[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


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                        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.]

                                  
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