[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
                         BUDGET PROCESS REFORM

=======================================================================

                                HEARING

                               before the

                           COMMITTEE ON RULES
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   ON

                                H.R. 853

          THE COMPREHENSIVE BUDGET PROCESS REFORM ACT OF 1999

                               __________

                          MAY 12 AND 13, 1999

                               __________

             Printed for the use of the Committee on Rules

                               ----------

                     U.S. GOVERNMENT PRINTING OFFICE
57-496 cc                    WASHINGTON : 1999
_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
                          Washington, DC 20402



                           COMMITTEE ON RULES

                   DAVID DREIER, California, Chairman

PORTER GOSS, Florida                 JOHN JOSEPH MOAKLEY, Massachusetts
JOHN LINDER, Georgia                 MARTIN FROST, Texas
DEBORAH PRYCE, Ohio                  TONY P. HALL, Ohio
LINCOLN DIAZ-BALART, Florida         LOUISE M. SLAUGHTER, New York
DOC HASTINGS, Washington
SUE MYRICK, North Carolina
PETE SESSIONS, Texas
THOMAS REYNOLDS, New York

                     Vince Randazzo, Staff Director

                 Eric Pelletier, Deputy Staff Director

              George C. Crawford, Minority Staff Director

            David Pomerantz, Deputy Minority Staff Director

               Bryan H. Roth, Office and Systems Manager

                                 ______

             Subcommittee on Legislative and Budget Process

                     PORTER GOSS, Florida, Chairman

DEBORAH PRYCE, Ohio                  MARTIN FROST, Texas
DOC HASTINGS, Washington             JOHN JOSEPH MOAKLEY, Massachusetts
SUE MYRICK, North Carolina
DAVID DREIER, California

                      Wendy Selig, Staff Director

                Kristi Walseth, Minority Staff Director

                                 ______

          Subcommittee on Rules and Organization of the House

                     JOHN LINDER, Georgia, Chairman

LINCOLN DIAZ-BALART, Florida         TONY P. HALL, Ohio
PETE SESSIONS, Texas                 LOUISE M. SLAUGHTER, New York
THOMAS REYNOLDS, New York
DAVID DREIER, California

                     William Evans, Staff Director

                Michael Gessel, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

                              May 12, 1999

Opening statement of the Hon. David Dreier, Chairman of the 
  Committee on Rules [prepared statement p. 03]                      01
Opening statement of the Hon. John Joseph Moakley, Ranking Member 
  of the Committee on Rules [prepared statemnet p. 06]               04
Opening statement of the Hon. Porter Goss, Vice Chairman of the 
  Committee on Rules [prepared statement p. 09]                      08
Statement of:
    Crippen, Dan L., Director, Congressional Budget Office 
      [prepared statement p. 13].................................    11
    Nussle, Hon. Jim, a Representative in Congress from the State 
      of Iowa [prepared statement p. 34].........................    31
    Cardin, Hon. Ben, a Representative in Congress from the State 
      of Maryland [prepared statement p. 43].....................    40
    Minge, Hon. David, a Representative in Congress from the 
      State of Minnesota [prepared statement p. 47]..............    46
    Irving, Dr. Susan J., Associate Director For Federal Budget 
      Issues, General Accounting Office [prepared statement p. 
      64]........................................................    61
    Phillips, Martha, The Concord Coalition [prepared statement 
      p. 90].....................................................    85
    Greenstein, Robert, Center for Budget and Policy Priorities 
      [prepared statemtent p. 100]...............................    96
    Muris, Timothy J., George Mason School of Law [prepared 
      statement p. 115]..........................................   112
Additional Information Submitted for the Record
    Submitted Questions and Answers by Mr. Dan L. Crippen........    27
    Statement of Mr. Bill Frenzel, Co-Chairman, Committee for a 
      Responsible Federal Budget.................................    58
    Submitted Questions and Answers by Dr. Susan J. Irving.......    78
    Document on Percentage of Income Tax Paid by Hon. Pete 
      Sessions...................................................   153
    Submitted Questions and Answers by Timothy J. Muris..........   159
    Submitted Questions and Answers by Martha Phillips...........   161

                              May 13, 1999

Statement of:
    Smith, Hon. Nick, a Representative in Congress from the State 
      of Michigan................................................   167
    Gekas, Hon. George, a Representative in Congress from the 
      State of Pennsylvania [prepared statement p. 170]..........   168
    Barton, Hon. Joe, a Representative in Congress from the State 
      of Texas [prepared statement p. 173].......................   171
    Regula, Hon. Ralph, a Representative in Congress from the 
      State of Ohio [prepared statement p. 178]..................   175
    Castle, Hon. Michael N., a Representative in Congress from 
      the State of Delaware [prepared statement p. 185]..........   181
    Spratt, Hon. John, a Representative in Congress from the 
      State of South Carolina [prepared statement p. 196]........   191

                                 (iii)


    HEARING ON H.R. 853, THE COMPREHENSIVE BUDGET PROCESS REFORM ACT

                              ----------                              


                        Wednesday, May 12, 1999

                  House of Representatives,
                                Committee on Rules,
                                                   Washington, D.C.
    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 two 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 prepared statement of Mr. Dreier follows:]

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    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 pro-

posal 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 prepared statement of Mr. Moakley follows:]

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    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:]
    
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[GRAPHIC] [TIFF OMITTED] T7496.005
    
    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 ten 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 lease-purchase 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 prepared statement of Mr. Crippen follows:]

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    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 reserve-fund 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 ten year 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 five-year 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 five year 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.
    [The information follows:]

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    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 prepared statement of Mr. Nussle follows:]

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    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 five 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 prepared statement of Mr. Cardin follows:]

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    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 prepared statement of Mr. Minge follows:]

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    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 twelve 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 twelve, 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 two year 
process as opposed to a one 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 two 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 two 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 six year 
perspective, it is probably a little bit more attractive than 
for those of us who have a two year perspective.
    I don't disagree that long-term planning can be a part of 
that. That is why we adopted a ten 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 two 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 two 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 two 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 lock-
box.
    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 ten 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 prepared statement of Mr. Frenzel follows:]

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    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 five 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 trade-offs. 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 phase-in 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 two-year 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 prepared statement of Ms. Irving follows:]

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    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 
ten when it really should be twelve, but it matters if it is 
plus three when it should be minus five.
    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.
    [The information follows:]

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    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 one year contracts sometimes, I think it defies 
belief to think of flood insurance as a one 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 long-term 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 one percent pay 33 
percent of the taxes.
    Mr. Sessions. The figure I have seen is 62 percent will pay 
one percent of the taxes this year.
    Mr. Linder. I think the numbers are wrong. I think the 
number is the top one 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 four percent of the taxes. The 
top one 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 six 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' hard-earned 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 10-
year 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 trade-off. 
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 pay-go 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 long-term, 
virtually eternal commitments, maybe prescription drug coverage 
for everybody under Medicare, or long-term 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 prepared statement of Ms. Phillips follows:]

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    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 long-term solvency and fiscal stability of Social 
Security and Medicare, and Medicare is part of the on-budget, 
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 five years into the future are 
off by the average amount that its projections five years into 
the future have been off as a percentage of GDP for the last 15 
or 20 years, then its projections for five 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 
Gramm-Rudman 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 on-budget 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 eight 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 ten 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 ten 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 ten 
years in a row. A ten year freeze at the current CBO inflation 
assumptions is a 23 percent real cut in services by the tenth 
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 temp 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 prepared statement of Mr. Greenstein follows:]

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    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 mid-1970s, when large deficits of two percent of 
GDP occurred, they were rare. When they did occur, there was a 
quick correction. The deficit quickly disappeared. But 
beginning in the mid-1970s, 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 mid-1970s, 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 six 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 ten 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 prepared statement of Mr. Muris follows:]

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    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 one-sided 
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 set-aside 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 pay-go 
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 pay-go 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:]

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    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 on-budget 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 long-
term 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 on-budget 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 one retired in 
1935. It is now approaching two for one. 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 long-term 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. Seventy-four 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.
    [Questions and answers submitted for the record]

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    Mr. Linder. Thank you all. The hearing is adjourned.
    [Whereupon, at 12:25 p.m., the committee was adjourned.]


     H.R. 853, THE COMPREHENSIVE BUDGET PROCESS REFORM ACT OF 1999

                              ----------                              


                         Thursday, May 13, 1999

                  House of Representatives,
                                Committee on Rules,
                                                   Washington, D.C.
    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, Pryce, Diaz-
Balart, Hastings, Myrick, and Reynolds.
    The Chairman. The Rules Committee will come to order. We 
are here for the further consideration of hearings on H.R. 853. 
Yesterday we had a fascinating group of outside witnesses as 
well as the lead authors of the legislation. Today we have set 
aside time for Members to testify on comprehensive budget 
process reform. We are very pleased to welcome our first 
witness, the distinguished gentleman--who wants to go first? 
Both of you are distinguished gentleman.
    Mr. Gekas. I am yielding.
    The Chairman. We are happy to recognize the very 
distinguished gentleman from Michigan, Mr. Smith, and we look 
forward to your--what you told me is a two minute presentation?
    Mr. Smith. Yes, sir.
    The Chairman. It wasn't my request. Your time has just 
begun.

STATEMENT OF THE HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. Smith. Mr. Chairman, I appreciate that Rule 23, the 
"Gephardt rule," is repealed in here. But what appears is that 
you have replaced it with provisions that you can increase the 
debt limit as part of the overall joint resolution.
    And so on page 8, section 8, my interpretation of that 
provision of the bill says that you can still increase the debt 
subject to the debt limit, which would be sort of clouded in 
with the whole composition of the budget resolution. I don't 
see that as much different than what we have now.
    So I think there should be serious consideration, or at 
least I would request that an amendment be allowed so that we 
can vote on an increase on the debt limit separately. It just 
seems that it is so important in terms of where this country 
goes, the imposition that we put on future generations by 
clouding, whatever the correct word is, by incorporating a 
couple sentences in a huge joint resolution on the budget 
provisions that the debt limit will be automatically increased.
    So I think it would be a lot more reasonable if Members 
stood up and took a position as a separate vote on increasing 
the debt limit, simply because I think it is such an important 
part of not only our economic future and the reasonableness and 
honesty of government, but still making it a--having a little 
separate, more separate consideration for an issue that is so 
important; that is, raising the debt limit that our kids and 
grandkids are going to have to pay back.
    John, what I just said was my interpretation of this 
legislation still puts an increase in the debt limit, the 
national debt subject to the debt limit, and includes it as 
part of the whole joint resolution as a provision that can be 
there. I would just think that this should be a separate vote.
    The Chairman. Thank you very much, Mr. Smith. We appreciate 
you being here.
    Mr. Gekas.

    STATEMENT OF THE HON. GEORGE GEKAS, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF PENNSYLVANIA

    Mr. Gekas. Thank you. This is not news to the gentleman 
from Georgia or the gentleman from Florida nor to the gentleman 
from California.
    The Chairman. Possibly it is to the gentleman from New 
York. So he should--
    Mr. Gekas. Maybe I should make my remarks to him. I think 
the record does require me to postulate the rationale.
    The Chairman. The record doesn't require that. You do 
whatever you feel is appropriate.
    Mr. Gekas. In doing so, I am also making clear to the 
gentleman from New York what the legislation does. We have 
termed this legislation euphemistically as "instant replay." 
That is, at the end of a fiscal year, if an appropriations 
bill, any 1 of the 13, or all 13, have not been enacted by the 
Congress, then the next day, October 1, is an automatic instant 
replay of last year's budget.
    What does this do? This ensures that there never again will 
be a government shutdown. The legislation that is before us for 
your consideration amply considers that and incorporates it 
into the total budget picture that you are trying to formulate 
in this legislation. I am very appreciative of that.
    Since 1977, there have been some 17 separate shutdowns of 
government. That number is intolerable. That is almost once 
every year, almost every year. The most egregious one, and I 
reemphasize that every time that I have an opportunity to speak 
about it, when Desert Shield was being organized, when our half 
a million troops were being deployed to the deserts of the 
Middle East, during that period of time in December of 1990, 
while they were with musket in hand, our young people over in 
that desert, the government shut down. That is intolerable. 
They were actually armed, ready to do conflict for a government 
that didn't exist in one fashion, did not exist. We cannot 
sustain that. We cannot tolerate that.
    What our legislation here does, what your legislation does 
is guarantee that that won't happen again.
    One other thing. It is not just the Federal employees who 
are very supportive of this legislation--as you can imagine 
they would be, because it would mean that they would not have 
to worry about when to come to work, if to come to work, and 
when their next paycheck is to arrive. That is part of the 
mystique of all of this anyway. But more importantly perhaps, 
or equally as important, is the fact that contractors who do 
business with the government, they in their continuum of 
providing goods and services, come to a halt. It is costly to 
them. It is costly to the government and the taxpayers and 
causes havoc in the private workplace where these contractors 
depend sometimes very heavily on the revenue from a government 
contract to keep going in their business.
    On top of that, maybe a simple thing, but it was brought 
home several times. The shutting up of the Washington Monument 
or the Smithsonian Institute is a slap in the face to the 
American citizens. To go to the door of one our institutions 
and then be told that the government has shut down, they cannot 
enter. Although that is not--that won't bring the end of the 
world, it does show a crumbling, a little crumbling of our 
system that shuts off other citizens from their institutions.
    Anyway, these are the basic tenets of what we do. I have 
reviewed the provisions in the bill and they are--they do 
exactly what we intend them to do.
    One other fact which I cover very well: That is that the 
obligations that the government has as to Social Security, 
Medicare, et cetera, already set by other law, are unaffected 
by this, and they are guaranteed at whatever level their own 
computer indicates is due. So that the instant replay of last 
year's numbers may not apply to Social Security, but in all 
other respects, we have a continuing process that prevents 
government shutdown.
    Well, I don't know that Doc Hastings has heard this.
    The Chairman. Mr. Hastings has heard this.
    Mr. Gekas. I wanted to repeat it.
    The Chairman. We have a spectacular record that was 
developed on this issue. You see what we have done?
    Mr. Gekas. Yes, it is excellent. I am very happy about 
that.
    The Chairman. We appreciate your tenacity. It most likely 
would not have been incorporated in the bill if it were not for 
your regular appearances before the Rules Committee. However, 
we want to say there are other ways to get it to appear in 
legislation other than appearing before the Rules Committee.
    Mr. Gekas. I suppose there are.
    The Chairman. We appreciate your efforts on this very much, 
Mr. Gekas.
    Mr. Gekas. I do want to thank the three men who are facing 
me here because they have been here with me from the beginning 
on this. And now the two others are going to be imbued with the 
same fervor as the gentlemen from California, Florida, and 
Georgia.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Gekas follows:]

    [GRAPHIC] [TIFF OMITTED] T7496.107
    
    The Chairman. Mr. Goss may have a question.
    Mr. Goss. I think I understand it.
    The Chairman. We are starting to understand it.
    Mr. Goss. The issue is not one of comprehension. The issue 
is one of how to deal with it and how to take a good idea and 
put it into affect. I think that you know that has been a part 
of our goal. As I think that you know in our process, this has 
gotten a lot of attention. I can assure you that it is going to 
get a lot more, whether we want it or not, as we go along. We 
hope that you will be ready to explain it to some others.
    Mr. Gekas. We will.
    The Chairman. Mr. Linder.
    Mr. Linder. I do appreciate the issue.
    The Chairman. Mr. Hastings.
    Mr. Hastings. There was a witness that was critical of that 
provision of the bill, saying that this would cause the 
Congress to take the path of least resistance and therefore 
that would be the path that they would take, rather than to 
face up to the issue and pass appropriations bill. What do you 
respond to that?
    Mr. Gekas. We reject that. Each fear brings new areas and 
new areas of concern. The appropriators and Members of Congress 
that see something that needs to be changed in the next fiscal 
year are not going to be satisfied permanently with last year's 
numbers or last year's speeches with a particular piece of 
legislation.
    So this dynamism that the Congress has normally will carry 
to today when it comes to making sure that next year's 
appropriations bill does have features that are required by a 
majority of the Congress, even though for temporary purposes we 
have fallen back to the instant replay.
    Mr. Hastings. Thank you.
    The Chairman. Mr. Reynolds.
    Mr. Reynolds. I would just thank the gentleman for his 
insight and time.
    The Chairman. Mr. Reynolds is such a bright guy that he 
grasped it with your first presentation. They have improved 
over the years. We thank you very much and look forward to it.
    The Chairman. I just saw Mr. Barton. I believe he is our 
next witness and we are happy to welcome the gentleman from 
Texas, Mr. Barton. You are welcome to summarize your remarks.

STATEMENT OF THE HON. JOE BARTON, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman, other members of the 
committee, especially our Minority friends, here in spirit if 
not in person. I have testified before this illustrious group a 
number of times on budget process reform. I think with Chris 
Cox, myself, and Mr. Nussle a lot of progress was made in the 
last Congress--Mr. Goss, I should put his name in the loop. He 
worked very hard. So I do have a written statement and I will 
put it in.
    The Chairman. Without objection it will appear in the 
record.
    Mr. Barton. The main thing that I would ask you to do is I 
think this Congress really, really needs to move the bill. The 
process that we were working under was passed in the mid-
seventies.

It enhances the expansion of entitlements. It enhances the 
ability of a few Members, late in the session, to do back-room 
deals. It gives the President unusual power, again in light of 
Congress, if not to extort the Congress, to make it very 
difficult to maintain the spinning of the caps and things like 
this.
    I have not introduced a comprehensive bill in this 
Congress. I am going to do that in about two weeks. I am 
working on it right now. If you take the package that Mr. 
Nussle and Mr. Cox and myself, Mr. Salmon, and Mr. Goss put 
together the last Congress, we probably need to fine-tune it a 
little bit, but I think that would be an excellent package.
    Some of the elements are that I think we should go to a two 
year budget process. Not everybody agrees to that but we 
operate on a two year cycle. It would be good to have a two 
year budget process. I think that you eliminate the 
supplemental and you put in a rainy day fund to set aside a 
certain amount each year. You put definitions about what 
qualifies for emergency spending.
    And then in my bill, again this is somewhat controversial 
and I know the Chairman has a concern about this, but I put in 
a supermajority requirement in order to override the definition 
to take money out of the emergency supplemental account.
    I guess I will kind of end it there. I will put the 
testimony in the record. I would be happy to answer questions. 
I do again encourage you to try to move a bill as soon as 
possible. This would be one of the most important things this 
Congress could do is to change the budget process.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Barton follows:]

    [GRAPHIC] [TIFF OMITTED] T7496.108
    
    [GRAPHIC] [TIFF OMITTED] T7496.109
    
    The Chairman. As you know, that is why we are sitting here. 
It is a priority for us. You use the term "fine-tune." I think 
that we can do that, I hope, and come to an agreement.
    Mr. Barton. I stand ready to work with whatever group this 
committee or others may put together to make this happen.
    The Chairman. Thank you very much. We appreciate that.
    Mr. Goss.
    Mr. Goss. I also want to very much compliment the gentleman 
from Texas for his willingness to find middle ground. I know 
there are some things in your kit bag that you care very much 
about that you have been willing to leave out there so that we 
can get something good, but maybe not perfect in your eyes. 
That is the process this year. We have pledged to do that.
    Mr. Barton. Could I ask the Chairman a question? What is 
your timetable, Mr. Chairman? Do you have a definite timetable 
on this issue?
    The Chairman. Well, as you well know, definite timetables 
around here do have a tendency to move. But it is our hope to 
see the Budget Committee proceed with hearings on this next 
week. The Budget Committee is going to be holding hearings next 
week. And beyond that, about 2 weeks following their hearings, 
we look forward to marking this up.
    Mr. Barton. Oh, good.
    Mr. Goss. My staff has been told to do this in June. I hope 
that is possible.
    Mr. Barton. That is good news.
    The Chairman. Mr. Linder. Ms. Pryce.
    Ms. Pryce. Thank you, no.
    The Chairman. Mr. Diaz-Balart. Mr. Hastings.
    Mr. Hastings. No questions.
    Mr. Barton. I think that I am going to see your smiling 
face in about 15 minutes.
    The Chairman. Mr. Reynolds.
    Mr. Reynolds. No questions.
    The Chairman. Thank you very much, Mr. Barton. Thank you 
for your hard work on this issue.
    The Chairman. We are happy to now have the very 
distinguished cardinal, the gentleman from Ohio, who has some 
strong thoughts on this issue, Mr. Regula.

    STATEMENT OF THE HON. RALPH REGULA, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Regula. Thank you very much.
    The Chairman. It appears that you have no prepared remarks.
    Mr. Regula. I will send them over this morning. I didn't 
get back to the office, with school kids visiting from Ohio, 
but you may even have a copy here. I am here to speak about the 
two year budget. I worked with it as a legislator in Ohio. I 
have introduced legislation to establish a two year budget in 
every session since I have been here.
    Let me say as a Chairman of an appropriations subcommittee, 
I am even more aware of how important it is. I do a lot of 
oversight. We have had six or seven oversight hearings this 
year. I think that

if you are going to have good management, you need to find out 
what is happening and you need to visit, in my case, parks, of 
course, and so on.
    What I would see with a two year budget is you could do a 
lot better planning and the people in the field could do a lot 
better planning, because I know park superintendents don't know 
until maybe the middle of October what they are going to have 
for the year. Then pretty soon they are trying to put together 
next year's budget. They therefore cannot contract efficiently 
because they can only contract for a year at a time. They are 
in a one year time frame. In Congress we just don't have enough 
time to do oversight.
    What I would think would contribute significantly to 
improving management would be to have a two year budget, 
because you can deal with the interim problems with the 
supplemental, as we are trying to do right now. We finished up 
about 1:30 this morning and we are back in today. It is 
contentious and, of course, the supplemental becomes a train 
that is going to leave station. Our brethren on the other side 
find it very convenient.
    In any event, if you could do a two year time frame the 
first year of the session would be used to make budget and 
appropriations decisions. The second year could be used to do 
oversight to bring people in to talk about what works and what 
doesn't work. I find oversight hearings extremely valuable and 
it is good discipline for the agencies because they have to 
come up and justify their management. What I try to do and I 
think the other Chairmen do likewise, is to get some management 
discussions during these hearings. There is no reason when you 
are operating with a trillion and a half dollar budget you 
shouldn't think about management. Every company in the world 
does it or they don't survive.
    We have instituted a number of changes as a result of 
oversight hearings. For example, just a couple weeks ago we had 
the GAO do an oversight report on the Everglades. We are going 
to spend as you know, Mr. Goss, probably--I think probably 20 
to $25 billion before we complete that project. So we sent the 
GAO down, they did oversight over the project, they came in and 
testified before the subcommittee. We gave the opportunity for 
others involved to come in too. As a result, we will make 
hopefully better decisions in the allocation of the resources.
    So I see a lot of pluses to a two year budget. I believe 
President Bush supported it. There is just a certain amount of 
lethargy that keeps it from happening. Of course, frankly, some 
Members probably like the fact that an annual budget gives you 
more control because obviously you have got a bite of the apple 
every year. When you are on the Appropriations Committee the 
annual budget has some leverage involved; but I just think in 
terms of managing and being cost effective as a government on 
behalf of the taxpayers, a two year budget makes sense.
    We are making some changes on the way parks get their money 
for buildings and the way that they manage their construction 
budget. It is not that we will necessarily save a lot but we 
will be able to do more things that members would like to have 
done because we can spread the money further and get what I 
call more bang for the buck. So that is why I feel strongly 
that a twp year budget would be a good way to go.
    And one last thing, in 1987 we had in effect a two year 
budget agreement. It wasn't exactly a two year budget, but it 
was a projection of where we would be. In 1988, was about the 
only year that we got all thirteen appropriations bills out on 
time because we had a road map in place. We could think in 
terms of the two year cycle, and it worked. I would guess that 
we could well end up with another omnibus this year. That is 
not a good way to manage the federal budget and federal 
programs.
    [The prepared statement of Mr. Regula follows:]

    [GRAPHIC] [TIFF OMITTED] T7496.110
    
    [GRAPHIC] [TIFF OMITTED] T7496.111
    
    The Chairman. Thank you very much, Mr. Regula. The only 
question that I would pose is how--do you envision the 
appropriations process on two year cycles?
    Mr. Regula. Yes. You would appropriate for a two year 
cycle, because that would give the executive branch the ability 
to manage in a two year cycle. They could contract for services 
for two years and get a better price, obviously. And then the 
second year would be used to pass needed supplementals but 
would also be used more importantly for oversight and for 
visiting facilities.
    The Chairman. As you know, one of the priorities of this 
Congress has been policy and programmatic oversight, and trying 
to focus on that. I happen to concur that your proposal is one 
way to deal with that.
    Mr. Goss?
    Mr. Goss. I do, too. The problem is that no one is running 
from the debate on it at all. It is just that we don't hear the 
drumbeat. Some friends on the other side say, push, push, but 
we are just not hearing it. We are trying to find stuff that we 
can put in that is good for the process of reform.
    This is something that I find, when you start toying with 
it, is they haven't really given it the kind of thought that we 
have given it and people have to deal with these problems. I 
have looked at the pluses and minuses on it and I am convinced 
that there is time for a debate on it. I think this would be 
right to have a debate. I don't know how the debate would come 
out, but sooner or later--
    The Chairman. Would you yield for just one quick question? 
I wonder how your colleagues on the Appropriations Committee 
would respond.
    Mr. Regula. I think they would like the idea, because you 
certainly do a much better management job. I would daresay that 
private industry wouldn't even think about trying to operate on 
a one year cycle in terms of budgeting projections for plant 
improvements, et cetera, et cetera. I would hope your committee 
will bring in a couple of CEOs or CFOs to say from a management 
standpoint how they do it and how it works out in the private 
sector.
    Mr. Goss. I thank you, Mr. Chairman. I know that the 
business cycle, and how you do it and when you do it and time 
of year is very important. I agree that there is a lot of 
technical information that we need.
    In my own bill, the intelligence bill, we are required by 
law, because of the extra level of oversight needed, to do the 
oversight annually. I frankly don't want to change that. You 
have got to be on top of that to do the oversight job. But the 
leverage that is involved with the budget, I think is very 
important. I agree with you on things that out and about in 
normal business activity, day in and day out in this country, 
if we can improve management, this is a tool that ought to be 
looked at.
    Mr. Linder. I agree with you.
    The Chairman. Ms. Pryce.
    Ms. Pryce. Thank you, Mr. Chairman. I think that you have 
significance for this committee. I am happy to hear an 
appropriator come forward and say that this is a good way to go 
because I have seen some resistance or perceived resistance 
from that committee. It is good to have you here to show us 
that you all are not of that ilk. Thank you very much.
    The Chairman. Mr. Diaz-Balart.
    Mr. Diaz-Balart. It really makes a lot of sense.
    The Chairman. Mr. Hastings.
    Mr. Hastings. I agree with you, too. I have always felt 
that that is the way to go, precisely because of the reasons 
you said and because of the oversight aspect. You just don't 
have that many steps and pressures, particularly in your area 
that you deal with, contentious as they are. So if you put 
something in place and you don't know if they work or not 
because--well, I just think that you are right on. I appreciate 
it.
    The Chairman. Mr. Reynolds.
    Mr. Reynolds. No questions.
    The Chairman. Thank you very much Mr. Regula.
    Mr. Goss. May I give one piece of advice?
    The Chairman. Mr. Goss.
    Mr. Goss. You have heard here a little bit of an outpouring 
of appreciation for your wisdom. We find that our colleagues on 
the Budget Committee don't share that.
    The Chairman. Respect for his wisdom?
    Mr. Goss. I would very much appreciate it if you would 
spend some time with them.
    Mr. Regula. I understand.
    The Chairman. Thank you very much, Mr. Regula.
    The Chairman. Now, we are pleased to welcome the 
distinguished gentleman from Delaware, Mr. Castle. We are happy 
to have you here and your remarks will appear in their record 
in their entirety without objection. You are welcome to provide 
any kind of summary that you wish.

STATEMENT OF THE HON. MIKE CASTLE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF DELAWARE

    Mr. Castle. Thank you very much, Mr. Chairman. I would like 
the assumption that everybody here will read my prepared 
remarks thoroughly and I will refrain from reading them myself. 
And frankly, in your case and in the case of some of the others 
here, what I have to say is not necessarily original or new to 
a lot of people in this Congress. I have been talking about 
some of these issues almost since the day I arrived here. I am 
strongly in support of H.R. 853. I am only going to talk about 
certain portions of it, but I don't know any part of which I am 
not in support. I think the budgeting appropriation process is 
without a doubt the engine that drives the Congress of the 
United States. I think it is the portion procedurally of what 
we do that is most out of whack with what it should be.
    Frankly, it is my hope that you all, as I guess one-half of 
this with the Budget Committee as esteemed Members of Congress, 
lesser mortals such as myself, could never envision being on 
the Rules Committee, but you have the ability to really carry 
this. I just hope to the Lord that you will run with this. I 
just think this is really, really important.
    I am tired of the naysayers who say that we should not 
change the budget process. I think somebody needs to take a 
different look at it. I think that you all are in a position to 
do that. So more than anything else, I would have to say that 
if we are going to have a credible and responsive budget 
process, I think that is what has to happen.
    Just a couple of brief thoughts and I would answer any 
questions that you might have. One is I heard Mr. Regula 
testify to some of this, but I believe that the President 
should be a part of this process. The President is part of the 
financial process of how we spend money in the United States of 
America in a big way, and in my judgment should be brought into 
the process early on in terms of budget resolutions and signing 
onto it. If he or she does not like that, then he or she can 
veto it or come to the Hill and lobby or whatever it may be. I 
just think that is an absolutely essential part of it.
    When was the last time that we ever got through the 
appropriations process without a series of summons at the White 
House? And all of it springs from the budget resolutions which 
would pass here. So I am strongly in favor of that. I am also 
in favor of the two year budget and appropriations cycle. The 
planning that is needed for the long-range things which are 
done, in my view, needs longer term than one year, particularly 
when that one year ends up being less than one year because 
sometimes of the way that we go about our appropriations. 
Obviously, you could make adjustments in a timely fashion in 
off years if need be. But the whole concept of running two 
years to me makes all of the sense in the world.
    The part of the bill that I am most focused on from a 
personal point of view, because I have my own legislation and 
they adopted most of my legislation, is budgeting for 
emergencies. I don't know how many of you stayed up last night 
to see the conference discuss the emergency appropriations 
which is going on right now. Apparently it ended at 1 o'clock 
in some sort of a stalemate. I frankly don't watch a lot of C-
SPAN unless I am trying to figure out how I am going to vote on 
something. I don't stay awake at nights watching it. If I did, 
I would probably fall asleep. But there were people who were 
galvanized by this. Some probably stayed up until 1 o'clock, 
like watching a championship playoff game or something, who 
couldn't take their eyes off of it. And they were just amazed 
at what was going on here in terms of the people trying to pen 
in every program in the world.
    We don't have an emergency process in this Congress. We 
simply don't have it. What about our States? The States all 
basically have this. Just about all have some sort of emergency 
process. They appropriate the money and they have a process by 
which something is declared an emergency and then the money is 
spent. Only in the Congress of the United States have we 
reached the point where we ignore this altogether, and we have 
found, because we have trouble with our caps and budget 
resolutions in terms of what we appropriated to us, as we saw 
recently in the House-passed bill with the extra military 
expenditures. Only in the Congress of the United States do we 
have the system to avoid it, the cap problems, that avoid 
addressing the cap problems and is called add it to the 
emergency spending and making everything an emergency. Any need 
which is out there now becomes an emergency so that we could do 
this.
    I just think that it is an abhorrent process, one which is 
an extraordinarily difficult one, made more difficult, I might 
add, by this senate which believes in its filibuster rules they 
have to get 60 votes for everything. I say let them filibuster 
over there. Let them read from the Bible and the Constitution 
for a while. Let's stand up to some of the actions that are 
going on in the Senate of the United States.
    That is my view of it all. The bottom line is it is a 
process that I think is tried and true and failed completely. 
It is up to us in the House to make the changes which are 
necessary. I am not going to go through a lot of details of it. 
I think that some of you have been through this with me before. 
You know what we have tried to do. Essentially it is each year 
to appropriate a sum of money that would be for emergencies. As 
I said, they do it in the States now. That means that some 
first year you have got to start this. You have got to find 
that five or $6 billion dollars. You have got to squeeze it 
into an already tight budget.
    Our revenues are quite a bit higher than they were when we 
set the budget caps. I am not one to necessarily be persuaded 
that we have to hold the budget caps forever. Everyone winks 
about that, that we are not going to have budget caps in the 
end. I say we face this issue early on. What we need to do is 
this. By the way, I am far from a big spender. I just truly 
believe that we should spend adequately, and we are not doing 
it. You have to have a rainy day fund. We can set the amount 
based on looking back over five years or so. And it does come 
out to about five or $6 billion. It doesn't take a Kosovo in 
your consideration. You obviously have to have breakers on this 
in a sense so that if something significant happens you can go 
beyond it.
    But you would do this, you would have a definition as to 
what an emergency really is. You would have a panel that could 
review true emergencies that would be able to supersede some 
appropriator's interpretation of what an emergency may be, 
which would be a process to go by. You wouldn't have to get 
into this incredible offset fight that we have now with respect 
to what we as a Congress, and particularly Republicans, are 
trying to do.
    I happen to believe in offsets now. But if you have it as 
part of the appropriations process, you would get away from 
that. I think that is something that we should do as well. It 
also means, by the way, that communities which are devastated 
by the tornados and hurricanes and earthquakes would get their 
money in a faster sense. It also means there would be a review 
process for that. I can tell you right now that those 
communities, the smallest ones to the biggest State out there, 
are submitting claims that are probably close to--I was going 
to say "fraudulent," but strike that word and say "excessive," 
because they figure they get a percentage of this.
    If we had some sort of system for review of emergency 
requests, that would be extraordinarily helpful, too, something 
that is missing as far as the Federal Government is concerned.
    All of this has to be within existing budget limits. It 
would be part of the budget process. Whether or not it ended in 
that in terms of determination of who metes it out with 
appropriations or budget is something that could be resolved by 
any of you, I suppose, but I just think that we absolutely need 
to address is. Frankly, this is about the third or fourth year 
in which we are getting into a situation in which we going into 
emergency spending as a way of trying to do things that we need 
to do. We have a series of appropriations bills, I would say 
two or three maybe four or five emergency appropriation bills 
that aren't going to get done. We are going to sit down with 
the White House sometime in October or November and have this 
big combat and get a bill that none of us can handle, which 
John and the Democrats as well as the Republicans are going to 
say is excessive. It is just not a good way to go about our 
business in my judgment.
    I come to you, pleading with you, because this is something 
that virtually everyone agrees on. It should be done. But there 
is always some handful of people out there that have more power 
than some of us do that manage to stop this. I would hope that 
you all with the strength that you have would really run with 
this and hopefully do something about it.
    The Chairman. Thank you very much, Mr. Castle.
    [The prepared statement of Mr. Castle follows:]

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    The Chairman. We appreciate your being here and for the 
time and energy you have put into this. I have had discussions 
with you about this before. I know that we will continue. We 
are hoping that we will be able to move as expeditiously as 
possible and have it in this legislation. Your thoughts will 
certainly be taken into consideration.
    Mr. Goss.
    Mr. Goss. I would like to bottle that and spread it around. 
It is very encouraging to hear that kind of enthusiasm for 
this. I really mean that. This is not a task that has ignited a 
lot of what I would call colleague interest, mostly people who 
are concerned about it, and people say somebody ought to do 
something. We seldom get a member ready to jump in the fracas 
and I very much appreciate that.
    Mr. Castle. I am equally as enthusiastic with the 
intelligence authorization.
    Mr. Goss. That fine.
    The Chairman. Mr. Linder.
    Mr. Linder. Did you have a two year budget in Delaware?
    Mr. Castle. No, we did not. That is a good question, 
actually. Most States do not. I never pushed for it, in 
fairness, but we had a bond process. So all of your long-term 
spending was tied up in that. You didn't have aircraft carriers 
tied out over seven years, or whatever it may be. You had a 
process by which any long-term spending you had was put into a 
bond bill and understood from that point of view. Plus we would 
report on the--in a longer-term sense, too, we had reports on 
it. But we were handicapped by the Federal Government. We 
weren't sure what they were going to do each year. We would 
have to go back each year and review it. It is a smaller 
problem, a more manageable process so we are able to do it.
    I think there is a difference between the States and the 
Federal Government. However, I think the States should be 
looking more at this, too, in terms of longer-term planning. 
But their processes, I think, lend themselves to a little bit 
of longer-term planning now. It is a little bit of a simpler 
process. We did not have it in Delaware. We are not pushing for 
it in Delaware; that is, the present Governor is not pushing 
for it.
    Mr. Linder. Have you looked at the question of a capital 
budget?
    Mr. Castle. I have looked at that question. I am a capital 
budget fan, obviously, in the way that you don't go into the 
market necessarily quite as clearly in terms of debt. But I 
think it helps tremendously with the planning. Most people know 
where things are to separate all of that out and do it 
separately. I am not sure that is in this bill or not, but I do 
personally support that concept. I have not really reviewed it 
in terms of how you would actually do it. I get personally 
frustrated when you have long-term projects going on in the 
Federal budget. I don't think it gives you a very good picture. 
It takes a genius to figure out what the heck is in all of the 
appropriation bills, as we all know. I think some sort of a 
separate capital budget, long-term budget process, at least in 
terms of designation, would be in order.
    The Chairman. Thank you. Mr. Hastings.
    Mr. Hastings. Did you have a capital budget in Delaware?
    Mr. Castle. Yes, we did.
    Mr. Hastings. Was that constitutional limits or bonded 
indebtedness or constitutional indebtedness?
    Mr. Castle. Actually, we did not. We had a very high bonded 
indebtedness for various reasons which never made me very 
happy. But we did have constitutional limits in terms of 
expenditures. Delaware had an Economic Financial Advisory 
Council. Boy, could we use that down here. We have got to get 
something like it. Basically, it was made up of both political 
parties, public and private experts, and they projected what 
the revenue was going to be each year. You could not exceed 
that revenue.
    Mr. Hastings. By the Constitution?
    Mr. Castle. Actually put in the Constitution. We had a 
rainy day fund, which I think was equal to five percent of the 
budget. Then we had another two percent set-aside which was a 
little softer than the rainy day fund. We had a huge budgetary 
problem back in the seventies. That is when all of this 
happened. You could spend the two percent a little more easily, 
but I don't think that we spent the rainy day fund yet. We 
carried it over from year to year.
    For various reasons, my recommendation here is to use it to 
retire debt and then reappropriate it the next year. We carried 
it over. We had two stops before you would get outside the 
budget. We didn't even get close to that amount.
    We have now, I think, the highest financial rating of any 
State; if not the highest, the next category down. I think that 
we just went to the highest with a handful of other States 
because of a lot of the budget processes which we adopted. We 
also, by the way, reduced our per capita debt tremendously in 
spite of the fact--
    Mr. Hastings. The reason that I ask that, Washington State 
has a constitutional limit. I don't know what the figure is. 
Statutory is lower, but you need some sort of mechanism like 
that on capital funding. We don't have that here. By the way, I 
was one of those that stayed up and watched Congress until I 
saw my issue addressed, and then I went to bed.
    Mr. Castle. I don't want to ask what the issue was.
    The Chairman. Thank you very much. Mrs. Myrick.
    Mrs. Myrick. I too thank you. I am real encouraged by what 
you had to say. I agree with you completely. I think that some 
of the points you made are especially important, having done a 
budget for a city, not a State.
    Mr. Castle. Maybe as big as Delaware.
    Mrs. Myrick. It is anymore. But we had a separate capital 
budget as well. It is very simple to do that. You know exactly 
what you are spending and when you are spending it. It just 
makes so much sense as well as the limits. We have a AAA bond 
rating still, and had it for many, many years. That contributes 
to it.
    The Chairman. Thank you very much, Mr. Castle. We 
appreciate you being here and again for your very thoughtful 
remarks. We look forward to continuing to work with you on 
that. Thank you.
    The Chairman. We are now very happy to welcome as our final 
witness today, the distinguished Ranking Minority Member, the 
gentleman from South Carolina, Mr. Spratt.

STATEMENT OF THE HON. JOHN SPRATT, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF SOUTH CAROLINA

    Mr. Spratt. Thank you, Mr. Chairman. I am happy to have 
this opportunity. I am sorry I don't have the required number 
of copies of my statement. I got a copy of it from my staff 
last night. I took it home and worked on it until late last 
night and managed to save it in such a way that I reinstated 
the original document and wasted all of my effort.
    The Chairman. Welcome to the 21st century.
    Mr. Spratt. That is what you call leading with your left.
    Mr. Chairman, I am grateful for the opportunity to testify 
about H.R. 853 because the bill is comprehensive, wide-ranging 
and covers all kinds of items. I think it is critically 
important that we study it carefully and I would like to call 
attention to several provisions of it. I don't want to slight 
or diminish the work that Mr. Nussle and Mr. Cardin and others 
on the task force put into it, but I take exceptions to the 
major provisions of the bill. There are parts of it that I 
think are positive, but on the whole I am not convinced that it 
moves the ball forward. I am a big believer that if it ain't 
broke, don't fix it.
    We last made major changes in the budget process in the 
Budget Enforcement Act of 1990. Since 1992 this process has 
helped us from a deficit of nearly $300 billion to a surplus 
this year of more than $100 billion.
    I am not here to tell you that we can't make improvements 
or shouldn't make improvements in the budget process, but a 
budget process that helps us improve the bottom line by $400 
billion in seven years ought to enjoy some presumption that it 
is working in the right way.
    If there is a Congressional majority that can agree upon an 
overall plan, the process that we have got allows that majority 
to make a budget plan and implement it. We did that in 1997. 
There is a will to do it. Last year we didn't do it because 
there was not a will, not a common majority to get it done. If 
we are in earnest and do have some kind of consensus, what we 
have got in the budget process that is on the books now are 
quite a few enforcement tools, so that the broader outlines of 
the plan can be laid down, not just for 1 year but many.
    We are typically now budgeting for at least five years and 
this year we ran our projections of the budget in both houses 
for ten years.
    Let me mention four main concerns that I have with the bill 
before you. The first is with the provisions of this bill that 
we can statutorily--the Pay-As-You-Go requirement. The second 
is with the automatic continuing resolution, the automatic CR. 
The third is with the movement that this bill would make 
towards a joint resolution, a law rather than a concurrent 
resolution. The final is with the way that this bill will take 
the budget resolution and diminish it substantially, strip it 
down to just a few bare bones essentials, aggregate spending, 
aggregate revenues, and the resultant deficit of the surplus: 
the 20 spending functions that are now typically the House's, 
Congress's opening expression of our priorities. Our only real 
programmatic statement of a budget would be put in the 
committee report, diminish in staff. So would the 
reconciliation instructions be taken down a notch by putting 
them in the committee report rather than the text of the bill 
itself.
    Let me first mention weakening the so called Pay-As-You-Go. 
I think you would agree this is one of the disciplines that has 
helped us get from huge deficits to substantial surpluses. This 
bill would repeal the requirement that entitlement increases or 
tax cuts be fully offset. It will allow projected on-budget 
surpluses to be used as offset.
    Now, the problem is the same for entitlement increases or 
tax cuts, but let's take tax cuts as an example. Suppose a tax 
cut is enacted that uses up all of the projected on-budget 
surpluses. You can understand easily these projections are 
over-optimistic. Congress will be faced down the road with 
several choices: a large tax increase, a large entitlement cut, 
a large discretionary spending cut, sequester, none of them 
pleasant choices.
    Basically, I don't think that it is wise in any event to 
invite the wiping out of our on-budget surpluses or even a 
large portion of it until we have actually squared up and dealt 
with Social Security and Medicare for the long term. I don't 
think that it is safe to run our projections far into the 
future, five, ten years. That has been notoriously unreliable. 
Keep in mind that the CBO's projection of the surplus of twelve 
months' time has increased by $750 billion over a period of ten 
years. Anything that goes up by $750 billion in ten years can 
come down by $750 billion because it is all in the commerce 
construct. It is on paper. It is not a reality yet.
    I have a problem, just willy-nilly across the board saying, 
okay, we don't need this rule that has helped discipline us 
since 1990. We can dispense with it now and allow on-budget 
surpluses to fully offset even entitlement increases or tax 
cuts.
    This budget bill would also turn all existing discretionary 
appropriations into capped entitlements. That may come as a 
neurotic surprise to you, but by enacting an automatic 
continuing resolution, that is the end result. That is the 
effect. Congress, if we have this automatic CR will no longer 
need to pass or even consider an appropriation bill. Right now, 
failing to appropriate is mostly unthinkable. It happens 
sometimes, but with an automatic CR, failing to appropriate 
could become routine.
    The risks are substantial to this institution, to both 
houses. I beg you to weigh these risks. Let me just suggest a 
couple of the unintended consequences that could ensue. We use 
"must pass" bills like appropriations, a way to define 
priorities each year, to get the President's attention, to make 
the agencies of the government more responsive to us. But it is 
poor tactics for us, I think as an institution, to give up 
these vehicles. This is the way that we assert ourselves.
    It would be unwise also, I think, to allow 41 Senators to 
kill regular appropriation bills by way of a filibuster. That 
is what an automatic CR would do. By the same token, it would 
allow the President to kill a regularly approved appropriation 
bill, if he preferred the status quo, by vetoing it. Then a 
small minority of the Congress could sustain the status quo in 
reference to any appropriation bill. These powers wouldn't 
enhance the ability of the majority to run this institution.
    In addition, this bill provides for something that I 
understand the purpose of, but I am not convinced is achieved 
by what it proposes; and that is, it calls for a budget 
resolution which is now a concurrent resolution to be made a 
joint resolution, which means the President would have to sign. 
I took part in the negotiations in 1997 between the President 
and the Congress. I think it was a constructive experience. I 
think that it is something that we ought to emulate. I think 
the President out to get engaged in the process earlier rather 
than later. We don't need to have this all crammed into the end 
of the year to be resolved in some patchwork process as it was 
last year.
    I am troubled by this provision to a joint resolution for a 
couple of reasons. The first is I think if we require the 
President to engage, we will just impede the budget process. We 
are required by statute and by joint resolution in those years 
where the President or the Congress, together or separately, 
really don't want anything resolved early. They aren't ready to 
make the compromises as we were in 1997 to reach a common 
agreement. If you have a strong-willed President who has 
decided that he is going to change the direction of the 
government, he can throw a monkey wrench into the whole budget 
process by simply extending the negotiations, holding out the 
prospect of an agreement, and then vetoing the resolution 
obstinately when it gets to him.
    By the same token, Congress can spin its wheels 
inordinately, trying to get a resolution like that. What 
happens when the resolution fails? This bill says, well, we 
don't have a fast track procedure so that if the President 
vetoed the resolution, he could bring the same resolution as 
the current resolution up on the House floor. In all 
probability, if you go that far down the road towards giving 
the President a resolution which you hope is a product of your 
negotiations he might sign, you would probably make concessions 
in it that you would want to withdraw before you put it into 
the form of a concurrent resolution and offered it as your 
resolution. You would want to start the negotiation over.
    What does that mean? We are into June, July. We are 
cramming the process into the latter months of the fiscal year 
once again. I don't think that helps us at all. Ironically, the 
bill, after having proposed it, we enhance the budget 
resolution by making it a law, a joint resolution which the 
President signs, turns around and diminishes the contents of 
the bill and the statute of the bill by stripping out of the 
bill the 20 function levels which, as I said, are the one 
effort that we make to give some sort of programmatic statement 
of our priorities across the board of Federal spending.
    It also takes the reconciliation instructions and, with the 
20 functional levels, puts them into the committee report, 
taking them down a notch in legal significance. The remaining 
resolution is a bare bones resolution. Now, we have engaged the 
President, invited him to negotiate, put off the budget process 
until we can reach some agreement, but what is the end result 
of the agreement? Aggregate spending, aggregate revenues, 
resulting deficit of surplus and some committee report language 
about funding levels and reconciliation. All of this effort 
comes to a very, very small end result, hardly worth achieving 
if we are really going to have budget reform.
    Let's go back to the one big compromise made in 1974 
contained still in 302(b) look at the 302(b) allocation 
process. If you are going to work towards a process where the 
President and the Congress are building on the foundation of a 
common budget where we have made our compromises and come to 
some accord, then that budget resolution has got to contain the 
elements of that accord.
    When we got to the end of the balanced budget agreement in 
1997, we had a problem as to how to state all of the things in 
binding form, semi-binding form that we just agreed to. How to 
do lay them out for a five year period of time? This bill 
doesn't begin to address that. Instead it moves in the opposite 
direction by reducing the budget resolution to some simple 
numbers that don't begin to address all of the disputes that we 
will have with the President over whether the money goes to 
defense or education, health care, or highway building. So I 
don't think that this is helping the process at all. I really 
think it may move the ball backwards instead of forward.
    Finally, Mr. Chairman, as I look at it, I am curious as to 
why the bill skirts some of the bigger issues. You and I were 
on the Hamilton committee dealing with legislative 
reorganization. We batted back and forth on biannual budgeting 
and didn't come to any clear settled conclusion about it. I 
think the conclusion we came to is that if we had biannual 
budgeting we would probably have a big appropriations process 
one year and a mini-process the next year. The supplemental 
would be a much bigger than the supplemental that we are doing 
now. You wouldn't get away in the second year of the biannual 
process of some sort of appropriation.
    Social Security. You have got a bill that is moving, I 
understand would deal with the segregation of the Social 
Security surpluses. That is something that we seem to be 
converging on the end at least, if not on the means, but there 
are other trust funds, as Mr. Shuster reminds us. This is a 
problem, too, that we should address. We have got a number of 
trust funds, over 150 in the Federal budget, which are 
dedicated and earmarked. The moneys that are collected and put 
into these trust funds are supposed to be spent on the 
dedicated purposes. But by and large, there are a lot of misses 
between the cup and the lip. There are a lot of cases where the 
money just doesn't get there because it is appropriated for 
other purposes.
    If we are going to do true budget reform, I think we 
probably ought to take a systematic look at that. As I said, 
anybody who wants to touch the third rail, 302(b), if we really 
are going to do budget reform, if we are really going to 
involve the President, that is the kind of allocation process 
we should be talking about institutionalizing.
    The Supreme Court also has invited us to do something when 
they threw out the item veto. We have had expanded and enhanced 
procedures on the floor. It is not the equivalent of an item 
veto but it is better than what we have got under the existing 
statutes. Certainly things like this out to be considered for 
inclusion in this bill.
    I have got a number of other things in my testimony which I 
will file for the record, where I think there have been 
positive contributions made by this bill and this task force. 
But I urge you, plead with you, to weigh these changes 
carefully and consider whether or not we are in many of these 
cases moving the ball forwards or backwards if we adopt them.
    The Chairman. So what do you really think of the bill?
    Mr. Spratt. I wouldn't vote for it in its present form.
    The Chairman. You have gone through extraordinarily well 
virtually every item in it. As I listened, I wanted to see if I 
could find something that you didn't touch on. One of those was 
the emergency fund.
    Mr. Spratt. I think they have got the basics of something 
that we should consider, but the mechanics still need to be 
worked.
    The Chairman. What do you see as the problem with that?
    Mr. Spratt. Well you can have big years of evaporations 
that would skew the average. I will tell you a problem we have 
had before with funding FEMA. If you put a lot of money in for 
FEMA or for any Federal agency, and at the end of the fiscal 
year if they haven't spent it, there is a great temptation to 
find places and ways to spend it. I remember we used to fund 
part of a--authorized part of FEMA's budget on the MILCON 
Committee in Armed Services. When we gave them the actual 
money, we found they spent it even though there weren't 
emergencies. We looked to see what they were spending it on. 
They were doing all kinds of paper consultancy contracts. All 
over the Beltway somebody had a contract working with FEMA 
because they had this money at the end of the fiscal year. So I 
think we need to get some refinement as to how much we should 
budget for emergencies, but clearly, we have got a good example 
now as to why we need more teeth, more discipline in the 
process of budgeting for extraordinary causes and emergencies.
    The Chairman. Thank you, John.
    [The prepared statement of Mr. Spratt follows:]

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    The Chairman. Mr. Goss.
    Mr. Goss. Your testimony is obviously very helpful. It is 
challenging. I think that we started out with a much bigger 
idea and we ended up sort of fishing for supper or fishing for 
a trophy. You are suggesting that we go back to fishing for a 
trophy. I don't disagree with the overall goal. I just don't 
think that we are going to be able to do it in one step. This 
is something that is going to take a process of education, 
constituent-building among our colleagues of what we are trying 
to accomplish.
    I do think the efforts that were made in the area we have 
singled out for debate on this are ripe. I think that the abuse 
on the emergency spending thing is egregious beyond 
description, as we are seeing that as we sit here. I think the 
problem of not getting the President on board up front is a 
serious problem. I agree there are problems in what you do 
downstream, but I still think it is worth getting in upfront.
    I think that the items that we picked, the little fishing 
that we are going after here, is a good place to begin this. I 
hope that it is not the final work, but I hope there is enough 
progress for people to say, yes, with a little effort we can do 
better, and maybe with a little more we can do better yet. So 
that is the way that I am looking at this.
    Mr. Spratt. Let me call your attention to one problem that 
is so bad you have to read it several times or you have to have 
somebody like Richard Kogan on our staff to read it before you 
can even discern what the problem is. The way that we read the 
bill, this bill, assumes that after discretionary spending caps 
expire in 2002 there is a presumption in forecast subjecting 
future surpluses and deficits, that the level of discretionary 
spending will be frozen at its level in 2002.
    Now, with that forecasting assumption, you have inflated on 
budget surpluses too. We all know, I think, that discretionary 
spending caps are already too tight. We are bursting the seams 
right now. To assume that these will be set at existing low 
levels and not increase over time and that on-budget surpluses 
will be a function of these is to assume, therefore, that on-
budget surpluses are going to be a lot larger than they really 
will be. That invites big tax cuts to be offset by these on-
budget surpluses that are not likely to materialize or, for 
that matter, entitlement increases, contributions to Social 
Security.
    Mr. Goss. What I guess we are trying to do is to get into a 
box where we can set up a process that works a little better, 
get a better result without some of the problems that we are 
seeing. We are trying some things out.
    I agree, if you take Alan Greenspan's pulse and you don't 
like it, the whole thing falls out; or Robert Rubin resigns, 
the whole thing goes crazy. What I want to do is try to get a 
process that gives us a better handle so that when something 
unexpected does happen, we don't have midnight sessions of the 
Appropriations Committee and conference reports going on ad 
nauseam, especially the Rules Committee, which fortunately our 
wise Chairman--
    Mr. Linder. --has kept to a minimum.
    Mr. Goss. Has kept to an absolute minimum. We look at this, 
and last year clearly was a benchmark. If we can't do better 
than that, we probably ought to give up trying. That is the way 
that I feel about it.
    The Chairman. Thank you. Mr. Linder.
    Mr. Linder. John, you mentioned the enhanced provisions or 
veto. I would like you to comment on that. The growing body of 
legal opinion is, I think, that the President already has the 
authority to item veto under any act of Congress. Each item is 
going to occur at some point or another in a subcommittee.
    Mr. Spratt. Well, I will quote no less a constitutional 
authority than Judge Bork, who said if the President has a line 
item veto, why is it that no President has noticed it in the 
last 200-odd years, including George Washington who presided 
over the Constitutional Convention and wrote a letter clearly 
stating that he did not have such authority. I think the 
Supreme Court's decision pretty well sealed that. An enhanced 
and expedited procedure simply says that the President likes 
something in the bill, he can send it back up here and shine a 
spotlight on it, make us vote on it within a fixed period of 
time, and it would be enhanced to the extent that it could 
apply to targeted tax provisions and things like that, as well 
as spending items. It is, I think, a constructive substitute if 
we can't have an item veto.
    I voted for the item veto. When I voted for it, I said I 
don't think this is constitutional, but I am willing to let the 
Supreme Court say whether or not it is. They said that it 
isn't. So we have got an alternative. I don't want to amend the 
Constitution, but I think that we can have statutory enhancing 
and expedited rescission that would give the President a little 
more leverage and help him cull out appropriation bills of all 
kinds of extraneous riders.
    The Chairman. Mrs. Myrick.
    Mrs. Myrick. Thanks for your really thoughtful testimony. 
The service that you do on the Budget Committee is very fair 
and I appreciate that. Again, the only other thing that I would 
say is I tend to wonder and question that the budget process is 
responsible for the balanced budget because I come from the 
other side; that I think that we did a balanced budget in spite 
of the budget process that we currently have.
    Mr. Spratt. Well, the discretionary spending counts, the 
PAYGO rules have helped. I was here before them and here after. 
I think they made a difference.
    Mrs. Myrick. I appreciate it.
    The Chairman. Thank you very much, Mr. Spratt. We 
appreciate you being here. Let me just state for the record 
that we are expecting testimony from our colleagues, Mr. Obey 
and Mr. Cox, and a couple of others so we plan to keep the 
record open for that. I am told that we may even have some 
testimony submitted from the Office of Management and Budget.
    The Chairman. This concludes the hearing and your entire 
statement will appear in the record, Mr. Spratt, without 
objection. With that, the hearing stands adjourned.
    [Whereupon, at 10:34 a.m., the committee was adjourned.]

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