[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
BUDGET REFORM PROPOSALS
FOR THE 111\TH\ CONGRESS
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, SEPTEMBER 25, 2008
__________
Serial No. 110-42
__________
Printed for the use of the Committee on the Budget
Available on the Internet:
http://www.gpoaccess.gov/congress/house/budget/index.html
U.S. GOVERNMENT PRINTING OFFICE
44-896 PDF WASHINGTON : 2009
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free(866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
NIKI TSONGAS, Massachusetts JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington JIM JORDAN, Ohio
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
Austin Smythe, Minority Staff Director
C O N T E N T S
Page
Hearing held in Washington, DC, September 25, 2008............... 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Hon. Jim Jordan, a Representative in Congress from the State
of Ohio.................................................... 2
Hon. Heath Shuler, a Representative in Congress from the
State of North Carolina, prepared statement of............. 3
Maya C. MacGuineas, president, Committee for a Responsible
Federal Budget and director, fiscal policy program, New
America Foundation......................................... 4
Prepared statement of.................................... 7
Richard Kogan, senior fellow, Center on Budget and Policy
Priorities................................................. 11
Prepared statement of.................................... 16
C. Eugene Steuerle, vice president, the Peter G. Peterson
Foundation................................................. 19
Prepared statement of.................................... 23
BUDGET REFORM PROPOSALS
FOR THE 111\TH\ CONGRESS
----------
THURSAY, SEPTEMBER 25, 2008
House of Representatives,
Committee on the Budget,
Washington, DC.
The Committee met, pursuant to call, at 2:07 p.m., in room
210, Cannon House Office Building, Hon. John M. Spratt, Jr.
[Chairman of the Committee] presiding.
Present: Representatives Spratt, Becerra, Doggett,
Etheridge, Baird, Moore of Kansas, Garrett, Conaway, and
Jordan.
Chairman Spratt. Let us proceed with the hearing. The work
of the 110th Congress is not yet finished. We still have work
to do, lots of it. At the same time, we need to look ahead to
the challenges that await us when Congress convenes in January
of next year.
So to that end, we consider today some of the proposals for
reform of the budget process that the next Congress may wish to
consider.
Just two weeks ago, we received CBO's latest budget
projections and they portrayed a daunting set of challenges.
Yesterday we heard again from CBO about the President's request
for $700 billion. The slump in our economy along with the cost
of the rescue package will only make the deficit grow larger.
One of the important budget questions that faces the new
Congress is whether or not there are changes in our budget
process that could be useful in producing a better budget.
The budget process includes procedures established in
statutes and rules that aid in considering and implementing
fiscal policies. The foundation of the budget process is ``The
Congressional Budget Act of 1974.''
And we are all familiar with budget enforcement measures
that have been subsequently passed by Congress, ``The Balanced
Budget and Emergency Deficit Control Act of 1985,'' also known
as Gramm, Rudman, Hollings, ``The Budget Enforcement Act of
1990, 1991,'' which established pay as you go and discretionary
spending caps, and, of course, ``The Balanced Budget Agreement
of 1997.''
More recently, the current Congress put some budget process
rules in the House rules package adopted in January of 2007 at
the outset of this session. New rules include a pay as you go
provision for legislation considered by the House as well as a
provision prohibiting the fast-track reconciliation process
from being used to increase the deficit.
During the next Congress, we will need to decide if we want
to take further steps and, if so, how we forge a consensus
about what those changes should be.
We have had previous hearings focused on two particular
proposals, one on pay as you go, statutory pay as you go,
another on the concept of an entitlement commission.
At today's hearing, we are going to broaden the discussion
and hear from witnesses about a much broader, wider array of
reforms. Among the proposals to be discussed today are some
ideas that have come up in our Committee previously, the idea,
for example, of an appropriations lockbox which Mr. Conaway on
our Committee, among others, has been an advocate for, and
various changes to House rules in a bill introduced by Mr.
Shuler.
After Mr. Jordan's opening statement, I am going to
recognize Mr. Conaway if he is here for an opening statement if
he wishes to make one.
And I am going to ask for unanimous consent to include in
the record a statement from Congressman Heath Shuler who has
introduced an important budget process reform bill and very
much wanted to be in the hearing today, but, unfortunately, he
had to be in his district to address the serious gas crisis
facing his constituency.
We will then hear from a distinguished panel of witnesses,
Richard Kogan, an alumnus of this Committee and a long-time
veteran of the budget process; Maya MacGuineas, President of
the Committee for a Responsible Federal Budget; and Eugene
Steuerle, Vice President of the Peter G. Peterson Foundation.
We welcome all of our witnesses and look forward to the
testimony.
Let me first turn to and yield to Mr. Jordan for any
opening statement he may wish to make.
Mr. Jordan. I thank the Chairman.
I want to thank Chairman Spratt for holding today's
hearing, particularly with this extraordinarily busy,
challenging, and possibly final week of session for this
Congress.
We on the Republican side agree with our friends on the
Democratic side about the need to reform the budget process so
that we can better address the fiscal problems facing our
country. We all want a fiscally responsible budget and I am
hopeful that today we can start a bipartisan discussion of ways
to fix the process so it can help us achieve these goals.
I believe the first step is finding better ways to control
discretionary spending, in fact last year offered a series of
zero growth amendments that would have lowered this year's
baseline of over $20 billion. I also introduced legislation
designed to create a Grace Commission 25 years after President
Reagan launched the first one.
In addition to looking at the Blue Dogs reforms and other
ways to add transparency and accountability to the process in
the short term, we must also consider what we can do to ensure
Congress takes control of entitlement spending over the long
term.
Most Americans would be shocked to learn that over half of
the federal budget and our nation's three largest entitlement
programs, Medicare, Medicaid, and Social Security, simply run
on autopilot. The only actual budgeting we do to these
entitlements is to include in the baseline whatever CBO tells
us that they are projected to cost. There is no annual setting
of priorities, no decision making, and, perhaps worse, no real
accountability for allowing these programs to grow far beyond
our means to sustain them.
Already we are in a situation where mandatory autopilot
spending constitutes over half of the federal budget and it
will grow to consume over two-thirds in just the next ten
years. This will condemn future generations to a crushing
burden of debt and taxes.
Unless we change this course starting immediately, not only
will our nation's entitlements grow themselves right into
extinction, they will also devastate our entire budget and our
economy in the process. We simply cannot allow this to happen.
On that point, I believe CBO Director Orszag said it well
at yesterday's Budget Committee hearing when he said given the
path we are on, we will ultimately wind up with a financial
crisis that is substantially more severe than even what we are
facing today.
This is serious stuff and it is a problem that gets
exponentially worse with every year we fail to address it. The
time to act is now and getting moving on common-sense budget
reforms is a good place to start.
We have certainly got the right group of witnesses here
today to further this discussion. And I very much look forward
to their testimony. I hope members on both sides of the aisle,
at least right now on the Democrat side of the aisle, take
those suggestions to heart.
I thank the Chairman.
Chairman Spratt. Thank you, Mr. Jordan.
And now a few housekeeping details. I want to ask to
unanimous consent that the written statement of Representative
Heath Shuler of North Carolina, sponsor of H.R. 484, be
included in the record at this point.
[The prepared statement of Heath Shuler follows:]
Prepared Statement of Hon. Heath Shuler, a Representative in Congress
From the State of North Carolina
Chairman Spratt, Members of the Committee: My budget reform
resolution is aimed at strengthening and increasing the transparency of
the budget process.
All too often, Members of Congress are forced to vote on
legislation without knowing its true cost implications.
This measure will ensure that Members have a sufficient amount of
time to properly examine legislation and determine its actual cost.
My budget process reform resolution would require that a full
Congressional Budget Office cost estimate accompany any bill or
conference report that comes to the House floor.
It requires that all earmarks and the name of the requesting Member
are publicly available online at least 48 hours before a vote.
It requires a written justification for each earmark and committee
reports to the Speaker and Minority Leader every six months to ensure
compliance with program oversight plans.
My resolution would ensure that lawmakers have at least three days
to review the final text of any bill before casting their votes.
It also requires that a roll call vote take place on any
legislation authorizing or providing new budget authority of at least
$50 million.
This will provide an unprecedented level of clarity and honesty in
the legislative process.
Mr. Chairman, I was honored to support many of the ethics reforms
passed in the 110th Congress.
However, I am disappointed that regardless of which party is in
control of Congress, Members are still expected to vote on important
and costly legislation with little to no time to review it.
We owe it to our colleagues in this institution and to the American
people to open up the budget process.
I urge the Members of this committee to support this resolution and
I want to thank the Chairman again for today's hearing.
Chairman Spratt. In addition, I ask unanimous consent that
all members be allowed to submit an opening statement for the
record at this point. Without objection, so ordered.
We were going to Mr. Conaway and we will simply make
provisions for him when he arrives.
Let us proceed now with our witnesses. We welcome you
today. Appreciate the time you are taking to prepare and to
come. And we will make your statements part of the record so
that you can summarize them as you see fit.
Let us begin with Ms. MacGuineas.
STATEMENTS OF MAYA MACGUINEAS, PRESIDENT, COMMITTEE FOR A
RESPONSIBLE FEDERAL BUDGET; RICHARD KOGAN, SENIOR FELLOW ON
FEDERAL BUDGETING, THE CENTER ON BUDGET AND POLICY PRIORITIES;
C. EUGENE STEUERLE, VICE PRESIDENT, PETER G. PETERSON
FOUNDATION
STATEMENT OF MAYA MACGUINEAS
Ms. MacGuineas. Thank you. Good afternoon. Thank you for
the opportunity to testify before my favorite Committee on one
of my favorite topics, budget process.
As recent events have made clear, the budget is under
tremendous strain and one of the most important rules of the
federal budget, of course, is to be flexible enough to respond
to the kind of crises that come along, whether it is war or
natural disaster or a Wall Street meltdown.
When you run large budget deficits year after year, your
hands are tied. And whether the package that is currently being
considered ultimately costs 100 billion or 500 billion or a
trillion, it will greatly affect the flexibility of the budget
in coming years, a budget that is already overstrained.
And because we are already living beyond our means, the
components of this package that are meant to stabilize the
economy could well do the opposite if the macro-economic
effects of excessive borrowing negatively impact the wider
economy.
In thinking about budget process in particular, there are a
number of items. I think you should start with thinking about
where the problems are and there are a number of ideas that I
would just throw out for consideration.
The first one is accounting and transparency. Many ways in
which we do federal budget accounting are confusing,
misleading, and nontransparent. The decision of when to use
cash or accrual accounting is not always clear. Costs that
appear to be beyond the budget window are not displayed in
basic budget documents. A variety of items from tax
expenditures to offsetting receipts to the government's
purchase of assets are accounted for in ways that are confusing
rather that illuminating.
Second, the most basic process of crafting the budget.
There are so many problems in this basic process starting with
the fact that when the President submits his budget, it can be
ignored by Congress. The budget that Congress ultimately adopts
can be toothless, can be ignored, and often is. There are
deadlines that we miss too regularly and probably most
important oversight is not built into the entire process nearly
as much as we would want it to be so that learning from the
past can help inform our decisions going forward.
Another issue is baselines. We are now in a confusing
situation where the two major Presidential campaigns are
working off of baselines that are different than those that the
Budget Committees or the Congressional Budget Office uses.
Having numerous baselines is the result of a number of factors
including that some policies are slated to expire while others
are not based on how they were passed, that revenues and
spending are oftentimes treated differently in the baselines,
and, of course, there is the desire of campaigns to use a
baseline that makes their policies appear less expensive, a
desire that I am worried will spread to Congress in the coming
years.
Another topic is oversight. Our current budget process
overemphasizes deciding how to spend money at the expense of
oversight. All programs in the federal budget should be
analyzed in detail on a regular basis and this includes
discretionary spending, mandatory programs, and also tax
expenditures.
Compartmentalization. Many policy issues need to be viewed
in a comprehensive manner. For instance, questions about what
investments best fuel economic growth or how to reform
entitlements should not be examined in a piecemeal fashion.
However, the compartmentalization of policy experts, the
political process, and Congressional Committees makes thinking
about these policies through an integrated approach more
challenging.
Then there is the long term. The budget process emphasizes
short-term over long-term interests and a more balanced
approach would require that we more thoroughly evaluate the
short- and long-term effects of the policies we put in place
today.
It is not meant to be an exhaustive list, but instead to
add to the discussion about what is broken in the budget
process today.
We commend Congressman Shuler and other members of Congress
who have focused on this area of the budget and developed
recommendations for reform.
I want to also touch on a couple specific areas that I
think would help improve the process going forward.
The first is budget concepts. Federal budget concepts
dictate how government accounts for its spending and revenues.
And this whole process has not been reevaluated since 1967.
Obviously the budget has changed dramatically since then in
terms of how we account for things like tax expenditures, the
purchase of assets, government insurance, GSEs, other public
pensions, promises, and revisiting concepts would be a useful
exercise.
In terms of development of the budget, it is important that
we have a more realistic time line that allows for all aspects
of responsible budgeting. Built-in evaluation measures should
be part of the budget and other changes would reconsider the
baseline to end some of the automatic growth in certain
programs that drives up baseline spending and to remove some of
the existing biases. Finally, mandatory spending must be
brought back into the budgeting process.
Enforcement. We continue to support tried and true measures
of discretionary spending, caps, and pay as you go rules. We
also think that it may be time to explore other methods such as
triggers and strengthening PAYGO and also adding a form of
long-term PAYGO.
Certainly no budget improvements will replace the need to
focus on policy. And on that front, we would like to commend
Congressman Ryan for his impressive work that he has done in
developing a roadmap for America's future where we do not
necessarily support all of the ideas in the plan and we do not
think real progress can be made until we start with the premise
that everything must be on the table. Moving towards specifics
is a useful step.
I want to toss out one idea that just came in discussions I
have been having today about the topic at hand, what to do
about the economy and the bailout.
It does dawn on me that if we end up having a package where
the government puts assets to stabilize, to increase liquidity,
and as a capital infusion and at the same time purchases or
ends up having some ownership of these companies, whether it is
through options or stock, we could face a situation where a few
years from now we suddenly have an influx of revenues that we
did not anticipate coming into the budget after borrowing $700
billion or some such amount to help with the current situation.
I would recommend that this Committee start thinking about
how to ensure that that money when it comes back to the budget
is directed directly towards paying down the debt. There is a
very real risk that that money comes in, we suddenly feel that
we are richer than we are, and that money gets spent on other
priorities. So some kind of mechanism to make sure that that
money contributes to debt repayments would be useful.
I want to end by saying that process improvements can
greatly help the budget or they can be a political punt. I
think that no matter what, process will have to be part of the
solution, but you do not want it to replace policy choices.
However, it may well be that starting with process is the
best way to begin this discussion because it is less polarized,
less political than the real policy choices, raising taxes and
cutting spending that need to be on the table ultimately.
So it may prove most useful for Congress to start with
something like budget concepts or other areas of the budget
where bipartisanship can help build a foundation for moving
into the more challenging pieces.
The Committee for a Responsible Federal Budget eagerly
awaits the opportunity to help you in any way that would be
useful. And thank you.
[The prepared statement of Maya MacGuineas follows:]
Prepared Statement of Maya C. MacGuineas, President, Committee for a
Responsible Federal Budget and Director, Fiscal Policy Program, New
America Foundation
Good morning, Chairman Spratt, Congressman Ryan, and Members of the
Committee. Thank you for the opportunity to testify--it is a privilege
to appear before this Committee on this important topic of budget
process reform.
I am the President of the Committee for a Responsible Federal
Budget. Our Co-Chairmen are Bill Frenzel and Leon Panetta and the Board
consists of many past Directors of the Office of Management and Budget,
the Congressional Budget Office, and past Chairs of the Federal Reserve
Board and the Budget Committees. Our focus is the federal budget and
related process issues. I am also the Program Director for the Fiscal
Policy Program at the New America Foundation, a non-partisan think tank
here in DC.
As recent events have made clear, the budget is under tremendous
strain. One of the most important roles of the federal budget is to be
able to meet the needs of the country whenever they might emerge. One
cannot always anticipate when these events will take place--but whether
it is a terrorist attack, a natural disaster, or a Wall Street
meltdown, you want the budget to be flexible enough to respond as
policy makers determine it should. When we run large budget deficits
year after year, your hands are tied. Whether the package that is
currently being considered ultimately costs $100 billion, $500 billion,
or a trillion, it will greatly effect the flexibility of the budget in
coming years--a budget that is already overly strained. And because we
have been living beyond our means in the past, the components of this
package that are meant to help stabilize the economy, could well do the
opposite if the macroeconomic effects of excessive borrowing negatively
impact the wider economy.
I have many further thoughts on the package to deal with the
economic crisis we currently face, but I will focus my thoughts here on
the important issue at hand--budget process reform.
In thinking about the types of changes that are needed to improve
the budget process, best to start with the question of where the budget
process is failing. Unfortunately, the answer is a lengthy one. We are
working with rules that are decades old and were created when the
budget, economy, and policy challenges were dramatically quite
different than they are today. The rules and concepts have been amended
in an ad-hoc manner resulting in a highly complex process. There are a
number of issues that hinder the budgeting process, including:
Accounting/transparency--Many ways in which we do federal budget
accounting are confusing, misleading, and nontransparent. The decision
when to use cash or accrual accounting is not always clear; costs that
appear beyond budget windows are not displayed in basic budget
documents; and a variety of items from tax expenditures, to offsetting
receipts, to the government's purchase of assets, are accounted for in
ways that often confuse rather than illuminate the government's
financial position.
Process--The most basic process of crafting the budget is no longer
functioning. The budget that the President submits to Congress is
completely divorced from the rest of the process. The budget that is
ultimately adopted by Congress is toothless and can easily be
overridden and regularly is. A central piece of the annual budget
process--the passing of appropriations bills--focuses on the smallest
part of the budget and leaves mandatory spending on auto-pilot.
Deadlines are missed with distressing regularity. And the entire
process is time consuming and contentious, yet fails on some of the
most critical aspects of budgeting--thoughtfully contemplating the
optimal allocation of government resources, and employing sufficient
oversight and evaluation of all the programs in the budget.
Baselines--We now are in the confusing situation where the two
major presidential campaigns are working off of baselines that are
different than those the Budget Committees or the Congressional Budget
Office use. Having numerous baselines--including ``current law'',
``current policy'', ``realistic'', and others--floating around reflects
a number of factors. Some policies are slated to expire while others
are not, based on the method that was used to pass them. Revenues and
spending are oftentimes treated differently in the baseline. And of
course, there is the campaigns' desire to make the task of trying to
pay for their policies easier by using a favorable baseline--a desire I
worry Congress may succumb to as well.
Oversight--The process of budgeting is not merely determining how
to raise and spend money but also evaluating the effectiveness of how
money has been spent in the past in order to inform future decisions.
Our current budget process over-emphasizes deciding how to spend money
at the expense of oversight. All programs in the federal budget should
be analyzed in detail on a regular basis. This includes discretionary
spending programs, mandatory spending programs, and it also includes
tax expenditures--the hundreds of billions of dollars that are run
through the tax code but bear a greater resemblance to spending policy
than tax policy. Currently, this area of the budget receives the least
oversight of all. If we don't take the time to evaluate the purpose of
government programs, determine whether the purpose is the best use of
limited federal dollars, evaluate the effectiveness of the program, and
apply tools such as cost-benefit analysis, we will surely misdirect
resources.
Compartmentalization--Many policy issues need to be viewed in a
comprehensive manner. For instance, questions about what investments
best fuel economic growth or how to reform entitlements, should not be
examined piecemeal. However the compartmentalization of policy
expertise, the political process, and the congressional committee
structure makes thinking about these policies through an integrated
approach extremely challenging. Worrying about congressional
jurisdiction and looking at policies with a narrow lens makes
thoughtfully updating our retirement, health, investment, and tax
policies nearly impossible.
Long-term--The budget process emphasizes short-term over long-term
interests. First, there is the basic political environment where
politicians are unavoidably affected by the short-term election cycle.
On top of that, the entire budgeting process emphasizes what will occur
in the next fiscal year and to a lesser extent policy effects
throughout the truncated budget window, while very little emphasis is
given to the long-term effects of the budget policies we put into place
today. It is true that policies can always be changed in the future,
but realistically once a policy is in place, it becomes entrenched with
its own constituencies and can be quite difficult to change. A more
balanced approach would require that we more thoroughly evaluate the
short and long term effects of the policies we put in place today.
This list is not meant to be exhaustive but instead, to add to the
discussion about what is broken in the budget process and what needs to
be fixed.
In the past, the Committee for a Responsible Federal Budget has
supported a number of budget reform ideas such as expenditure limits,
joint budget resolutions, dual sided pay-as-you-go rules, automatic
continuing resolutions, strict definitions for emergencies, rainy day
funds, proper distinguishing between spending and revenues, and
enhanced rescission. A detailed summary of these ideas is attached and
the full report, Federal Budget Process: Recommendations for Reform,
can be found at: http://www.crfb.org/pdf/2000/
RecommendationforReform.pdf. We continue to support these ideas, but as
we look forward to the problems that most plague the budget process, I
think the list will have to be expanded significantly.
We commend Congressman Schuler and the other Members of Congress
who have focused on this area of the budget and developed
recommendations for reform. There are a number of practical ideas in
Congressman Schuler's proposal that we think would improve the process
including efforts to increase the transparency of and the consideration
that goes into conference reports, increasing transparency of earmarks,
and strengthening oversight. Ideas such as these emphasize the need to
make the information readily available to lawmakers about the policies
and costs of the very dense bills they need to evaluate.
I will touch on a number of other areas for your consideration.
Budget concepts--Federal budget concepts dictate how the government
accounts for its spending and revenues within a complex budgeting
system. There has not been a full-fledged reevaluation of budget
concepts since 1967, when the government adopted most of the
recommendations of the President's Commission on Budget Concepts. Many
of these concepts need to be reevaluated in light of the fact that the
budget has changed drastically over the past 40 years. How we treat tax
expenditures, the purchase of assets, government insurance, GSEs, and
public pension promises are all examples of issues that could be
considered. It is time to once again convene a Budget Concept's
Commission to update our accounting practices and to help improve the
transparency of the budget.
Development of the budget--The process of developing the annual
budget must incorporate the most important aspects of responsible
budgeting. The timeline may need to be altered. Built-in evaluation
measures should be part of the budget. Though perhaps not on an annual
basis, this should take place for all aspects of the budget at regular
intervals. Congress should be forced to evaluate the trade-offs of
different policy choices. One way to force this evaluation is to
require that all new spending be paid for. The exercise of determining
how to fully fund the budget makes the costs of the policies more
transparent. Ending the blank check mentality forces Congress to deal
with tradeoffs between lower taxes and higher spending and to better
prioritize between competing spending proposals.
Other changes would include reconsidering the baseline to end some
of the automatic growth in certain programs that drives up baseline
assumptions, and to remove some of the existing biases. Finally
mandatory spending must be brought back into the budgeting process so
that there are checks on cost growth and more oversight of the nation's
largest programs.
Enforcement--We continue to support tried-and-true measures of
discretionary spending caps and pay-as-you-go rules. We think stringent
but realistic discretionary spending caps should be put in place and
that pay-go should apply to changes in taxes as well as mandatory
spending. We need to end the types of abuses that have plagued PAYGO in
recent years such as timing gimmicks, as well as strengthening
Congresses' resolve not to waive the rule whenever the going gets
tough.
We also need to go further. Though we do not have an institutional
position on when they should be used, many members of the Committee for
a Responsible Federal Budget believe that we should increase the use of
``triggers'' in the budget. This technique puts a backstop into the
budget so that when parts of the budget are breached and Congress fails
to act, automatic changes are made to put the budget make on course.
We are in a worse fiscal position then we were in when PAYGO was
first enacted. An important question is whether PAYGO could be
strengthened so that it does not just keep things from getting worse,
but rather is designed to encourage, and when necessary, force action
to improve the fiscal situation. This could take many forms, but one I
will propose is that when the deficit and/or unfunded liability numbers
reach a certain point as a share of GDP, perhaps a ``Super PAYGO'' that
would require new costs to both be offset and paired with some level of
deficit or unfunded liability reduction, would kick in. I also support
a long-term PAYGO that restricts the level of future promises we make
so that it is somehow connected to what we pay in taxes today. So for
instance, one might put in place a requirement that future projected
spending as a share of GDP can not exceed more than three percentage
points of what taxpayers pay in GDP today. There are many varieties of
such a mechanism, but the point is to restrict how much Congress today
directs future generations to fund.
Certainly no improvements to the budget process will be sufficient
to fix the budget mess we are in. Ultimately this is a policy problem
more than a process problem and we will have to fix our taxing and
spending policies in order to deal with the tremendous imbalance as we
face. For all the clever ideas we discuss today and others in the
process arena, if you and your colleagues agree to a plan that raises
revenues and/or cuts spending by enough to significantly close the
fiscal gap--that would be a far more important accomplishment.
On this issue we would like to commend Congressman Paul Ryan for
the impressive work he has done in developing his ``Roadmap for
America's Future'' which lays out how he would reform the budget to
conform with his principles. We do not necessarily endorse the
particulars of the plan, nor do we believe that real progress can be
made until all sides agree that everything has to be on the table
(meaning that no particular policies can be marked ``off limits'', not
the people have to be willing to embrace particular policies they
oppose), but we do think the exercise of getting specific is a huge
step forward and we are grateful for Congressman Ryan's efforts in this
area.
However, it may turn out that the best way to ease Members of
Congress who are resistant to participating in meaningful budget reform
into the necessary exercise is to start with process first. Certain
areas such as budget concepts, have not become overly politicized and
lend themselves to bipartisan efforts which will help lay solid
foundation for future larger efforts. My belief is that we should work
on developing ideas that would improve all aspects of the budget from
concepts to enforcement to policy and see when there is a political
opening to move on any of these crucial ideas.
The bottom line is that if politicians choose to spend more than
they are willing to pay for, if we spend more time creating next year's
budget than analyzing the effectiveness of last year's, and if we
continue to kick the can down the road on entitlement reform, no amount
of process improvements will fix the budget. Ultimately, the most
important components of responsible budgeting are the people involved
in the process and the decisions they make. No matter what rules we
create, what hurdles we develop, or what restrictions we build-in,
Congress can always bypass them if they are not consistent with the
policy goals to which Congress is committed.
I would like to close by saying we at the Committee for Responsible
Federal Budget deeply appreciate the work of the House Budget
Committee. We are strong admirers of the work of Chairman Spratt,
Congressman Ryan and this Committee as a whole. Much like running a
group called the Committee for Responsible Federal Budget, where I
regularly have to turn to my colleagues at my think tank and say, yes,
but how are you going to pay for it? being the Committee that pushes
for thoughtful budgeting is not always appreciated as it should be. So
thank you for the work you do, thank you for having me here today, and
I look forward to your questions.
appendix 1
Committee for a Responsible Federal Budget Reform Proposals
The Committee for a Responsible Federal Budget, in collaboration
with experts inside and outside of government, developed a list of
budget process reform recommendations that we believe will be useful in
improving the efficiency, transparency, accountability, and outcomes of
the budgeting process. These recommendations include:
Joint Budget Resolution--Currently, legislators labor under
multiple budgets and multiple baselines. This greatly confuses the
budget process and makes competing choices and their related trade-offs
more difficult to evaluate. Under a Joint Budget Resolution, Congress
and the President would agree on the broad fiscal goals that would
guide budget decisions in a given year. Bringing the President into
budgetary negotiations earlier in the process would help avoid the
showdowns that can occur at the end of the process if Congress and the
President are working on different tracks with different priorities.
Additionally, the switch to a Joint Budget Resolution would create a
higher level of accountability and better define when limits have been
breached; thereby making it more difficult to ``bust the budget.''
Expenditure Limits--The budget resolution should include
enforceable nominal dollar limits for both discretionary and direct
spending. In the past, statutory limits have proven to be one of the
most effective approaches to instilling discipline into the budget
process. However, limits must be set at a reasonable level. As we saw
in the 1990s, reasonable caps can be extremely effective; unreasonable
ones are routinely ignored, contributing to the breakdown of the
process. As direct spending continues to grow as a share of the budget,
it is important to consider different ways to control this area of the
budget.
Pay-As-You-Go--The PAYGO principle, which requires that revenue
reductions and direct spending increases be offset so as not to
increase the deficit, remains a crucial budgeting principle that should
be reinstated in full force. PAYGO will not improve the fiscal
imbalances we currently face, but it will prevent them from getting
worse. The Committee believes that it is necessary to apply PAYGO to
both sides of the budget--spending and taxes. Otherwise, there will
always be strong incentives to run spending programs through the tax
code in order to avoid the requirement of offsetting the costs. The
prescription drug program would have had to have been paid for rather
than debt financed and revenues lost from the tax cuts would have been
offset, had real PAYGO been in place over the past few years. It is
worth pointing out that for those who would like to control the growth
of government spending, offsetting tax cuts with spending reductions
should be seen as a desirable policy, not a problematic one.
Biennial Budgeting--The budget process does not leave nearly enough
time for oversight. Congress spends a significant amount of energy
trying to meet specific deadlines--which are often missed--and spends
too much time during the annual appropriations process repeating work
it did the previous year. One potential improvement would be to move
budgets, appropriations, and tax cycles to a two-year budget cycle.
This would free up more time for program review, strategic planning,
oversight, evaluation, and reform. That said, there are legitimate
concerns about two year budgeting regimes. It is quite likely that we
would see a dramatic increase in the number of supplemental
appropriations bills--something that is already problematic. We believe
that strict restrictions should be developed to control supplemental
spending. As is the case today, supplementals should only be used in
the case of emergencies, not as a means to increase spending in general
budget areas--the incentives for mischief could be larger with two-year
cycles.
Automatic Continuing Resolution--All too often Congress fails to
reach agreement on its regular appropriations bills. We recommend an
automatic continuing resolution at or below the level of spending caps
contained in Budget Resolution to be used as a stopgap funding measure.
Automatic continuing resolutions should be restrictive to create an
incentive for Congress and the President to agree on regular
appropriations bills rather than falling back on the continuing
resolution.
Strict Definitions for Emergencies--The need for changes to our use
of supplementals is illustrated by the emergency supplemental that was
just passed in the Senate. Emergency supplementals should not be used
to pay for normal government operations. In the past few years, many
defense-related activities that should have been financed through the
normal appropriations process have been funded through emergency
supplementals. More and more, non-defense related spending has also
been creeping into these bills. As the Chairman of this Subcommittee
has highlighted, one merely has to look through the recent supplemental
for many egregious examples. ``Emergencies'' should be carefully and
narrowly defined, and there must be strong rules governing related
expenditures. Otherwise emergency funds will continue to be employed as
a way to add additional spending not contained in the budget. As my Co-
Chairman Bill Frenzel has pointed out, supplementals have becoming a
money machine. Once it became accepted practice to use supplementals as
a money machine for regular defense spending it was only a matter of
time before advocates of domestic spending started to look to the money
machine for their programs as well.
Rainy Day Funds--The impact that a disaster such as Katrina can
have on the federal budget is a reminder that the government should be
planning and budgeting for such emergencies. While we never know when
and in what form the next natural disaster will occur, we know that
they do occur with unfortunate regularity. The Committee strongly
supports the use of ``Rainy Day Funds.'' Such funds would require that
Congress set aside reserve funds reflecting average costs of past
years' disasters to prepare for unforeseen, disaster-related costs. As
noted above, what constitutes an emergency would have to be carefully
and narrowly defined. While in all likelihood the costs of Katrina
would have exceeded the amount in a Rainy Day Fund, the presence of the
fund would have left the federal government in a better starting fiscal
position to cover these costs. Also, when emergency costs exceed the
level in emergency funds, Congress should exercise greater restraint in
the rest of the budget to help offset unanticipated costs.
Proper Distinguishing Between Spending and Revenues--We are
currently unable to accurately measure the true size of government. We
label spending programs as ``tax cuts,'' tax receipts as ``fees,'' and
revenues as ``negative outlays.'' This level of complexity greatly
decreases the transparency of the budget and the slippery definitions
make it virtually impossible to accurately describe the size of
government relative to the economy. The true size of government is
probably greatly understated. This would never be tolerated for a
private company, nor should it be for the federal government. To
improve this misleading approach to accounting, there should be strict
limits on any receipts scored as negative outlays. Activities that have
all the characteristics of spending programs should not be scored as
tax expenditures.
Enhanced Rescission--The Committee supports enhanced rescission.
The President should be able to identify and suggest the elimination of
wasteful or low-priority spending programs while Congress should be
given the chance to weigh in before funds are withheld or canceled.
Chairman Spratt. We thank you. We will come back to you on
questions. But let us turn next to Richard Kogan.
STATEMENT OF RICHARD KOGAN
Mr. Kogan. Thank you, Mr. Chairman. It is a pleasure to be
back here.
Those of you who do not know, I spent much of my formative
years on the staff of this Committee, 21 years on the staff of
this Committee. And so I have seen more of the ins and outs of
budgeting than any sane person would ever want to.
I am here today----
Chairman Spratt. Let me say that I think you formed us more
than we formed you.
Mr. Kogan. Thank you.
I am here today pretty much in the position of a naysayer.
That is to say I do not think that there is anything inherently
wrong with the Congressional budget process the way it is now
designed. It is now designed to allow Congress to make budget
targets if it wishes to and adhere to those budget targets if
it wishes to so that it has a budget of its own that it can put
up contrary to or complementary to the President's budget.
All of that has worked many times in the past and can work
to the extent that the leadership and the majority in both the
House and the Senate are committed to whatever it is they
initially agreed to.
The problem is forming majorities other than transient
majorities. And here I say that the problem is serious because
the majorities that do not exist now are the majorities of
people who would say, ah, these are the twelve taxes I would
like to increase and here are the eight spending programs that
I would like to reduce and how I would like to reduce them and
here is who would lose benefits under those.
These sorts of people tend not to be elected to Congress to
begin with. I blame the voters for that, not the members.
Why is it so difficult to enact difficult legislation?
Well, of course, this is in some sense a repetitive question.
The question answers itself.
But beyond that, I think that the reason that the budget
process does not produce more fiscally responsible outcomes is
that it is embedded in a legislative process which is
inherently inefficient. It was created by the founders to be
inherently inefficient.
The founders were more concerned about strong government
taking away individual liberties than they were about
government being not able to operate very efficiently and
quickly to address problems. And so they created both a House
and a Senate. And the Senate created a filibuster rule. And
they created a President who had a veto power over what the
House and the Senate might do if the House and the Senate were
even able to get together.
They created a system in which passing legislation is hard.
And they did this with conscious aforethought. We are embedded
in that system. We, the budget process, are embedded in that
system. And so, therefore, I think that the difficulty you have
in creating budgets and getting the House and the Senate to
agree on a same budget, even when the House and the Senate are
of the same party, of actually implementing the budget if it
calls for any sorts of hard choices at all, are simply endemic
to the normal structure of American politics under the
Constitution.
There is ample historical precedent for my view. Between
the founding of the Republic and the 1860's the preeminent
public policy question was the question of slavery and Congress
could not successfully address it. It was stuck in gridlock. It
was stuck in gridlock for 70 years. It could not address it.
After the Civil War, it took 100 years before a ``Civil
Rights Act'' and a ``Voting Rights Act'' were enacted.
Since the founding of the Republic, it took until the new
deal until unions were recognized or Social Security was
created or unemployment compensation was created even though
those ideas had been around for, oh, easily one of those
centuries.
And that was an exceptional circumstance. That was a
circumstance in which all the levers of government were held by
overwhelming majorities of one party, something which does not
happen during normal times and is not necessarily good for the
country during normal times.
So I think that we are back in the normal situation in
which difficult problems cannot be resolved under the
Constitution. Therefore, my idea of what budget process reforms
would be would be Constitutional changes that would make the
legislative process more efficient.
I am not advocating these because I think the balance
between efficiency and liberty which the framers consciously
thought about may not be the wrong balance. It may not be a bad
thing that it is so hard to do the right thing through
legislation. I do not know the answer to this.
I do know, however, that if you want the budget process to
be more efficient, then the things you need to think about are
not the, in essence, small bore items that various members and
other experts can and have proposed and that I have proposed in
the past, but rather big bore items. We could have a unicameral
legislature, for example, or we could have a parliamentary
democracy in which the unicameral legislature selected the
President. Then there would be a majority to pass a budget.
Short of these drastic steps, we could amend the
Constitution to provide for public financing of all primaries
and elections and the prohibition of independent political
expenditures. This would take a Constitutional amendment. I am
not sure that this is a good idea, but it would possibly
insulate Congress from the pressures that make it difficult to
legislate.
Another possibility is to amend the Constitution to
eliminate the Senate's filibuster rule, strengthening
majorities, weakening minorities. Again, where you stand on
that depends on whether you happen to think you are in the
majority or the minority at any particular time.
A smaller bore Constitutional amendment might be to
establish a national nonpartisan redistricting commission with
the sole authority to draw Congressional districts, to balance
the competing goals of compactness and competitiveness. If
there were 400 competitive districts rather than 70 competitive
districts, perhaps there would be more members who would be
drawn towards the center or pulled screaming towards the center
more willing to compromise.
And then again, maybe not. I am not sure that any of these
is a good idea, but I do believe that these are the sorts of
things you need to think about if you want to make the
legislative process more efficient.
Okay. I have asserted that there is nothing fundamentally
wrong with the Congressional budget process per se other than
its being embedded in the Constitution and being part of the
normal legislative process.
Let me make this point in an entirely different way. I have
a graph. No graph appears? Okay. I guess I do not. I have a
graph. Okay.
Mr. Kogan. This is a graph of debt as a share of GDP since
1790. As you can see, during large parts of the nation's
history, it was customary for the debt GDP ratio to fall. You
do not need to balance the budget to do that, but you do need
to run small deficits. You need to run a debt that grows more
slowly than the economy grows so that the debt burden shrinks
in relative terms from year to year.
You also see that there were sudden large upsurges of debt
on rare occasions, Revolutionary War, the Civil War, World War
I, World War II, the Great Depression, and I might add the
Reagan budgetary experiment which in a budgetary sense at least
was not a success.
Okay. That is it for the entire history of the United
States. To my mind, this does not indicate a budget process
failure under any of these budget processes that existed during
that period. It was not the budget process that was responsible
for World War II or World War I or the Revolutionary War or the
Civil War, nor the Great Depression for that matter.
If you go to the next version of this graph, however, you
will see that Congress had a habit of responding to large run-
ups of debt by changing the budget process. This to me
indicates non sequitur. Congress sees that the debt has
increased dramatically and says to itself, oh, my God, we
better change the budget process.
That is wrong. If it was major wars that are the sole major
cause of large debt, then instead of changing the budget
process, perhaps you need a stronger ``War Powers Act.'' I say
this not at all facetiously.
But the history of this in which we wrote the Constitution
after the Revolutionary War, we split the appropriations from
the Ways and Means Committee after the Civil War, we wrote
``The Budget Accounting Act'' right after World War I, we wrote
``The Legislative Reorganization Act,'' which told
Appropriations to do omnibus appropriations bills rather than
13 separate appropriations bills right after World War II, you
know, all of that indicates that we are missing the point.
It is not the budget process that causes debt. In general,
it is external forces. To the extent it is bad decisions made
internally, those decisions can be made, the biggest one of
those decisions, the decision in the beginning of the Reagan
Administration to hope that large supply side tax cuts would
produce so much economic growth that they would largely pay for
themselves was a process that took place under the existing
budget process and took advantage of the reconciliation process
to facilitate the enactment of that decision.
So I cannot conclude from looking at the historical
evidence or looking at 200 years of history of legislation that
there is anything fundamentally wrong with the budget process
other than that the public situation makes it hard for members
of Congress to do the right thing as there is always a
different body and there is always a different President who
can chop you off at the knees.
There is one final point I want to make which is contrary
to some extent to one of the points that Maya made. She talked
very correctly about the long-term budget difficulties that we
face. I think that all of us on this panel and all of you from
the Committee see the same pictures that CBO and GAO commonly
put out in which a debt explosion basically unlike anything we
have seen before, even unlike World War II, threatens us 30,
40, 50 years out if we stayed on the current path and did
nothing about it.
Obviously that cannot happen. The question is, how do you
change it? Since it takes changes in legislation and since I
have just in a very sort of pessimistic way pointed out how
hard it is to make legislative changes, what do you do?
Well, one of my Maya's answers is perhaps that we should
take an even greater focus on the long term. And that is the
sort of logical answer that someone who has been trained as I
am, I was trained as a political scientist, would give. But
because academics really believe that if you present the facts
to people and look at them logically, they will make logical
decisions. Okay?
I grew up in academia. I worked here. The academics are
wrong. And so the solution, to my mind, the solution, this
solution of taking a longer scale look has already been tried
and to some extent has been a failure. Specifically when ``The
Budget Act'' was first created, budget resolutions were one-
year documents. They focused on the appropriations numbers, the
tax numbers, the entitlement numbers for the budget year only.
It became clear that there are ways to gimmick the system.
You would start tax cuts or entitlement increases that began on
the last day of the fiscal year and had no cost and then grew
later and that were outside, therefore, the purview of ``Budget
Act'' controls.
And for that reason and because also even back in the 1970s
and 1980s people were beginning to worry somewhat about the
long-term picture, it was decided to make the purview of the
``Budget Act'' somewhat greater. So we informally and then
formally made it a minimum of five years rather than one year.
My sense of it is that that experiment has been at best a
wash and at worst a failure. By doing five-year budgets rather
than one-year budgets, by doing ten-year budgets when we chose
to and we could choose to, we allowed members of Congress, we
allowed the President to say, ah, look at my trajectory. Yeah,
it looks really horrible this year, but, look, the deficit is
going down. It will be cut in half in five years. It will
disappear in three years. We will have surpluses in eight
years, whatever.
And they, therefore, avoided having their attention focused
on what we were doing this year. They even allowed themselves
to enact budgets one after another in which we made the first
year's deficit worse. We increased spending programs, cut taxes
in the first year under budget projections that would show
increasingly tight spending controls that we were not willing
to impose in the first year, but leading to much better
outcomes.
It almost allowed us to sabotage our best instincts. It
gave us a talking point about why the budget was responsible
when, in fact, budgets did little or nothing to improve the
situation in the first year, sometimes made it worse.
And so my conclusion is that if we expanded this to take a
30-or 50-year view of it in the formal budget process, then we
would get proposals which would solve problems with legislation
that would take effect first 30 years out. It would not affect
any of us and any of our constituents, any of our voters. And
so we could promise tax increases first effective 30 years from
now or benefit cuts in Social Security first effective 40 years
from now or squeezes in Medicare reimbursement rates that do
not squeeze anything in the first, second, or third year, but
eventually get so tight that they are unsustainable, sort of a
maxi view of the sustainable growth rate, the physician
reimbursement problem that we now have where we in 1997 had a
path that would squeeze down Medicare by squeezing doctor
reimbursements and then every single year starting in 1999
since then, we undid the squeezes.
If we have a long-term budget whereby we can even enact
into legislation provisions that cannot survive politically,
that it will be first effective 30 years out, then the pressure
to do something real now is even smaller than it already is.
So my recommendation to you, even though we all know we
have a very serious long-term problem, is to focus more on what
you are doing this year. If you really mean to cut
appropriations, do not put in a cap that really starts to bite
three years from now or five years from now. Cut this year's
appropriations bills. Stand up and vote no. Vote for an
amendment that cuts money out of appropriations bills.
My organization would probably oppose many of those cuts,
but at least it is something real you can do. If you think
revenues are inadequate, vote for a tax increase that takes
effect now, not scheduled ten years from now or something of
the sort. If you cannot do that, stop bemoaning the budget
process, change the Constitution.
Thank you very much for your time.
[The prepared statement of Richard Kogan follows:]
Prepared Statement of Richard Kogan, Senior Fellow, Center on Budget
and Policy Priorities
are fundamental changes needed to the congressional budget process?
Chairman Spratt, Mr. Ryan, thank you for inviting me to testify on
the Congressional budget process. While I am currently employed by the
Center on Budget and Policy Priorities, this testimony represents my
own views. Those views have been shaped by my 35 years in this field,
including 21 years staffing this Committee.
Today I would like to make two points. First, I see no fundamental
problems with the congressional budget process, but I do see
fundamental problems with the legislative process as a whole--and short
of amending the Constitution, I don't know how to correct them.
Second, I think that in most cases, focusing on the long-term
effects of budgetary decisions may be doing as much harm as good.
Let me elaborate.
it's the legislative process, not the budget process
It is becoming harder to pass congressional budget plans in the
House or Senate than it used to be, and it is becoming harder for the
House and Senate to compromise on a budget plan--even when both
chambers are nominally controlled by the same party. By the same token,
it is becoming harder to pass appropriations bills on time (or at all),
even when those bills are consistent with the congressional budget
plan.
Yet these difficulties are not confined to the congressional budget
process. Here are two other examples. Climate change, fueled by the
increase in greenhouse gas emissions, seems to pose a very serious risk
to our future well-being. And there is even wider public agreement that
the existence of 11 million illegal immigrants in the United States
can't possibly be optimal, either for them or for the many who are
fortunate enough to be here legally. Yet despite widespread agreement
that something should be done, comprehensive legislation dealing with
immigration or with climate changes seems out of reach.
Why is this? Why does legislative gridlock seem to be getting
worse? And what can be done about it?
My answers are not encouraging. I think it is difficult to enact
legislation addressing major issues such as climate change or
immigration reform--or the long-run debt problem, for that matter--for
two reasons.
The public wants easy, costless solutions. But there are
no easy and costless answers to illegal immigration, and especially not
to climate change or to the long-term debt explosion. We need to elect
candidates who explain which taxes they will raise and which major
programs they will cut. I don't see many such voters.
The framers of the Constitution designed a system under
which major legislation requires the concurrence of a determined
majority of the House, a supermajority of the Senate, and the
President. They very deliberately sacrificed legislative efficiency;
they made the conscious decision that life, liberty, and the pursuit of
happiness by individuals was more likely to occur if the federal
government was slow, inefficient, and constantly at odds with itself.
As I see it, partisan rancor and an inability to address big issues
has been the norm, not the exception. The federal government miserably
and catastrophically failed find a legislative solution to the biggest
single problem it ever faced--the problem of slavery. Since the whole
point of politics is to resolve disputes without one side killing,
torturing, or imprisoning the other, the first half of the 19th century
and the resulting Civil War can surely be thought of as the biggest
political failure in U.S. history. But there have been other failures
of great consequence, such as the fact that it took from the founding
of the republic until the 1930s to legalize the unions, and it took a
century after the Civil War to pass a Civil Rights Act and a Voting
Rights Act. Political failure is the norm, not the exception, and it
has nothing to do with the congressional budget process.
Why do the problems of legislative gridlock and partisanship seem
to be getting worse? My answer is that the Great Depression and its
aftermath have finally worn off and politics in America has reverted to
the bad old days. It seems to me that the Great Depression of 1929-
1933, and the extremely long recovery from 1933 through 1946, was a
unique time in US history, a time in which the natural inefficiency of
the US legislative system was overcome by the fact the Democratic Party
gained an overwhelming control over all the levels of government. This
led to the enactment of much legislation that could never otherwise
have been enacted (the legalization of unions and other protections for
workers, a minimum wage, deposit insurance, effective bank regulation,
Social Security, and so on). This overwhelming partisan control also
encouraged many Republicans to become somewhat accommodative, so that
they could influence the shape of legislation to a certain extent
rather than being entirely ignored.
But that era has passed; the two parties now have a far more equal
chance to control Congress than from 1933 through 1992. Moreover,
modern polling, fundraising, and political advertising make it far less
likely that one party will control more than two-thirds of the House
and Senate; a party that finds itself on the losing side of some public
issue is far less likely to walk itself over a cliff. So the politics
that were endemic from 1789 through 1932--partisan warfare, gridlock,
and an inability to address major social or economic issues--have
returned and if anything are even more strongly entrenched.
How do we change this? Most ideas would require constitutional
amendments.
We could have a unicameral legislature.
We could even have a parliamentary democracy, in which the
unicameral legislature selects the President. But legislative
efficiency is provably greater under parliamentary democracies (if
paired with single-member districts and therefore a two-party system),
there is nothing inherent in a parliamentary democracy that instills
any special wisdom in either the electorate or the Members.
Short of this drastic step, we could amend the
Constitution to provide for public financing of all primaries and
elections and the prohibition of independent political expenditures.
This could help at the margins by diminishing to some extent the
influence of special interests. But to be frank, legislative
inefficiency, partisanship, gridlock, and shortsightedness are not
caused by special interests, only exacerbated by them.
Another option is to amend the Constitution to eliminate
the Senate's filibuster rule and ban supermajorities generally. Again,
this is a step towards making our government a bit more like a
parliamentary democracy, in which the minority party has less ability
to slow down or halt legislation. This would improve legislative
efficiency, but removing filibusters may not improve the quality of
legislation.
A final option is to amend the Constitution to establish a
national, nonpartisan redistricting commission with the sole authority
to draw congressional boundaries and the mandate to balance the
competing goals of compactness and competitiveness. A reasonable case
can be made that if the number of competitive districts were closer to
400 than to 70, there would be fewer diehard partisans and so a greater
willingness to compromise rather than to create gridlock for partisan
advantage.
I have asserted that there is nothing fundamentally wrong with the
congressional budget process per se, although it is imbedded within an
inefficient and often dysfunctional legislative process. Now let me
make this point in an entirely different way.
The graph I am now displaying shows the level of debt--as a
percentage of the economy--from 1790 through the present, using data
provided by the Congressional Budget Office. As is immediately evident,
throughout its history our nation has noticeably increased debt under
three and only three circumstances: major wars, the Great Depression,
and President Reagan's failed budgetary experiment. You will also
notice that virtually every major increase in debt--that is, every
period of extremely large deficits--was followed by some change to the
budget process.
After the Revolutionary War, we first tried the Articles
of Confederation and then the Constitution.
After the Civil War, the Appropriations Committee was
split off from the Ways and Means Committee.
After World War 1, the Budget and Accounting Act was
created, so the Cabinet Secretaries would not unilaterally ask for
their own budgets but would become part of an organized, overall budget
presented by the executive branch.
After World War 2, the Legislative Reorganization Act
provided that there should be omnibus appropriations, so each
appropriations subcommittee could not just head off on its own.
And after the end of the failed Reagan experiment (it
turns out that you can't balance the budget by enacting huge tax cuts
and huge defense increases, even when, as Reagan did, you get 80% of
the domestic cuts you request), Congress negotiated a budget summit
agreement in 1990 that, among other things, created the Pay-As-You-Go
rule.
As this brief history makes clear, Congress seems to be most
interested in budget process reform when deficits get out of hand. I
suppose this is human nature, but a look at the facts strongly suggests
that far more often than not, big deficits are caused by major wars, or
major economic calamities--not by any failure of the budget process. I
therefore suggest, quite seriously, that a strengthened War Powers Act
might be the best piece of budget process legislation you could enact.
You might add a strengthened system of regulatory oversight of the
financial world, so that their periodic brainstorms don't drive the
real economy into the tank.
If neither of these appeals to you, I would suggest raising taxes
and cutting major programs. But, as Rudy Penner famously pointed out
more than a decade ago, the process is not the problem; the problem is
the problem.
the long-term vs. the short term
I have a second, briefer point that I'd like to make. When the
Congressional Budget Act was signed in 1974, it created a system for
annual, one-year budgets. Not surprisingly, Members focused on what was
in front of them. If they believed the deficit for the coming year was
going to be too high, they felt some duty to raise revenues in that
year--or at least forgo some tax cuts--and to cut programs in that
year--or at least forgo some program increases. In short, they designed
budgets that made an immediate difference, and then tried to implement
them. Admittedly, this was not easy.
Within a reasonably short amount of time, however, some members
realized they could squeeze into a one-year budget a tax cut that
started small but then grew in the outyears, or a program increase that
started small but then grew in the outyears. Budget process experts,
including me, concluded that we would be able to enforce budget
discipline more effectively if we expanded the budget horizon to five
years or even longer. Formal multiyear targeting was enacted in 1990 as
part of the Bipartisan Summit Agreement.
I believe in retrospect that multiyear budgeting has probably done
as much harm as good--maybe even more. The reason is twofold. First,
with the focus being on a multiyear path, both the president and
Congress could focus on the slope of the curve rather than on any
immediate actions they might take to raise taxes and cut budgets. If
the path showed a steep downward slope, they could brag about their
plans to ``cut the deficit,'' or eliminate the deficit in three years
or five years or whatever. This talking point seemed to obviate the
need to do anything real about the budget during that Session of
Congress; the path got them off the hook.
In fact, legislation might be enacted that would increase costs or
decrease revenues in the short run while appearing to do the opposite
in later years; goodies would be distributed immediately, the path of
deficit reduction would appear even steeper, and a fiscally virtuous
eventual result would appear even more likely, when in reality it had
been made less likely.
Worse yet, it was especially easy to massage the outyear numbers so
that the multi-year path always looked good. One method was to assume
an improving economy. Another method was to assume that normal
appropriations for the functioning of government programs could and
would be squeezed in the outyears--in real terms, or in real per-person
terms--in a way that Congress was evidently unwilling to do in the
budget year. Assumptions that were even more egregious could be made,
such as that ongoing costs--of wars, or tax cuts, or natural disaster--
would simply disappear in future years.
My firm conviction is that Congress generally acted more
responsibly when its budget horizon was only one year than when it was
longer. I suggest that this one of many cases in which the rule of
unintended consequences has trumped the predictions of budget
theorists.
Chairman Spratt. Thank you, Mr. Kogan.
Of all the connections I expected to hear today, the
relationship you drew between reapportionment of the budget
process was the biggest surprise.
Mr. Steuerle, Dr. Steuerle.
STATEMENT OF C. EUGENE STEUERLE
Mr. Steuerle. Thank you, Mr. Chairman, members of the
Committee. It is a privilege again to join with you this time
to try to address one of the nation's most daunting challenges,
restoring sensible balance to the long-run budget of the
government of the United States.
I would love to engage Richard in a bit of history, but I
am going to avoid that for the time being and merely indicate
that I do not think anybody here on this panel is arguing the
budget process creates our debt crisis. However, all the
decisions that Congress and the President makes goes through
processes. And including those processes are the ways that they
gather information, the rules by which votes can be taken, and
ways that they consider both appropriations and mandatory
spending. And these processes which are inevitable are one step
that inevitably has to be decided on the way to any type of
reform.
The urgency of our fiscal situation has recently been
intensified by the immediate budget demands imposed by the
collapse of several major financial institutions. There are
disturbing parallels between the factors that contributed to
this mortgage and debt related crisis and the deteriorating
fiscal outlook of the United States Government.
Most importantly, there is a dangerous disconnect between
the parties who benefit from various practices and those who
pay the price while both public and private sectors have failed
to mitigate the related risk in the face of clear and
compelling warning signals.
Just think about it as you consider this agreement to deal
with the financial crisis, where do you think the money is
going to come from? If you do not deal with the long-term
budget to be able to pay for it, at least in the long term,
then are you planning on borrowing more from abroad or maybe
you are planning on printing more money? Either way, the
financial crisis is added to the risk from our failure to deal
with the long-term budget and vice versa.
In my testimony, I suggest budget reform should focus on
three areas. One, changing the budget process in a way that the
long-term budget is considered first. Second, setting up
various devices such as commissions that have teeth as ways of
trying to address real long-term reform. And, finally, and not
least important, reporting on the budget in a way that elected
officials are held accountable both for changes that are newly
enacted and the changes that they allow to take place that have
already been built into the law.
I will touch only very briefly on several mechanisms that
might be employed in these regards. The important point in
restoring confidence to our financial markets is that something
be done now.
Now, before getting into details, we must address briefly
the nature of the problem. Put simply, never before in the
nation's history has so much been promised to so many people
for so many years in the future.
If you look over the vast history that Richard put up on
the board, you will see that the long-term budget until only
about the last couple decades was always in balance. And there
is a simple reason. The budget on the expenditure side and in
terms of most of the tax breaks to the extent they existed were
discretionary in nature. Revenues grew with the economy.
Eventually those revenues would surpass the expenditure levels
that had been ordained in the past. There was no built-in
growth into most programs and so the long-term budget was
always in balance. And then the fiscal issue, which is
important, was how to deal with the short-run budget.
Today it is just the opposite. No matter how much Congress
works to get the short-run budget in balance, under today's
procedures, under today's laws, I should say, the long-term
budget is always imbalanced. And now consider what this means
when you lock in this type of imbalance.
Among other things, our federal budget today churns to
provide a very low share of the budget for children,
continually decreasing shares for investment and for programs
that might enhance opportunity, continually decreasing shares
of an old-age budget for those people who are really old, a
strong encouragement for people to retire now for one-third or
more of their adult lives, and within healthcare, greater
rewards for acute healthcare than prevention, greater rewards
for chronic treatments than for cures, and greater rewards for
specialization than primary care.
Those are built into the laws and they are built in in a
way that allows the Congress and the President not to address
them at all in any one year.
To achieve these various negative results, we are borrowing
more, saving less, investing in our future less, and increasing
our reliance on foreign lenders. This, I would argue, is a
budget for a declining nation.
To make this more concrete, it appears that under current
law, sometime between 2015 and 2020, revenues will be
sufficient only to cover the cost of Social Security, Medicare,
Medicaid, a smaller defense establishment, and interest on the
debt. Nothing, nothing is left over for children's programs,
for infrastructure, for justice, for running the departments of
government, or even turning on the lights in the Capitol.
Now, how did we reach this point? Over most of the first
two centuries of the United States, Congress did not put a
long-term budget into imbalance for one simple reason. As I
mentioned, most programs were discretionary in nature.
With the significant growth of permanent mandatory programs
and with the growth in permanent give-aways in the Tax Code, we
have moved further and further away from a discretionary budget
over which Congress, the President, and, most importantly, the
voter have much say. This makes absolutely clear that true
budget reform must first deal foremost with these automatic
growth features.
So the first set of suggestions I make, and, again, the
details are in the testimony, is that reform move away from a
budget process almost entirely geared toward the short run. The
short-run focus is given an extraordinary incentive for
Congress and the President simply to move the cost of
government actions, both spending increases and tax cuts,
outside the budget window.
Now, one way to change that budget process is to ask that
the President first submit a long-term budget. Another
possibility is that Congress request from the President that he
submit a budget where mandatory spending in no future year is
projected to exceed some fraction of total spending such as 50
percent.
Now, I agree that I am only at this point trying to capture
control of symbols by the ways we present things, but those
symbols are extraordinarily important. It does not ensure that
solutions will be adopted, but it does give the long-term
budget the attention it deserves and does not get now.
Now, the second set of reforms I want to mention are ones
that are obvious to you in other lights and that is that we
move directly to reform programs themselves.
In my testimony, I suggest again a variety of means
including commissions that have teeth, including a strong
commitment by both the President and the Congress to follow
through on recommendations, not on every detail, but on the
recommendations.
Absent broad significant reform of programs which we always
need, there are ways to control the growth in programs and that
means dealing with the automatic growth rates in those
programs.
One set of reforms, it is a tentative reform because you
still need real reform, but is simply to cut back on the growth
rates, the causes of the growth rates in those programs. It
does not make the programs better. It just does not mean that
they automatically absorb all the future revenues to the
exclusion of other options for government.
Now, an even more modest set of reforms is to implement
triggers. Rudy Penner and I have suggested that policymakers
can develop triggers that can be pulled at certain trigger
points to automatically lower growth rates in programs that are
expanding at unacceptably high rates.
For instance, Social Security retirement ages might be
gradually increased, our future benefit growth gradually slowed
when the actuaries project future balance.
Triggers were also reforms supported by the signers of a
recent statement taking back our fiscal future. These signers
included two of the three witnesses here at the table, Maya
MacGuineas and myself, as well as the first three Directors of
the Congressional Budget Office, both Republican and Democrat.
Now, triggers are not superior to systemic reform. Far from
it. However, triggers can control spending and prevent the
budget situation from getting worse while politicians are
engaged in more protracted debates about more meaningful and
fundamental reform.
And the final list of suggestions I have, and, again, I do
not want to discount them, have to do with the way that the
budget is reported. The budget rules today obscure reality and
reduce accountability.
The comedian Flip Wilson once used to complain the devil
made me do it. Our elected officials do him one better by
saying the budget made me do it. Like Flip, however, Congress
and the President have more control than they say.
My goal here is to present the budget in a way that allows
Americans to hold you, our elected officials, accountable for
both the laws you pass and for the changes that are borne of
not acting at all.
Put simply, I want budget documents to start by showing all
sources of growth together, both that which is newly legislated
and that which has been legislated in the past. Thus, when the
President's budget is presented, it would report first all the
changes the President proposes for both direct and passive
action. That does not change the law, but it says that the
President's budget including all the changes that are
forthcoming is something for which he accepts accountability.
We essentially get this type of budget or this type of
readout now only for the discretionary spending budget. As I
say, this type of budget reform does nothing more than restore
reporting on the budget to what it was for almost the first 200
years of our nation's history since most spending was
discretionary.
In sum, government must restore confidence in both our
financial system and the budget. I do not think we should
discount the extent to which solving this financial crisis in
part requires some faith both by Americans and by foreign
holders of our debt that we are going to get our long-term
budget in balance.
Every day that we maintain an imbalanced long-term budget,
we impose additional risk on the American people.
Among the possible process reforms to me to which I would
give priority are to address the long-term budget, to try to
adopt direct reform processes in which the Congress and the
President pledge ahead of time that action will follow upon
recommendation, and recommendations, by the way, that I think
should be developed in a nonpartisan way which we can also
discuss.
I suggest that triggers and similar procedures can be set
up as backstops while reforms are being considered and improved
reporting of the budget would help us hold elected officials
accountable for both what they legislate and the changes they
allow to transpire under a current law that could have been
amended.
No budget process is perfect. No budget law actually
reforms our system to do what we might end up having to do. But
reforming the process can restore confidence to the markets and
put all of us on a path towards better government.
Thank you.
[The prepared statement of C. Eugene Steuerle follows:]
Prepared Statement of C. Eugene Steuerle, Vice-President,
the Peter G. Peterson Foundation*
Mr. Chairman and Members of the Committee: It is a privilege, as
always, to join with you--this time to try to address one of the
nation's most daunting and increasingly pressing challenges, which I
will define simply as restoring sensible balance to the long-run budget
of the government of the United States. Absent such reform, we have a
budget that increasingly looks like that of a declining nation. As I
will demonstrate, while short-term imbalances have occurred before,
these long-term imbalances are a relatively new phenomenon in the
history of this country. I am also honored to testify today with two of
the most distinguished experts attempting also to deal with this issue.
---------------------------------------------------------------------------
* Any opinions expressed herein are those of the author's and are
not meant to represent those of the foundation or its trustees. The
foundation is dedicated to increasing public awareness of the nature
and urgency of several key challenges threatening America's future, to
accelerating action on them, and to working to bring Americans together
to find sensible, long-term solutions that transcend age, party lines
and ideological divides.
---------------------------------------------------------------------------
The urgency of our fiscal situation has recently been intensified
by the immediate revenue and spending demands imposed by the collapse
of several major financial institutions. This collapse imposes large
costs on our citizens as homeowners, workers, and, now, taxpayers.
There are disturbing parallels between the factors that have
contributed to this mortgage- and debt-related crisis and the
deteriorating fiscal outlook of the U.S. government. Most importantly,
there is a dangerous disconnect between the parties who benefit from
various practices and those who pay the price, while both public and
private sectors failed to mitigate related risks in the face of clear
and compelling warning signals.
Consider how we intend to pay for the reform being implemented to
stem financial collapse. Just where do we think the money is coming
from? Absent efforts to get the long-term budget in order, and to
reduce our current account deficit that partly results from our
importing more than we export, we are likely to borrow yet more from
abroad, often from countries whose interests may not be the same as
ours. The current world-wide economic slowdown and the crisis in our
financial markets adds to the risk that foreign lenders at some point
will reduce their demand for our debt and lend to us only at
increasingly higher cost. Alternatively, we might directly or
indirectly attempt to pay by printing money and trying to inflate our
way out of the problem. Either way, the financial crisis has added to
risks that arise from our failure to deal with our long-term budget and
vice-versa.
In my testimony, I will argue strongly that we do know how to
significantly mitigate the risks imposed by our long-term fiscal
outlook. The complications are political, not economic. Budget reform
can and should focus on all of the following three approaches:
Changing the budget process--so the long-term budget is
tackled first, or, in the situations where emergencies arise, at nearly
the same time as the shorter-term budget;
Directly reforming programs and setting up processes
likely to achieve that result;
Reporting on the budget in a way that holds elected
officials accountable for changes both newly enacted and already built
into the laws.
In every case, there are a variety of mechanisms that might be
employed--some better than others, but many much better than current
practice. I will touch on several. Just as in confronting the financial
crisis, however, the important point is that restoring confidence
requires that something be done NOW.
defining the problem in order to fix it
Before getting into details, we must address briefly the nature of
the problem. Put simply, we are dealing with a budget problem without
precedent in the United States. We are in the midst of what I have
labeled the nation's ``third fiscal turning''--a time when we must
change the fundamental paradigms through which we both think about and
set the nation's fiscal policies. The previous two fiscal turnings--at
the nation's founding and during the progressive era's response to
powers unleashed by the industrial revolution--differed in the
adjustments required, but not in the fundamental problem. In all three
cases, the nation had to fundamentally reform its fiscal policy so that
it could better find and allocate limited resources efficiently to meet
the nation's needs. And in each case we had to remove powerful
institutional barriers to achieve that goal.
Never before in the nation's history has so much been promised to
so many people for so many years into the future. Little or no slack
remains to address new needs, accommodate new wants, take advantage of
new knowledge, or meet new emergencies. Indeed, our current laws
essentially specify how most, all, and then more than all of the
revenues of the government will be spent for an eternity. While some
recognize that the growth rate at which these promises compound cannot
be sustained arithmetically, fewer recognize the increased cost and
strain put on society today--not some day in the future when some trust
fund balance or other measure hits some magic asterisk.
Simple arithmetic tells us that when increasing shares of our
national income goes for items that are not priorities, then decreasing
shares inevitably go for priorities.
Consider. Every day our federal budget churns to provide:
A very low share for children, who already on a per capita
basis receive only about one-fifth what is provided to the elderly;
Decreasing shares of the budget for items that might be
labeled as investment, almost no matter how defined;
Decreasing shares of the budget for those programs that
might enhance opportunity;
Increasing shares of an ``old age'' budget for those who
are middle age;
A strong encouragement for people to retire for one-third
or more of their adult lives at time when we are experiencing low or
negative labor force growth;
And within health care,
Greater rewards for acute health care than for prevention;
Decreasing shares of government health care support for
families in their working years;
Higher subsidies for the richer workers than for the
middle class;
Greater rewards for development of chronic treatments than
cures; and
Discouragement of primary care in favor of specialization
To achieve these negative results, we are borrowing more, saving
less, investing in our future less, and increasing our reliance on
foreign lenders.
This is a budget for a declining nation.
Meanwhile, Congress and Presidential candidates find themselves in
a straightjacket--less and less in control of their own budgets.
Indeed, my projections show that the next President is liable to have
no flexibility whatsoever in absence of dramatic reform of the budget.
To make this more concrete, it appears that under current law,
sometime between 2015 and 2020, revenues will be sufficient only to
cover the cost of Social Security, Medicare, Medicaid, a smaller
defense establishment, and interest on the debt. Nothing will be left
over for children's programs, infrastructure, justice, or turning on
the lights in the Capitol.
While much of government is getting crimped, every year the budget
increases the lifetime promises to people in this room for when they
retire by about $20,000. Thus, couples making a combined income of
about $100,000 and retiring today will receive about $900,000 in
lifetime Social Security and Medicare benefits; for similar earning
couples between the ages 41 and 45 today, that package increases in
value to about $1.4 million. These are among the large promises that
keep growing over time to the increasing exclusion of almost everything
else that government could do.
As another example, last year a Democratic Congress and a
Republican President essentially allowed spending on the three major
entitlements to increase by over 5 percent, or significantly more than
the rate of growth of the economy, while letting programs for children
grow by less than 1 percent, thus getting a smaller share of the
national pie. Many of these children's programs declined in real terms
as well.
How did we reach this point? Since the focus of today's hearing is
on budget reform, I cannot go into the depth I would like. However, the
history is vitally important because it tells us of the factors that we
must now avoid.
Bad budget or fiscal policy is not new. Many times in the past our
budget was unnecessarily imbalanced. What is unique now is that those
temporary imbalances were just that--temporary. No one locked in the
future.
Increasingly over the past few decades, however, elected officials
have discovered more and more how to give away money not just for
today, but for the future--leaving future generations the requirement
to pay for it.
Meanwhile, the competition between major political parties has put
us in a classic ``prisoners' dilemma,'' where if one side behaves in a
fiscally responsible manner, it only enhances the power of the other to
try to give away the future for what it wants. This ``two Santa Clauses
at the same time'' policy (tax cuts without paying for them; spending
increases without paying for them) may appear foolish from above--it
certainly doesn't enhance our belief in Santa Claus. But the mantra in
each party is that it has to play Santa Claus as much as the other
party or else it loses political power. Another mantra floating around
political circles is that President George H.W. Bush lost the
Presidency by attempting some budget reform, including modest tax
increases, and President Bill Clinton lost the Congress for the same
reason--even though the amount of budget and tax changes enacted in
each case were relatively modest and small relative to what is required
today.
Whatever past short-term profligacy in the budget, over most of the
first two centuries of the United States Congress did not put the long-
term budget into imbalance for one simple reason. Most programs were
discretionary in nature. In theory that meant there were few permanent
commitments on the give-away side of the budget. Revenues would grow
with the economy and eventually overtake any previous level of
spending, no matter how high. With the significant growth of permanent
``mandatory'' programs (sometimes called entitlements), and with growth
in the permanent give-aways in the tax code (sometimes called tax
entitlements), we have moved further and further away from a
discretionary budget over which the Congress, President--and, most
importantly, the voter--have much say.
But even permanent programs do not necessarily cause the long-run
budget to be out of balance, whatever their inefficiency in
foreordaining spending for a future that is still unknown. It is the
built-in, automatic, growth features of some of these programs that
wreak havoc on future budgets. Particularly in health and retirement
programs, those features give the programs higher growth rates than the
economy, essentially no matter how fast the economy grows.
Thus, for example, Social Security, Medicare, and Medicaid are
expected to absorb between 6 and 9 percent more of the gross domestic
product (GDP) within a few decades than they do today. And much growth
is also built into several tax subsidies.
This makes it absolutely clear that true budget reform must deal
foremost with those automatic growth features.
changing the budget process to address the long-term budget
Our budget process is almost entirely geared toward the short-run.
This short-run focus has given an extraordinary incentive for
Congresses and Presidents simply to move costs of government actions,
both spending increases and tax cuts, outside that short-run budget
window.
Due to the extraordinary growth in the promises they have made, the
long-term budget remains out of order no matter how much reform is
achieved over the short run. Every business and household knows that it
should not sign contracts today for most of what it hopes to spend
decades from now. All long-term budgets must have slack and be
adaptable, not totally set in advance of an unknown future.
Of course, crises--and we have many of them over time--often
require quick action for the short run. Keynes' warning that we are all
dead in the long run was a call to action when necessary, not a call to
make unsustainable promises for the future. Short-run crises cannot
become excuses for neglecting the long-term budget. And, as I have
noted, our ability to deal with short-run crises--especially financial
ones like the current crisis where there is a need to restore
confidence--actually calls for better control over the long-term
budget.
We need to fundamentally change the current dynamic. One way is to
change the budget process so that the President first submits a long-
term budget, and then Congress tackles those issues. Congress could
also set aside periods--it can still be within an annual cycle--when
the long-term issues are given priority. Still another possibility is
for the Congress to request that the President submit a budget where
mandatory spending in no future year is projected to exceed 50 percent
(or some other fraction) of available revenues. The Congressional
Budget Office could be tasked with measuring whether his budget met
this goal, and the leaders of Congress could pledge themselves in
advance to send the budget back to the President when it fails to meet
the requirements or vote to make an exception, thereby going on the
record in support of the President's proposed ``seizure'' of future
resources. I realize that capturing control of these symbols and
processes does not insure that solutions will be adopted, but they
provide examples of ways to give the long-term budget the greater
attention it deserves on an ongoing basis.
directly reforming programs
Nothing, of course, is superior to directly reforming programs and
setting up processes likely to achieve that result. One type of process
has been promoted recently by a number of top level officials and
budget experts, including the President of the Peter G. Peterson
Foundation, David Walker: to try to set up a commission that has teeth
to it to address a number of fundamental long-term challenges.
Many commissions, of course, do not succeed. To succeed, they must
be set up with a strong commitment by both President and the Congress
to follow through on the recommendations, although not necessarily on
every detail. A good example of successful reform along these lines can
be seen in the recent British reform of both their Social Security and
private pension system--a reform that started with a White Paper and
proceeded to cover items ranging from later retirement ages to greater
levels of private retirement plan coverage for low and moderate income
workers.
Another model of reform was given by the efforts leading to the Tax
Reform Act of 1986. As economic coordinator and original organizer of
the 1984 Treasury study that led to that reform, I am somewhat biased
here. But a common element to both the British effort and that 1986 tax
reform effort is that the original suggestions were largely crafted by
nonpartisan staff and experts, allowing a vetting of the broad policy
concerns before the lobbying performed its necessary role. Contrast
that process, if you will, with much current U.S. legislation, where
politics and lobbying begin playing their role too soon.
In the ideal, direct reform would address program specifics. In
Social Security, for instance, it would address not only the imbalances
in the system, but it would take on the failure of the system to reduce
poverty much for the additional amounts spent each year, would tackle
the fundamental discrimination against single heads of household, and
would discourage working less.
adjusting downward automatic growth rates
Obviously, there will be periods where it is difficult to reach
agreement on what an ideal reformed system would be. In those cases, a
modest set of reforms can be enacted in lieu of or as a backstop to
fundamental reform. These more modest reforms would simply adjust the
automatic growth rates downward in programs with such high growth
rates.
In Social Security, for instance, one can index lifetime benefits
to grow at a slower rate through increases in retirement ages or to
index annual benefits to grow at less than the rate of wage growth. The
former, I believe, is more progressive than the latter and more
progressive than across the board increases in Social Security tax
rates, but that is an issue for analysis. In health care, the problem
is more complicated, because of open-ended budgets in Medicare and the
tax subsidy for buying employer-provided insurance. Still, tightening
methods can be developed--for instance, through fixed budgets for any
government program, as in other countries, or through conversion toward
voucher-like programs (with safeguards for insuring health insurance
access for the less healthy). In both cases, increases in spending--
either in a total budget or in size of credit--is and would be voted on
by Congress each year.
triggers
An even more modest set of reforms is to implement triggers.
Rudolph Penner and I have suggested that policymakers can develop
``triggers'' that can be pulled at certain ``trigger points'' to
automatically lower growth rates in programs expanding at unacceptably
high rates. Triggers were also a reform supported by the signers of a
recent statement, ``Taking Back Our Fiscal Future.'' These signers
included two of the three witnesses here at the table (both Maya
MacGuineas and myself), as well as the first three directors of the
Congressional Budget Office.
Triggers are not superior to systemic reform. Far from it. Much
preferable are discretionary efforts that reform programs over time. A
trigger actually has two major components: (1) a ``triggering event''--
that is, an event that forces the pulling of the trigger; and (2) a
``triggering adjustment''--that is, a ``hard'' adjustment applied
immediately to the existing law or a ``soft'' adjustment in
policymaking procedures. Because pulling the trigger occurs
automatically when the event occurs, a hard trigger adjustment creates
two growth paths, which differ depending upon whether the triggering
event occurs.
For instance, Social Security benefits might grow at one rate when
actuaries project long-term balance and another when they project
imbalance. An imbalance would trigger a reduction in the rate of growth
of benefits. Obviously, there are many options for measuring imbalances
and determining alternative growth rates. The design of the triggering
event and adjustment, therefore, will be a matter of legislative
debate.
Depending upon both the triggering mechanism and the triggering
consequence, triggers may be inferior to adjusting automatic growth
rates directly, which I just discussed. For both economic and political
reasons, however, sometimes triggers may be the only practical way of
overriding automatic, eternal growth in programs.
In the current political climate, triggers have an appeal over
paring the growth of programs directly. One major argument used against
broad reform is that no one can predict the future and that the economy
may grow enough to pay for these programs. In fact, the argument is
technically weak since retirement and health programs actually grow
faster when the economy grows faster. On the other hand, triggers would
allow policymakers to skip that debate by simply responding that if
future growth makes these programs more affordable in the future, the
trigger won't be pulled.
A related advantage of triggers is that they can be based on
objective and transparent criteria. Further, triggers can control
spending and prevent the budget problem from getting worse while
politicians are engaged in a protracted debate about more fundamental
reforms. Of course, it is entirely possible that a future Congress
might step in and override the triggered adjustment. Fine. At least
there will have to be a debate about options. At present, the budget
dynamic allows lawmakers to dodge responsibility.
For instance, suppose Medicare were to grow at 7 percent absent the
pulling of the trigger, but only 4 percent if the trigger were pulled.
Then, for Congress to restore the 7 percent growth path, it would have
to choose that additional growth over other spending, say, for
community development. Any departure from using the trigger for
Medicare would also have to be paid for with tax increases or other
entitlement cuts under pay-as-you-go rules.
reporting on the budget in a way that holds elected officials
accountable
One of the most important reforms that this committee should
consider is how it reports on the budget. The budget rules today
obscure reality and reduce accountability.
The comedian Flip Wilson used to complain, ``The devil made me do
it.'' Our elected officials do him one better almost by saying ``The
budget made me do it.'' Like Flip, however, Congress and the president
have more control than they say.
Here is a simple table from President Bush's 2008 budget documents
showing the spending changes he suggests should occur by 2013. I use
the word ``suggested'' because these numbers sometimes show little
resemblance to proposals.
PRESIDENT'S PROPOSED BUDGET FOR 2013
[In billions of 2007$]
------------------------------------------------------------------------
Resource Amount
------------------------------------------------------------------------
Additional resources available in 2013 compared to 2007
Total....................................................... +478
------------------------------------------------------------------------
How these resources will be spent in 2013
Social Security............................................. +167
Medicare.................................................... +73
Medicaid & SCHIP............................................ +67
Net Interest................................................ +31
Other Mandatory............................................. +49
Discretionary Non-Defense................................... -60
Defense..................................................... -38
Deficit Reduction........................................... +189
-----------
Total..................................................... +478
------------------------------------------------------------------------
The message is clear: of the $478 billion extra in real revenues
that the President proposed collecting in 2013 over and above revenues
in 2007--largely due to economic growth--Social Security would get
about 35 percent, Medicare and Medicaid about 29 percent. Defense not
only would get no additional spending out of these additional revenues,
it would drop dramatically in real terms.
Wait, you say. Didn't President Bush propose big increases for
defense and big cuts for Medicare and Medicaid? Well, he did and he
didn't. That's why the budget in its standard form is so confusing.
What the President did was propose a lot more for defense for one
year (2009) and then suggested in his budget accounting that those
increases would immediately tail off so he could get his future
deficits to look better. All those newly hired troops and defense
industry workers presumably would be fired in the next couple of years.
As for the costs of the war in Iraq, they are on top of this one-year
buildup, but the president showed only one part of one year's expense
in the budget.
On Medicare and Medicaid, the President did propose cuts, but from
a fairly high growth path. Meanwhile, the Social Security budget would
keep swelling as baby boomers retired and because new individual
accounts for workers would be funded under his proposals.
On the tax front, he suggested that the alternative minimum tax not
be allowed to wrap its arms around more taxpayers, but then he counted
on the additional revenues it would bring in.
The budget needs to be presented in a way that allows Americans to
hold the President's and Congress' feet to the fire. Our leaders must
be held accountable for both for the laws they make and for changes
born of their often-calculated inaction. They must accept
responsibility for growth of spending outside the annual appropriations
process that is hidden by today's scorecard.
A better scorecard would present first all the changes that the
President proposes through both direct and passive action. Current
spending levels, no matter what the legislative source, would be
compared first to past spending levels. We essentially get this type of
readout now only for ``discretionary'' spending--that dwindling share
of the pie that isn't already committed to ongoing programs.
My proposed reformed scorecard represents nothing more than a
return to the basic budget accounting that occurred naturally in the
past.
One great advantage to focusing first on the total change in
spending levels is that cuts look like cuts and increases like
increases. Suppose an education program without automatic growth built
in would need to grow by $5 billion just to keep up with inflation,
while the president proposes a legislative boost of only $1 billion.
Then the budget's initial scorecard on total proposed change should
show a $4 billion cut in real (inflation-adjusted) terms as what he
would like to achieve in aggregate. Similarly, if a health program
would grow automatically at $70 billion, but $20 billion of that
increase is just inflation, and the president proposes a $10 billion
legislated cut from the current law growth path, our revised table
would show that on net he suggested a $40 billion real expansion.
Other budget accounting is still required. For a variety of
legislative purposes, it is necessary to know how much of total change
is due to accepting past laws' built-in growth and how much to new
legislation.
In addition, it should be clear by now that failure to acknowledge
the potential costs associated with budget activities does not serve us
well over the long run. The pretense that Fannie Mae and Freddie Mac
were somehow not federal responsibilities and leaving them out of the
budget misrepresented the significant financial risk they posed to
taxpayers. Similarly, relying on emergency designations to provide
funding for everything from ongoing military activities to disaster
relief undermines budget discipline and sound accounting practices.
Policy makers and the public should be able to rely on the budget as
providing a comprehensive presentation of the federal government's
exposures--which it currently does not. It would be extremely useful to
have a better idea of what else is already ``out there'' in the form of
explicit or implicit liabilities before undertaking costly new tax or
spending initiatives. One step would be to establish rigorous rules and
concepts that would help to control further attempts to get ``something
for nothing'' by minimizing unmeasured claims against future budgetary
resources.
conclusion
Government must restore confidence in both our financial system and
in its budget. Every day that we maintain an imbalanced long-term
budget, we impose additional risks on the American public. Once that is
done, it will be easier to have a discussion about priorities. Right
now our priorities orient resources away from investment, from
children, from the oldest and most needy of the elderly, and from
preventative and primary health care, while encouraging less saving and
work.
There are a variety of budget processes that can be set in place
quickly to restore confidence in government. These processes range from
those that would give greater priority to the long-term budget; direct
reform processes in which Congress and the President pledge that action
will follow upon recommendations made in a nonpartisan way; triggers
and similar procedures that can be set up as back-stops while reforms
are being considered; and improved reporting on the budget that would
hold elected officials accountable for both what they legislate and the
changes they allow to transpire under a current law they could have
amended.
No budget process is perfect. A process is only a means to an end.
But reforming the process will enable us to set priorities more clearly
and with more accountability, help restore confidence to the markets,
and put us on a path toward better government for all.
Chairman Spratt. Thank you very much, Dr. Steuerle.
We have a list of budget process ideas in the table of
contents to the hearing package. I am not sure if you have
gotten it. But just to get each of you on record quickly, I am
going to use my time to ask you if you would in a couple of
sentences, no more, give us your position on statutory PAYGO
and discretionary spending caps to start with.
Ms. MacGuineas.
Ms. MacGuineas. For the record, we support both of those,
statutory PAYGO and discretionary spending caps.
Chairman Spratt. Any changes you would propose?
Ms. MacGuineas. No. This is from the Shuler legislation or
is this just ideas?
Chairman Spratt. Well, this would involve making PAYGO a
statutory rule.
Ms. MacGuineas. No. I have testified before this Committee
saying we think that is not a sufficient answer, but that
making it statutory is a positive idea.
Chairman Spratt. Okay. Richard.
Mr. Kogan. Speaking for myself, PAYGO works a lot better
when it follows upon after a budget deal and it is used to
enforce a budget deal against backsliding.
We are not really now in a position where the two parties
are in agreement upon what the shape of the budget should be
for the next few years, which is one reason PAYGO has not been
working as well as it should right now. Nonetheless, whenever
PAYGO can work, I think statutory PAYGO is an improvement.
Excuse me. I think statutory PAYGO and rules-based PAYGO
working together will work stronger than either of them can by
itself. And so I would support those. I would not expect either
of them to work when there is no overall agreement on what we
should do.
I feel even more strongly with respect to discretionary
caps, that these have to exist following an agreement, a multi-
year agreement between the President and the Congressional
leadership, hopefully bipartisan leadership, on what the
aggregate discretionary levels should be over the next couple
of years.
When that has happened, discretionary caps have worked just
fine. And I would also, therefore, support them under those
circumstances as well.
Chairman Spratt. Gene Steuerle.
Mr. Steuerle. Mr. Chairman, you have me in a little bit of
a box here. I think these types of rules can work, but they
need to be backing up a process that really is going towards
long-term balance.
In some sense, they worked a lot better out of the 1990 and
1993 budget agreements because those agreements first enacted a
number of changes that were important for getting the budget in
balance and then they were backed up by these procedures to try
to prevent too much change from those agreements.
My complication with these two rules as they just sit by
themselves is they are creating an extremely unlevel playing
field and I gave one example in my testimony.
Just last year, this Democratic Congress and this
Republican President together, perhaps not on agreement, but in
effect allowed the big three entitlement programs to grow by
about five percent while children's programs grew by one
percent. And, in fact, most of them declined in real terms.
That is the result of these types of rules operating by
themselves. So I favor these types of rules when they tend to
back up a system that is working. I have some question about
how well they work when we do not deal with the bigger issues
that face us.
Chairman Spratt. Good point. Thank you, sir.
Ms. MacGuineas. Could I add one more thing on PAYGO?
Chairman Spratt. Certainly. Certainly.
Ms. MacGuineas. Just that I think we are probably the
strongest advocates of PAYGO in this. Well, we with your group
have had PAYGO pep rallies, so we are in love with PAYGO. But
it does not work obviously if there is no commitment to it.
And clearly right now, if PAYGO is waived every time it
gets difficult, it is not going to do us any good. But if PAYGO
forces tough choices like dealing with how are you going to pay
with the alternative minimum tax and forces Congress then to
get in the game and deal with the other issues that are going
to make PAYGO challenging in the future, then it can really do
its job.
So I do not think restructuring PAYGO is nearly as
important as establishing a political commitment to it.
Also, just on the point of PAYGO must be dual sided. If it
is applied only to spending, but not to taxes, it creates the
largest, most inefficient loophole to do all budgeting through
the Tax Code, a practice we are already starting to abuse. So I
think dual-sided PAYGO is critical.
Chairman Spratt. Mr. Jordan.
Mr. Jordan. Thank you, Chairman.
Appreciate all your testimony.
Mr. Kogan, I particularly appreciate your history lesson.
And like the Chairman, I did not think we would be getting
Constitutional amendments on how that would reform. Other than
the balanced budget amendment which I, you know, had thought
about, I had not thought about the others.
Also, I appreciate your support of the amendments that our
party offered last year where we had zero growth amendments to
many of the appropriation bills and how you are going to
support those in the future based on your testimony.
But both Ms. MacGuineas and Mr. Steuerle, Dr. Steuerle,
talked about how there is way too much short-term focus around
here. And, I mean, I think we saw an example of that yesterday
with the CR that was in a continuing resolution, you do not
expect to have $86 billion of new, you know, increases in
spending, but that is exactly what was voted on here yesterday.
We all know the entitlement problems that are going to be
confronting us real soon. Do you think, and I want to come back
to something Mr. Steuerle said in his testimony, do you think
we can get there without some kind of outside commission,
someone other than the politicians, taking a look at what needs
to happen, and, again, I point to a Grace Commission type
thing, or something idea that you may have? Do you think that
would be an essential first step in actually getting a handle
on where we are headed with the entitlement programs?
And we can just run down the line, if you would like,
starting with Ms. MacGuineas.
Ms. MacGuineas. Well, we support a commission because we
support sort of any ideas that move these issues forward. So
ideally I would certainly like to see members of Congress sit
down and actually work on this on their own.
I entered into an interesting exercise about two years ago
where as an independent, I worked with a Republican from the
Bush Administration and a Democrat from the Clinton
Administration and we tried to come up with a balanced Social
Security reform plan because we always use this line, well,
Social Security is an easy one. We can probably do that in a
half an hour.
And it was not easy. It took us about nine months and we
are not running for office. So it is really tough, but I think
ultimately the farther away you move the policymaking from the
political process, the more difficult it is going to be able to
take it back from the commission into the political arena.
So I think the best step is if you have a working group, a
bipartisan working group of members that focus on sort of a
full-fledged Social Security reform plan and I think the first
step at healthcare reform, we do not know how to fix Medicare
and Medicaid and healthcare yet, but I think you could sort of
take the first bite out of that apple, and fundamental tax
reform.
But realistically, given the partisanship, given that every
election seems more important than the previous one and there
just always feels like for the parties there is too much to
lose, a commission may be the best way to go and get started.
I would bring sitting members and former members on to that
commission because I think getting political buy-in throughout
the process is critical.
So, you know, we support every single effort that focuses
on these things. So a commission, if people want to start it,
great. Bipartisan working group, I think even better.
Mr. Jordan. Mr. Kogan.
Mr. Kogan. Speaking for myself, but also in this case for
the Center on Budget and Policy Priorities, which is where I am
employed, we like the idea of a commission if the political
prerequisites have been met and we think it would probably do
more harm than good if they have not been met.
From our point of view, the examples of successful
commissions were the Greenspan Commission dealing with Social
Security in 1983 and the Bipartisan Budget Summit in 1990. The
latter is not thought of as a commission, but, in fact, it was.
It was a group of members of both parties and representatives
from the President who got together and basically separate from
the legislative process hammered out a big deal and then
brought it back to the legislative process.
Examples of failed commissions are the Kerrey-Danforth
Commission and the Grace Commission, which is the one you
mentioned. The Grace Commission, I think, only succeeded in
killing trees.
So my thinking is that if a commission is set up so that
Congress does not have to deal with the problem but can say,
hey, I voted for a commission, that does more harm than good
for the same reason that I think, by analogy that I think that
long-term budgeting takes away from dealing with the real
problems right now this year. It allows you to postpone real
decisions.
However, whenever the President and the Congressional
leadership, preferably bipartisan, says we are ready to go,
then that is the time. And if the President and the leadership
say and, yes, let us use the cover of a commission, fine, no
problem. And if it takes a statute to give that commission a
fast track because the President and the bipartisan leadership
have already agreed that they want a fast track, no problem
with that either.
Mr. Steuerle. Both the Chair of the Peterson Foundation,
Pete Peterson, and the President, David Walker, have signed a
statement, as you know in the New York Times, that actually did
call for a bipartisan commission. Those are personal views. The
Foundation per se does not have views on this issue.
My own view is that a commission can work and I tend to
favor it in this case for a variety of reasons, but it is not
the only process.
And by the way, I think every statement Richard just made
went to the argument that process did matter as he discussed
when commissions can work and when they cannot.
And I want to dwell a little bit on that. Most commissions
have failed because they have actually become excuses not to do
something. You really need a commitment ahead of time that the
commission is going to be taken seriously.
And indeed one time that is very possible is right at the
beginning of a presidency. You know, every President I have
known in recent years, in the first year of his presidency,
usually got the package he wanted through Congress.
And so if the President wants to use a commission to really
figure out how to in a nonpartisan way try to address these
issues and deal with them, I think it is a viable institution.
I will say there are other methods. I was coordinator of
the Treasury's tax reform effort in 1984 that led to ``The Tax
Reform Act of 1986.'' And it was an extremely grueling process
even dealing with totally nonpartisan staff just to deal with
the issues. I mean, there are real dilemmas in public life and
they are often hard to talk about in broad public context.
And somehow or another, we need to empower a commission or
a staff, and we can talk about other sorts of reforms I would
do in government to perform steps, but to really empower
nonpartisan staffs to be able to really come up with viable
solutions before the lobbyists come in and before the, in all
honesty, the politics comes into play. Politics should be the
deciding factor, but it should not be the initial gatherer of
information.
Mr. Jordan. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman.
Let me preface what I am going to say here about a little
something and then we will ask you a question because budgets
are more than just numbers. Sometimes we get caught up in
dealing with numbers and that sort of drives us.
I served in the State Legislature and was State
Superintendent of Schools, so I have built budgets and then I
had to run a budget. But when we did our State budget, we
actually had two budgets. We had a capital budget and a current
operation budget. And at the state level, that works a little
better because you never put nonrecurring money in a current
operation.
At the federal level, all your dollars come in and whether
they are nonrecurring or recurring, they all just get piled in.
And it seems to me that has always been a problem because there
are going to be a lot of one-time monies that show up and they
wind up in programs that need that money every year.
But when we talk about reworking a budget process, we
really talk about by and large, I think this is true, we talk
about reworking the process, correct, by and large? And if all
we do is redo the process, I mean, you can redo a process, but
then when you start filling the numbers in and you do not have
enough money to fit the process, that is where your problem
comes.
So my question to each of you is if you really want to have
a true commission to deal with this, and I know this is a real
thorny issue, but you really have to look at the revenue side
as well as the expenditure side and you have to determine are
the revenues that are coming in fair. You know, are we being
fair to all parties who are participating in this thing we call
a budget.
Am I on one side making my contribution that I should be
making vis-a-vis the benefits I get from being a citizen of the
United States of America or am I on the other side being
healthy and able to do it, in fact, more than I should be
getting to get there?
Now, I realize this is a much bigger question than what we
are talking about, but it seems to me if we are going to do
this, we have really got to deal with a comprehensive piece to
ever get to where we want to get to. Otherwise, we will always
be dealing with a piece of the pie and never really fix the
full ingredient.
You understand my question? I would really be interested in
each one of your comments on that because it seems to me we
have got two pieces and we are not really dealing with the
whole piece to get a budget together.
Mr. Kogan. If I can start because I already know what I
want to say. It is nice and simple.
Maya said that whenever there is a budget negotiation, and
I think also in terms of a commission, everything needed to be
on the table. And I think she was in shorthand saying the same
thing that you are saying, that one needs to have a balanced
look at what is going on in the Tax Code and what is going on
with spending programs.
Overall the debt problem that we foresee in the future is
not per se it is an entitlement problem. It is that there is
not enough revenues to cover a promised spending or too much
promised spending given the amount of projected revenues,
however you want to phrase that. And that is an overall
problem.
So even if large portions of the budget are not by
themselves contributing to the problem, for example, every
entitlement other than the big three is scheduled to fall as a
share of GDP indefinitely and has fallen and they have fallen
as a share of GDP over the last 30 years, they are not the
problem. The fact that they are entitlements is an irrelevancy.
They are relatively small programs shrinking as a share of GDP
while doing their job.
Nonetheless a reasonable person could say that as a matter
of values, he thinks increasing a prescription drug benefit
under Medicare is more important than maintaining an existing
smaller, nongrowing program and, therefore, he would cut it.
Everything is about making tradeoffs against everything else.
And because the budget is a unitary whole and because it
should be a unitary whole, therefore Maya's statement that
everything should be on the table should be expanded to that
means everything. It means not only tax expenditures but tax
rates, tax coverage. It means not only programs that are
growing very quickly such as the big three or in the case of
Medicare and Medicaid which are growing in essentially an
unconstrained way very quickly, but even programs that are not
growing at all.
Ms. MacGuineas. So I would certainly agree with your
statement that budgets are more than numbers and they really
are. They are about tradeoffs and their priorities. And I think
the more that we can approach this topic in a holistic manner,
the better kinds of choices we are going to make.
Really you cannot think about what a modern public
investment agenda looks like when you do it by tiny
subcommittees. It is a huge topic and it has to do with, you
know, people and economics and markets and many different
disciplines.
In terms of specifics, absolutely everything has to be on
the table and that means we have to raise taxes and cut
spending. And the real challenge is that we are not even close
to that point yet, right?
I mean, with your last budget, there was an argument about
whether it raised taxes or it did not. Then it did not, but it
should have was my feeling. But there was more of a fight of,
you know, how do we handle the tax cuts going forward.
We are fighting the wrong battle right now. We are fighting
about which party will not raise your taxes instead of the
responsible step of raising taxes. Easy for me to say, I know.
But we are not even in the real discussion yet.
And I know it is a negotiation and I know both sides know
that this is the truth and nobody wants to go first because
they are going to get smacked. But somehow we have to find a
process to allow you all to have a discussion where negotiation
takes place that you know is the policy that is necessary.
Now, when I look at the specifics, I think everything has
to be on the table and not only does it have to be on the
table, which does not mean you have to agree to it, you can say
Social Security is on the table, but I do not want to cut
Social Security, but I think we are going to have make changes
to all those things. I think we are going to have to raise
taxes. I think we are going to have to cut all areas of the
budget.
I do, however, think that this problem is a spending
problem. When you look at the lines, what is deviating from our
historical norms is the growth in spending. So I think while
the solution is going to have to be tax increases and spending
cuts, that is not the same as saying it is going to be 50/50.
You have to focus in on the long-term drivers of the
imbalances.
And then, finally, on top of just focusing on the numbers
and trying to get the fiscal gap closed, we have to rethink our
budget priorities which are horribly out of whack. Our level of
consumption in the budget is about 85 percent, I think,
compared to about 15 percent on investment. You cannot get much
more short-sighted than that. Our investments in children is a
drop in the bucket compared to what we spend on seniors.
So just to throw another variable into an already
incredibly large negotiation, we need to talk about all sides
of the budget and also relooking at those priorities.
Mr. Steuerle. I could not agree more with everything you
said. I think everything has to be on the table. That includes
taxes. It includes expenditures.
You know, sometimes when I divide the budget up, if we
really think about this, and I really think in the end, this is
a political issue, not an economic one, that the budget
problems we have is a straightjacket we tied around ourselves,
you know, as opposed to, say, crime in the streets or
children's poverty or foreign terrorists or even the current
financial situation where there is some bad that is happening
and we are trying to conquer it.
When we talk about the budget and being out of balance, we
are talking about a straightjacket that we tied around
ourselves. And so what we are talking about here is loosening
that straightjacket wherever those knots are tied.
I often think of the budget again as not taxes and spending
so much. In politics, it is give-away and take-away. The appeal
in politics is to be on the give-away side of the budget,
right, the tax cuts and the spending increases? That is what is
popular.
But we all know that there is a balance sheet to everything
the government does and everything that is done here has a
balance sheet. So the tax cut and spending increase has to be
matched somewhere by a tax increase or a spending cut. If not
today, then we, as we have been doing, shoving it off on our
children. So I think all that has to be on the table.
I do want to reinforce one thing that Maya said with
respect to just thinking about spending sometimes not just in
terms of spending versus taxes as an absolute level. Let us
suppose we all agreed on some tax level that we could agree on.
Maybe government is at 18 percent of GDP or 20 or 30, whatever
it is. You still have the question about how to make priorities
within the spending programs and, by the way, within all the
subsidy programs and the tax system.
And right now as I try to give you my testimony, we are
shoving money in ways that are against investment, against
children, against cures for disease, you know, against all many
things that we want.
So as one example, everybody in this room last year got an
extra $20,000 from the government. That is the increase in the
lifetime value of your Social Security and Medicare benefits
just because that system was on automatic pilot. And the year
before, you got about 20,000. The year before, you got about
20,000.
Richard Kogan and I, we are about the same age. We are
promised about $900,000 in Social Security and Medicare
benefits. That is just growth from the past that we did not pay
for in Social Security tax. A great deal of that, we just
shoved off to future generations.
But we did not stop at that. Maya, who I was going to
guess, and I am not going to say what her age is, she is
promised about $1.3 million in Social Security and Medicare
benefits.
So what we are doing on this automatic growth path within
the spending programs is putting more and more money where it
is less and less needed. We are financing middle-aged
retirement. We are not giving money to our children.
So regardless of what tax level we get to, we have to
address this question of where do we want this spending to go
and, by the way, where do you want the tax subsidies to go.
They are not on a path that we are choosing and it is certainly
not on a path that we are choosing well in my view for our
country.
Chairman Spratt. Mr. Conaway.
Mr. Conaway. Thank you, Mr. Chairman. I apologize for
getting here late.
And I do not want to plow new ground, but thank you for
your comments, particularly the idea that there are no venues
where we can rationally talk about going against our stated
ideological position, mine in this case no new taxes and for
the most part, no spending cuts.
And it does make it very difficult to be the, you know,
first person to lead with their chin in this particular arena
because it is immediately taken advantage of by the other side
even though it may be done in good faith and it is done based
on support from an awful lot of folks who do not ask people to
vote for them.
So I do appreciate your comments.
I have begun to encourage folks to quit using the word
reform with respect to Social Security and Medicare as an
example. Reform is a nice, fuzzy, warm word for everybody wins.
We have to begin using the word renegotiate because that is a
little closer to the connotation, Eugene, you were just saying.
We have got to renegotiate that promise. We cannot pay you
900 grand. And so we have to renegotiate that promise. It means
you are going to get less as an example than you originally
thought under the processes. The sooner we make those
renegotiations, the easier it is for you to adjust whatever
your expectations were to that new reality.
I have seven grand kids. We have spent all of their money
and they will have children that are my great grandchildren and
we are working hard to spend all of their money. And it is
quite wrong to do that. Everybody recognizes it. It is like
mom, apple pie, and the girl you left behind.
I did have one tiny minuscule thing that I have been
pitching that the Chairman has given me leave to say something
about.
Chairman Spratt. H.R. 484.
Mr. Conaway. And that is in the appropriations process,
when we go to the floor and have the knock-down, drag-out
fights that we have over spending, if lightning strikes and
someone was able to pass an amendment to an appropriations bill
that actually eliminated a program or cut spending in a
particular area, the perverse system we have is that money goes
back to that Subcommittee to spend somewhere else.
So we have this grand theater where we talk about cutting
spending and whacking on things that should not get spent and
all that kind of stuff knowing full well that the insiders know
that it is not the case.
And I have got a bill that would, with all its naivete,
would simply say if we win that fight from time to time on a
program that does not need to be federalized, that money would
go against the deficit or that money simply would not get
spent.
I understand there are problems with the Senate, but give
me your thoughts on that as well as the idea that if we self-
impose a moratorium on new programs that said if you want a new
program, you have to eliminate an existing program of like size
or bigger, not cut the spending out of that, eliminate the
entire program because if your new program, if you cannot find
something in that vast array of federal programs out there that
is less important than your new program, then what you are
telling us is that your program is the least important thing
this federal government should do and so why would we defend
so.
So those two ideas, very simplistic, very naive in the
grand scheme of things, but some help at disciplining ourselves
to setting priorities better than we--well, we do not set
priorities. We just say yes to everything.
Mr. Kogan. Two comments. The first is that I like the way
you characterize your sort of program-based PAYGO rule which is
that you, in essence, you posed the question if this program
that I want to vote for is so important, then it is worth
paying for. If it is important enough to enact, it is important
enough to pay for.
And that is the way I look at the pay as you go rule. And,
yet, all the time I hear, including from members of Congress,
that what they are trying to do is extend the AMT relief, for
example, or something else is so important that they do not
need to pay for it.
And I am with you. I think that is the exact opposite of a
logical statement. If something is really important, then that
should justify even raising taxes for it or even cutting some
other popular program for it. If it is not important enough to
do that, then it is, in fact, the bottom priority of all things
that are going on.
So I am totally with you there. And I say that because I am
totally opposite you on the appropriations lockbox. My thinking
on the appropriations lockbox is that it is hard enough to cut
funding in an appropriations bill and particularly to eliminate
a program in an appropriations bill.
To be able to do that, you generally need a coalition of
people who think this is not worth doing and other people who
think I would much rather spend it here than there.
By creating a lockbox, you are limiting it to the people
who say this is not worth doing and I want all the savings to
go to deficit reduction. I think, therefore, if you establish
such a procedure, you would end up with never getting any
appropriations cuts enacted, that you would do something that
sounds good, but that shoots yourself in the foot.
Meanwhile, if you have a determined majority that thinks
the way you do, that is to say this program is not worth doing
and it is worth dedicating those savings to deficit reduction,
you can already achieve that under the existing system by
voting to cut that program and then voting against any other
amendment that would add money for some other program within
that Subcommittee, voting against the Subcommittee bill if it
comes back from conference at a higher level than it left the
House.
What this requires, of course, is that you keep your
majority together and that is always hard. You were not here
for my initial statement, but getting governing majorities to
do responsible things is just extremely difficult.
Mr. Conaway. Just one quick----
Chairman Spratt. Okay. Sure.
Mr. Conaway [continuing]. Push back a little bit. That is--
--
Chairman Spratt. Go ahead.
Mr. Conaway [continuing]. I cannot hold the majority
together on a little, tiny deal. I cannot hold it against the
entire Subcommittee bill and the system does not work that way.
It does go back to the Subcommittee to spend somewhere else
even if we win.
So just, anyway, thank you.
Chairman Spratt. Mr. Baird.
Mr. Baird. I thank the Chair.
I thank our witnesses. We are running out of time and I
know you have much more to say on Mr. Conaway's statement.
First of all, thank you for your leadership on this issue.
Some of us have met many times on these topics and I am
grateful that you are here.
The nation is here today in this context. The whole Capitol
is in turmoil, the country is because too many people spend too
much money without enough collateral. And, yet, we are doing it
ourselves as a nation. So this is an effort to try to restrain
ourselves in a way that maybe the financial markets should have
been restrained.
Mr. Chair, I would encourage boldness as we look ahead to
the next year. You know, do some mountain climbing. And
boldness means you take a difficult line and you do it with
elegance and courage. And I think we have lacked that, not
under your leadership. I think you have done an outstanding
job. I mean, we as a Congress have lacked boldness.
I am not at all adverse to say what Ms. MacGuineas said.
She is not running for office. I am. And I think we need to
raise taxes and I think we need to lower spending and that
includes on entitlement spending.
So I have stepped on the shibboleth of both sides. Our side
pledges never to touch entitlements. Their side pledges never
to touch taxes. The math does not work. The only outcome of
that mutually assured nondestruction maybe is debt on our
children. You folks have led the way trying to stop that. We
have to act responsibly to do that.
Within the context of the budget rules, I just do not
understand something fundamental, why we do not do some of the
stuff that has been talked about here which is to say we are
going to link any new program with its revenue source and we
link that forever.
In other words, if we are going to say that we are going to
create a new entitlement, that we estimate the growth of that
entitlement and in creation of that entitlement, by God, we
estimate and enact in law a corresponding tax increase so that
we see where it comes from or a corresponding cut in something
else.
And so, too, on the revenue side, if we are going to cut
taxes, then we have to also have the guts to say where we are
going to cut the spending. And we do not do that. It is not in
our budget rules. It is not in our practices and we ought to do
it.
And you folks are smart enough to figure out how. I think
we ought to do it. I do not think we have an excuse not. The
average citizen has to do it. I cannot go to my wife and say
let us buy a new car, but I am not going to tell you where we
are getting the money from.
So I do not know how best to do it. One symptom of the fact
that I think our budget process is not necessarily as prominent
as it should be, we have a term limit on this Committee. We are
limited to six years. Well, how seriously do we think we take
the budget if you sign up for the Budget Committee and you are
only there for six years?
I do not know if the Republican Conference has the same
rule. The Democratic Caucus does. I think it is rather silly.
Just when you are kind of getting the hang of it, off to some
other Committee. Many people may enjoy that because you can
make a lot more money on other committees for your campaign,
but that is not what this Committee is about and it is not what
this job should be about.
So I applaud you for the proposed reforms.
And I would just say, Mr. Chairman, let us be bold. Let us
talk about linking all spending to revenue and vice versa. Let
us have hard and fast rules that make that happen. Let us hold
appropriators and Ways and Means members accountable and let us
distribute to some greater degree the appropriation thing.
And, finally, I will throw this out, I think we ought to
really seriously look at whether the authorizing appropriation
disconnect makes sense. To have one Committee that can create a
program, but have complete separation really from the Committee
that funds the program is kind of silly. And then when that is
completely separate from where your revenue source is, it is no
wonder we get in this debt.
So there is my two cents. I do not know what the solution
is, but if you folks can help us come up with that, I will vote
for it.
Chairman Spratt. We have got two minutes to make it to a
vote and we have got three votes. So I think in the interest of
fairness to our witnesses, let me thank you for coming today.
You made a real contribution. I understand you left lots more
grits for our meal in your written testimony. We will take it
to heart as we begin the next session of the next Congress.
And I am sorry we have got to run now, but I think you
understand the exigent circumstances in which we are operating
at the time.
Thank you so much for your participation.
[Whereupon, at 3:21 p.m., the Committee was adjourned.]