen, say, "oh, my gosh, this is an emergency; we have to have still more money." Part of this is happening because the caps are so tight and you need this money for other things, so you spend it on other things, and then you have nothing left for legitimate emergencies.
So Concord likes the idea of peeling back out of the discretionary cap an emergency reserve fund. How much? I think the rolling five year average is as good as you are going to get. Then you put some definitions on when the resources can be released. If there is an emergency, then an allocation goes to the Appropriations Committee or the other appropriate committees, and the resources are released. That would help deal with the more recent budget hypocrisy, which is the newer problem of just adding on emergency spending because the caps are too tight.
That is simply what is going on. We really need to deal with this emergency procedure.
The temptation to create new entitlements or tax expenditures, or expand existing ones is much greater now that everybody thinks we have surpluses -- the politicians, the press and the public. We have money to spend, so why can't we have entitlements? Concord Coalition believes that these permanent taxes on future resources are the chief budget problem. Appropriations are subject to limits called "caps," and spending for appropriated programs has to be debated each year; programs have to compete to justify their share of the pie.
Entitlements don't have to go through this process. They have been likened to appropriated programs that have died and gone to heaven. They just automatically get their money, even if you couldn't justify them in light of today's priorities.
The bill attempts to address this situation by subjecting new entitlements to annual appropriations. They would be annually appropriated. The bill would bar enactment of new entitlements lasting longer than 10 years. It would require oversight review of all programs, including existing entitlements, at least every decade. And it would require 10Oyear cost estimates to give an idea of where an entitlement is going. Finally, it would encourage reductions in existing entitlements by permitting the resulting savings to increase discretionary appropriations.
Ms. Phillips. Regarding this last point, we would oppose the reverse, i.e., letting reductions in discretionary spending be used to pay for entitlement increases or be used to pay for tax cuts. Your former colleague Bill Frenzel, who was the Ranking Republican on the Budget Committee, used to remind me that "tax cuts are forever, but discretionary cuts last only until the next supplemental." So you are making a tradeOoff. You go back and revisit discretionary decisions every single year, and in the meanwhile continue to spend money on a permanent commitment even when the savings may long since have disappeared.
Spending the surplus is the really big new issue in front of us and why I think this bill is particularly well designed to grapple with this issue.
It is too tempting in an era of perceived surpluses to create new entitlements and enact tax cuts. The Concord Coalition believes that surpluses attributable to the Social Security Program should be reserved for that program. They should not be diverted to routine spending or used to pay for tax cuts.
But what about surpluses in the rest of the government's accounts? Here again, Concord strongly favors using the rest of government surpluses to reduce the public debt.
With the retirement of the baby boom generation looming only a decade off, having as small as possible a public debt will make it easier to cope with the enormous strains that our economy is going to face when that happens.
Second of all, reducing the debt frees money for private investment in things that will make us more productive, and as you saw on the business page of the Post this morning, productivity is where we get our higher wages and higher standard of living without setting off a round of inflation.
When the boomers retire, for each young person coming into the work force you are going to have somebody leaving for retirement. You are going to need all of the productivity increases you can get because you are not going to be enlarging the size of your work force.
There has been some question whether the pay-as-you-go discipline on tax cuts and entitlement increases would apply when you have surpluses in the rest of the government. There have been letters from officials saying "yes", letters saying "no", letters saying, "we are not quite sure." H.R. 853 makes clear that payOgo still applies when there are surpluses. That is a good thing.
However, the bill would permit those surpluses to be added to the pay-go scorecard, and you could use those surpluses in the rest of the government accounts. One of Concord's concerns is that although we admit that this is a valid debate and there may be some things that you want to use surpluses for, like government investment in productivity (I am not sure that there are such things, but it is possible), also you could use surpluses to establish discretionary caps at higher levels than the freeze level allowed in this bill, which is unrealistically low.
Surpluses could be used, and here is one that I would probably favor: to prefund our obligations to pay Social Security and Medicare when the boomers retire. That would be a very responsible thing to do. But we are concerned that you would use the rest of government surpluses to fund longOterm, virtually eternal commitments, maybe prescription drug coverage for everybody under Medicare, or longOterm care, or something else that is fairly compelling. Then the surpluses would be smaller than you thought or, in fact, nonexistent.
When you think of what makes a surplus go away, it is probably a recession. So what do you do? Do you say, "sorry folks, we have a recession on, so we are going to take back that tax cut we gave you three years ago?" I don't think so.
The bill says if you do use the anticipated surpluses, you are going to have to have offsets. If the surplus goes away, you are going to have to come up with offsetting legislation to pay for the money that is not there anymore, or reverse your legislation and undo it, or you get a sequester. We have had sequesters before, and I would think that would give legislators a lot of pause before spending every penny of surplus. Concord would oppose using the surplus just for routine spending because it is easier to spend money than to say no, especially when people think that we have surpluses. Surpluses, if they occur at all, and we are not sure that they will materialize or last very long, are a rare and precious resource. Letting them trickle away through the lack of budget discipline would be the height of generational irresponsibility.
[The statement of Ms. Phillips follows:]
Mr. Linder. Mr. Greenstein.
STATEMENT OF ROBERT GREENSTEIN
Mr. Greenstein. Thank you, Mr. Chairman. I think I am the critic of the bill on the panel. I should start by saying that I think there are a number of useful provisions in the bill that improve the budget process, such as the changes in the treatment of Federal insurance programs. But I think there are a number of provisions that would pose serious problems and that the problems outweigh the positive aspects, and therefore I am a critic of the bill as a whole.
The things I am most concerned about, a number were just alluded to by Martha Phillips in her testimony, and I want to start where she left off and talk about the changes that the bill would propose in the pay-as-you-go rules.
As she noted, H.R. 853 would essentially allow projected surpluses to be used instead of real offsets to fund tax cuts or entitlement increases. I think there are two principal concerns there. The first is that both from the standpoint of big picture government policy, but also from the standpoint of future deficits down the road when the baby boomers retire, the most important decisions we have are what are we going to do to ensure the longOterm solvency and fiscal stability of Social Security and Medicare, and Medicare is part of the onObudget, not the Social Security budget.
Most experts I know think that to resolve the Medicare solvency problem, because the hole is so great, we are going to need a combination of reforms that at the present time are maybe too controversial to pass in the program, and additional resources, that we are going to need both.
I am concerned about the provision of H.R. 853 that would allow the entire non-Social Security surplus to be consumed by tax cuts and entitlement increases before we have resolved Social Security and Medicare. We may find to get bipartisan agreement, we need a portion of the on-budget surplus for, as Martha said, prefunding some of Social Security and Medicare. It is not that I am suggesting one can't touch any dime in the on-budget surplus, but to say, as this bill does, that 100 percent of the projected surplus can be used before we settle Social Security and Medicare I think is imprudent.
Now, adding to the imprudence is the fact that projected surpluses, as Martha just said, may not materialize to the degree that CBO projects. CBO has a very important chapter in its new report about how uncertain its projections are. CBO notes that if its projections 5 years into the future are off by the average amount that its projections 5 years into the future have been off as a percentage of GDP for the last 15 or 20 years, then its projections for 5 years from now could be too high or too low by several hundred billion dollars a year.
For 2004, CBO projects a $63 billion surplus in the non-Social Security budget. Let's assume that they were off by $60 billion, a fraction of the average that they have been off 5 years in a row. Let's assume that H.R. 853 passed and Congress passed tax cuts or entitlements increases that consumed the 63 billion. We get out to 2004, and you either have to raise taxes or cut other entitlements or lower the discretionary caps by $60 billion a year, which is larger than the first-year savings of any budget plan, including the Contract with America budget plan which Congress has considered. No plan has ever cut as much as $60 billion in the first year.
Alternatively the bill says if you couldn't raise taxes or make these cuts, there would be a sequester that would be concentrated in certain programs. A $60 billion sequester would result in complete elimination for 2004 of payments in farm price supports, crop insurance, the social services block grant and the 4 percent payment to Medicare providers. You wouldn't allow that to occur. So at the end of the day, as sometimes happened when there were big sequesters threatening under GrammORudman in the late 1980s that the Congress and the President couldn't tolerate, we changed the rules, and we allowed the deficit to return.
If one is to change the rules so that onObudget surpluses can be used to finance without any other offsets tax cuts or entitlement increases, I think we should very seriously have a limitation, and here is an off the top of the head thing. Maybe we could say you can use to finance tax cuts, or entitlement increases 80 or 90 percent of the projected surplus for the first year, then 70, then 50, then 30, then 10. But to say that a projection 8 years out in the surplus, the whole thing can be used now for entitlement increases and tax cuts when we have no idea how much of that is going to materialize I think is very fiscally imprudent.
The other major problem that I see with the bill is that although this is not the intention, I am sure, of the authors, I think it would have the effect of squeezing discretionary spending. As Martha suggested, the level of the caps is already unrealistic politically.
First, I think the aspect of the bill that would effectively allow lowering discretionary caps in order to fund tax cuts or entitlement increases is unwise for the very reason Bill Frenzel mentioned that Martha quoted: Discretionary changes are temporary; tax cuts and entitlements are permanent.
This is aggravated in the bill by a provision that says that in computing the amount of the projected surplus for the next 10 years, CBO is to assume that once the caps expire, the discretionary spending is just frozen all of the way out.
If you compare the discretionary spending assumptions under H.R. 853 to the current CBO baseline, they are $436 billion lower over the next 10 years because they assume that we have the caps through 2002 which go down, and then we have a hard freeze at the 2002 level through 2009.
My purpose is not to debate for discussion purposes what is a cut and what is an increase one should or should not adjust for inflation, but the fact of the matter is that Congress is not going to pass appropriations bills that are frozen 10 years in a row. A 10-year freeze at the current CBO inflation assumptions is a 23 percent real cut in services by the 10th year. That is not going to happen. And by using that assumption to compute the surplus, we artificially inflate the projected surplus, which can lead to too big a tax cut, too big of entitlement increases passing, and then we get to the outyears and we can't sustain the discretionary levels. Maybe the economy has weakened and our budget estimates are off. We have seen in the last several years how uncertain revenue projections are. We have just learned in the last week that the hoped-for July surprise this year is probably not going to happen, and we get out there and either of several things could happen.
Mr. Linder. Excuse me. I am leaving to go vote, and Mr. Hastings will act as pro tem Chairman.
Mr. Greenstein. The surpluses are now gone, and one cannot raise the discretionary caps, and we can't meet some basic needs in defense and basic areas.
Alternatively, the Congress could raise the discretionary caps, but that would trigger a sequester in Medicare and farm price support payments and the like. Or the most likely outcome, we would raise the caps, change the rules and run the deficits.
So for these reasons, and one or two other quick ones and then I will conclude, I am concerned with the delays that this would cause in appropriations bills. I think it is unwise to repeal the provision of law that says if there isn't a budget resolution by May 15th, that appropriations bills can start to move. I think that is particularly unwise in years in which there is a discretionary cap in place. In years in which there is a discretionary cap already in place, the budget resolution is largely superfluous for purposes of discretionary spending, and if the President is of one party, and Congress is of another party, and they can't work out an agreement on budget resolution until August or September, the appropriators should not have to wait that long to start to move a bill.
I am also concerned that the automatic continuing resolution is a year-long automatic continuing resolution. It is one thing to say if an agreement cannot be reached by September 30, there is an automatic continuing resolution for 30 days, but to have an automatic continuing resolution for a year long makes it too easy for Congress never to work out an agreement on the appropriations bill and just have the auto CR take effect. Even if you want to freeze the overall discretionary level for the bill as a whole, in any appropriations bill from year to year, some programs should be cut, and some should be increased. Needs change. To have an automatic year-long CR I think reinforces the status quo and makes it unlikely that we will adjust to needs as they change.
Finally, the lockbox provision in the bill goes too far. It provides that if either House passes a reduction in an appropriations bill, the amounts of the reductions must be averaged, and the discretionary caps are lowered by that amount for all years in which there is a cap. This means if there is a one-time pork barrel project, and you want to cut it, you can't cut it without lowering the discretionary caps for all of the years for which a cap remains. That leads you to either of two results. It is either too hard on the discretionary caps, or it makes it harder to pass cuts in projects for which otherwise you would have a majority to vote.
Let's suppose you have a pork barrel project, except that within that majority you have people that don't want to cut a one-time project if it means a cut in the discretionary caps for 5 years. So for that reason they vote against it, and you can't get a majority to cut the pork barrel project.
To conclude, I think there are a number of serious problems in the bill, and while I think there are some useful provisions, I think the serious problems outweigh the useful provisions, and if one had to either move the bill as a whole or not move it, I think we would be better off not moving it. I think it would create more problems than it would solve. Thank you.
Mr. Linder. Thank you.
[The statement of Mr. Greenstein follows:]
Mr. Linder. Professor Muris.
STATEMENT OF TIM MURIS
Mr. Muris. Thank you very much, Mr. Chairman. I realize it is the end of a long morning, so let me just make a few points.
The first point is that, despite surpluses, we need to reform the budget process. The rise and fall of large deficits was the result of three major surprises. The first was the unexpected and deep recession of the early 1980s, the second was the end of the Cold War, and the third was the unexpected surge of revenues in the late 1990s. The surpluses resulted in spite of, not because of, the budget process.
Before the mid1970s, when large deficits of 2 percent of GDP occurred, they were rare. When they did occur, there was a quick correction. The deficit quickly disappeared. But beginning in the mid1970s, large deficits began, and they continued for over two decades. The system had become inflexible.
What are the flaws and how does this bill, which I support, address them? The most important flaw and the hardest to fix is the Balkanization of spending authority. When most of the spending went through one committee -- the appropriators -- there was no persistent deficit problem. By the mid1970s, with the rise of entitlements, there was no one in charge. It is what economists call a common pool problem. When someone owns all of the fish in a lake, that person will not allow the lake to be overfished. When no one owns the fish, there is too much fishing.
A colleague, Mark Crain, and I tested States that had one committee in charge of spending and compared them to States that had spending authority Balkanized. We found in the Balkanized States spending grew 6 percent a year faster.
H.R. 853 takes some positive first steps to dealing with this problem. The joint resolution is a good step because what it puts more focus on the totals. A law signed by the President in is more important and will have more influence than the congressional budget resolution. The bill is also good because it makes it harder to create new entitlements. The requirement of reauthorization is beneficial. I would add to that a default rule. For example, if you did not reauthorize, your spending was 10 percent below the previous year's level.
The bill does have a default rule for appropriations -- default at last year's level. This is one provision that I would change. I would recommend the lower of the President's request for an account or what either House or both Houses have passed.
This provision is meant to deal with the shutdown problems that have occurred recently if Congress were to send last year's level to the President and send it to him repeatedly, however he could not shut the government down with the argument that, he wants 100 percent, not 90 percent or 95 percent. That is not a credible position. Congress could send that bill to the President every day and force him to shut down the government and do a Leslie Gore, "it's my party and I will cry if I want to." The President could not sustain that position. If you are going to have an automatic continuing resolution, it ought to be one with some more bite to it, and my proposal would do that.
The next flaw that the bill addresses is the baseline system. We have several problems with this system. Although it is often said to measure current services, that is the cost tomorrow of today's government, it does not. For example, the Medicare baseline is significantly greater, almost double what a measure of current services would be.
A second problem, there is the misleading use of the word "cut." When the public hears "cut," they are comparing it to last year.
Third, there is a series of baseline games in which particularly the Finance and Ways and Means Committees have invented the Sistine Chapel of the budget art in finding "cuts" that even by the peculiar logic of the baseline are not cuts. H.R. 853, by focusing on last year's level and by focusing on the reasons for future growth, goes far in addressing these problem. I recommend that in addition you eliminate all discussion of words such as "cut" or "decrease" from project growth." Moreover, when counting for pay-go purposes, that you eliminate the games.
Incidentally, in terms of pay-go, I would support the provision that my colleague on the panel says exist in terms of sequesters that make the process look more like Gramm-Rudman. Unfortunately I do not find that in the current legislation. Pay-go now only applies to policy changes and not to economic and technical changes. Although I wish it did, these changes in the bill do not make pay-go apply to economic and technicals.
Speaking of additional flaws that the bill addresses, the caps are porous for a variety of reasons. In fact, domestic discretionary spending has had healthy increases under the caps. Discretionary spending as a whole has not had healthy increases, but that fact is largely attributable to the end of the Cold War, which can hardly be credited to the passage of the Budget Enforcement Act.
Your bill addresses emergencies, which is the biggest loophole, and I commend you for that. The Senate provision, which takes a different tack is good as well.
An additional issue that you should address are so-called user fees or filing fees. Under the cap these fees, which now fund much of the regulatory state are free because the caps count net outlays and budget authority. One of the things that they are net of are these so-called "fees." In fact, most of these filing fees under appropriate budget scoring would be called receipts and not filing fees, but the committees have coerced the scorekeepers into calling them filing fees.
I recommend that you eliminate that practice, and adjust the caps upward so as to not penalize anyone. In the future you will then deter this incredible increase that we had in the 1990s which started in the 1980s, filing fees.
Finally, let me echo something that the CBO Director said this morning. It has been over 30 years since the report of the President's Commission on Budget Concepts. The intervening period reveals the difficulty. It would be very useful to have budget experts consider these topics in the abstract and devise rules as opposed to trying to deal with them on the fly when the various issues arise. The issues of how to score various Social Security plans, the continuous use of the tax system to produce outlays, and other issues could be usefully addressed by a budget concepts commission. Thank you.
Mr. Linder. Thank you.
[The statement of Mr. Muris follows:]
Mr. Linder. Are you aware that the continuing resolution that is in this budget proposal is the reason that the President vetoed the bill 2 years ago? Are you aware of that? That is the reason he chose for it, because it was a rather important bill, and it was put on there so we wouldn't get into the same circumstance that we got in before, and it was the cause of the veto.
I am interested in Balkanizing the spending authority. I came from many years of experience in legislature, and I wondered why we had both authorizing and appropriating committees and the Budget Committee. In your proposal would you get rid of the Budget Committee or the authorizing committees or the Appropriations Committee?
Mr. Muris. The Budget Committee was passed as a weak attempt to deal with the problem. By the time the Budget Committee was created, the horse was out of the barn, as they say.
What happened was, realizing that they could not get control over the totals through the one committee, Congress created the Budget Committee.
There are several steps you could now take. The steps you already plan to take are useful. You took a first step towards consilitdation with welfare reform. I would make those programs discretionary and create a new subcommittee of the Appropriations Committee. Let the authorizers be part of the appropriations process.
Historically we have one precedent for doing this. The appropriators lost control at the end of the 19th century, and they regained control again in the 1920s. Even though this sounds very dramatic, your bill takes some first steps, and what happened with welfare reform shows that you can end entitlements. The Budget Committee would not be needed ultimately in this world, but it exists now as a weak substitute.
Mr. Linder. A couple of you talked about reauthorizing. My experience in sunsetting departments and agencies, it doesn't work. They always get reauthorized because of the intense pressure and the lack of interest, so it is a oneOsided lobbying operation. It takes a lot of time. I don't recall in the legislature anything being sunsetted.
Mr. Muris. Part of the problem depends on what the default rule is. If the default rule is zero, that is a very difficult choice. If you have a minor reduction as a default rule, as exists in food stamps right now, where there is a provision for a pro rata reduction, there might be real opportunity for change. I certainly agree, that it should not be a meaningless exercise, and it is mostly a meaningless exercise if the choice is zero on the one hand or nothing happens at all if there is failure to reauthorize.
Mr. Greenstein. I note that food stamp provision has never been invoked in 22 years.
Mr. Linder. We dramatically increased food stamps in the last 6 years in spite of the fact the number of people dropped dramatically.
Mr. Greenstein. Food stamp spending increased between 1989 and 1994 or 1995. It has dropped dramatically. It has decreased very dramatically since then. In fact, it is billions of dollars per year below the CBO projection of what it would cost when the welfare law was passed. The number of people on food stamps has dropped about 9 million in the last 4 years. Both participation and costs are much lower.
Mr. Linder. Ms. Phillips, you talked about enforcement mechanisms. In your judgment, are the enforcement mechanisms in the new proposal sufficient?
Ms. Phillips. I think this bill moves in the proper direction. A lot of ideas have been raised this morning that are not in the bill, other things you could do. But we are really now in the realm of trying to enforce the existing laws. I think the emergency setOaside is probably the singler best doable, gettable piece that you have in this bill.
I would hope that the people in Congress and elsewhere who see parts of this bill that they don't like, rather than just bringing all guns to bear and trying to stop it dead in its tracks, would work together -- this bill started with a bipartisan sponsorship -- and work together on the things that can be agreed on.
Enforcement in the name of the game, but enforcement can only be as good as you want it to be. You can always pass another law that says, never mind, we are going to raid the refrigerator at midnight, and we don't care how many locks you put on. We have keys to every one of them. If you have the votes, you can do it; You can overturn any enforcement mechanism. It is as much an exercise in the spirit of the law and understanding why it is important to be able to say no as anything that you can put into a law. If the law gives you excuses, if the law sets limits and says you can only do this much and no more, then you have got a situation where you are enforcing those limits, and maybe that enables you to muster the will. But as other witnesses have said this morning, we have the baby boom heading toward retirement, and last I heard they are planning on getting benefits. Any way you look at the numbers, whether they are a little optimistic or pessimistic, we are not prepared for the aging of our population or the strains it will put on the budget. We know it is coming, and it is going to be a huge strain on our economy. It is too easy to focus on what good things you can do between now and the next election, but 15 years from now you are going to say, why they didn't make us be fiscally responsible back in 1999.
Mr. Linder. Your coalition seems to view tax increases and spending cuts as equal participants and neutral irrespective of reducing deficits.
Ms. Phillips. Our position is that you have to be responsible, and if you really want the tax cuts because you think it is the responsible thing to do, and you don't have a recession, you are not at war, and you are enjoying a prosperous peacetime economy, then if you want those tax cuts, you ought to be willing to cut back your spending commitments so you have a balanced budget at a lower level.
If you don't want to cut back your spending, and you want to have spending back where it was at 23, 24, 25 percent of GDP, then you have to be willing to raise taxes to that level to pay for it. We are in an extremely prosperous peacetime economy. It doesn't get better than this. What in the world can be the excuse for running deficits in the rest of the government, much less raiding the Social Security surplus, which we already know our fiscal policies are not even up to the job that lies ahead? So that is where we are coming from. If that is what it comes to, and you have to have a tax cut in order to be responsible, we would support it if you are willing to make the spending cuts to get government down to the level of revenues.
Back in 1992, when Concord was formed, people were very cynical about the possibility that anybody could ever balance the budget, and in order to have any credibility, Paul Tsongas and Warren Rudman had to come up with their Zero Deficit Plan for the year 2000. Ironically, we proposed balance at 20 percent of GDP on revenues and 20 percent on expenditures at a time when revenues were at about 18 percent and expenditures were 22 or 23 percent. We brought them to the middle. People on the left didn't like us because we cut spending, and people on the right didn't like us because we proposed raising revenues. Twenty percent is about where we ended up balancing. The country is going on pretty well.
Mr. Linder. That is not where we are today.
Ms. Phillips. A little more than 20 percent.
Mr. Linder. About 22.
Mr. Greenstein. I think it --
Ms. Phillips. I think GDP is going to be better than you think, so that keeps it a little lower.
Mr. Linder. Mr. Hastings.
Mr. Hastings. John, you mentioned that the sunset laws don't work in Georgia. I have to tell you when I was in the legislature, we did get rid of one commission. It was the Grist Mill Commission, and it was put in place in 1890, and the last grist mill we had in Washington was in the 1930s. So there is some success out there.
Ms. Phillips. When I came to the Budget Committee staff, revenue sharing was still on the books. That was an entitlement that was created to give excess Federal revenues to the States, but it turned out there were no excess revenues to share. Finally they repealed that entitlement, but it took three separate stakes through the heart. That entitlement would not stay dead, and people kept trying to bring it up again and again.
Mr. Linder. I was in the State legislature at that time, and we kept spending programs going on that we had started with the revenue-sharing money and then picked up the bill elsewhere.
Mr. Hastings. One of the areas that I happened to focus on here, and I tend to focus on, we were talking about spending in terms of GDP and the whole economy and so forth, and I tend to focus on what the average tax burden is for each individual. When you add local, State and Federal -- and, of course, Federal is the biggest component of that, that figure has gone up, it is around 38, 39 percent on the average -- and what disturbs me as we go into a global economy, where we have to admit we are a global economy, we cannot pretend that it is not there, it makes it harder for us to compete in that global economy unless people have more discretionary dollars to spend.
So when I look at tax cuts, I look at it from that standpoint recognizing it has an impact on the Federal budget, but also recognizing that we will continue, I hope, to lead the world, but the only way we can do that with a smaller population is to have more dollars for us to invest around the world. So I tend to look at it from that standpoint, and I know that is off the subject.
Mr. Greenstein, you mentioned that you are probably the only one opposed to the process, and then I had to go vote, and I came back as you were wrapping up. I wanted to ask you -- if you said this, I apologize for having to ask you again. You didn't say that you were defending the status quo or the status quo is good. And if you didn't say that, what do you think some reforms ought to be in the budget process, because I think most people will agree that it is broken.
Mr. Greenstein. Let me start by saying on the one hand I think there are improvements that can be made. So I am not simply saying keep the status quo. I would disagree that the budget process is broken. There are problems in it, but it has actually worked much better in the last 10 years than we often give it credit for.
The Budget Enforcement Act of 1990 had two major elements. It set discretionary caps. I don't hear most people talk about abandoning the concept of discretionary caps. And while it is true that they got stretched in last October's bill, and the emergency designation was overused, and frankly that has happened again in the current supplemental, I think that is a reflection of the fact that the current caps are unrealistic. But if you look at the last 9 years as a whole, most of us predicted in 1990 those caps would not last very long, and they would be breached by much larger amounts than they did. They held much better than any of us forecast they would.
Similarly, the pay-as-you-go rules have been very effective. They have frustrated both people who want entitlement expansion and people who want tax cuts. Martha and I feel that they have served their purpose. I remember in the early 1990s when we had projections of $600 billion deficits. Clearly there have been faster rates of economic growth, and revenues have been faster than forecast, but we also should give a lot of credit to the fact that the caps and the payOgo rules really contributed a lot.
In that context, part of the testimony that I made when you were voting was that one of the things that I am most concerned about in the bill is I think it weakens the pay-as-you-go rules too much. It allows the entire projected non-Social Security surplus to be used for either tax cuts or entitlement increases without any offsets. When you take into account the fact that in the past our projections of both surpluses and deficits, for more than a year or two into the future, have been way off, I think it is much too fiscally dangerous to say that 100 percent of a projected surplus can be used in this fashion. We ought to maybe allow a fraction of the projected surplus to be used in this fashion, with the fraction declining the farther you get into the future, because projections are more uncertain farther into the future, and the farther you get into the future, the more question there is about whether the projected surplus will actually materialize.
The kind of thing that is in this bill that I think is useful is reform of Federal insurance programs. I think there are some problems with exactly how it deals with emergencies, but we clearly need some tightening up. I think what we need in the emergency area is a combination of more realistic discretionary caps and tighter enforcement of them by not allowing the emergency designation to be misused.
Now, I am a critic of the bill, but I will say a positive thing here. It has a provision which makes sense, which says its changes in the emergency provisions only take effect after the caps are changed, because it recognizes that its provisions to change the emergency rule aren't realistic in the context of the current law. The kind of thing that I think could be -- and this doesn't take a wholesale change -- the kind of thing that needs to be modified in the emergency area of the bill is if you have used up the projected surplus, and you are right in balance, and what is clearly a big emergency comes along, it could be a national disaster or a foreign military involvement that the United States is called upon to respond to, if that entails spending above and beyond the emergency reserve the bill calls for, the bill has a provision that the Budget Committee can determine whether it is truly an emergency or not.
The problem is that there is a conflict between two provisions of the bill here. If you are in balance, and something like a foreign involvement comes along, and the Budget Committee determines this really is an emergency that entails going beyond the reserve, under the bill, if not offset, that would trigger a sequester. I am not sure that was intended. It may be the unintended effect of two different provisions of the bill. I only noticed this in the last 48 hours. I had not noticed this combined effect when I first read the bill months ago.
I think the bill ought to say if it is really an emergency, it doesn't have to be offset, but it really has to be an emergency. Instead, where we are now is, we classify things that are not emergencies as emergencies, and then a number of Members of Congress say emergencies need to be offset because of the designations. I think those are examples of things where we do need improvement in the process.
As I went through my concerns, I said that the things that I think are problematic are more serious than the improvements. But if we can do a bill with the improved parts in it, it is useful to make improvements in the budget process. Those two areas, emergency insurance and accounting for insurance programs, are clearly areas where we can make strides.
Mr. Hastings. It appears to me, and your explanation of that, what drives some of those decisions are policy decisions that every Congress would have to face regardless of what the process is, policy decisions on what the priority is in one area, and what we are simply putting in place is a check someplace along the line you have to answer A before you proceed to B.
It appears, to me anyway, some of the criticisms that you have, those are smaller things than the idea that we need to start this process early on. I have no doubts, however, that can get done, but we will have to see about that. Policy decisions we are going to be faced with, I suggest that when the reserve is set up, somebody will set up a new definition of emergency, I should say, and there will be a big fight. But these decisions are faced by every Congress regardless of what process we have in place.
Mr. Greenstein. Sure, but the budget rules have a big impact. Without the caps, we would spend more on discretionary programs. Without the payOgo rules, we would have expanded taxes and entitlements more, and we would still have budget deficits.
Part of what I am saying is, while there are a number of small areas like the emergency designation where the bill tightens the process, I view the bill as a whole as weakening fiscal discipline primarily because of the changes it makes in the pay-go rules, which I think go too far.
Mr. Hastings. With the Balkanization, I would agree with you, Professor, on that. I think our problem is 435 Members here. That is the problem.
Mr. Linder. Mr. Sessions.
Mr. Sessions. Mr. Chairman, i would like to ask unanimous consent to have submitted in the record this document which would support your theory of dollar amounts used, and I appreciate the opportunity to do that.
Mr. Linder. Without objection.
[The information follows:]
******** INSERT 3-4 ********
Mr. Sessions. I know that we are into a whole bunch of processes. Is there any belief that the Congress is addressing properly the Social Security issue, any one of you, by us trying to have a resolution to take Social Security off budget to where all of the money and interest would flow? Are we going to get any credit for that?
Mr. Greenstein. It is already officially off budget.
Ms. Phillips. It has been taken off budget three different times by acts of Congress, signed into law by the President.
Mr. Linder. Most recently in 2001.
Ms. Phillips. It was done in 1983 to be effective later, and in the 1985 Gramm-Rudman Act they did it again and said, we want it to start right away. It was later reaffirmed again and again. But, until you can get people to forget the existence of Social Security and its surpluses, you are going to know that they are there.
Mr. Sessions. So what can we do then? Is that the first responsible act, or are you saying that it was not responsible?
Ms. Phillips. I think the responsible thing to do is to address the tough issues. We have unfunded liabilities that far exceed anything we think taxpayers in the future are going to be willing to finance, particularly because you can't just look at Social Security alone, you have to recognize that almost every one of these people also expects to be getting Medicare, and that this is a double burden.
Mr. Sessions. What is the first step that you recommend?
Ms. Phillips. Some combination of -- to be officially Concord-neutral, getting the future expenditures and future revenues more in line. I would suggest that because you have an unusual situation of a bulge in the elderly population beginning in ten years followed by a permanent aging of the population, having each generation to the greatest extent possible prefund some or quite a bit of its own benefits is good for the economy and is generationally responsible.
Mr. Sessions. If you prefund, isn't that the same as taking it off budget and keeping it in a fund?
Ms. Phillips. Only when it is entirely out of the budget -- it has been off budget since the first surpluses in Social Security began to build up after the 1983 legislation. We started seeing appreciable surpluses in 1985. We spent them. It has been off budget. But if you have Social Security surpluses safely off budget, and over here, on the budget, you run big deficits, economically the effect is to use the Social Security surpluses to finance the onObudget deficits.
Mr. Sessions. But we are not doing that anymore.
Ms. Phillips. We will see.
Mr. Sessions. What is the first step? Is the first step hitting a home run or learning to walk?
Ms. Phillips. The first step is addressing the problem in the unfunded liability in the program. That is extremely hard because it means telling younger people now what many of them already suspect, which is that Social Security is not going to pay them the "huge" $12,000 that people are getting from it today on average. It is going to be less.
Mr. Sessions. So you don't think that it is practicable to take it off budget?
Ms. Phillips. We have already taken that step a couple of times. If you want to do it again, I have no problem with it. If doing it a fourth time makes you live up to the rule, great. But I am a little cynical that four times is going to be magic when three times hasn't been.
Mr. Greenstein. I largely agree with Martha. I think there might be some process things that you could do with points of order and supermajority points of order that would help.
Having said that, if you look at some of the proposals that are around now, they are all far from foolproof. The bill that Mr. Herger and Mr. Shaw introduced attempts to say that you could not use the Social Security surplus for other spending, but there is an exception for any legislation that Congress classifies as Social Security or Medicare reform legislation, and there is no definition what that means. The bill that Senator Abraham and Senator Domenici have introduced ties itself to specified levels of the publicly held debt, but there is a view which I think may be shared by the Treasury, Senator Roth, and perhaps Chairman Archer, that that approach poses too great a risk in terms of default and the debt.
The bottom line, I think, as Martha has said, is that the only way to address the problem is to address the problem. Martha and I have differing views on exactly what to do in Social Security, but I think we would share the view or share the concern that both parties are too attracted to what we would call the free lunch approaches, trying to solve the longOterm imbalance between benefits and payroll tax revenues without raising revenues or cutting benefits. Both parties are looking at approaches that pour tons of money from the rest of the budget into the retirement system. It is unclear where that money comes from when the baby boomers retire.
At the end of the day we have to be willing to do some benefit modification, some payroll tax increases or a combination of the two, or we are going to have an approach to fixing retirement security that either won't last, will cause overly large reductions in basic government functions or overly large tax increases, or eventually will bring back deficits in a big way. That is the single most distressing part of the debate. Each party is afraid that if it proposes any substantive structural changes, the other party will jump on it and attack it. I think that is preventing us from making progress.
Mr. Linder. Professor Muris?
Mr. Muris. The most important step is to make the economy as big as possible to make it easier to support the baby boom. There are three steps we can take.
First, we ought to guarantee that the Social Security surpluses cannot be spent. The way to do that, is to set up individual retirement accounts so that the money is committed.
Second, we need to take the onObudget surplus and give that back to the people in tax cuts. They will use that money better than the government would.
Third, one of the reasons that the economy has been so robust is that we have had an incredible amount of indirect deregulation through things like internationalization, the Internet, and computers. We ought to make sure that the plans in Washington to regulate fail. Moreover, we ought to have significant regulatory reform that would further encourage increased productivity in the economy.
Mr. Sessions. Well, obviously I am pleased to hear that. I will tell you that part of your observations, and I will not call them cynical observations, part of your observations, I believe, are very true, and that is we -- even looking at the Republican side, there is some unpredictable behavior as to what we are really after. But yet I would like to tell you that we will be, as with the last debate that was made -- that we are attempting to increase the amount of wealth held by the middle class of this country and to encourage behavior that would include savings and allowing the individual to have that $2,000 in their pocketbook.
I am an optimist, and I believe we are going to create a circumstance where we will continue to have good fishing and good economy. That will come with the fiscal restraint that you do talk about.
Thank you, Mr. Chairman.
Mr. Linder. Just one more question. The strength of Social Security was that it was 40 employees for every 1 retired in 1935. It is now approaching 2 for 1. Can the structure survive? Can just the basic structure survive?
Ms. Phillips. Not the way that it is now structured. Something has to give. There is a big longOterm problem out there. This bill is helpful, but the problem is still out there.
Mr. Linder. I am so much opposed to raising the payroll tax because you are asking so much more from fewer and fewer people. Five million people have opted out of Social Security. There are fewer and fewer payers for more and more retirees.
Ms. Phillips. You cannot solve this problem on the payroll tax. It is already the largest tax for most working-age families.
Mr. Linder. SeventyOfour percent.
Ms. Phillips. If you are talking about payroll tax supporting Medicare Part A and Social Security, it doesn't take much imagination to get you up to 35-40 percent payroll tax when the full brunt of the aging process has occurred. That simply is not going to happen in the United States of America, so we have to deal with the benefit side, and we have to deal with having each generation to the extent possible prefund its own benefits.
If I had my druthers regarding what to do with the surpluses, I would park them in individual accounts or some sort of a mechanism where the Treasury pays it right to the retirement accounts of every worker age 45 and younger, which unfortunately would leave me out. It could only be used to finance retirement benefits. That way you would get it off the Federal books so it could not be used for anything else. It would be increasing national savings, which would help the economy grow. It would also be there as a partial funding to make it possible then to say, okay, now that you have got this nice nest egg building up from the surpluses from the first decade of the century, we can peel back the government benefits a little bit because your grandchildren can't pay for them.
Mr. Greenstein. Let me say that there are fundamental debates on what would be a better way to go, should one convert part of Social Security to individual accounts or not do that. I think that is not the way to go.
I did want to say that if you look at the long-term figures, you cannot sustain Social Security without any changes. You can sustain it within what I would call the current basic structure. You have to be willing to make some changes in the benefit formula. You can do it without raising the payroll tax rates. You have to be willing to make some changes, but you don't have to replace it with something else such as individual accounts. There is a debate on whether one should or shouldn't, but what is clear is that you have to do something. We cannot simply leave it exactly as it is now.
It is also clear that you can solve Social Security's problems without any benefit or tax changes if you pour in enough money from the rest of the budget, but then you squeeze the rest of the budget too much. So if you want to be able to deal with other issues as well, you have to be willing to make some changes in Social Security.
Mr. Muris. I teach graduate students, who are mostly in their 20s, and when you talk to them about Social Security they laugh. Their cynicism is appropriate, unless we make the fundamental change that I talked about before to guarantee that those benefits will continue. Again, far and away the most important step is concentrating on policies that make the size of the pie as big as possible.
Mr. Greenstein. Where we would differ on that last comment is whether you have to do that through individual accounts or you can do more prefunding of the Trust Fund, but we would all agree that we should advance-fund.
Mr. Linder. Thank you all. The hearing is adjourned.
[Whereupon, at 12:25 p.m., the committee was adjourned.]
