[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE BROKEN BUDGET PROCESS:
PERSPECTIVES FROM BUDGET EXPERTS
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HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, SEPTEMBER 22, 2011
__________
Serial No. 112-16
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COMMITTEE ON THE BUDGET
PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho Ranking Minority Member
JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri LLOYD DOGGETT, Texas
TOM COLE, Oklahoma EARL BLUMENAUER, Oregon
TOM PRICE, Georgia BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma TIM RYAN, Ohio
DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin
BILL FLORES, Texas KATHY CASTOR, Florida
MICK MULVANEY, South Carolina HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas PAUL TONKO, New York
TODD C. YOUNG, Indiana KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia
Professional Staff
Austin Smythe, Staff Director
Thomas S. Kahn, Minority Staff Director
C O N T E N T S
Page
Hearing held in Washington, DC, September 22, 2011............... 1
Hon. Paul Ryan, Chairman, Committee on the Budget............ 1
Prepared statement of.................................... 2
Hon. Allyson Y. Schwartz, a representative in Congress from
the State of Pennsylvania.................................. 2
Prepared statement of.................................... 4
Hon. Jim Nussle, president, COO Growth Energy; former
Chairman, House Committee on the Budget.................... 5
Prepared statement of.................................... 8
Hon. Phil Gramm, vice chairman, UBS Investment Bank; former
U.S. Senator from the State of Texas....................... 11
Prepared statement of.................................... 14
Philip G. Joyce, professor of management, finance, and
leadership, Maryland School of Public Policy, University of
Maryland................................................... 16
Prepared statement of.................................... 19
THE BROKEN BUDGET PROCESS:
PERSPECTIVES FROM BUDGET EXPERTS
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THURSDAY, SEPTEMBER 22, 2011
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room
210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of
the Committee] presiding.
Present: Representatives Ryan, Garrett, Campbell, Price,
Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, Huelskamp,
Young, Amash, Schwartz, Doggett, Pascrell.
Chairman Ryan. The hearing will come to order. Welcome all
to this hearing. The purpose of this hearing is to continue the
work we started yesterday, highlighting the need to repair our
broken budget process, and we have a great panel of witnesses
with us here today to give us their insights and help guide us
in our work.
During his time in congress, Senator Phil Gramm was a
tireless advocate for budget process reforms aimed at reigning
in out of control spending. Senator Gramm co-authored the
balance budget in the Emergency Deficit Control Act of 1985,
otherwise known as Gramm-Rudman-Hollings.
This law established, under Gramm-Rudman-Hollings, deficit
limits and a sequester as a means for enforcing them. Over the
years, Congress has used the sequester with varying degrees of
success, and it is currently playing a role in the work being
done by the Joint Selection Committee on deficit reduction. I
look forward to hearing from Senator Gramm on this topic and on
many other areas in which he can share his deep well of wisdom.
We also have former Chairman Jim Nussle with us here today;
Jim, really nice to have you back. I have never seen you on
that side. I am not used to seeing you on that side of the
microphone when you were the OMB director, and that is the next
point that I wanted to make. Jim served three straight terms
leading this very committee as the chairman and then in
President Bush's Cabinet as director of the Office of
Management and Budget.
During his time in Congress, Chairman Nussle worked in a
very bipartisan way to reform the budget process, particularly,
The Nussle-Cardin Comprehensive Budget Process Reform Act of
1999, which many of us took part in. He can also share some
valuable insights on many of the topics of interest to this
committee.
Finally, we have Professor Philip Joyce of GW, author of
the recent book, ``The Congressional Budget Office: Honest
Numbers, Power and Policymaking.'' Dr. Joyce will be able to
offer a wide-ranging expertise on what works and what does not
work in the current budget process, and I also look forward to
his testimony as well.
With that, I would like to yield to the gentle lady from
the Philadelphia area, Pennsylvania, Ms. Schwartz.
[The prepared statement of Chairman Ryan follows:]
Prepared Statement of Hon. Paul Ryan, Chairman,
Committee on the Budget
Welcome all, to this hearing.
The purpose of today's hearing is to continue the work we started
yesterday--highlighting the need to repair our broken budget process.
We have three witnesses here who can provide us with valuable
insights that will help guide our work.
During his time in Congress, Senator Phil Gramm was a tireless
advocate for budget-process reforms aimed at reining in out-of-control
spending.
Senator Gramm co-authored the Balanced Budget and Emergency Deficit
Control Act of 1985, otherwise known as Gramm-Rudman-Hollings.
This law established deficit limits and the sequester as a means of
enforcing them. Over the years, Congress has used the sequester with
varying degrees of success, and it is currently playing a role in the
work being done by the Joint Select Committee on Deficit Reduction.
I look forward to hearing from Senator Gramm on this topic, and on
many other areas in which he can share his wisdom.
We also have Chairman Jim Nussle here today--Welcome back, Jim!
Chairman Nussle served three straight terms leading this very
committee, and he also served in the cabinet of President George W.
Bush as the Director of the Office of Management and Budget.
During his time in Congress, Chairman Nussle worked in a bipartisan
way to reform the budget process, particularly in the Nussle-Cardin
Comprehensive Budget Process Reform Act of 1999, and he can share
valuable insights on many topics of interest to this committee.
Finally, we have Professor Phillip Joyce of George Washington
University, author of the recent book, The Congressional Budget Office:
Honest Numbers, Power, and Policy Making.
Dr. Joyce will be able to offer a wide-ranging expertise on what
works and what doesn't in the current budget process, and I look
forward to his testimony.
With that, I yield to the Ranking Member, Mr. Van Hollen.
Ms. Schwartz. Good morning, it is good to see you senator,
congressmen, good to see you. And Dr. Joyce, thank you very
much for joining us. I do want to thank the Chairman for
calling these hearings for raising ideas, thoughts on how we
can improve the budget process; it is always useful.
I do want to say that ranking member, Chris Van Hollen, is
unable to be here. As you know there is something now which we
refer to as a super committee. This is occupying some of his
time and there is a hearing at exactly the same time. So
apologies from our ranking member that he could not be with us
this morning, so he has asked me sit in his stead, which I am
very pleased to do.
I do appreciate the Chairman's focus on the budget process
as a way to move towards restoring fiscal balance in our
government. We all acknowledge that the budget process is
complex. I know that Mr. Nussle knows this well.
Just two quick things that I going to mention before I get
started. When assuming the budget process many of us
acknowledge that it neglects to adequately review different
parts of the budget, particularly spending through our tax
code. There has been some discussion about that and the current
process does not account for some fundamental changes that are
outside the federal budget control at all, such as in
significant changes in demographics, the age of the populations
is one example, or increases in health care cost due to
technology and advances. And, of course, our new federal
responsibilities related to things such as homeland security or
the growing costs of new veterans. Almost two million Americans
have served overseas in Iraq and Afghanistan and they are
adding to the number of veterans and, of course, the costs
related to that.
So, I look at these hearings as a valuable step forward in
better understanding the possible changes in the process.
Questions will likely arise, and what I would ask you to
address is will any changes lead to a better understanding of
the budget and what we are doing to greater predictability, to
greater accuracy, to improve transparency or simplification?
Will it enable us to, on behalf of the American people, to make
sure the budget does reflect our priorities and our policy
goals?
We all acknowledge that the federal budget is on an
unsustainable path under current policies where our deficit
will continue to grow over the next decade and that the debt
held by the public will rise as a percentage of the GDP. We are
deeply concerned about these realities, and we agree that
action needs to be taken.
But the question I will have for you, too, is will the
budget process truly improve this situation? Is it a question
of budget process? Or, in fact, is the question more about
substance and disagreement on how to actually meet these goals?
And they are two very different elements.
And of course we are very concerned about job creation and
economic growth. Do you both agree that a change in the budget
process help us in any way to meet those goals? The economy is
fragile and we want to be sure that what we do in the short
term does not hurt our fragile economic recovery or our effort
to grow jobs in the long haul.
I do want to acknowledge that we have made some changes in
the budget process in the last couple of years. One is we
enacted Statutory PayGo; Pay-As-You-Go, not a term that use
much outside the walls of Congress, but we want to be sure that
any new spending or new revenue proposals were in fact, deficit
neutral, and we did do that. We used Statutory PayGo. Of
course, the rules change in this session so that only spending
has to be paid for, tax expenditures do not. So that is the gap
in making sure we do not add to the deficit, as well. That is
something that you may want to address. So, that is just one
example of what we have done.
So, let me close by saying the budget process, again, it is
not, in my mind, an answer, to what is really a substantive
debate that we have to have. The budget process is that; it is
a process; it is a mechanism that we can use. It works when we
have reached agreement that we know how to use it. It can be
used, of course, to not help us either, but that is the
process.
So, I just want to be clear that we all agree that we need
to leaner and more focused government. It does require us to be
clear of that efficiency in our government. I believe it is an
important time in our nation's history, we have an opportunity
to make sure that we actually tackle this deficit, grow the
economy, expand opportunity and security for all Americans.
The key to this, again, it is not that the budget process
itself; it is compromise, it is fundamental fairness, it is a
recognition that the most important and immediate action we
take to address the deficit has to put Americans back to work
and set the federal government on a path towards fiscal
balance. Agreement on this really requires us to find a way
forward, to find that common ground, and to meet our
obligations to Americans, grow the economy and invest for the
future. Maybe you will mention some of those things as well. I
look forward to your testimony. And I yield back.
[The prepared statement of Allyson Schwartz follows:]
Prepared Statement of Hon. Allyson Y. Schwartz, a
Representative in Congress From the State of Pennsylvania
Thank you, Chairman Ryan, for calling these hearings to discuss
ways to improve the budget process. I appreciate the Chairman's focus
on this component in the effort to restore fiscal balance to our
government. The budget process is complex. It neglects to incorporate
adequate review of the different parts of the budget, such as spending
through the tax code. The current process does not account for some
fundamental changes outside the federal budget that can have a
significant effect on the federal budget such as the aging of the
population, substantial increases in health care costs, due to
technology and advances, new federal responsibilities in areas such as
homeland security and, the growing need and costs of veterans' health
care. I view these hearings as a valuable step in moving toward better
understanding of possible changes on the process. Questions that will
arise will certainly include: will any changes to better understanding,
greater predictability, greater accuracy, improved transparency/
simplification and overall better enable us to act on behalf of the
American people to ensure that the Budget reflect our nation's
priorities and acknowledges our policy goals.
We all agree that the federal budget is on an unsustainable path.
If we continue current policies, deficits will remain high throughout
the decade, and the debt held by the public will rise as a percentage
of GDP. We agree action needs to be taken. Will changes in the budget
process improve this situation? Will changes better enable us to
promote job creation and economic growth?
The economy is still fragile. With millions of people still out of
work and families struggling to make ends meet, our lagging economy
runs the risk of compounding our debt problem for future generations.
Increased employment is the best and most effective way to reduce our
deficit. To promote job creation, we must restore confidence in our
government and create an environment so the private sector can grow.
Efforts to create jobs and improve our economy in the short-term
must be coupled with a long-term plan to reduce the deficit. Budget
process reform can be a useful tool in helping control growing deficits
and I am pleased that the last two Congresses actually made progress by
adopting two budget process reform items.
For example, we enacted Statutory Pay-As--You Go, which assured
that new spending and revenue proposals were deficit neutral. Statutory
Pay-As-You-Go was one of the most valuable tools during the 1990s in
helping to achieve budget surpluses for four years in a row. We renewed
Pay-Go last session; unfortunately, this law was watered down in the
current Congress by a change that made the House Rule asymmetrical,
prohibiting new spending without spending offsets but allowing for the
consideration of tax cuts without offsets.
We also made changes to the House Rules during the 110th and 111th
sessions of congress that helped to control spending through earmarks
in annual appropriations bills. The elimination of the earmark rule
remains in force today.
While the budgetary impact of these kinds of changes may be small,
a process that is stream-lined, transparent, and uses the most
conceptually sound approaches may lead to more informed budget
decisions and promote increased trust in our government. Perhaps it is
also time to review scorekeeping practices including accrual accounting
for pensions and health benefits, risk-adjusted credit reform, program
integrity, and baseline concepts.
As we consider reform proposals, we must remember that process
reform is no substitute for making the hard choices. Budget agreements
can drive budget process, but budget process cannot drive agreements.
The three times budget process has been most effective are in 1990,
1993 and 1997.
Each time, the Congress and President reached an agreement on
spending and tax levels and the Congress enacted budget rules to
enforce the agreement. Looking back at the 1990 Act, Former
Congressional Budget Office Director Robert Reischauer concluded that
``budget procedures are much better at enforcing deficit reduction
agreements * * * than at forcing such agreements to be reached. * * *''
The American people have sent a message loud and clear: It is time
for us to work together for the good of the country. We have to get our
fiscal house in order. This means a leaner, more focused government.
Congress must demand greater efficiency by cutting programs that no
longer work, streamlining wherever we can, and investing in the right
priorities for Americans.
We stand at an important moment in our nation's history, and we
have the opportunity to rebuild our economy in the short-term and make
responsive, balanced decisions to change the current budget trajectory
in the long-term. Congress has tough choices ahead as we meet these
challenges. To rebuild the American dream of security and opportunity
for all Americans, we must make the right choices now.
The key will not be process reform. It will be compromise,
fundamental fairness, and recognition that the most important and
immediate action we can take to address the deficit is to put America
back to work, and set the federal government on a path towards fiscal
balance. This will take agreement on how best to do this--agreement
resolved not by changes in the budget process--which is the mechanism--
but rather by finding common ground on the spending and revenues so can
meet our obligations to the American people, grow the economy and
invest for the future.
Chairman Ryan. Thank you. Chairman Nussle, we will start
with you because you have the honor of having led this
committee, and then we will go to Senator Gramm and then Dr.
Joyce.
STATEMENTS OF JIM NUSSLE, FORMER CHAIRMAN, HOUSE COMMITTEE ON
THE BUDGET, PRESIDENT, COO GROWTH ENERGY; PHIL GRAMM, FORMER
CHAIRMAN, U.S. SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN
AFFAIRS, VICE CHAIRMAN OF INVESTMENT BANK, UBS AG; PHILIP
JOYCE, PH.D., PROFESSOR OF MANAGEMENT, FINANCE AND LEADERSHIP,
SCHOOL OF PUBLIC POLICY, UNIVERSITY OF MARYLAND
STATEMENT OF JIM NUSSLE
Mr. Nussle. I have to admit Mr. Chairman that the vantage
point here is much different than the one up there, so I think
I like yours better but I am honored to be back and honored to
be before you, not only as a friend, but as somebody that I
encourage to join the budget committee, and it did not take
much encouragement having started here as a staffer yourself.
But I am honored to before you and the rest of the members of
the committee. I am sorry Chris is not here, but I know he has
got big fish to fry. And I always thought this was a super
committee by the way. I do not quite understand this whole new
super committee stuff, but at any rate, this is a super
committee as far as I am concerned. I am glad to be back here.
I just want to acknowledge Tom Kahn and Austin Smythe and their
terrific staff. They do a great job on your behalf and on
behalf of the country. They are patriots, they are experts.
Many of them are good friends of mine and I just want to say
congratulations on the work that you do.
The subject of today's hearing reminds me of something my
dad always taught me. He had a sheet metal shop and he made
cabinets out of sheet metal and everything from spot welding
and rivets and everything else. He always used to give me grief
whenever I complained about anything. He said, ``You know, it
is not the tools, it is the craftsman. It is not the tools you
look at in the tool box to make the difference; it is the
person using them.'' My old uncle Felix who work at my dad's
shop who could make anything out of a hammer and I am not sure
if that is true of today's craftsmen. It is the craftsman that
seems to be a difference in all of this.
I suppose the same could be said of the fiscal toolbox that
you have. Over the last 20 years that I had the opportunity and
the honor to write budgets at both ends of Pennsylvania Avenue.
I have to say that the tools have not changed that much; they
are pretty much the same. We may call them different things;
they may come up in different contexts, but by and large they
have not changed all that much. They are pretty much the same
tools that we have always used.
So as I look at that and I think about what could we do in
today's context in order to change it? The first thing I would
say is what is broken? The chairman mentioned that the budget
process is broken. I would suggest to you, respectfully, that
may not be the case. It may not be that the budget process is
broken. It may not be, in other words, that tools are broken,
but it may be the fact that the tools are not even being used.
I was doing a quick scan of the roster of the budget committee
members, and with all due respect, very few of you have seen
the budget process even used, let alone work. The chairman has,
certainly, and many of the more senior members, but for the
freshman in particular you have never seen the budget. You have
never seen modern budget process put into effect. You have
passed one here in this committee. You passed one on the floor,
but the entire budget process start to finish these days is
rarely used.
And, I suppose you could say could we look for one or two
things to improve that budget process and yes, I have been
through that process as the chairmen mentioned together with
then house member and member of this committee Ben Cardin. I,
along with the sanction of our leadership, we tried to put
together a reform to the budget process. We did so, by the way,
in a context of a balanced budget. In fact, in 1999 when we
were balanced and there was no urgency to change the process
because it was broken as if we had to rush in like a fire
department and put it out. We did it in a time when it was calm
and there was some stability, and so I would be concerned to
suggest to you to be careful rushing in and assuming that one
or two fixes to the budget process may make this any less
difficult because, in fact, it may not be the budget process at
all.
So, I tried to think of some things that might work as I
looked at this. I thought, and the same could be true of a
driver pulling up to an intersection with a stop sign, rolling
through that stop sign. We now see stop signs with the red
lights blinking around them as a way to try to get people to
stop. If the driver's disrespect the stop sign and just keep
rolling through and do not obey the rules of the road. I mean,
what can you really do to stop somebody, or stop a driver from
rolling through a stop sign? The same could be said of
Congress; you set the rules, you set the processes. If you
choose to roll through the stop sign, and if you choose to
change it on a whim, and you choose not to follow it or to, I
would say, in some instances, disrespect that process, there is
nobody that can do anything about it; there is no budget
prison. I always wanted to find a budget prison, you know, and
send a few people to it. And I looked at the bottom of the
capitol; there is no budget prison if you do not follow the
rules. So I tried to think of some things that might work. So,
I went back to what Ben and I came up with back in 1998 and
1999 and I looked at those, and I thought of some other things;
so I came up with five.
The first is leadership. The budget process shows, and I
believe it is less important in the political leadership
provided. It is that simple; you either provide it or you do
not. You either establish clear, fair and non-outcome
determinant rules that you follow, and allow the Congress to
work its will, or you do not. Please remember what I mean when
I say ``non-outcome determinant.'' It is just like playing
football, or playing baseball, or whatever it is. The rules are
not there to determine the outcome of the game. The rules are
there to make sure that both sides, both teams, if in fact were
on different teams, can play the game, make the determination
and get to an outcome. The process should determine the
substance; the substance should not determine the process.
Second, before you fix the current process, try it. Before
you fix the current budget process really try it, stick to it,
make a commitment to follow the rules because they are not all
bad. Many of them are very good, and if implemented, I think,
many of them would work.
Third, I would suggest making the budget process real;
making it a law. And, in fact, you do not need a change, as I
understand it; I will defer to Paul Restuccia and the consel's
office, which we did at that time. My understanding is you do
not need to make any change at all to go from a concurrent
resolution on the budget to a joint resolution on the budget.
It is a matter of just filing it as a joint resolution and
making it a law requiring the president to sign the law as
opposed to passing it only between both bodies [inaudible].
The reason why I think that is important is because so
often nowadays the budget process breaks down, we think, toward
the end of the year, toward the end of the fiscal year. When,
in fact, if you really think of this as a blueprint, going back
to the toolbox and making some analogy, if you do not have a
design, if you do not have a blueprint upfront, you may not
know until the end how broken it is. What I am suggesting by
this is by making it a law, making sure that both the House and
the Senate and the president have skin in the game, they have
made an agreement up front. You have made a consideration as
Allyson said, as Congresswoman Schwartz said, you decide what
the compromises are, what the agreements and disagreements are
up front, and you get it sealed into law. You establish the
fences. You design the blueprint. Now, the plumbers and the
carpenters and everybody can rush in and finish the work; but
if you do not have that design up front, you may not know until
the end that it is broken. And in fact, the 1974 Act was based
on that very concept. There was a breakdown in the late 1960s,
well, actually before that, by the late 1960s, early 1970s,
they decided we not only have a design up front, but we need
reconciliation at the end to kind of make sure it all fits
together and followed that design.
And so that gets me into my fourth point, and that is use
reconciliation. I call it weeding the garden, and it is just
like the garden out back that you and your wife might have. If
you go out there every Saturday and pull the weeds that have
popped up during that week, it is not too tough, and plants
flourish and you get good tomatoes. But if you wait until the
end of summer to weed the garden you might as well go in with a
tiller and plow it under because you cannot possibly control
it. Every time I tried to create a budget we put reconciliation
instructions into the document, not because we were trying to
determine one thing or another, but because we thought it would
be important for the committees of jurisdiction to actually go
in and make reforms on a step-by-step basis, pulling those
weeds out as we went, as opposed to where we are now, which is
a super committee having to go in and try and put everything
back together.
Last but not least, let me suggest a proposal that the
Commission on Fiscal Responsibility that the Pew Peterson
Foundation put together and the Committee for a Responsible
Federal Budget. A bunch of us has-beens, budget directors and
chairmen and ranking members and all of us has-been budgeters
got together bipartisan and argued through what could we do.
The number one recommendation that we came up with that is
missing in the budget process was a fiscal goal. What was
horizon that you are trying to accomplish? Just going year by
year, we all know in business, in family, and in our common
sense, that you will not reach that final goal, A) if you do
not have one, and B) if you cannot measure along the way to
know if you are heading toward that fiscal goal. And we
determined that a good fiscal goal would be setting a certain
debt to GDP ratio; we picked 60 percent. Pick whatever number
you want, but we also put in some triggers and some targets
along the way so we knew if we were on target, and if we were
not on target we had some automatic triggers that took effect
that said, ``Okay, Congress cannot get it done, this is what
automatically happens.'' It is not that dissimilar to what you
decided in the super committee process with sequestration. So,
those are my five I put in the website, and some of the
information to direct you to it, but, leadership is number one;
try the current process is number two; number three, make it
real; number four, use reconciliation to help weed the garden;
and number five, set some good goals and targets as part of
this process so you know that you are actually heading toward a
goal as opposed to this year by year kind of waiting for the
next election more than really waiting for the next fiscal year
as part of this process.
So I commend that to you Mr. Chairman and friends and
members and I do it with sincerity that if somebody knows that
from a substantive standpoint how we got here; there is a lot
of blame to go around. Having sat on both that side as a
chairman and this side as an OMB director, I accept my portion
of that, and I think all of us accept the responsibility
including those beyond this committee who did not, to do
something about it. So I commend that to you in that spirit,
and I hope that you can use it to improve the process in
whatever way that you see fit. Thank you.
[The prepared statement of Jim Nussle follows:]
Prepared Statement of Hon. Jim Nussle, President, COO Growth Energy;
Former Chairman, House Committee on the Budget
Chairman Ryan, Ranking Member Van Hollen and Members of the
Committee thank you for the privilege of appearing before you today.
It's great to be back before the House Budget Committee at the witness
table but, your vantage point is better. I commend you and the entire
professional staff here at the committee including Tom Kahn and Austin
Smythe; true experts, patriots and friends.
In my testimony here today I hope to make the following points:
1. The budget process chosen is less important than the political
leadership provided.
2. Before you search for a new budget process to fix the current
process, actually give the current process a try.
3. Make the budget process real by considering making the budget a
law and binding on Congress and the President.
4. ``Weed the garden'' of public policy every year by using the
budget reconciliation process while keeping everything on the table.
5. Determine long and short-term fiscal sustainability goals within
the Budget Resolution to assure a path to fiscal responsibility.
the budget reform ``tool box''
The subject of this hearing reminds me of the tool box on my Dad's
old workbench. I've looked inside that toolbox over the years and today
I still recognize the same tools in his handyman arsenal from when I
was a kid. Some are worn, some a little rusty, some show the markings
of use, but they are largely the same tools he's always had and always
used. My Dad would tell me that ``it's not the tools, but the
craftsman'' that make the difference in the outcome.
I suppose the same could be said of our fiscal toolbox. I've
observed, participated, testified and chaired these important hearings
over my now 20 years in federal budget matters and I've used or
recommended using just about all the various budget process tools in
the fiscal tool box as I wrote federal budgets from both ends of
Pennsylvania Avenue. The ``tools'' themselves remain largely unchanged.
And, as the fiscal challenges continue to become more severe, it
might seem obvious to some that the budget process is what is broken
and making this effort so challenging. I suggest that would be
incorrect. That is not to suggest that a process change here or there
might be an improvement or that a completely different process would be
the perfect solution
I recall how Senator Ben Cardin (then house budget committee
member) and I met together back in 1999 with budget staffs for months
writing our budget reform plan with the sanction of our leadership,
tinkering with ideas from the very bold to the very minor. We held
hearings just like this and examined every possible alternative tool.
Congress ended up now passing our budget reform plan by a slim
margin made up of appropriators who didn't want a budget process to
``fence them in'' and other members from authorizing committees who
were concerned about shining the light on their growing entitlement
sustainability issues within their jurisdiction. That day our plan
failed on the floor of the House, we had a balanced budget. Our reform
wouldn't have worked any better without leadership.
Here again, I would provide my Dad's advice, I suggest that there
may not be any ``new tool'' but rather what's needed is the skilled
``craftsperson'' and leader to put them to good use.
One might easily argue that the process used to create the budget
is broken. But, I could easily argue that the budget process isn't
broken at all; today the budget process is not even being used or and
at best is simply being ignored.
I wish our nations fiscal challenges could be repaired by a process
adjustment. And, if a ``new and improved'' budget process is treated
with the same disrespect as the current process, good luck having a
rebirth of success.
If an intersection of streets with a big bright red sign that says
STOP doesn't cause drivers to STOP, (they just keep rolling right
through) what can you do? Make the sign bigger, redder, affix flashing
lights all around it. It still requires the respect of the driver to
adhere to the ``rules of the road''.
Over the years Congress and the President have been simply rolling
through the ``stop signs'' and not adhering to the rules of the road in
seemingly small ways. But now that disrespect and lack of leadership
has resulted in the very lack of a budget whatsoever. And all sorts of
fiscal accidents are waiting to happen as a result.
So what can be done? I would make the following recommendations:
1. My first is leadership. The budget process chosen is less
important than the political leadership provided. You all either
provide it or you don't. You either establish clear, fair, and a non-
outcome determinate budget process rules that you follow and that allow
the Congress to work its will and determine the nation's priorities or
you don't.
2. Before you search for new budget procedures to ``fix'' the
current process, actually give the current process a try. Prove that
Congress and the President can follow the current process and rules
before you decide that a new process or rule will somehow do the trick.
Most of you have yet to see the current process work because most
haven't even seen it fully attempt or implemented!
3. Make the budget process real by considering making the budget a
law and binding on Congress and the President. A Joint Resolution
approach for the budget rather than a Concurrent Resolution can
establish clarity, buy-in and commitment up front in the budget process
calendar determining quickly whether there are issues and challenges
making agreement difficult or impossible rather than waiting until the
year end for the train wreck to be realized. Plus a law makes it real,
binding, enforceable and controlling in an era where everything seems
out of control and unsustainable. It forces the President to
participate which I believe would improve the process and shines the
light on inaction to assist in preventing one body from simply ignoring
the realities.
4. ``Weed the garden'' of public policy every year by using the
budget reconciliation process while keeping everything on the table.
Just like a garden, if you pull the weeds of waste, fraud, abuse,
ineffectiveness, and duplicative ness in the entitlements that now make
up two-thirds of the budget, you make it easier to accomplish rather
than letting those weeds take over. When I was Chair we placed
reconciliation in every budget in an attempt to accomplish that very
reasonable and gradual reform. And put everything on the table. We all
have our areas where we have strong beliefs but that should not
preclude the search for constant improvement.
5. Fifth and finally, determine long and short-term fiscal
sustainability goals within the budget to assure a path to fiscal
responsibility.
At our Committee for a Responsible Federal Budget Summer
conference, Chairman Bernanke said ``A straightforward way to define
fiscal sustainability is as a situation in which the ratio of federal
debt to national income is stable or moving down over the longer
term.''
Just as there are many policy tools to reduce spending there are
choices for how to achieve, measure and maintain fiscal sustainability.
I offer the choices arrived at after thoughtful deliberation and
calculation from The Bipartisan Committee for a Responsible Federal
Budget and the Pew-Peterson Commission on Budget Reform where I am a
co-chair and honored to participate.
The Commission determined three broad recommendations of targets,
triggers and transparency, beginning with the establishment of a fiscal
goal and then adopting budget limits that would be enforced through
broad automatic spending cuts and even tax increases if policy makers
fail to make the necessary legislative changes to meet that goal.
Our Commission recommended that Congress and the President: Adopt
medium-term, long-term and annual limits on the amount the government
can borrow as a share of national income. The targets are intended to
commit the government in advance to a path of borrowing consistent with
economic stability; debt to GDP target of 60% recommended to begin and
reduced over time.
Links to the Pew Peterson Commission report ``Red Ink Rising'':
http://budgetreform.org/sites/default/files/
Red_Ink_Rising_hyperlinked.pdf
and report ``Getting Black in the Black'':
http://budgetreform.org/document/peterson-pew-commission-recommends-
major-revisions-federal-budget-process
conclusion
Having written, negotiating and passing budgets at both ends of
Pennsylvania Avenue, I well understand how difficult the challenges are
that lay ahead for you as our nation's leaders. The budget tools you
have at your disposal are largely similar to tools we have used or
contemplated using in the past. However, some tools are simply being
neglected and the process ignored. I believe the most important
commodity at this juncture is leadership. Leadership or
``craftsmanship''; is desperately needed to skillfully use the tools in
the fiscal tool box, in these complicated and difficult circumstances,
educating and challenging the American people, and finally placing the
United States finally on a sustainable fiscal path.
Thank you again for the opportunity to testify and I look forward
to your questions.
Chairman Ryan. Thank you so much Jim. Senator Gramm.
STATEMENT OF PHIL GRAMM
Mr. Gramm. Mr. Chairman, first of all it is a great
privilege to be here. I had the opportunity for two terms in
the House to serve on this committee. I would like to begin by
saying that I think the action of this committee and this
Congress is the exemplar of what good government is about. In
my adult lifetime, nobody has done more to move us toward
fiscal responsibility, and no one has acted more courageously
than this committee under your leadership, Mr. Chairman. I
think it is an indication of what can be done with dull tools
with strong leadership. I think we are often mistaken when we
design government to count on strong leadership, and that is
basically what I would like to talk about.
First of all, if you are going to talk about the budget
process, you need to understand that the Congressional Budget
and Impoundment Control Act of 1974 was never written to
control spending. It was written in order to stop Richard Nixon
from impounding spending that had been adopted by Congress. It
was written to shift the control of the budget from the
executive branch to the legislative branch. And even though the
objective of the budget was to increase spending, the senior
members of Congress were very concerned about this: the
creation of this committee, and as a result they structured the
committee in such a way as to make it weak. They made
membership temporary, they wrote the bill in such a way as to
limit the ability to use it effectively, and that is the budget
process we started with.
Now, over time, that budget process has been strengthened,
and why does it matter? I mean, I could not disagree more with
Jim about the tools issue. I find that working around my place
I generally have the wrong tool. I find that I am a lot better
craftsman when I have the right tool.
And let me try to set the budget process in that
perspective; it is a process I think I know. I was the co-
author of the Reagan budget in the House and that was the first
time we used reconciliation to any significant extent. I was
the co-author of Gramm-Rudman and that was the first time we
ever set binding targets and enforced them with automatic
spending cuts, which we call sequesters.
But the budget process is never going to be a four-sided
fort, where you can pull up the draw-bridge and go back to
sleep. The budget process, at its best, is simply a stone wall
to your back in a gun fight. It is very relevant, however,
because it changes the battle field. It changes the contour of
the battlefield and it tilts it toward at its best. It tilts it
toward responsibility and accountability.
Now there were two things that made me interested in the
budget. The first occurred when I had been here about a week,
and I was sitting at my desk and I had my inbox, and it just
kept getting higher and higher and higher and I kept saying to
myself, ``My God, did I give up a perfectly good life at a
perfectly good job to suffer the tyranny of the inbox?'' You
have all experienced it. I hated days here when I was looking
at that inbox.
So anyway, I got up and just wandered over to the floor of
the House and by sheer happenstance Jim Wright was speaking in
favor of raising the debt ceiling. And his basic pitch was your
family has rung up these bills, and what gentleman is not going
to pay his bills. So it suddenly struck me that that was true
but that was just the beginning of the story. So, I held up my
hand and got recognized and basically made the point that it is
true; everything the majority leader said was true, but
families do not just pay their bills. They then get out an
envelope and pencil and sit down at the kitchen table. They
figure out where they got off track, as the Congressman
Hensarling says, they get out your credit card and butcher
knife and cut up the credit card. And I said I do not think we
ought to raise the debt ceiling and not try to address the
underlying problem. Well, I then wondered off. Well, the debt
ceiling failed, which was remarkable in those days.
And so anyway, the debt ceiling came up again in two weeks
to offer an amendment to try to tie the debt-ceiling to the
deficit. I think I got about 160 votes and it failed, but that
was the beginning of my recognition of this problem.
The second was watching the appropriations process. I
figured out that with amendments offered on the floor that the
average amendment was costing somewhere between 50 and $90
million. There were 100 million taxpayers so that each taxpayer
was paying between .50 and .90 cents, which was not enough to
fool with, certainly not enough to fund writing a letter to
say, ``Hey, it is my money.''
But the beneficiaries were getting substantial amounts of
money so that on every vote the beneficiaries were looking over
their left shoulder holding members of Congress accountable.
Nobody was looking over their right shoulder. And I found in
watching the debate that it was not sufficient, nobody cared
whether the amendment was worth what it cost. You could only
defeat a spending amendment if you could make a very coherent
and convincing argument that it was a bad thing. So we were
consuming the taxpayer's money up to the point where its value
was zero, often it was negative, but we could not make a strong
enough argument. Those two experiences convinced me that the
process had to change and that led to what became the Reagan
budget and the use of reconciliation and Gramm-Rudman.
Let me say I think your Budget Control Act was a
substantial improvement over Gramm-Rudman and I think the
principle you set down that if you are going to raise the debt-
ceiling you ought to have reduce the deficit over a 10-year
period by a comparable amount. It is a good principle and I
think it should never be violated again.
Now, if today's question is ``What can we do to make this
process better?'' I want to share with you a big idea. It is an
old idea; it is not my idea, obviously. If it is a big idea, it
clearly is not my idea, but interestingly enough it was Jimmy
Carter's idea. I want to give you an updated version of it in
terms of my thinking. The idea that Jimmy Carter brought to
Washington was zero based budgeting. The idea was that every
appropriated program should periodically be comprehensively
reviewed and modernized and Congress should be required to
reauthorize it or it would die.
Now, Carter came in 1997 and I did not come until 1999. So
by the time I got here, poor Carter was so beaten down, and
this idea was hated by Congress immediately, but I tried to get
President Carter to come forward again with the idea but it
never happened.
Here is what I want to propose: I want to propose that
beginning with the election of the new president, could be the
same person, but the beginning of the new presidency in 2013,
that the administration be required in its second year to
evaluate and submit reauthorization legislation for every
discretionary program in the American government. Now they may
decide not to resubmit certain programs. The authorizing
committees could decide on dramatically changing programs. The
authorizing committees will now have lead in their pencil and
they would be in a position where each program has to be
reauthorized or at the end of the year it cannot be
appropriated. We have programs that serve no purpose, and in
some cases have really outlived their beneficiaries but inertia
just keeps them in place. This is a very powerful idea.
I would go further. I would also, once every 10 years,
require the reauthorization of all unearned entitlements. These
are entitlements where people get benefits that they have not,
at least in part, paid for. And each decade they would work
exactly the same way. AFDC, food stamps, many other programs
would have to be resubmitted, they would have to be
reauthorized, they would be comprehensively reviewed, they
would be voted on by Congress that did not write the bill to
begin with, looking at it from the perspective of the world
they are living in and the constraints they face. And if they
reauthorized it, if they changed it, it would be changed, if
they did not reauthorize it would not be funded.
Now, I would go whole hog myself and that is I would
require that earned entitlements, entitlements where you either
provide service, or you pay at least in part for it, that would
be veterans' benefits, Social Security and Medicare, I would
require that every 10 years you require the administration to
have a comprehensive review and a propose the reauthorization
program.
I would require that Congress comprehensively review the
program. I would not sunset unearned entitlements but I would
give the review process a privileged motion under expedited
rules so that the reauthorization could not be filibustered,
and where it would be subject to rules that would allow the
process to work.
I would even go further. For every provision of the tax
code that was not a rate I would sunset it every 10 years and
require that it be reauthorized. If it did not reauthorize it
would be one we authorized it would go away.
I think I would treat rates like earned entitlements. I
would be a little bit afraid to require the reauthorization of
tax rates because if you did not get the job done you would be
out of business. Now, some people might view that as a good
thing. When I was a young man I would have made a joke that it
might be a good thing but now I am not as ignorant as I once
was.
But in any case this is the kind of thing that we really
need to do. Reagan used to talk about nothing is immortal on
earth except the programs of the federal government. And as all
of you know it is sinful looking at our tax code.
Finally, let me just say we are already changing
entitlements, now somebody is going to jumop up and down and
say ``You mean every 10 years you are really going to have a
process to look at Medicare and Social Security?'' Well, look
we have amended Medicare 13 times with major changes since
1965, so every three and a half years we are rewriting
Medicare. Why not do it in a systematic way where we can look
at what has happened actuarially. What has happened in terms of
our ability to pay for the program and the potential miracle
that we might have learned something?
In terms of Social Security, it has been amended
substantially 17 times. Every 4.4 years we have changed Social
Security in some very meaningful way. Why not have an orderly
process to look at it every decade? I have to believe that
would be a good idea. I also believe that we need to convert to
all of these programs to actuarial accounting. I mean we talk
about programs that have a positive cash flow, that have huge
accrual accounting deficits. We have a complete misconception
that the public has about the ability of a trust fund to pay
Social Security benefits when the trust fund is a bunch of IOUs
in a metal file cabinet in West Virginia where it is the debt
of the government to itself.
And we require accrual accounting of every private business
in America. Why do we do it? Because we are trying to protect
individuals by giving them information, but yet government does
not apply accrual accounting to itself. Makes no sense.
Finally, let me say this special interest groups would hate
these proposals that I have made. They would fear them because
it means that you would really, honest-to-God, going to look at
these programs to see if they are achieving what you want them
to achieve. I would say that it is worth the effort to do it. I
think it is important to remember that America does not have
any special dispensation that guarantees that we are always
going to be the greatest, freest and richest country in the
world. We are going to be as great and as free as we make
ourselves. And we are going to be as poor and un-free as we
allow ourselves to become.
One of the reasons that this is an important committee is
because this is the only committee of Congress where you really
talk about the role of government. How big should the
government be? How should it be funded? What do we expect our
government to do? Those are critically important decisions
because they really determine who we are. If you have France's
government, your people are going to become Frenchmen. If you
have America's traditional government, they are going to be
Americans. So these are very important decisions and I commend
them to you and I just urge you to choose wisely.
[The prepared statement of Phil Gramm follows:]
Prepared Statement of Hon. Phil Gramm,* Vice Chairman,
UBS Investment Bank; Former U.S. Senator From the State of Texas
Mr. Chairman, I am honored to testify today before the House Budget
Committee, a committee that I was privileged to serve on when I was in
the House of Representatives. In Washington, D.C., where the buck is
frequently passed and dodging is the norm, the House Budget Committee
in this Congress has provided extraordinary leadership in addressing
the Nation's fiscal crisis. In my adult life, of all the efforts
undertaken to address government spending and debt, the budget you
passed in 2011 is the most significant and the most courageous.
---------------------------------------------------------------------------
*The opinions expressed in this testimony are solely my own.
---------------------------------------------------------------------------
Any review of the Congressional budget process must begin with the
recognition that the Congressional Budget and Impoundment Control Act
of 1974 was never designed to control spending. Its primary objective
was to stop the Presidential impoundment of spending, and shift the
control of spending from the Executive branch to Congress. But even the
most senior members of Congress were fearful of its potential power and
worked to insure that both the Budget Act and the Budget Committee were
weak.
As co-author of the Reagan Budget, which employed the first major
use of the reconciliation process, and as the co-author of the Gramm-
Rudman law, which set the first binding deficit reduction targets and
enforced them by automatic spending cuts called sequesters, I can
clearly and unequivocally say that there is no budget law that is a
four-sided fort where we can pull up the drawbridge and go back to
sleep. The best that any budget mechanism can provide is to help force
action and tilt the process toward encouraging hard choices and
compromise. At its best, the budget process can become a good stone
wall to your back in a gunfight.
I believe the Budget Control Act recently enacted into law sets out
a good process for handling the debt limit increase. It corrects many
deficiencies in the Gramm-Rudman law and the Budget Enforcement Act.
The principle that any increase in the debt ceiling should be fully
offset by a permanent reduction in the deficit of an equal or greater
amount is sound and should always be the guiding principle in the
future.
If the question today is how we strengthen the congressional budget
process, I want to recommend for your consideration a permanent reform
structure for ALL government spending. One of the best ideas ever on
the budget came from former President Jimmy Carter, and that was zero-
based budgeting. His idea was simple and logical: all discretionary
spending should be periodically re-authorized by Congress. I would
recommend that beginning in January of 2013 we require whoever is
President to submit re-authorizations of all discretionary programs at
the beginning of the second year of their Administration. This would
mean that every program would be reviewed and reauthorized or it would
sunset and not be eligible for funding. There should be no exceptions
to this rule.
In addition, every 10 years I would sunset all entitlement programs
which are unearned, i.e. not based at least in part on contributions
made by the beneficiary, starting in 2014. For those entitlement
programs which are based in part on beneficiary contributions, I would
require a comprehensive review every 10 years with an expedited and
privileged consideration of the reform process. Entitlement programs
are now changed on a haphazard basis, with the Medicare law having
undergone 13 major changes since its inception in 1965--that's once
every 3.5 years--while Social Security has been subject to 17 major
changes over 75 years, a rate of once every 4.4 years. By sun-setting
unearned entitlements and by requiring a comprehensive review with
expedited and privileged procedures for reforming earned entitlements,
we could begin a systematic review and modernization based on
demographics, the financial status of the government and the state of
economic knowledge.
All federal entitlement programs should be maintained on the books
using accrual accounts. We continue to talk of programs in terms of
cash-basis ``surpluses,'' which are in fact running massive deficits
under accrual-accounting. The government demands accrual accounting in
the private sector to protect individuals but remarkably we do not
apply the same laws to government itself. I believe Senator Lieberman
introduced such a bill a few years ago, and it would be a good reform.
Further, we should require States to use the same accounting methods
for their pension programs and health care retirement benefits. Only
then can we ensure transparency and accountability in the process.
While special interest groups will fear and oppose systematic
review of all federal spending programs, it is clear that the nation
and its people will benefit. America has no special dispensation that
guarantees we will always be the greatest, richest, and freest people
in the world. America can be as strong as we make it or as weak as we
allow it to become. When Thomas Jefferson said that the price of
liberty is eternal vigilance, he was not talking about Indians coming
over the mountain or the British coming across the ocean. He was
talking about vigilance against the encroachment of our freedoms by our
own government. It is this committee that sets the limits on government
and that duty makes the Budget Committee--and your actions -
significant. Behind all the numbers and the budget scoring and
projections, you are determining what kind of America we want to live
in. Please choose wisely.
Chairman Ryan. Dr. Joyce, I understand in my opening I said
you are from George Washington University, however, my
understanding is you recently left George Washington and you
are now at the University of Maryland, correct?
Mr. Joyce. That is correct and my dean thanks you for
reading my qualifications.
Chairman Ryan. Dr Joyce.
STATEMENT OF PHILIP JOYCE
Mr. Joyce. Thank you Chairman Ryan, Representative
Schwartz, members of the Budget Committee. I am pleased to be
here today to share my views on the federal budget process. I
have a relatively long written statement which I would like put
into the record and I am mindful of the fact that when you say
an academic is going to offer wide-ranging views it may just be
an invitation to be long-winded.
Chairman Ryan. Without objection it will be in the record,
so you can summarize your comments.
Mr. Joyce. I will summarize. What I am going to tell you is
based on my 20 years of both participating in and studying the
budget process. I think it is an understatement to say that the
budget process does not appear to working very well. I would
argue, however, that the main problem is not that the budget
process itself is broken, and in fact I agree with Mr. Nussle
that the main issue is that tools that are available have not
been recently used to devise solutions to the fiscal mess we
are in.
So my main message to you, and I will amplify on this but
not too much, is that you should avoid the temptation of
assuming that fiscal rules are going to solve our budgetary
problems. The goal is to deal with the larger fiscal imbalance
that faces us. I think that the most important thing to do is
to make effective use of the tools that you already have.
I think it is useful from my vantage point of somebody who
studies the budget process and has participated in it to sort
of review what our historical experience may offer in this
regard, so I am going to try to call out some lessons from the
last 25 years; it is really the last 25 years that we have
attempted to use the budget process to try to get some control
over the deficit.
In 1974, of course, we had the Congressional Budget and
Impoundment Control Act. The fact that we have the Budget
Committee and a budget resolution at all stems from a desire by
the Congress to deal with the whole budget and to deal with the
budget on a multi-year basis. Prior to that point, the budget
was dealt with only on a piecemeal basis, the budget was really
very much year at the time; so I think that was a giant step
forward when it was used, and sometimes it used and sometimes
it is not.
The main vehicle to do multi-year budgeting has
historically been, as both of the previous speakers said, the
reconciliation process. I think, in fact, the reconciliation
process is the success story of the federal budget process.
But I agree with Senator Gramm that there was nothing about
the original 1974 budget process that was really designed to
get control over spending or the deficit. And in fact in 1985,
when the Gramm-Rudman-Hollings Law was passed, that represented
the first real attempt to use the budget process to reduce the
deficit. I think there is a credible argument that this law had
some effect on spending and deficits; however, it did not come
close to meeting its overall goals. In fact the fiscal year
1993 budget, which was one that was supposed to be balanced
under Gramm-Rudman-Hollings had a deficit of $255 billion. I
only mention this to say that historically this is why after
the late 1980s it sort of led us to a place where we looked for
another approach to try to get a handle on the deficit. And
that ultimately culminated in what was called the Budget
Agreement of 1990; this is where the president and a few
members of the president's staff and key members of Congress
went to Andrews Air Force Base and they sort of hammered out an
agreement to reduce the deficit. Part of that agreement did
involve the budget process. There was a new procedure called
the Budget Enforcement Act, and the Budget Enforcement Act is
where we first saw discretionary spending caps similar to the
ones that are now the Budget Control Act and the pay-as-you-go
process which was for mandatory spending and revenues.
The BEA approach differed from Gramm-Rudman in two main
respects: first, it focused on the policy actions first and
then used the budget process to attempt to enforce compliance
with those actions. That is, to try to keep the Congress from
undoing the decisions that had previously been made.
Second, it created separate enforcement regimes, as opposed
to an overall sequestration covering discretionary spending on
the one hand, and mandatory spending and taxes on the other
hand. This BEA type process was repeated in 1993 and 1997 with
the passage of yet new reconciliation bills. The reconciliation
process again was central to deficit reduction.
The BEA fell apart in the early 2000s. What killed the BEA?
Surpluses killed the BEA, because at the point at which you had
discretionary spending caps, you had a pay-as-you-go process,
but you also had surpluses and it was sort of asking the
political system to walk and chew gum at the same time. It was
sort of hard to maintain that discipline.
The 1997 Act, in fact, represented the last time, prior to
this year, that the congressional budget process was used to
try to enact a multi-year deficit reduction deal.
Reconciliation was used plenty of times in the 2000s, but when
it was used in the 2000s it tended to be used to add to
deficits rather than subtract from them. This year, though,
there was a movement in the Budget Control Act toward multiyear
deficit reduction because of the discretionary spending caps;
so all of that is history.
What does that history tell us about any lessons, about the
relationship of the budget process to deficit reduction?
I would like to highlight four lessons. The first lesson is
setting targets without simultaneously reaching consensus on
policy actions to reach those targets is likely to be an empty
promise. The major failing of the Gramm-Rudman law was that it
did not really require anything of people who voted for it,
other than to promise to do something in the future. When the
future came, they did not do it.
This is also a problem with constitutional amendments
requiring annual balanced budgets; they are not self-enforcing;
something needs to happen after them in order to make them come
true. If they are going to be targets then they should be
accompanied by at least a substantial down payment on the
policy actions that are necessary in order to meet them if
those targets are going to be credible.
Second, and related to this, the budget process is better,
I would say much better at enforcing compliance with agreements
that have already been made than making those agreements
happen. All of the successful efforts at deficit reduction in
the last quarter century had one basic thing in common, the
president and the Congress agreed on a future path for the
budget and a set of policy actions and then the process was
used to try to enforce compliance with those actions. That is
the BEA approach, I think it largely worked, until the
consensus around reducing the debt fell apart, which it did in
the late 1990s, early 2000s.
Third lesson, any enforcement regime must be comprehensive
and must encourage participants to make policies in order to
avoid the consequences. Sequestration is something that should
be designed so that it is not actually used. That is, it should
encourage people to do things, what we will call the old-
fashioned way, which is to actually increase revenues, cut
spending in order to meet targets. The problem is that if many
parts of the budget are excluded from enforcement, as was true
with Gramm-Rudman-Hollings and as is true with the Budget
Control Act, then the ability of the enforcement process to
promote policy agreement is more limited. Put simply, people
will calculate whether they think they are better off letting
the automatic cuts take effect than they would be actually
reaching policy agreement. I would therefore encourage that any
enforcement regime not only include all spending, but also
include automatic revenue increases, not because I think
automatic revenue increases are a good idea, but because people
might actually want to enact policy actions in order to avoid
having them go into effect.
Fourth, the budget process should hold policy makers
accountable for things they can control. I think this was one
of the important characteristics of the BEA is that it held
appropriators responsible for those actions that dealt with
appropriated spending, that is appropriated spending exceeded
the caps it was appropriated spending that got cut. If it was
authorizing spending that was the problem, then the pay-as-you-
go process would kick in to try to put a sequestration on
mandatory spending.
So what do I think, in addition to enforcement, which I
think is important, if you have any set of budget changes that
are put into effect I think they need to be enforced, what are
the most fruitful areas of potential reform? I would advise
you, in addition to enforcement, to concentrate on those that
give the Congress and the president appropriate information on
the fiscal impact of the budget choices that you make. There
are actually a few examples of this from the past, one of them
is the 1990 Federal Credit Reform Act, if you want to talk
about approvals, that was sort of the first movement to try to
bring accrual concept into the budget for loan guarantees and
direct loans. Prior to that point, direct loans were treated as
if they were grants, loan guarantees were treated as if they
were free.
The 1995 Unfunded Mandates Reform Act was an attempt to try
to bring information into the process to try to keep things
from happening that appeared to have no cost, when in fact they
did have a cost, they just did not necessarily have a cost to
the federal government.
The various score-keeping rules, which are arcane and will
put you to sleep, but they were put together in 1990, codified
in 1997, I think they reduced the overall level of what we call
technically budget chicanery. They have encouraged recognition
of cost at a point where I think they can be controlled. Issues
like this which are not sexy and are really about budget
concepts and budgetary accounting seem much more fruitful to
focus on than larger fiscal rules or many institutional reforms
and there are lots of other issues out there that could fit
this category of providing additional information, such as for
example the expansion of accrual concepts to other areas,
deposit insurance, pension insurance, flood insurance, et
cetera and also budgeting for disasters and emergencies, which
is not just this year that this has been an issue, this has
been an issue probably for the last 25 or 30 years, the fact
that we systematically underfund emergencies in the regular
process and then when there are emergencies we have to add
money to the budget.
So in closing, the budget process can be good, in my view,
at two things. The first is to force policy makers to confront
the real cost of their actions and provide information that is
necessary for them to make budget decisions. The second is to
enforce compliance with budget decisions that have already been
made. Unfortunately, it is not very good at forcing the
political system to deal with fiscal problems if it does not
have the political will to do so. So again, much of the current
budget process infrastructure that is needed to deal with your
current budget problems exists today. I would join Mr. Nussle
in saying that I think the most important thing to do is to
make use of those processes and those rules that you already
have. I think that is going to have much better payoff than
establishing fiscal rules without establishing the policy
changes that are necessary to comply with those rules. So
thanks again for inviting me.
[The prepared statement of Philip Joyce follows:]
Prepared Statement of Philip G. Joyce, Professor of Management,
Finance, and Leadership, Maryland School of Public Policy, University
of Maryland
Chairman Ryan, Ranking Member Van Hollen, and members of the Budget
Committee, thank you for inviting me to share my views on the federal
budget process. The views I will express today are informed by 20 years
of both participating in--and studying--the budget process. Based on
this observation, I would agree with many who would say that the budget
process certainly does not appear to have done a very good job of
helping us to solve the current budget problems that we face. I would
argue, however, that the main problem is not that the budget process is
broken--it is that the tools that are available have not--at least
recently--been used to devise solutions to the problems that we face.
I would like to start by observing that I think taking a long look
at the budget process and (particularly) budget concepts can have a
positive effect. It is, however, a big job--one that is fraught with
difficulty. This difficulty takes at least two forms. The first is that
there are entrenched interests who like the budget process just the way
it is because it enables them to achieve their desired policy ends. The
second is that, because there are so many directions that you could go,
the Congress might spend its time on tempting reform targets that will
not really have much payoff. I don't think there is much that can be
done about the first problem, and in any event I don't mean to suggest
that you duck difficult reforms that may work because they would be
opposed by entrenched interests. But I do advise you to steer you away
from reform ideas that we have already tried and we know not to work.
In particular, I hope that you avoid the temptation of assuming that
fiscal rules will solve our macrobudgetary problems. In fact, my main
message is that most of the tools that you need to solve the budget
problems faced by the country are already in your toolbox. If the goal
is to deal with the larger fiscal imbalance that faces us, the most
important thing to do is to make use of them, not search for more
tools.
what is our experience with fiscal rules since 1974?
First, I think it is useful to remind ourselves of where we have
been. Since 1974 we have attempted a number of approaches to deal with
the budget, and later the budget deficit. These efforts have yielded
some lessons that I think are useful to consider in the context of
budget reforms that the committee might consider this year.
The Congressional Budget and Impoundment Control Act of 1974, which
established the budget resolution and this committee, was designed to
address at least two major flaws in the process as it existed at that
time. First, the budget was adopted on a piecemeal basis. That is,
there was no point at which the Congress focused on the whole budget.
Rather, many separate bills--covering tax legislation, mandatory
spending, and discretionary appropriations--were considered. In total,
these made up the ``budget'', but the totals were more or less the
accidental result of these many separate legislative actions. Second,
the budget was only a one-year-at-a-time phenomenon, with little
attention paid to the medium-or-long term budgetary or economic effects
of policy.
The Budget Act of 1974 attempted to address these shortcomings by
establishing a budget resolution, which would represent a comprehensive
statement by the Congress of its priorities, and would cover multiple
years. The notion here was that the Congress would first decide on a
path for aggregate fiscal policy, and then would impose limits that its
committees would be required to adhere that would be consistent with
these aggregate limits. Institutionally, the establishment and
enforcement of the budget resolution would be under the jurisdiction of
the House and Senate Budget Committees. They would be supported in this
by the Congressional Budget Office (CBO), which would both establish a
multi-year budget baseline (starting point) for budget deliberations,
and would track the economic and fiscal effects of legislation over
multiple years, in part to ensure that the strictures established by
the budget resolution were adhered to.
This was all well and good, except that there was nothing about the
budget process created in 1974 that necessarily forced it to confront
the large deficits that began to surface by the mid-1980s. The Balanced
Budget and Emergency Deficit Control Act of 1985 (later revised in
1987), also known as Gramm-Rudman-Hollings (GRH), attempted to put the
budget on a glide path to balance by setting fixed deficit targets,
over multiple years. The bill was passed as an amendment to a bill to
increase the government's debt limit, partially to give some cover to
those who voted for the debt increase. Adherence to these targets was
enforced through sequestration. If estimated deficits (as enacted in
the budget resolution) would exceed the GRH targets, across-the-board
spending cuts were enacted. The sequestration process excluded a
significant number of programs, however, including Social Security and
most of Medicare.
The Gramm-Rudman-Hollings legislation was a watershed event,
because it explicitly focused the budget process, for the first time,
on attempting to get a handle on out of control budget deficits. The
law set annual targets for budget deficits, with an ultimate goal of a
balanced budget within five years. While there is a credible argument
that GRH had some effect on spending and deficits, it did not come
close to meeting its overall goals. In fact, the fiscal year 1993
budget, which was to be balanced under the revised 1987 targets, had a
deficit of $255 billion. The failure of GRH to meet it objectives
stemmed primarily from its focus on estimated, rather than actual,
deficits. Policymakers tended to meet the projected deficit targets
through systematically optimistic forecasts, particularly of economic
growth. These optimistic forecasts were embraced by both the President
and Congress, and by both Republicans and Democrats. Further, the
sequestration process lacked credibility, in part because it exempted
large portions of the budget on the spending side, and in part because
it included only spending changes, and not automatic tax increases.
The failure of GRH to reduce deficits to manageable levels
contributed to the search for a different approach, which ultimately
culminated in the Omnibus Budget Reconciliation Act of 1990. This act
combined spending cuts and tax increases to reduce 1991-1995 deficits
by an estimated $500 billion. It also included a new procedure, called
the Budget Enforcement Act (BEA), which combined statutory caps on
discretionary programs with a new pay-as-you-go (PAYGO) system designed
to prevent new actions from undoing the effect of the deficit-reducing
actions enacted in 1990. Under PAYGO, if mandatory spending was
increased or taxes decreased, this needed to be accompanied by action
to reduce mandatory spending or increase taxes in order to make the
overall effect ``deficit neutral''. Both the caps and PAYGO were
enforced on a multi-year basis.
The BEA approach differed from GRH in two main respects. First, it
focused on the policy actions first, and THEN enforcing those actions--
attempting to prevent the Congress from undoing the actions already
agreed to. Thus, the option of avoiding the deficit-reducing policy
actions by assuming that the problem had been solved was not available.
Second, rather than one sequestration, there were two, focused on the
distinction between discretionary and mandatory spending (and taxes),
under the assumption that policymakers should be held accountable for
things that they could control. For example, a failure to meet the
discretionary caps would lead to a sequestration of discretionary
spending rather than all spending.
The BEA approach survived the 1990s. New five-year reconciliation
bills were passed in 1993, and again in 1997. These new bills tended to
be passed before the prior multi-year agreement expired, in an effort
to make changes necessary to respond to changing budget or political
realities. The BEA process itself was extended until 2002, but the
onset of budget surpluses in fiscal year 1998 ultimately led to its
downfall. Congress and the President resorted to loopholes starting in
the late 1990s, such as declaring funding for the conduct of the 2000
census to be an emergency. (This seemed to many to stretch the
emergency designation more than a little, since the requirement for the
decennial census is in the U.S. constitution.)
The 1997 Act represented the final time until 2011 that the
Congressional budget process was used to enact a multi-year deficit
reduction deal. While there were subsequent uses of reconciliation
during the 2000s, all of them had the effect of adding to deficits
rather than reducing them. These included the 2001 and 2003 Bush tax
cuts, and the 2003 Medicare prescription drug bill. While a statutory
PAYGO law was enacted in 2010, it includes a number of sequestration
exemptions that limit its usefulness. In 2011, there was some movement
toward multi-year deficit reduction through the enactment of the
discretionary spending caps included in the Budget Control Act.
In the end, there are a number of lessons about the relationship of
the budget process to deficit reduction that emerges from the
experience of GRH, the BEA, and the post-BEA era.
1. Setting targets without simultaneously reaching consensus on
policy actions to reach those targets may be an empty promise. The
major failing of GRH was that it did not require anything of its
drafters, other than a promise to do something later. This is also a
major failing of constitutional amendments requiring annual balanced
budgets. If there are going to be targets, they should be accompanied
by (at least a substantial down payment on) the policy actions that are
required to meet them.
2. Even if we are going to set future targets, promises to reduce
projected deficits, with no attention to actual deficits, invites
unrealistic projections. Meeting projected targets is not that hard.
Under GRH, doing something later ended up often meaning cooking the
numbers to appear to meet the goals, rather than actually meeting them.
3. Enforcement must be comprehensive, and must encourage
participants to reach agreement. A major shortcoming of the GRH process
was that some participants (particularly those who opposed tax
increases or cuts in major entitlement programs) believed that they
were better off with sequestration than they would have been actually
agreeing to a deal. If many policies are excluded from enforcement,
then the ability of the enforcement process to promote a deal is more
limited. I would therefore encourage that any enforcement regime not
only include all spending, but automatic revenue increases.
4. The budget process is better at enforcing compliance with
agreements than to make those agreements happen. Any process is limited
in its ability to actually make something happen, if the participants
to not have the incentive to act. All of the successful efforts at
deficit reduction in the last three decades have one basic thing in
common. The President and the Congress agreed on a future path for the
budget and on a set of policy actions, and then the process was used to
enforce compliance with those actions.
5. The budget process must recognize the particular responsibility
that the federal government has to respond to economic downturns and
other emergencies. It is important that the federal budget process
remain flexible. Thus, when the deficit rises because of the
deterioration of the economy, it is important that this not require
spending cuts and tax increases, at precisely the time that they would
be most difficult, and economically and politically harmful, to enact.
If it had been imperative that the government reduce its deficit during
the recent recession, it would have made state and local governments
and individual citizens much more vulnerable to the effects of the
economic downturn. While there have been tendencies in the past for
emergency designations to be abused, it is important to maintain the
ability of the process to respond to unforeseen circumstances.
6. Enforcement mechanisms should hold policymakers accountable for
things that they can control. The BEA, by focusing on enforcing actions
that had already been taken, and by holding Congressional committees
responsible for actions under their control (appropriators for
discretionary spending, and authorizing committees for PAYGO actions)
was more successful in maintaining budget discipline, at least until
deficits were replaced by surpluses, at which point the consensus that
had developed around deficit reduction had fallen apart.
the problem with overall fiscal rules
There is no real disagreement about the larger budget problems that
we face. They have been well documented. The numerous commissions, in
addition to several directors of CBO, Comptrollers General, and even
some (but not all) Presidents and many members of Congress have
delivered the consistent message that we eventually have to confront
the fiscal challenges that we face.
I am VERY skeptical, however, about how useful budget process
reforms can be in making us confront those challenges. Thus, I would
advise against spending a lot of time and energy trying to come up with
rules that force people to act more responsibly later. It is better to
spend time and energy searching for a set of policies that will reduce
projected deficits and debt, and then use the budget process to enforce
adherence to the fiscal path implied by those policy changes.
It is in this context that I think the balanced budget amendment to
the constitution is ill-advised. Certainly there are many arguments
against a balanced budget amendment, including that it often is not
sufficiently flexible to allow the federal government to respond in
times of economic and other emergencies, and that it is problematic to
put spending limits into such an amendment. I would mainly stress two
flaws in the balanced budget amendment.
The first is that it is a distraction from the problem that we face
right now. It would take perhaps seven years to figure out whether the
state legislatures would ratify it (they would not, in my view, since
many would figure out that it is not in their interest for the federal
government to balance its budget on an annual basis). Moreover, it is
not self-enforcing. It would take legislation to enact the changes in
laws necessary to increase revenues and reduce spending, and further to
enforce compliance with the amendment. If we could enact those policy
and budget enforcement changes, we would not need the amendment. If we
were to pass the amendment, we would still need to do those two things.
Secondly, it relies on erroneous ideas about debt in our society.
It turns out that it is not only the federal government that does not
balance its budget. Families have mortgages; they have car payments;
they have student loans. State and local governments balance their
operating budgets, but they borrow to build highways, or dormitories,
or prisons. Equally, businesses carry debt. Borrowing is a fundamental
part of the financial model for families, governments, and
corporations. Used correctly it can be very productive and result in
measurable gains. The problem is not that the U.S. government has debt:
it is rather that the fiscal imbalance is too large, and is too heavily
weighted towards debt that does not make us better off in the long-run.
These would both be good things for the Congress to address. Neither of
them is addressed by a requirement that the government balance its
budget on an annual basis.
If the goal is reducing the current level of debt in the medium-
term and enacting budgets that maintain budget discipline in the longer
term, it is my view that the Congress already has the major tools that
it needs. The budget resolution itself is designed to set targets for
multiple years, and those targets can (and should) reflect the desire
to reduce deficits to a manageable level of GDP. Moreover, it is the
reconciliation process that has been most successful, if success is
defined as assisting the country to deal with deficits on a multiple-
year basis. Particularly during the decade of the 1990s (with separate
reconciliation bills passed in 1990, 1993, and 1997) reconciliation was
used to enact policies that reduced the deficit over multiple years.
Certainly reconciliation can have the opposite effect on the deficit,
as we saw during the 2000s. That does not have to do with the structure
of reconciliation, but the political consensus around the actions that
it is used to make.
In the end, this demonstrates one of the limitations of
reconciliation, and indeed the whole budget process. It can act as a
vehicle to enact policies, but it cannot force a particular set of
policies to be enacted, or a particular economic or fiscal path to be
followed. Thus, in the 1990s, it was used to promote fiscally
responsible policies, because there was a political consensus around
that fiscal direction. In the 2000s, there was a consensus around lower
taxes and more spending, and the process was used to promote these
outcomes. Thus the process does not demonstrably encourage fiscal
responsibility, but can make that responsibility easier to achieve if
there is a consensus to follow such a path. I certainly think that if
the Supercommittee is successful in coming up with policies to reduce
future deficits, that accompanying that with BEA-like enforcement
mechanisms that attempt to prevent future Presidents and Congresses
from undoing those policy actions will be essential. Even there,
however, history demonstrates that if a future President and future
Congress want to get around those rules, they will find a way to do so.
what about other reform ideas?
There are, of course, lots of other things that you could focus on
that are not directly related to the short terms deficit problems
facing the country. There are, as is true in most years, seemingly as
many of these ideas as there are members of Congress to propose them.
While I will not attempt to look at all of these proposed reforms,
there are four current proposals that this committee may be asked to
consider that I have thought about--biennial budgeting, a joint budget
resolution, sunset review, and expedited rescission. I will share at
least some summary thoughts on these.
Biennial Budgeting--One frequently mentioned proposal is to change
from an annual to a biennial budget. Since Congress has such difficulty
acting on a budget, why not simplify the problem by requiring action
only every other year? Most biennial budgeting proposals would have the
president submit his budget biennially and would also feature biennial
budget resolutions and appropriations. Perhaps the high-water mark for
biennial budgeting came in 1993, when both the Joint Committee on the
Organization of Congress and Vice President Gore's National Performance
Review recommended that the federal government adopt a biennial
timetable for the process. Proponents of biennial budgeting argue that
the current annual process features repetitive votes on many fiscal
issues that eat up valuable committee and floor time. Second, in a
related issue, supporters note that time spent on budgeting cannot be
spent on other activities, particularly detailed oversight of federal
programs.
While enthusiasm for a biennial budget is understandable, given the
distaste with the continual nature of the budget process, this reform
probably would not have much effect on either the time spent on
budgeting or on the level of oversight exercised by Congress. On the
first issue, the federal government has a rather checkered history of
budget forecasting. Producing a budget every two years would increase
the probability that budgets would be based on erroneous information,
and would therefore need to be redone. The biennial process may
degenerate into an annual process, given the uncertainties associated
with budgeting for a $4 trillion enterprise. Further, an increase in
oversight under biennial budgeting would occur only if the current lack
of oversight results from a lack of time. Even if members of Congress
had more time to do oversight, they would not be likely to do more of
it simply because they do not have any incentives to spend precious
time understanding more about how federal programs work in great
detail.
Joint Budget Resolutions--Unlike the present requirement for a
concurrent budget resolution, a joint resolution would require the
President's signature, and thus would be a law and binding on
subsequent Congresses. With a joint budget resolution, the President
would be given the authority to veto the budget resolution as passed by
Congress. Requiring that the budget resolution be a law in order to
take effect would give it more weight than it bears as just a set of
rules the Congress creates for its own use. Further, if a joint budget
resolution worked as advertised, it would improve the timeliness of the
process by facilitating agreement earlier in the Congressional session.
While I think that promoting earlier agreement is a laudable goal,
it seems unlikely that a joint resolution would make earlier agreement
between the President and Congress more likely to occur. In years in
which the President and the Congress are inclined to agree with each
other on the outlines of the budget, requiring the President's formal
approval is not likely to change much. Therefore, during periods of
unified government (that would represent 14 of the 37 years between
1975 and 2011), a joint budget resolution would have been unlikely to
influence timeliness of the budget process. The President and the
Congress already have incentives to agree on the broad outlines of
policy in those years. Alternately, if the President and the Congress
do not agree on even the broad outlines of policy (as seems likely
during periods of divided government--the other 23 years since 1975),
requirement for a joint budget resolution could stop the budget process
dead in its tracks, to an even greater degree than exists today. To the
extent policy and priority conflicts define Presidential-Congressional
relations, a joint budget resolution would simply front-load those
conflicts, increasing chances that the budget resolution would be
delayed or that there would be no budget resolution at all.
Sunset Provisions--Sunset review proposals put government programs
on a set timetable for review and possible abolition. In a sense, many
federal programs and agencies are already subject to sunset review,
since they have to be periodically reauthorized. The reauthorization
process, however, frequently does not focus comprehensively on whether
programs work or not. In fact, examples of programs that are abolished
because they do not work are few and far between. States have often
used sunset review, with mixed results. If sunset review was to be used
at the federal level, it would be most effective if it was accompanied
by systematic efforts to assess the performance of the programs under
review. This type of performance measurement is anticipated under the
Government Performance and Results Act Modernization Act of 2010, which
attempts to build on the last 20 years of progress in establishing
performance measures for federal programs. If sunset review becomes
just another forum for political disagreements that are not supported
by evidence on either side, it is hard to imagine how it would be an
improvement.
The last three administrations have attempted, with some success,
to increase the supply of, and demand for, performance data that can be
used for resource allocation and management. It is worth at least
considering how we could move beyond a simple discussion of how much it
COSTS to pursue particular policy alternatives to more explicitly
considering the effects of these policies. In my view, the federal
budget is pretty good at this point at telling us how much things cost,
but pretty bad at telling us what the benefits are. This is,
unfortunately, symptomatic of a larger problem afflicting the federal
budget, which is that not nearly enough consideration is given to
whether policies or programs work (as opposed to, say, in whose
Congressional district the money gets spent). This seems a glaring
omission in a $4 trillion budget.
Expedited Rescission--Proposals to give a line item veto to the
President have abounded since Ulysses S. Grant first proposed such a
veto in the 1870s. In 1995, the Congress passed, and the President
signed, the Line Item Veto Act, which was a legislative equivalent of a
line item veto that was ultimately declared unconstitutional by the
Supreme Court in 1997. Subsequently, Presidents Bush and Obama each
proposed that he be granted a reduced form of line-item veto authority
through what is referred to as ``expedited rescission.'' Under this
proposal, a president would be guaranteed a vote on rescission
proposals that he proposed, and individual items would be subjected to
an ``up-or-down'' vote on the Senate or House floor. The presumption is
that these items would be subject to greater scrutiny, making it harder
for the more egregious pork barrel projects to survive. In the 111th
Congress, the expedited rescission approach is probably best
exemplified by S. 102, sponsored by Senators Carper and McCain. There
is nothing, in my view, particularly wrong with expedited rescission
proposals. There is no particular reason that a President should not be
able to obtain a vote on his proposed rescissions. I do think that, if
proposals to ensure votes on Presidential proposals to reduce earmarks
are going to be enacted, they should find a way to include targeted tax
benefits as well as spending, as the Line Item Veto Act of 1995 did.
There are other proposals that have gotten less attention that I
think represent useful areas of focus for the Congress. In particular,
I think that reforms that force the Congress and the President to
recognize the cost of individual policy choices will promote greater
attention to policies that have costly future budgetary effects. That
is, that if policymakers have to recognize the cost of their actions,
it may encourage them to behave otherwise. There are a few examples of
this:
The Federal Credit Reform Act discouraged the notions that
loan guarantees are costless and direct loans are like grants;
The 1995 unfunded mandate legislation has discouraged the
imposition of costly new mandates by forcing the Congress to at least
consider their cost. Very few mandates have been enacted since this law
took effect.
The various scorekeeping rules agreed to after 1990 and
codified in 1997 have reduced the level of budget chicanery. The lease-
purchase rule, for example, has been used to explicitly recognize long-
term acquisition costs (a good example of this was the Boeing tanker
charade from the mid-2000s, which was eventually seen for the costly
federal commitment that it was).
Issues like this (which are really about budget concepts and
budgetary accounting) seem much more fruitful to focus on than larger
fiscal rules, or even institutional reforms. There are lots of these
issues that could be the focus of your discussion, but such as list
would clearly include:
What to do with the transactions of the GSEs now that we
have, in practice, removed the word ``sponsored'' from their title.
Whether there are other places where accrual concepts,
such as used for credit programs, would send more appropriate signals
to policymakers than the current cash treatment (such as deposit
insurance, pension guarantees, flood insurance, or natural disaster
policies).
Whether changes should be made in the way that we budget
for natural disasters and other ``emergencies'' (the tendency has been
to underfund them in the regular appropriations process because we
won't be able to help ourselves later).
This is by no means a comprehensive list of possible reforms. These
are certainly other examples that others might be able to identify. The
important point is that these micro-level incentives are liable to have
far greater payoff than larger fiscal rules that try to get us to
balance the budget, or reduce entitlements, or achieve world peace, or
any number of other lofty goals we might consider.
conclusion
The budget process is important. It allocates more than 20 percent
of the goods and services produced in the U.S. economy. It can be good,
in my view, at two things. The first is to force policymakers to
confront the real costs of their actions, and to provide information
that is necessary for them to make budget decisions. The second is to
enforce compliance with budget decisions that have already been made.
Unfortunately, however, it is not very good at forcing the political
system to deal with fiscal problems, if it lacks the political will to
do so.
Much of the budget process infrastructure that is needed to deal
with our current budget problems already exists today. The President,
through his budget, can propose a comprehensive plan. The Congress,
through the budget resolution and reconciliation, can enact legislation
that will, on a multi-year basis, reduce the current debt and promote
fiscally responsible actions in the future. I would urge the Congress
to focus on developing the consensus, passing legislation to reduce the
deficit, and enacting budget reforms that focus on micro-level
budgetary incentives and budget enforcement procedures. This will have
much greater payoff than getting sidetracked by establishing fiscal
rules without enacting the necessary policy changes to meet those
targets.
Thank you for the opportunity to share these views. I look forward
to answering whatever questions you may have.
Chairman Ryan. Thank you very much. This actually is a very
sexy and exciting hearing. That is how sick and twisted I am.
There is lot to get into. The last reconciliation I was
involved in as a staffer that was really meaingful was in 1997.
That was a pretty big deal. Democrat president, Republican
Congress, and then the gentleman to your right did DRA, which
was real savings in the process. The process has broken down as
reconciliation, particularly, has been used to do things other
than what it was originally intended, expanding government
programs, like student loans and others. That was sort of a
contortion of the process and I think that the tax side and I
think that was your point there.
First the process is as good as the people who use it and
whether we have courage in leadership and conviction to
actually fix these problems is what matters more than anything.
So the question that we ask ourselves is the process making it
harder for us to show leadership and discipline, or easier? If
men were angels, quoting James Madison, we would not need all
of these controls. Well the problem is that we are not and so
we need to find the right system to make it as easy as possible
for discipline and leadership to flourish and continue so we
can tackle these enormous challenges that are really
threatening our system unlike any challenge we have had in the
past.
So there are a lot of concepts that have grown over time
and reached consensus and I do not know where everyone stands
on these things, but I am pretty much sure I know where Jim
stands on these things because he and I have had so many
conversations. Emergencies, Jim Nussle, you created the idea of
budgeting for emergencies when you have caps and discipline, it
strikes me as a good way of having a pressure valve so that the
enforcement system does not break down because you have already
prefunded emergencies, and predefined emergencies to stop the
gimmicks from getting out of control.
Senator Gramm and Dr. Joyce, do you agree that a proper
emergency spending regime and the definition of prefunding,
rolling average or whatever, is very important to our
preserving the integrity of the rest of the system.
Mr. Gramm. Well let me say on the emergency system I think
setting aside money that has to be replenished by taking away
from some other place is a good approach. When families have
emergencies, it does not give them a license to simply go out
and spend. They have to make hard choices, they have to decide
that they are not going on vacation; they are not going to buy
a new refrigerator. I do not understand this debate about the
fact that we have had emergencies so we do not have to pay to
deal with them. That is an alien concept.
I want to go back to your process about reform and
leadership because this is an area where I have strong
feelings. Leadership and courage are things you cannot count
on. Process really matters. The Constitution of the United
States is process. Is there anybody here who thinks that it
does not matter that we have the Constitution of the United
States? So God grant that we should always have plenty of
smart, courageous leaders, but I think process is very
important and the outcome of so many debates depends on the
process. So I would make it as strong as I could make it to
make it possible for people to show leadership and exhibit
courage but I would not underestimate the importance of
process.
Chairman Ryan. Let me tack on two points for the rest of
you: joint resolution and biennial. What are your thoughts on
those in addition to the emergency?
Mr. Joyce. I will try to be brief on each one of those. On
emergencies, I think that the issue is, as you know, that
emergencies have been systematically underfunded in the regular
appropriations process and there is no reason in my mind why
you could not put something in place that says you are going to
fund disaster relief spending at sort of its average level over
the last X number of years, because that way you would not have
a sort of systematic bias towards having supplementals for
emergencies almost every year. I think we had at least one
supplemental appropriation, not all for emergencies or
disasters, but every year in at least the last 30 years. Some
of the those years would not have needed to have one if we had
budgeted at a more reasonable level for disaster systems.
On the joint budget resolution, I am very sensitive to the
argument that says it would be better if we could reach
agreement earlier and so it would be better if the president
was involved and we could reach agreement earlier. My
hesitation about it is that if you do not reach agreement, and
I think if you add the president into the mix, where you
already have difficulty reaching agreement between the Senate
and the House you may just increase the chances that you will
not have a budget resolution at all. I think there is already
enough impediments apparently to getting a budget resolution
through since there has not been a budget resolution in six of
the last fourteen fiscal years. So my concern would be that you
would frontload the conflict, in addition to frontloading the
possible agreement.
On biennial budgeting, I have a longer sort of discussion
about biennial budgeting and joint budget resolution in my
testimony. But on biennial budgeting, the two big payoffs that
people argue for biennial budgeting, are first that you are
going to spend less time on budgeting and second that you will
be able spend more time on oversight. I think both of those
claims are overblown and I think the reason they are overblown
is because what it implies is that in the non-budget year, you
will just take a year off from budgeting. I think there are a
lot of things working against the possibility of being able to
take a year off, not the least of which is that there is just
too much unpredictability out there. So what you are likely to
have is a budget year and then a second year where you have
some omnibus on the supplemental. That is what I think.
Mr. Nussle. I would agree. I would not want it to be a
panacea, that somehow that would fix a one year broken process
and then a two year broken process; I mean they are basically
the same thing. So it is a matter of expectations.
Can I just point out too, all of those recommendations that
I made, and I tried to be careful about this, because I am the
last one who tried and failed miserably in trying to pass
budget process reform. All of the things that I suggested, Mr.
Chairman, are things that you can do now by fiat. You could
make it a joint resolution rather than a concurrent, as I
understand it. You can use reconciliation now, as I understand
it. You can put in fiscal goals right now and mark to those
goals. You can actually even make it a two year biennial budget
process. I mean you do it now, arguably, you could say you just
ignore the second year. Well you are ignoring it now. You could
arguably do all of those things right now without any change to
the 1974 Act as I understand it.
So I guess part of what I am suggesting, and while I do not
disagree with the good Senator, but I think it is a marriage of
both process and leadership, I am not suggesting the process
does not matter, but all I would suggest to you is the process
without leadership is impossible and obviously without a
process any leader would have a difficult time going through
it.
Right now, the way I see it is we have a pretty good
process; it could be improved on the edges. I think right now,
as he said, this committee demonstrated that leadership and has
in the past, and has not in the past. I could not get some
things done that I wanted to get done. I think it is bold and
it is a marriage of that leadership and process.
Chairman Ryan. Ms. Schwartz.
Ms. Schwartz. Thank you Mr. Chairman and thank you for your
testimony. It seems to me that while there were some different
ideas that each of you shared, but there quite a bit of
bipartisan agreement here on the fact that our budget process
is not broken. As Mr. Nussle just said, as I think Senator
Gramm and Dr. Joyce all said, process does not address
political will and I think that it was made even clearer that
without real agreement between the president and Congress we
can choose to ignore our own decisions. So you need that
agreement on substantive issues on how we are going to tackle
the deficit and that is really key to how we then use the
process to implement those decisions. You are all nodding, so I
think that was really quite stark and I just have to agree with
you.
So, my questions for you are, some of the decisions and
issues that you raised I think would be helpful for us to reach
some agreement on and have to be in the discussions. We have
seen bipartisan commissions, now one after the other. You each
have been in some of these discussions if not on the
commissions about what does have to be on the table so that we
can reach agreement on them and that we are not then avoiding
big pieces that we are pretending either for ourselves, or to
the American people that they do not matter.
So here are my really straightforward questions. Senator
Gramm you actually said everything has to be on the table. We
have to look at every discretionary program and you have even
suggested as to what works and what does not and how can we
improve them.
When you are talking about, and I think this is a yes or no
answer, but when you are talking about discretionary programs
that ought to be reviewed, or efficiency effectiveness, or
changes it might need, we have only heard the other side of
that: non-defense discretionary. Would you include defense in
that?
Mr. Gramm. Sure I would.
Ms. Schwartz. That is what I was assuming you meant,
because I assumed you could be more efficient and more
effective and more accountable and more transparent as well.
Mr. Gramm. Listen, anybody who does not realize that we
waste tremendous amounts of money in defense is unaware of what
is happening in American government. I had the great privilege
of serving on the Armed Services Committee in the Senate for
six years. I was on Defense Appropriations for four years. And
anytime a decision making unit is spending somebody else's
money there is going to be tremendous waste.
Ms. Schwartz. We have work to do on that. Thank you. The
other point that was also made was the issue of just spending,
or are tax provisions also a cost to our budget. I will ask Mr.
Nussle this question. I served on Ways and Means and I do
believe that using the tax code to incentivize certain
behaviors, some early industries that need some help, R&D, and
saving for retirement, there are tax provisions I actually
think are important to principles that many of us do believe in
and will help incentivize certain behaviors and performance.
But there are some tax provisions for special interests that I
think many of us, in a bipartisan way, agree that are no longer
effective and are just a cost to government. Would you say that
they ought to be honest about what our cost to our budget is
and how we bring down the deficit? And should they not be on
the table as well?
Mr. Nussle. Everything should be on the table. The way I
look at is trust the votes. Trust the votes. Let me illustrate
it with a story. My very first day as chairman of this
committee I gave this rousing opening argument as my maiden
speech as the Chairman. I was pretty passionate about it. I do
not know if you were here Paul or not, but I was pretty
passionate about it. I got this note slipped to me; it was slid
over from I think three chairs down, from Jimmy McDermott who
slipped this note to me and I opened it and it said ``Smile.
You have got the votes.'' What he was saying was that you are
going to win; you are the chairman. You are going to win. You
have got more people on your side than any other side; You are
going to win.
Mr. Gramm. I do not think that is a guarantee.
Mr. Nussle. It is not a guarantee, but here is the
guarantee: trust in our democracy, we trust the votes and you
have the votes, you ought to be able to make your case and
everything ought to be on the table and this committee should
not ignore taxes anymore than it should ignore Social Security,
which is unfortunately not on the table.
Ms. Schwartz. Whether we do all of that in the next few
weeks or not is obviously a question, but we have work to do to
get there. I think Dr. Joyce you added good information as well
in how we might tackle this going forward. So thank you so much
for being so straightforward and being here about our need to
look at everything, both on the spending and revenue side.
Thank you.
Chairman Ryan. Thanks. Mr. Garrett.
Mr. Garrett. Thank you to the entire panel. Jim Nussle,
when you talk about budget prison, what immediately came to my
mind was the late night 1:00 a.m. markups in the committee.
That felt like budget prison to me. Going to your comments, to
your very first point, the budget process you chose is less
important than the political leadership. Take that apart and I
tend to agree with you, but what came to my mind as soon as you
said that was the debate that was historically made between
John Locke and I think it was William Penn where what John
Locke said: ``It is not the character of the man that is
important but rather the laws that I have in order to get an
efficient government'' whereas William Penn said just the
opposite: ``Give me good character men, and I care not what
type of laws I have, we will have a good government.'' I think
that is the same here today, regardless of which party, as long
you have the right leadership in place you are able to do what
you need.
Mr. Gramm. Can I respond to that?
Mr. Garrett. Sure.
Mr. Gramm. Laws make men, systems generate character.
Americans are proud and independent because of our system.
People in other countries are dependent because of their
system. I would never underestimate the power of government and
laws to affect the character of the people and I think our
country is living proof that it makes a difference. So there
are sort of two sides to the argument, obviously I am hard over
on the side that process and the rules and the rule of law make
a big difference and one of the reasons I do not want socialism
in America is I do not want the people that it generates. The
guy who runs a bulldozer on my ranch is the equal of any man.
He knows bulldozing better than I know economics and he is
proud and he is independent. He was a Marine. He was produced
by our system is the point that I am making. He did not just
appear. The system of responsibility, of rule of law,
accountability made him who he is.
Mr. Garrett. I would never want to disagree with you. I
think that also with what it Washington or Adams who said that
``This country was made for a moral and religious people and it
is totally inadequate for any other kind.'' So I think that the
underpinning of our founders understood that in order to have
the government that we want to have, whether by the rule of law
that it required a moral people, a moral and religious people
in order to sustain itself.
On the issue of spending, then, Jefferson is quoted as
saying with regard to budget process reform that if he
continued on in that respect, alluding to the fact that
morality is necessary for the people of the day to say that:
``There are those who wish spend more based on the funding of
our prosperity, but that is just another name for stealing from
our futurity,'' meaning stealing from the future generations.
Perhaps we saw that in the vote last night, for those who wish
to steal from future generations by the spending that we do
today and actually we see that on many votes when we wish to
put the burden on future generations because we are not willing
to make the hard decisions, as Chairman Nussle did when I was
here, trying to say how do we basically live within our means.
Let me tack on to that the question of practical effect.
Within the budget process here there are a number of programs
here, some of which I deal a lot with: the GSEs, Fannie Mae,
Freddie Mac, the TARP program that we have spent money on, the
Federal Reserve as far as the remission of funds that come
back, as far as their interest payments back on to the federal
government. What else is there? The DIF, with regard to the
FDIC as well, all of which have some degree, better or worse,
with regard to transparency and reflectiveness on the federal
budget. Can any or all of you comment with regard to the
adequacy of the budget process as far as the revenue aspect
goes and also, maybe more importantly, the liability portion
that right now has not adequately addressed through our budget
process.
Mr. Nussle. Dr. Phil made this comment, earlier. We agree
because this is part of my budget reform as well, with Senator
Cardin and that is using accrual accounting. So yes, aside from
whether or not the program should have been authorized in the
first place, but once it is, this goes to Congresswoman
Schwartz's comment, everything should be on the table, nothing
should be off the table, and it should be depicted honestly,
transparently, and accurately when it is on the table. And
giving that information, not only to you the representatives of
the people, but also to the people themselves, which that
transparency has to be able provide as well and is vitally
important for you to not only to have a full picture of the
decisions but then to put that into the final decision of a
budget or a fiscal blueprint.
Mr. Joyce. I would just add to that the most important
thing to me is that when you make a decision that is going to
cost lots of money in the future, that it does not appear as if
it does not cost anything. I think that really is the lesson,
if you want to look back at what happened prior to 1990 when
Credit Reform was passed, and after 1990 I think there is a
lesson there, which is that loan guarantees were treated as if
they did not cost any money even though you might be making a
decision now that would lead to lots of defaults down the road.
Mr. Nussle. Can I just mention one other comment, and
again, this is not to be disagreeable, I think it is just a
matter of your perspective. I know where Phil Gramm stands on
these issues, having known him personally, professionally, and
politically and I not only respect it but I tend to agree with
him on a lot of those issues, but I also know my good friend
Bill who also has a perspective and it is different than mine.
The difference, though is that I want the process to respect
both of our positions and allow the vote to occur and hopefully
I am going to be able beat him and he hopes he can beat me but
regardless it is a process that allows that decision to occur
and the votes fall where they may and the decision made on the
future of our country. I do not think that process should close
him out or close me out or predetermine the outcome of that
decision and I would caution against any rules that tilt the
balance of the playing field. As much as I would love for that
balance to be tilted in my direction and my philosophy, that is
not how the rules and the laws our founders were designed. It
was designed in fundamental fairness for the American people to
make decisions about their future.
Mr. Gramm. Well now wait a minute. First of all, is accrual
accounting unfair? Does accrual accounting tilt the playing
field? Is the debate different if people know what something
really costs? You bet your life it is. Would Medicare have
passed in its current form had people not systematically
underestimated the cost of it by almost a factor of 100.
Requiring accrual accounting has a profound effect on a debate
because it then requires you to debate what something really
costs. Now if requiring real costs predetermines the outcome of
the debate, then I just have a different concept. My view is
that you need a process where people are choosing based on what
things really cost and on what their real effects are going to
be. I think whether or not you want budgets binding, is that a
predetermining factor? Again, I think there are some people who
do not want budgets binding; there are people who do. My view
is if you are going to have a budget it ought to be binding, if
it is not going to be then do not have it.
Chairman Ryan. I do not know whether those are necessarily
mutually exclusive positions.
Mr. Gramm. I know, I just simply was trying to be emphatic.
Chairman Ryan. Going from John Locke to William Penn to Dr.
Phil. Now we are going to go to Bill Pascrell.
Mr. Pascrell. I would say, Mr. Chairman, I would usually
accept my recommendations, but I think that yesterday's panel
and today's panel, you deserve a lot of credit because we
probably should have had these two panels six months ago, just
a thought. Because I think it is pretty basic to have three
distinguished gentlemen and I do not blow smoke, as you know. I
really mean it. But I have to take exception, since you guys
brought the subject up of emergencies, you each had a different
slice of it and then my brother from Sussex County talked about
that we do not want to pretend, we do not want to have all of
these things on the backs of future generations, but an
emergency is an emergency, the word is very definitive in any
language that you use. And if we are going to go back and say
let's not pretend what programs really cost, who the heck
figured out in 2001 and 2003, who really played out Senator,
with all due respect, what these programs would cost American
taxpayers, because it cost us like this, if you can picture the
graph, and then in 2019 and 2020, this is what it is going to
cost us because that is what you will have ballooned to. So we
can get so caught up in process and not look at results and I
think we all want to address that and I cannot agree more with
my good friend Mr. Nussle, we all should be heard, we all
should be listening.
I listen very, very carefully to what Tea Party members say
and I may not agree with much of what they say but I do agree
with some things, believe it or not. Let's not predict what we
are going to think before people even open their mouths. So we
do not, my friend from Sussex County, steal from future
generations.
Individuals and family-centered income are very different
than the government's. When you have a problem within your
family, and perhaps you did not budget for it, you cannot
predict that it is going to happen, but when a flood happens or
a tornado happens, you are talking about a universal situation
and you begin to peel away at the onion, and you see what
existed beforehand. You see people who had something and you
see people who had nothing. We were so caught up in the Katrina
thing, think of how do you budget for Katrina ahead of time?
But we as Americans did not worry about whether it was a blue
state or a green state or a brown state; we responded in kind
perhaps poorly at that time but we did the best with the
resources that we had.
These families today are suffering; Irene and Lee came
pounding down the trail: 12 states, 52 congressional districts,
billions and billions of dollars. We do not even know the cost
of this because health problems and environmental problems are
going to grow in magnitude. I think it is more important to
respond to our citizens than it is to worry about what it is
going to cost down the road. I believe in accountability. You
must account for every dime that we pay, certainly we did not
do that in the wars. We are just figuring out what the heck the
thing cost, and will cost. Talk about growing gaps, talking
about figuring out what a program's going to cost down the
road, well it cost us this now, and figuring out how it
contributes to the deficit, which we are all responsible and
guilty for, no party is privy to virtue on this issue. No party
is privy to virtue.
So to make a political point is to demean the very meaning
of emergency spending. People are out of their homes. Thousands
have been evacuated, in my district 5,000 people were evacuated
out of their homes. Some of them are not going to be able to go
back into their homes because they are not ready for them or
they are gone. The environmental health problems are dramatic.
Businesses: people have been shut down since this storm, and
laid off. They are not able to do business. If I do not have an
obligation or a responsibility, first as a human being, then as
a member of Congress, we are all wet. So we can put up whatever
processes we want. I do not think your perception of it though
is very different from mine.
Let's set aside the political differences and nuances. I
think you want for America what I want for America, I really
mean that, or else I would not say it, as you know. These
people are hurting. Accountability and contacted that these are
emergencies, and Mr. Chairman, you want to talk about
emergencies, we will set aside, it is certainly timely, is it
not?
Chairman Ryan. Thank you, Mr. Pascrell. Mr. Campbell.
Mr. Pascrell. You are quite welcome.
Mr. Campbell. Thank you Mr. Chairman, I actually have a
question. I have tried to look at this and I may have this
wrong but I believe in the last 20 years that only once has a
concurrent resolution been passed by both Houses and all 12
appropriations bills passed in regular order prior to the
beginning of the fiscal year. I believe that has only happened
once. If that is the case, my question for you is, if we talked
a lot about the concurrent resolution part, but then there is
also supposed to be appropriations built within that
resolution, 12 of them, and all of those appropriations are
supposed to be authorized and I am not even going to get into
how many appropriations are not authorized because the
authorizing committee did not get to it.
Can you give me your views on that and of the process? If
you only get it right once in 20 years does that mean that
needs to be changed too and that is a problem, or is it not a
problem that we do CRs and omnibuses as well as the
authorizations, what are your views on that because it looks
like we have a process that cannot ever actually be done and
when it is done it takes up months on the floor, et cetera,
which is why some people talk about my biennial budget. Dr.
Joyce, you seem ready to jump.
Mr. Joyce. Well that is always true, I guess. I would make
one point. I would observe that the fiscal year used to start
with the federal government on July 1, and in the 1974 Budget
Act one of the things they did was move the fiscal year start
from July 1 to October 1. Why did they do that? It is because
the Congress could not get everything done by July 1. So they
added three months, and still we have the same problem. So it
may be once in the last 20 years, I think it is four times in
the last 34 years or something like that, that all the
appropriations bills have been passed and signed into law.
Mr. Campbell. And by the way that is in a lot of cases
where there was no divided governments.
Mr. Joyce. Correct. So what this has led me to believe is
that the beginning of the fiscal year is not a real deadline.
What is a real deadline? A real deadline turns out to be when
the Congress does not want to be here anymore. I mean there are
those people that say that the real problem was caused when air
conditioning was invented. So the issue is that you have to
have something that is actually viewed as a real consequence
for failing to get this done and the beginning of the fiscal
year does not turn out to be that so long as there are
systematic continuing resolutions that pass without
consequence.
Mr. Nussle. There is no surprise that the super committee
deadline coincide with Thanksgiving and Christmas. So I think
going to your point, that is exactly right: number one. Number
two, in a perfect world I would suggest, and it will not be a
perfect world, but in a perfect world if you, for instance,
used a joint resolution, a joint resolution would need to be
created first, that would give the marching orders to the
authorizing committees and the appropriation committees to do
their work based on the fences created by the budget
resolution, that joint resolution, and that given those
instructions and given the finality of such a decision enacted
in law and made real where you know where the fences are, at
least in the 302A, even if the 302Bs get knocked around here
and there, at least if that 302A number, then the committees
know when they are inside the boundaries and outside the
boundaries and can act accordingly.
Part of the challenge during those years, as you know, is
that the committees were never given final instructions. I mean
as much as we like to trash the Appropriations Committee here
at the Budget Committee from time to time, it is pretty hard to
do your work when you do not know what number is. It is pretty
hard to say to a member of that committee, ``No, you cannot
have that amendment, because we would be over our allocation'',
if in fact you do not know what that number is, or if it is a
moving target, from time to time.
So I think that is why I believe having that decision
forced up front to provide the fences for the rest of the
decision, going to Senator Gramm's point, having those rules
and having those constructs for the rest of that process, I
think would make it easier for legislators, members to make
those decisions and get their work done on time.
Mr. Gramm. Let me just say that I think a joint resolution
would be great if you could get it because then the president's
signed on to the process. The problem is going to be very hard
to get under many circumstances and there is always the trade-
off. It may very well be that you want a process that allows
you to do it either way, if you cannot get the joint resolution
then you have the concurrent resolution. My guess is under
current circumstances there is no way you could get to a joint
resolution on the budget, and so, you are better off with a
concurrent resolution than you are with nothing.
Mr. Nussle. And that is exactly how the provision that I
wrote works.
Chairman Ryan. Mr. Ribble.
Mr. Ribble. Thank you, Mr. Chairman. This has been
informative for me. I have been here a whopping nine months and
I will tell you that I wish Mr. Nussle that you were correct,
that it is just a leadership problem. We have, maybe not in the
process so much of a problem, as we have a history of problems.
Dr. Joyce, the last time this country actually paid off its
national debt was when Andrew Jackson was president. I am
concerned about debt. If debt in this country looked like it
did from 1787 to 1946 it would not be that big of a problem,
but debt does not look like it did for the first 150 years or
so. Right now our growth in debt is on a curve that is nearly
vertical. And if we continue along these lines it will, in
fact, I believe be catastrophic. We cannot continue. Would you
agree with that?
Mr. Joyce. Yes.
Mr. Ribble. At that the current rate of growth?
Mr. Joyce. Yes.
Mr. Ribble. What do you think is actually sustainable for
an economy our size?
Mr. Joyce. Well, I actually agree. I think there is a
remarkable amount of concurrence between these different groups
like the one that Mr. Nussle talked about, these sort of
bipartisan groups or private groups that look at this problem,
and they all seem to be settled around this 60 percent of GDP
number in terms of what is sustainable. As you know, on the
current path we would get to 80, 90, 100 percent of GDP.
Mr. Ribble. We are about there now, would you not say?
Mr. Joyce. We are projected to get there if we follow
current policies.
Mr. Ribble. What is GDP?
Mr. Joyce. What is GDP? Well, GDP is about $15 trillion.
Mr. Ribble. What is our national debt right now?
Mr. Joyce. Well, it depends on whether you look at what is
called the gross debt.
Mr. Ribble. I want to look at all debt. I do not want to
play the shell games. We are at $14.7 trillion and 100 percent
GDP.
Mr. Joyce. Well, you can pick whichever number you want to
look at. The point is that stabilizing that at a smaller number
and 60 percent seems to be what theses various groups are
coalescing around.
Mr. Ribble. About a year ago I would have agreed with most
of your testimony; today I disagree with some of it. I want to
talk a little bit about the balanced budget amendment. You
mentioned in your testimony if we could enact those policy and
budget enforcement changes we would not need the amendment. I
totally agree, but we cannot. It is obvious we cannot.
As I have watch this whole thing unfold this year, we are
still projecting trillions and trillions and trillions of
dollars of debt, with additional billions and billions of
dollars of interest payment. At some point there will have to
be a future tax on future generations. With all debt, somebody
is going to pay this bill.
Then, you go on to say, secondly, it relies on erroneous
ideas about debt in our society. To a certain degree I agree,
however, as a former business owner I will tell you when my
company drew debt, or when I did it on a personal level it is
always with the intention that at some point I am going to have
to pay if off, and in fact, the lender recognizes that there is
a trust, a credit agreement, a credo that we made with each
other to pay it off. Right now, the credo is we will just pay
the interests and continue to borrow, and there is a
significance difference between the two, do you not agree?
Mr. Joyce. What I would say is, that there is nothing
inherently wrong with debt. What the problem is that if you
have a debt that is too large, the debt load is too large, and
that is what we just talked about, the fact that we are getting
to a level of debt that is unsustainable, I think that is the
problem, and if your debt is not productive debt. That is that
you would say, I think, you would agree with me that there is a
difference between borrowing money for your mortgage where at
the end of the process you are going to have a house and
borrowing money to put it on your credit card because you want
to take a nice vacation. So, I think we have to think in terms
of there are different kinds of debt, and my point here was
that there is nothing inherently wrong with debt, and in fact,
if you say, for example, that states balance their budgets,
well the truth is the states balance their operating budgets;
states have a lot of capital. So the federal government's
accounting is not the same. But, that is separable from whether
the debt is too large or whether the debt is going to pay for
things that may not be productive.
Mr. Ribble. I would also extend to you the idea that debt
in business, debt in private sector is significantly different
because at the end of the day you are writing the check with
your own money, debt in government you are writing a check with
some else's money and it is much easier to do that. You can
pretend and hide behind the importance and value of it at some
point.
You mentioned also that if used correctly it can be very
productive and result in measurable gains. Do you believe the
debt in this country is being used correctly right now?
Mr. Joyce. I would say some is and some is not.
Mr. Ribble. Therein, sir, I would contend you realized the
problem. Thank you again, all of you, for being here. It has
been very informative. Mr. Chairman, I yield back.
Chairman Ryan. Thank you, Mr. Flores.
Mr. Flores. I would like to thank the panel for joining us
today, it has been beneficial. I think both elements are
important: process and leadership. And I think the process
needs to trump in the case the leadership does not show up at
the table. And I have seen that happen in the history of this
Congress.
I would like to change the topic a little bit and talk
about truth and budgeting. Truth so we get to the right
results, and, I think Senator Gramm started down this pathway
when he started talking accrual accounting. I guess the way I
add it, the national debt, we have about $15 trillion of just
direct debt; whether or not we count debt held by the public is
irrelevant to me. We have got about 10 to $11 trillion of
unfunded liability, Social Security about 60 to 70 of unfunded
liabilities in Medicare, and another 10 or so of Medicaid and
everything else. So if you add it all up it is 100, which to me
is six times GDP that is a problem for me.
So, I believe whole heartedly we need to go with accrual
accounting. Well, let's say we are in the next building and can
see exactly what we are talking about, but more importantly,
the American people can see what is happening to their children
and their grandchildren's future.
The second element about truth in budgeting or truth in the
financial playing field is the way we score. I think we, as the
Congress, provide input into a process, like this is what we
want to do with a piece of legislation, but what we get out of
the scoring is bad information, and therefore we make decisions
that do not reflect real world realities. A couple of examples:
We assume that we can raise taxes to high levels and still grow
GDP at four percent real rates. That puppy does not hunt in any
world.
The second one is that, CBO scored Medicare cuts for about
a third, and says we are still going to have the health care
infrastructure providers that we are going to have and also
that we are going to have high school seniors that still want
to go into health care even though their pay is going to
essentially set by the federal government. We all know in the
real world that does not happen.
So, my question is this: How do you get to a point where
you can use real world scoring on these things, like on taxes
and also on the expenditure side? If you guys had a magic wand,
how would you wave it so that they fix the scoring so that when
we are trying to make a decision we make decisions with real
information?
Mr. Gramm. I think that it would be a good policy to
establish a simple law that says that accounting standards that
are applicable to the private sector should all apply equally
to government. I think you would want to do that both in the
federal government and in the state governments so that people
in state governments, for example, would know what their
pension liabilities are, what their health care liabilities
are. The problem is the way we score things now. We have
debates without having relevant information as to what we are
talking about. Socrates said, ``A man is only as good as his
facts.'' And if you do not have the facts, you are not going to
make good decisions no matter how brilliant you are, no matter
how much leadership you have, no matter how good the process
is, if you do not know what something costs, it is hard to make
a decision about how much you want of it, because you are
missing one of the key ingredients.
Mr. Flores. Right. I am trying to dig in the weeds a little
bit more and say, ``Okay we know we have today does not work,
do you blow up CBO and start over. Or do you go to outside
firms to get some corroborating evidence.
What I am trying to get to is what is the way to get the
right answer so that when we are looking at the cost of health
care reform, we get the real cost instead of this goofy stuff
we get?
Mr. Nussle. Senator Gramm just said when I was younger I
was ignorant. I do not remember how you said it. I, ignorantly,
said at one point in time in my career that CBO sucks, and I
have been apologizing for that for some time because these are
good people who do a good job and try their hardest to get the
numbers right. And they are constrained by certain conventions,
on one hand, and just human nature and probability on the
other.
We have looked at the possibility of using more dynamic
scoring. The challenge with dynamic scoring is you are using
the same people, and you could go outside the process, but you
are using people, using economic factors here and there, and
trying to make it all add up and they do the best they can. It
is an inexact science predicting the weather next month, and
that is what you are doing. You know it is going to be a little
colder around here, you know, generally, what the trends have
been, but do you know exactly what that number is going to do?
Mr. Flores. We are not even in the same continent.
Mr. Nussle. You actually are. You actually are. I would
challenge you on that. They do a better job than the
guestimates, and they generally have done a better job than
some of the dynamic score-keeping. That has been part of the
challenge of moving to something called dynamic scoring is that
we have not found anything that was any more accurate than the
current way. That was the challenge.
Mr. Flores. Let me give you exact example.
Chairman Ryan. That is time. Sorry Bill, but people have a
schedule to keep and time to keep. And I always tell people
when we think about dynamic scoring we are talking about tax
policy; that is the Joint Committee on Taxation; that is not
CBO.
Spending scoring is a little different and easier with
respect to reality bases scoring, probably not on actuarial
stuff on health care, but taxes is Joint Taxes. All CBO does is
take their data.
With that, since we do have time limits here, I want to
thank the three of you for taking time out of your busy lives
and busy days to join us. This has been very enlightening, very
helpful and it will help us do a better job of trying to
improve upon the process, so we can be better stewards with tax
payers dollars. Thank you. And this hearing is adjourned.
[Whereupon, at 11:43 a.m., the Committee was adjourned.]