[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                    A BALANCED BUDGET AMENDMENT TO 
                            THE CONSTITUTION

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


                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 4, 2011

                               __________

                           Serial No. 112-62

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov




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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             [Vacant]
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              

                            OCTOBER 4, 2011

                                                                   Page

                           OPENING STATEMENTS

The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Committee on the Judiciary.......     1
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     2
The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Member, Committee on the Judiciary.......     4
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Member, Committee on the Judiciary..     4
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Member, Committee on the Judiciary..     6

                               WITNESSES

Honorable Richard Thornburgh, K&L Gates
  Oral Testimony.................................................     8
  Prepared Statement.............................................    11
Douglas Holtz-Eakin, American Action Forum
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
Philip G. Joyce, University of Maryland
  Oral Testimony.................................................    29
  Prepared Statement.............................................    31
Matthew Mitchell, Mercatus Center
  Oral Testimony.................................................    43
  Prepared Statement.............................................    45

                                APPENDIX
               Material Submitted for the Hearing Record

Letter submitted by the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    92
Article submitted by the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    94
Letter from Gary R. Herbert, Governor, State of Utah; Rebecca 
  Lockhart, Speaker, Utah House of Representatives; and Michael 
  Waddoups, President, Utah State Senate.........................   109


                    A BALANCED BUDGET AMENDMENT TO 
                            THE CONSTITUTION

                              ----------                              


                        TUESDAY, OCTOBER 4, 2011

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 10:11 a.m., in room 
2141, Rayburn Office Building, the Honorable Lamar Smith 
(Chairman of the Committee) presiding.
    Present: Representatives Smith, Coble, Gallegly, Goodlatte, 
Forbes, King, Franks, Gohmert, Jordan, Poe, Griffin, Marino, 
Gowdy, Adams, Quayle, Conyers, Nadler, Scott, Watt, Jackson 
Lee, Waters, Pierluisi, Quigley, Chu, and Deutch.
    Staff present: (Majority) Zachary Somers, Counsel; Sarah 
Vance, Clerk; David Lazar, Clerk; (Minority) David Lachmann, 
Subcommittee Staff Director; and Veronica Eligan, Professional 
Staff Member.
    Mr. Smith. The Judiciary Committee will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time.
    We welcome you all, particularly our witnesses and those 
who are interested in this particular subject.
    I am going to recognize myself for an opening statement and 
then the Ranking Member and then introduce the witnesses here 
today.
    Americans want the Federal Government to curb excessive 
Government spending and erase the Federal deficit.
    Since 1970, the Federal budget has only been balanced 
during one 4-year period when my Republican colleagues and I on 
the Budget Committee were able to pass the first balanced 
budget in over 25 years. Meanwhile, the Federal deficit has 
climbed from less than $400 billion in 1970 to over $14 
trillion today. And the national debt has increased 34 percent 
under President Obama. That is the fastest increase in national 
debt under any U.S. President in history.
    America cannot continue to run huge Federal budget 
deficits. Financing Federal overspending through continued 
borrowing threatens to drown Americans in high taxes and heavy 
debt. The Federal Government now borrows 42 cents on every 
dollar it spends. No family, no community, no business, no 
country can sustain that kind of excessive spending. That is 
the road to insolvency.
    We need a constitutional mandate to limit both the 
President and Congress to annual budgets that spend no more 
than the Government takes in. Only through a balanced budget 
constitutional amendment will we save future generations from 
unending Federal deficits. Just as both parties have joint 
responsibility for the deficit, we must jointly take 
responsibility for controlling the deficit by passing a 
balanced budget amendment.
    We came very close to passing a balanced budget amendment 
in 1995 falling just one vote short in the Senate of the 
required two-thirds majority. In that Congress, the amendment 
was supported by Minority Whip Hoyer, Assistant Democrat Leader 
Clyburn, and Vice President Biden, among others. As then 
Senator Biden stated in support of the balanced budget 
amendment, quote, in recent decades we have faced the problem 
that we do not seem to be able to solve. We cannot balance our 
budget or, more correctly, we will not. The decision to 
encumber future generations with financial obligations is one 
that can rightly be considered among the most fundamental 
choices addressed in the Constitution. End quote.
    It is once again time for Congress to attempt to pass a 
balanced budget amendment. Polls show that 74 percent of 
Americans are in favor of a balanced budget amendment. If we 
want to make permanent cuts to Federal spending, cuts that 
cannot be undone by future Congresses, a constitutional 
amendment is the only solution. It is our last line of defense 
against Congress' unending desire to overspend and overtax.
    Amending the Constitution is not easy, nor is it a task 
that should be taken lightly. We have only amended the 
Constitution 27 times, but America's continued economic 
prosperity depends on changing our course on Federal spending 
and growing deficits. Thomas Jefferson believed that, quote, 
the public debt is the greatest of dangers to be feared. End 
quote. Jefferson wished, quote, if it were possible to obtain a 
single amendment to our Constitution, taking from the Federal 
Government the power of borrowing. End quote.
    It is time we listened to Thomas Jefferson and passed a 
constitutional amendment to end the Federal Government's 
continuous deficit spending. We must solve our debt crisis to 
save our future.
    That concludes my remarks, and I will recognize the 
gentleman from Michigan, Mr. Conyers, the Ranking Member of the 
full Committee.
    Mr. Conyers. Thank you, Chairman Smith, and good morning to 
my colleagues.
    I just want to let us all know that we are coming back to a 
debate that we have been in--I think it goes back to 1980 
sometime.
    And I welcome all of the witnesses.
    Now, it is important that we address this deficit situation 
that has been talked about, and it is ongoing. I agree with a 
lot of the observations of Chairman Smith. The problem starts, 
though, when we look at what the financial crisis was 2 weeks 
before President Obama took over the debt, before he became 
President. Before President Obama became President, the debt 
was well over $1 trillion.
    Now, I have my staff researching to find out what every 
Member of this Committee, especially the chairman of the 
Republican Sudy Committee, Mr. Jordan, who advises the majority 
of the House on this subject--I want to find out what all of 
you were saying about it then. And I think that will make 
something interesting.
    I think it would be also important, Chairman Smith, for us 
to understand the effect of the tax cuts for the wealthy that 
have gone on since we are concerned about the budget debt. Is 
there anything wrong with taking away the tax cuts to the 
wealthy? And I ask everybody on the Committee. And I will yield 
to Mr. Lungren.
    Mr. Lungren. If the gentleman would yield. Do you want to 
go all the way back to John Kennedy and take those tax cuts 
away?
    Mr. Conyers. No. I am talking about----
    Mr. Lungren. He had the highest income----
    Mr. Conyers. Well, wait a minute.
    Mr. Lungren [continuing]. More anybody else.
    Mr. Conyers. I am talking about the Bush tax cuts. You 
asked me do I want to go back to the Kennedy tax cuts. Do you? 
I am talking to you.
    Mr. Lungren. Well, the only point I was trying to make is 
that both Democrat and Republican Presidents have recognized 
the positive impact of tax cuts on those who create jobs in 
this country.
    Mr. Conyers. All right. Look, Dan, do you want to go back 
to the Bush tax cuts for the wealthy if you are talking about 
getting rid of this debt. Yes or no, Dan Lungren?
    Mr. Lungren. If the gentleman is asking me do I think we 
would have a positive impact on the economy----
    Mr. Conyers. Come on. Answer the question.
    Mr. Lungren. No. Raising taxes in the midst of a recession 
is the dumbest idea that even Congress could come up with.
    Mr. Conyers. What about cutting spending?
    Mr. Lungren. Oh, I am absolutely for cutting spending. 
Absolutely.
    Mr. Conyers. Okay. How about cutting the spending of 
mothers and children on assistance?
    Mr. Lungren. If the gentleman would yield. We are going to 
have to make some very difficult decisions coming up, as you 
know. We are waiting for the Super Committee to tell us how we 
are going to cut $1.5 trillion between now and Christmas, and 
the President has even suggested we ought to go to $2.5 
trillion, but he has not given us any idea how to do it.
    Mr. Conyers. Dan, I am asking you. I am not asking the 
Super Committee.
    Mr. Lungren. If the gentleman would yield.
    Mr. Conyers. Of course, I yield.
    Mr. Lungren. We have an obligation to be responsible and to 
stop spending where we are spending 40 cents out of every 
dollar----
    Mr. Conyers. Yes or no? Yes or no?
    Mr. Lungren. We need to cut in many, many different areas.
    Mr. Conyers. Well, of course, I understand why you won't 
answer yes or no because you can't afford, nor can any Member 
of the Congress afford, to go on record saying they are for 
cutting assistance to poor people, women and children, who are 
living in poverty uncontrovertibly. And I don't blame you.
    I don't yield. I would just like to conclude.
    Do you know how many constitutional scholars are telling us 
that we are off the mark? And I will put it in the record, and 
I thank the Chairman for letting me speak this morning.
    Mr. Smith. Thank you, Mr. Conyers.
    The gentleman from Arizona, the Chairman of the 
Constitution Subcommittee, Mr. Franks, is recognized for an 
opening statement.
    Mr. Franks. Well, thank you, Mr. Chairman. I am going to be 
brief. I am going to be yielding some of my time to Mr. 
Goodlatte.
    Mr. Chairman, now is the time for Congress to address the 
Federal deficit in a way that we have thus far not been able to 
do. The American people are awake and they realize the urgency 
of this issue. They understand that the deficit might 
eventually destroy us in a way that no military power on earth 
has ever been able to do. Even the recent retired Chairman of 
the Joint Chiefs of Staff, Admiral Mullen, has warned, ``Our 
national debt is the biggest single threat to our national 
security.''
    The Federal Government is borrowing over 40 cents on every 
dollar that it spends. This massive borrowing is causing the 
Federal deficit to grow rapidly as a percentage of America's 
economic output. If we continue on our current path, in 10 
years 95 percent of all Federal revenues will be consumed by 
payments of interest on the national debt and mandatory 
programs like Social Security, Medicare, and Medicaid. This 
will leave only 5 percent of our annual tax revenue available 
for funding national defense and other essential functions of 
Government.
    Mr. Chairman, a balanced budget amendment to our 
Constitution would control government spending, restore capital 
confidence in America's future in her economy, supercharge 
entrepreneurship, create new taxpayers--that is spelled jobs, 
Mr. Chairman--increase revenue to Government, drag investment 
from the four corners of the earth, and in general, turn loose 
the most productive nation on this planet to carry its people, 
rich and poor alike, to their greatest collective productivity 
and prosperity in history.
    And I am afraid that our President may have a different 
plan, Mr. Chairman, but I hope that we pass this balanced 
budget amendment.
    And I would like now to yield the balance of my time to Mr. 
Goodlatte, the lead sponsor of the balanced budget amendment.
    Mr. Goodlatte. I thank Chairman Franks for yielding to me, 
and I thank Chairman Smith for holding this hearing and both of 
them for their leadership on this issue.
    And I would say that the fact that there are tough, tough, 
tough, tough decisions to be made by this Congress is exactly 
why we need a balanced budget amendment to the Constitution 
because it will force future Congresses to make those tough 
decisions. And fiscal responsibility, in my opinion, leads to 
economic growth and job creation, and that is what we are about 
here today.
    The recently enacted Budget Control Act, which received 
bipartisan support and was signed into law by President Obama, 
requires that the House and Senate vote on a balanced budget 
amendment to the Constitution before the end of the year in 
order to address the massive ongoing annual budget deficits and 
skyrocketing national debt. Because the Congress will have to 
vote on such an important piece of legislation, it is only 
right that the Judiciary Committee, the Committee with 
jurisdiction over constitutional amendments, hold this 
additional hearing to examine the merits of such a proposal.
    The States understand the gravity of this issue and have 
been weighing in for decades. Already 18 State legislatures 
have passed active calls for constitutional conventions to pass 
a balanced budget amendment. Now it is time for Congress to 
heed the call of the States and act ourselves.
    One thing that is certain is that this effort will need to 
be bipartisan. I am pleased to inform the Committee that one of 
my bills, House joint resolution 2, has the support of 243 
bipartisan cosponsors, including 15 Democratic cosponsors. In 
addition, many other Democratic Members have indicated a 
willingness to support the measure if it comes to the floor for 
a vote.
    While more work needs to be done to garner the 290 votes 
necessary in the House, this bipartisan effort is promising. 
House joint resolution 2 is the same version of the balanced 
budget amendment that passed the House with 300 votes back in 
1995 and fell one vote short in the Senate. If this legislation 
had been passed in 1995 and ratified by the States, we would 
not be facing the skyrocketing debt we now face. Balancing the 
budget would have been the norm rather than the exception.
    This doesn't solve the problems. It is not a panacea. But 
it forces Congress and Presidents to deal with this issue today 
rather than pass it on to our children.
    The good news is that the current Congress is again at a 
crossroads. Our actions now will impact the next generations of 
Americans, our children and grandchildren. And I look forward 
to hearing from our expert witnesses today about this historic 
effort.
    And I yield back.
    Mr. Smith. Thank you, Mr. Franks. I also want to thank Mr. 
Goodlatte for having introduced this legislation as well.
    Mr. Conyers. Mr. Chairman, could I ask Mr. Franks to have 
an additional minute so I could ask----
    Mr. Smith. Without objection, the gentleman from Arizona is 
granted an additional 1 minute.
    Mr. Conyers. Would the gentleman yield to me for one 
question?
    Mr. Franks. Certainly.
    Mr. Conyers. Would the distinguished gentleman from 
Virginia indicate which constitutional amendment he is bringing 
up since we couldn't find out last night or this morning? Could 
I be advised which one he is using?
    Mr. Goodlatte. Well, I thank the Ranking Member for 
yielding. But it is not my decision. It is the decision of the 
leadership in the Congress what balanced budget amendment----
    Mr. Conyers. You mean the Speaker decides. Well, which one 
is it? Can you tell me even now?
    Mr. Goodlatte. I think there are lots of discussions going 
on on both sides of the aisle about that.
    Mr. Conyers. But which amendment is before us right this 
moment? Can't you tell that?
    Mr. Smith. If the gentleman would yield to me for a minute. 
Today's hearing is on the general subject of the necessity or 
lack thereof of a balanced budget amendment. It is not on a 
specific bill.
    Mr. Conyers. Oh, okay. Look, that is important to know, 
gentlemen, and thank you for telling me.
    Mr. Nadler. Would the gentleman yield?
    Mr. Smith. The gentleman from New York, Mr. Nadler, the 
Ranking Member of the Constitution Subcommittee, is recognized.
    Mr. Nadler. Thank you, Mr. Chairman.
    Mr. Chairman, we have all been down this road before. My 
Republican friends love constitutional amendments. For any 
complaint, there is a constitutional amendment. It is not, 
however, a free vote. If adopted, a balanced budget amendment, 
especially the ones proposed, would have catastrophic 
consequences for the Nation, for the economy, and for the 
future. While it would be nice to have some easy way to force a 
balanced budget, the world doesn't work that way. We know how 
to balance the budget. We already have done it. We already have 
the tools we need to do it. In the not too distant past, we 
managed not only to balance the budget but run surpluses and 
begin paying down the debt.
    Alan Greenspan, in testifying in favor of the Bush tax cuts 
in 2001, said if we don't pass these tax cuts, we will 
eliminate--we will entirely pay off the national debt by 2010 
because of the Clinton budgets that he inherited, and that 
would be bad because the Federal Reserve won't have leverage on 
Government bonds. And that is where we were.
    How did we get from there to here? Because of President 
Bush and a Republican Congress, we managed to turn record 
surpluses into record deficits in record time. How did we do 
it? Well, first there were the huge tax cuts for the very 
wealthy. Then there were the two wars fought off budget. I 
don't recall hearing a peep from any of my colleagues on the 
other side who are now born-again fiscal conservatives. In 
fact, Vice President Cheney said we have learned that deficits 
don't matter. That summed up the Republican attitude during the 
years of the Bush administration. Having the regulators go to 
sleep while financial manipulators, banks, and hedge funds 
crashed the economy killed off the revenues and we still 
haven't recovered from that.
    But rather than admit to serious economic mismanagement and 
looking for ways to straighten things out, we get this dusted-
off quack cure from the past, this coward's approach. Instead 
of hard work to restore the economy and then balance the budget 
with appropriate tax fairness for the rich and appropriate cuts 
to the budget in defense, for example, we get this. If we took 
the approach of balancing the budget properly, as I said a 
moment ago, some of my Republican colleagues might not have to 
endure another town hall meeting where angry constituents want 
to know why they voted to destroy Medicare.
    Strangest of all, some of these balanced budget amendment 
bills call for balancing the budget by 2016, even though the 
Republican budget the House passed recently doesn't project a 
balanced budget until 2040.
    The amendment that we voted out of Committee would require 
a three-fifths vote by Congress to exceed a balanced budget. 
That should lead to some really history-making horse trading. 
Can you imagine what the hold-outs will get in exchange for 
passing the budget? It will make anything we do now look like 
child's play. The pork will be incredible.
    Really troubling is the proposal to require a three-fifths 
vote to raise the debt ceiling. Do the sponsors really want to 
reduce U.S. Treasury notes to junk bond status? Do you think 
anyone will buy our paper if this becomes law?
    This amendment also treats military engagements as the only 
true emergencies requiring the budget to be out of balance. 
That shows a poor understanding of history and economics. 
Herbert Hoover tried that. If in the middle of a recession when 
tax revenues are down and unemployment is up, we begin to slash 
the budget in ways my Republican colleagues are now suggesting, 
much less the far more draconian measures that this amendment 
would require, we will go from the Great Recession right into 
another Great Depression. It has been tried before, and if we 
want the Constitution to enshrine Hooverism for all time, we 
will get what we deserve.
    We should manage the budget the old-fashioned way by making 
hard choices, by promoting growth, by making everyone pay their 
fair share of taxes, including billionaires and oil companies. 
It isn't fun and it won't make us a lot of friends, but we have 
done it before. We can do it again. It does require the courage 
of our own convictions to face the voters with the actual 
budget that we are proposing.
    And finally, what everyone may think of the substance of 
these proposed amendments, it is fundamentally wrong to bind 
future generations and the future Congresses they elect to a 
particular economic doctrine which may be popular today. The 
Constitution should provide procedures for Government and 
should protect individual rights, but should not lock in 
policies, especially economic policies. Whatever anyone may 
think of the debt or how to reduce it or the proper level of 
Government expenditures as a percentage of GDP, those kinds of 
policies are to be enacted as legislation which can be 
modified, amended, or repealed by future majorities, not 
enshrined in the Constitution to bind future generations to the 
opinions of this generation. That is fundamentally undemocratic 
and tyrannical.
    With that, I yield back the balance of my time.
    Mr. Smith. Thank you, Mr. Nadler.
    Our first witness today is Dick Thornburgh. From 1979 to 
1987, Mr. Thornburgh served as the Governor of Pennsylvania. In 
addition, he served as Attorney General of the United States 
under two Presidents and as Under Secretary General of the 
United Nations from 1992 to 1993. Governor Thornburgh is 
currently an attorney with K&L Gates.
    Our second witness is Douglas Holtz-Eakin, President of the 
American Action Forum. Dr. Holtz-Eakin has served as the 
Director of the Congressional Budget Office, Chief Economist 
for the President's Council of Economic Advisors, and as a 
commissioner on the congressionally chartered Financial Crisis 
Inquiry Commission. Prior to his public service, he held 
academic positions at Princeton, Columbia, and Syracuse 
Universities.
    Our third witness is Philip Joyce, a professor of 
management, finance, and leadership at the University of 
Maryland School of Public Policy. He is an expert in public 
budgeting and is the author of more than 50 publications, 
including the book ``The Congressional Budget Office: Honest 
Numbers, Power and Policymaking.'' In addition, Professor Joyce 
has 12 years of public sector work experience, including 5 
years each with the Illinois Bureau of the Budget and the 
Congressional Budget Office.
    Our final witness is Matthew Mitchell, a research fellow at 
the Mercatus Center at George Mason University. Dr. Mitchell 
also currently serves on the joint advisory board of economists 
for the Commonwealth of Virginia. His work has been featured in 
numerous national media outlets, including the New York Times, 
the Wall Street Journal, and the Washington Post.
    We welcome you all. We encourage you to put your entire 
testimony in the record, and we hope you will be able to make 
your remarks within the 5-minute limit.
    Governor Thornburgh, we will begin with you.

          TESTIMONY OF HONORABLE RICHARD THORNBURGH, 
                           K&L GATES

    Mr. Thornburgh. Mr. Chairman, Ranking Member Conyers, 
Members of the Committee, my advocacy of a balanced budget 
amendment to the United States Constitution goes back over a 
30-year period, beginning during my two terms as Governor of 
the Commonwealth of Pennsylvania. Thus far, the results have 
not been encouraging, but I am comforted by the observation of 
President Woodrow Wilson who once said: ``I would rather fail 
in a cause that will some day triumph than triumph in a cause 
that will some day fail.'' My hopes remain high. Recent near 
train wrecks in the budgeting process have brought this cause 
to the fore once again, and I am privileged to appear before 
this Committee to try once again to make the case for this 
proposal and urge its enactment.
    From my standpoint and background, I suggest that it is 
particularly significant to note that all but one of the States 
have constitutional balanced budget requirements which, coupled 
with a line-item veto and separate capital budgeting 
requirements, requirements which differentiate between 
investments and current outlays, have been utilized by their 
Governors and State legislatures throughout their histories and 
they work.
    I know this because of my personal experience in 
Pennsylvania during the 1980's when we had to cope with serious 
projected deficits and a national recession which threatened to 
obstruct our efforts to revitalize and redirect our economy 
without the expenditure of vast amounts of revenue which we 
simply did not have. The discipline of our constitutional 
requirement to match revenues and expenditures not only forced 
us to tend both these aspects of our budgets but eventually 
contributed to an economic recovery which saw our State produce 
over 500,000 new jobs and our unemployment rate plummet from 
one of the 10 highest in the Nation when I was elected to one 
of the 10 lowest when I left office. Disciplined cost-cutting 
measures alone reduced expenditures by over $6 billion during 
my 8 years in office.
    While I champion this cause, I recognize that it is useful, 
indeed necessary, to look at and assess the arguments usually 
raised against a balanced budget amendment to the Federal 
Constitution.
    First, it will be argued that the amendment would clutter 
up or trivialize our basic document in a way contrary to the 
intention of the Founding Fathers. This is clearly wrong. The 
Framers of the Constitution contemplated that amendments would 
be necessary to keep it abreast of the times. It has, in fact, 
already been amended on 27 occasions.
    Moreover, at the time of the Constitutional Convention, one 
of the major preoccupations was how to liquidate the post-
Revolutionary War debts of the States. Certainly it would have 
been unthinkable to the Framers that the Federal Government 
itself would systematically run at a deficit decade after 
decade. Indeed, the Treasury did not begin to follow such a 
practice until the mid-1930's.
    Second, critics will argue that the adoption of a balanced 
budget amendment would not solve the deficit problem overnight. 
This is absolutely correct. But it begs the issue. Serious 
supporters of the amendment recognize that a phasing-in period 
of 5 or even 10 years would be required to reach an ultimate 
zero deficit. During this interim period, however, budget 
makers would be constitutionally disciplined to meet declining 
deficit targets in order to reach a final balanced budget by 
the established deadline.
    As pointed out by former Commerce Secretary Peter G. 
Peterson, a leading spokesman for responsible budgeting, such 
``steady progress toward eliminating the deficit will maintain 
investor confidence, keep long-term interest rates headed down, 
and keep our economy growing.''
    Third, it will be argued that such an amendment would 
require vast cuts in social services and entitlements or 
defense expenditures. Not necessarily. True, these programs 
would have to be paid for on a current basis rather than heaped 
on the backs of the succeeding generations. Certainly difficult 
choices would have to be made about priorities and levels of 
program funding. But the very purpose of the amendment is to 
discipline the executive and legislative branches actually to 
debate these choices and not to propose or perpetuate vast 
spending programs without providing the revenues to fund them. 
The amendment would, in effect, make the President and Congress 
fully accountable for their spending and taxing decisions as 
they should be.
    Fourth, critics will say that a balanced budget amendment 
would prevent our hinder our capacity to respond to national 
defense or economic emergencies. This concern is easy to 
counter. Clearly any sensible amendment proposal would feature 
a safety valve provision to exempt deficits incurred in 
responding to such emergencies requiring, for example, a three-
fifths super majority in both houses of Congress. Such action 
should, of course, be based on a finding that such an emergency 
actually exists.
    Fifth, it will be said that a balanced budget amendment 
would be more loophole than law and might easily be 
circumvented. The experience of the States suggests otherwise. 
The balanced budget requirements now in effect in all but one 
of the 50 States have served them well.
    Moreover, a constitutional line-item veto, similar to that 
available to 43 Governors, would assure that any specific 
congressional overruns or loophole end runs could be dealt with 
by the President. The public's outcry, the elective process, 
and the courts would also provide backup restraint to any 
tendency to simply ignore a constitutional directive.
    In the final analysis, most of the excuses raised for not 
enacting a constitutional mandate to balance the budget rest on 
a stated or implied preference for solving our deficit dilemma 
through the political process, that is to say, through 
responsible action by the President and Congress. But that has 
been tried and found wanting again and again and again.
    I pass no judgment on the specific proposals before this 
Congress to effect such an amendment, but surely this country 
is ready for a simple, direct, clear, and supreme directive 
that its elected officials fulfill their fiscal 
responsibilities. A constitutional amendment is the only 
instrument that will meet this need effectively. Years of 
experience at the State level argue persuasively in favor of 
such a step. Years of debate have produced no persuasive 
arguments against it.
    And the stakes are high. Perhaps Thomas Jefferson put it 
best. ``To preserve our independence, we must not let our 
rulers load us down with perpetual debt.''
    That is the aim of a balanced budget amendment. Reform-
minded Members of Congress should choose to support such an 
amendment to our Constitution as a means of resolving future 
legislative crises and ending credit card Government once and 
for all.
    Such action would, as well, send a powerful message 
worldwide that the United States is willing to take necessary 
steps to put its fiscal house in order and strengthen our 
credibility in urging others to do likewise.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Thornburgh follows:]
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Smith. Thank you, Governor Thornburgh.
    Dr. Holtz-Eakin?

               TESTIMONY OF DOUGLAS HOLTZ-EAKIN, 
                     AMERICAN ACTION FORUM

    Mr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Conyers, and Members of the Committee. It is a privilege to be 
here today.
    You have my written statement. Let me make five simple 
points about this issue.
    Point number one is that the United States faces an 
enormous debt crisis. And I won't belabor that. It threatens 
our economy and our legacy to the next generations and it has 
to be dealt with.
    A second point is that the U.S. Federal budgeting process 
will be radically improved by the adoption of some sort of 
fiscal rule, a target, whether it be a spending limit or a 
debt-to-GDP ratio, or something which would impose a coherence 
on the budget process, force the kinds of tradeoffs that have 
to be made among different elements of the spending and taxes. 
And those fiscal rules have proven to be valuable in other 
countries that have faced exactly the same kind of growth in 
debt problems the U.S. has.
    The characteristics of those rules are that they should be 
large enough to be effective. Small rules are not going to help 
us in this situation. They should be easily linked to whatever 
actions Congress takes on tax and spending policy, and they 
need to be transparent and well understood by the public so 
that they can buy into their execution.
    Point number three is that the balanced budget amendment is 
exactly such a rule. It is a target for fiscal policy that is 
linked directly to the actions of the Congress, and it is 
transparent and easily understood by the public.
    It has one key difference from other fiscal rules, 
including those we have tried in the United States, and that is 
it precludes a future Congress from reneging on their 
commitment that it has made and that is the dominant 
characteristic of past fiscal rules, whether it is Gramm-Rudman 
or PAYGO rules or whatever they may be. Future Congresses have 
always found a way to get around them. This would impose a 
level of discipline even higher than those would.
    The fourth point is that your typical balanced budget 
amendment includes more than just balancing the budget. Often 
it will include provisions for waivers in the event of military 
conflict, economic distress, or other circumstances. Often it 
will include provisions for limiting the size of the Government 
because there is nothing inherent about a balanced budget 
amendment that constrains Government to a size that is not 
economically damaging. And so in thinking about this, it is 
important to think about the other characteristics you want to 
embody in the balanced budget amendment.
    And then the last point I would like to make, before we 
turn to the questions, is that this issue of getting from where 
we are now, a deficit of a trillion and a half, a gross debt-
to-GDP ratio of over 90 percent, which puts us in the historic 
danger zone for a higher probability of sovereign debt crisis, 
paying a growth penalty of probably 1 percentage point per year 
based on the evidence, getting from that to a balanced budget 
is often thrown up as a hurdle. And I think that makes two 
mistakes.
    Mistake number one is that during the period in which any 
such amendment would be ratified, there would be clear pressure 
on a Congress and Administration to start getting its budget in 
order so that if it were ratified, it would balance upon 
becoming an element of the Constitution.
    And the second thing that would happen during that period 
is that the public would, by definition, have to buy into the 
idea that this is good public policy and it wishes its 
Government to be constrained in this way. If it does not buy 
in, it won't get ratified, and there is no rule that will be 
successful without the support broadly of the populace.
    And so I am pleased to have a chance to discuss this issue 
today and I look forward to answering your questions.
    [The prepared statement of Mr. Holtz-Eakin follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

                               __________
    Mr. Smith. Thank you, Dr. Holtz-Eakin.
    And Professor Joyce?

      TESTIMONY OF PHILIP G. JOYCE, UNIVERSITY OF MARYLAND

    Mr. Joyce. Thank you, Chairman Smith, Ranking Member 
Conyers, Members of the Committee. I appreciate the opportunity 
to testify today.
    I have to make it clear up front that I agree with any of 
you who say and all of my colleagues who say that the Federal 
debt is unsustainable and needs to be reduced. In fact, if the 
Super Committee decided to go much further than $1.5 trillion, 
I would cheer.
    I am sympathetic to the frustration that leads people to 
believe that the balanced budget amendment will be the long-
awaited silver bullet that leads to fiscally responsible 
budgeting. I am for fiscally responsible budgeting, but I 
strongly disagree with the notion that amending the 
Constitution will get us there.
    I want to stress just a few points from my testimony.
    The first one is that evidence accumulated over decades 
indicates that budget process rules are effective at forcing 
already past policy. They are not effective at enforcing future 
policymakers to make choices that they don't want to make. The 
Gramm-Rudman-Hollings legislation in the 1980's was aborted 
when the President and the Congress appeared to meet the 
projected deficit targets through optimistic forecasts. The 
Budget Enforcement Act process of the 1990's with caps and 
PAYGO worked as long as there was consensus around reducing the 
debt. Put simply, there never has been a budget rule that the 
Congress and the President could not figure out a way to get 
around if they wanted to.
    The balanced budget amendment just puts Gramm-Rudman in 
different clothes by enshrining a deficit target in the 
Constitution. Promising balanced budgets later because the 
Constitution is going to make them happen will likely have 
little positive consequence.
    Second, a balanced budget amendment would not be self-
enforcing. Implementing legislation would need to address many 
technical details. Lots of terms in the amendment are subject 
to interpretation and re-interpretation, definition, and re-
definition. Actually achieving a balanced budget would involve 
making hard choices, the kind that the Super Committee is 
dealing with now. These would mean increasing taxes and 
reducing spending. Enforcement mechanisms would need to be 
developed. The inability to agree on these policy changes and 
sanctions is the problem we have today. The balanced budget 
amendment is a distraction from solving that problem.
    Third, analogies between the Federal budget and budgets of 
families, corporations, and State and local governments in my 
view are misguided. First, there is the very real issue of the 
different role that the Federal Government has to provide for 
economic stabilization. It is useful to ask what the States 
would have done if they had been left on their own and perhaps 
even had Federal funding reduced during the recent recession.
    Beyond this, however, is the simple fact that none of these 
entities actually balance their budgets. State and local 
governments, for example, borrow lots of money financed through 
separate capital budgets. I have worked in State budget offices 
and I still study State budgeting, and I can tell you that 
States do not balance their operating budgets primarily because 
their constitutions tell them to. Budgeting at the State and 
local level is much more heavily influenced by the effect that 
irresponsible decisions would have on bond ratings and 
therefore future borrowing costs.
    My final point is that versions of the balanced budget 
amendment that attempt to limit Federal spending as a 
percentage of the economy are problematic for two reasons.
    First, any future Congress should be able to make the 
choices that it wants to. A spending level such as 18 percent 
of GDP would establish a ceiling that is substantially below 
the 40-year historical average, which is almost 21 percent of 
GDP, and doesn't recognize the effect that demographics will 
have on future costs for entitlement programs. Making it 
substantially more difficult to raise taxes takes a very 
important tool for balancing the budget off of the table when 
we need all the tools that we could possibly get at this point 
given the magnitude of the problem.
    Second, even attempts to live within the spending limit 
would invite in my view a number of strategies or gimmicks to 
get around that limitation. I listed a number of these in my 
testimony, but perhaps the clearest one is that a spending 
limit would increase the incentives to provide expensive and 
inefficient benefits through the tax code. That is, we would 
see an increase in tax earmarks and tax expenditures.
    To conclude then a constitutional amendment will neither 
address the current debt problem nor keep the problem from 
returning. In 1992 testimony before the House Budget Committee, 
then CBO Director Robert Reischauer argued that it was a 
``cruel hoax to suggest to the American public that one more 
procedural promise in the form of a constitutional amendment is 
going to get the job done.'' I agree. History demonstrates that 
if Congress and the President want to get around any rules, 
even constitutional ones, they will find a way to do so. There 
are much more direct ways for elected officials to show 
commitment to deficit reduction such as returning to the kind 
of actions taken in the 1990's when two President, George H.W. 
Bush and Bill Clinton, worked with the Congress to enact 
spending cuts, tax increases, and enforcement mechanisms. 
Congress already has the tools. It just needs to use them.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Joyce follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Smith. Thank you, Professor Joyce.
    Dr. Mitchell?

         TESTIMONY OF MATTHEW MITCHELL, MERCATUS CENTER

    Mr. Mitchell. Thank you very much, Chairman Smith, Ranking 
Member Conyers, and fellow Members of the Committee. It is an 
honor to address you.
    On its current course, U.S. fiscal policy poses a grave 
threat to our prosperity. Theory suggests that an important 
source of the problem is the Government's ability to purchase 
services for current voters without going to the trouble of 
actually taxing them. A balanced budget requirement, by 
internalizing both the costs and benefits of Government 
services, would therefore seem to be a natural solution.
    In today's testimony, I summarize the scope of the fiscal 
problem and then review State-level evidence to consider the 
ways that a Federal balanced budget amendment might address it.
    CBO projects that, absent policy change, the Nation's 
public debt will exceed 90 percent of GDP within 7 years. If we 
could please bring up figure 1, please.
    The 90 percent figure is important. It is at that point, 
according to economists Reinhart and Rogoff, that debt begins 
to hamper economic growth. Using data from 44 countries 
spanning 200 years, they find that when debt reaches 90 percent 
of GDP, growth slows by 1 percentage point and may even be cut 
in half.
    This may not sound like much, but to put these numbers in 
perspective, consider this figure. What would have happened if 
in 1975 the country had accumulated the sort of debt that we 
are about to accumulate and growth had slowed by 1 percentage 
point? This is shown by the middle graph. Today's national 
income would be about 30 percent smaller than it actually is. 
And what would happen if growth had been cut in half? Well, 
then today's income would be about 45 percent smaller than it 
actually is.
    Now, look at the blip in the top right of the graph. That 
is the Great Recession that began in 2008. Note that this most 
calamitous economic contraction in decades pales in comparison 
to the lost income associated with persistently anemic economic 
growth as a result of too much debt.
    These crippling debt projections are the result of two 
distinct problems. First is the long-running systematic bias 
toward deficit spending. Depending on your measure of the 
deficit, the Federal Government has spent most of the last 4 
decades between 66 and 90 percent of the time in fiscal 
deficit. The bias toward deficit spending is systematic in that 
it is evident in both good times and bad times and in both 
Democratic and Republican administrations.
    The second problem is entitlement spending. Absent policy 
change, spending on the autopilot programs, particularly 
Medicare, will consume an ever larger share of our Nation's 
output. The end result is that total Federal spending as a 
share of GDP will be twice its historical average within just a 
few decades.
    Ultimately the problem is one of political incentives. We 
have known about these issues for decades. But politicians in 
neither party have an incentive to fix them. This is because 
the costs of the status quo are borne by those too young to 
vote, while the costs of reform would be borne by today's 
median voter.
    The solution is to make the generation that benefits from 
Government services pay for the costs of producing them. This 
is what a balanced budget amendment would do.
    Fortunately, Federal policymakers are not flying blind. 
There is much to learn from the States. Every State but Vermont 
has a balanced budget requirement, but the stringency of these 
requirements varies. For example, State balanced budget 
requirements can be weaker if they only apply to the proposed 
budget, if they only apply to estimates of the enacted budget, 
if they permit the legislature to carry over a deficit from 1 
year to the next, or if the legislatively appointed supreme 
court is the ultimate enforcer rather than an independently 
elected judiciary.
    A number of studies have found that the more strict the 
balanced budget requirement at the State level, the better the 
fiscal outcome. For example, studies find that States with 
strict balanced budget requirements spend about $190 less per 
capita. If the difference between a weak and a strong balanced 
budget requirement saves State taxpayers $200, I would imagine 
that moving from a nonexistent to an existent balanced budget 
requirement would save the Federal taxpayer even more.
    Furthermore, States with strict balanced budget 
requirements also have larger rainy day funds. They have larger 
surpluses. They tend to balance their books through spending 
reductions rather than revenue increases and they tend not to 
suffer from a political business cycle in which spending grows 
just prior to an election only to be cut back precipitously 
afterwards.
    There are, of course, some objections. The strongest 
objection to a balanced budget requirement in my view may be 
that it would force governments to cut back on spending at the 
worst time. Though this is a fair critique, it is easily 
addressed. One answer is a rainy day fund. Another is to 
require a balance over some period longer than a year.
    Another objection may be in the transition. The Government 
currently borrows 45 cents for every dollar it spends. So if we 
were to achieve balance tomorrow, it could be pretty painful. 
But this too can be easily addressed in the language of the 
amendment by giving Congress a few years to come into 
compliance.
    So why do we look to the States? Well, in almost every 
conceivable measure, the U.S. States are more fiscally fit than 
the Federal Government. On a per capita basis, they spend about 
half of what the Federal Government spends. Their debt loads 
are one-seventh of the Federal Government. Their unfunded 
liabilities are one-third that of the Federal Government's, and 
States manage to balance their operating expenses, some 
gimmickry aside, on an annual or biannual basis while the 
Federal Government spends most of its time out of balance. Much 
of the difference owes to the simple fact that each generation 
of State taxpayers must pay for the services that it receives. 
As long as we can foist the Federal bill on to the next 
generation, I believe we will continue to spend beyond our 
means.
    Thank you for your time, and I look forward to questions.
    [The prepared statement of Mr. Mitchell follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Smith. Thank you, Dr. Mitchell.
    Let me recognize myself for a couple of questions and, on 
the way there, thank all the panelists for dispelling a couple 
of myths about the balanced budget amendment. I sometimes hear 
that if we were to pass a balanced budget amendment, suddenly 
next year we are going to have to freeze all spending. That is 
wrong on two counts. One, it is not going to happen 
immediately, as Governor Thornburgh pointed out. And two, we 
are not going to have to freeze spending to get to a balanced 
budget. In fact, spending can actually increase but not just 
increase as fast as it has in the past. So to me the balanced 
budget amendment is probably the only practical solution to the 
almost endless deficits and the accruing debt that we face 
every day.
    Somebody said that the balanced budget amendment is the 
worst alternative except for all the others. And that leads to 
my question that I would like to ask Governor Thornburgh and 
Dr. Holtz-Eakin and Dr. Mitchell, and that is, is there any 
other better, more realistic alternative to a balanced budget 
amendment that would impose the necessary discipline so that we 
would not continue to increase our deficit and debt every year? 
And, Governor Thornburgh, could we start with you? And if not, 
why not?
    Mr. Thornburgh. Not in my view or based on my experience, 
Mr. Chairman. I don't think that we are very good at self-
discipline, those of us in public life. We want to do good. We 
want to help our constituents. We want to devise and execute 
grand and glorious projects. That is our natural instinct. And 
it is a good one when it is disciplined, and the only way to 
bring that discipline is by constitutional directive. All the 
other palliatives that have been tried fall to the salutary 
rule that one Congress cannot bind the actions of a following 
Congress. A constitutional amendment, however, would put that 
on a permanent basis.
    Mr. Smith. A good point. Thank you, Governor Thornburgh.
    Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I agree. While imperfect, it is the best 
of the alternatives. I mean, as I said in my testimony, the 
Federal Government doesn't have fiscal policy. It has fiscal 
outcomes that are the result of disjointed actions by Houses, 
Senates, and Administrations, and the track record of that is 
quite bad. We need to impose on that process a genuine fiscal 
rule, something which drives tradeoffs and brings some 
coherence to the outcomes.
    If you look at those rules, first of all, I think they have 
to be constitutional to be effective. I think Professor Joyce--
you know, his testimony is quite eloquent in the failure and 
ability of Congresses to renege on a regular basis. And if you 
look at alternatives to the balanced budget amendments, they 
are either too complicated for the public to understand and 
thus support or too small to be effective. So it is not 
perfect. There are issues that will arise in the design, but it 
is the best of the alternatives.
    Mr. Smith. Okay, thank you.
    And Dr. Mitchell?
    Mr. Mitchell. Well, there are actually a number of 
institutions that have been shown at both the State level and 
the international level to improve fiscal outcomes. So I 
actually wouldn't say that this is the silver bullet or that it 
is the only option. There are things like line-item vetoes, 
which fellow members on the panel have actually studied. There 
are special kinds of vetoes, item-reduction vetoes. There are 
reforms in the committee system. Of course, the committee 
system of Congress has not always been the way it is structured 
the way it is now.
    Nevertheless, I do view that given all of the options, this 
probably is the strongest. And one of the reasons is one of the 
ones that I think one of the Members of the Committee brought 
up which is that we don't want to enshrine today's current 
ideological preferences in the Constitution. And so one of the 
nice things about a balanced budget amendment is that it would 
not do that. And the reason it wouldn't is it doesn't say how 
you balance the budget. It doesn't say that you have to raise 
taxes. It doesn't say you have to cut spending. It just says 
that you have to balance the budget and you have to do it by 
the old-fashioned way of prioritizing. Not everything that 
Government does can be priority number one. And so just the 
simple mechanics of balancing a budget require you to have to 
figure out what it is important to spend on and what it is not 
important to spend on.
    Mr. Smith. Thank you, Dr. Mitchell.
    The gentleman from Michigan, Mr. Conyers, the Ranking 
Member of the Committee.
    Mr. Conyers. Thank you, Chairman Smith.
    Since we overlooked Professor Joyce, could you help your 
fellow witnesses in terms of the question that was posed by 
Chairman Smith?
    Mr. Joyce. Thank you, Mr. Conyers.
    What I would say is that the fact that--and I think we all 
do agree that most of, although I would not say all of, the 
prior things that have been tried have not worked, it does not 
necessarily follow that that means that a balanced budget 
amendment to the Constitution will work. And I think that is 
where I sort of separate myself from my colleagues.
    I actually think we have a good example of something that 
worked, which is in the 1990's, we reduced the deficit the old-
fashioned way. The old-fashioned way is that you cut spending 
and you raise taxes and then you try to enforce those actions. 
And that worked. It worked until the consensus around that 
broke down. Why did the consensus around that break down? 
Because the budget went into surplus. Surpluses sort of killed 
that process.
    But my general point that I made in my testimony is that I 
don't care if it is a constitutional rule or another kind of 
rule. It is only as good as long as the consensus remains to 
stick to the rule.
    Mr. Conyers. Thank you very much.
    It is a pleasure to have you here, General Thornburgh, as 
always.
    Is there any particular constitutional amendment that you 
support?
    Mr. Thornburgh. Of the ones that have been introduced or--
--
    Mr. Conyers. And the ones you would like to see introduced.
    Mr. Thornburgh. I don't want to give an off-the-cuff 
judgment on the particular type of language.
    Mr. Conyers. Well, it isn't off-the-cuff. You have been 
here before on the very same subject.
    Mr. Thornburgh. I am talking about specifics.
    Mr. Conyers. Yes, specific.
    Mr. Thornburgh. My specific is that the norm be established 
that expenditures match revenues.
    Mr. Conyers. But what bill? This is great general 
conversation, but somewhere along the line, we are going to 
have to land on something. And what would you like us--prefer 
that the Judiciary Committee land on?
    Mr. Thornburgh. My own preference would be one as simple as 
possible, just as I stated, that in every year----
    Mr. Conyers. But it isn't in existence yet.
    Mr. Thornburgh. No. I am not a member of this body----
    Mr. Conyers. No.
    Mr. Thornburgh [continuing]. For its own good.
    Mr. Conyers. But you advise us.
    Mr. Thornburgh. Yes.
    Mr. Conyers. That is why we keep bringing you forward here 
all the time.
    Mr. Thornburgh. That is what I am advising.
    Mr. Conyers. Well, you are advising that we do a simple 
constitutional amendment, none of which meet that degree of 
simplicity that you would advocate.
    Mr. Thornburgh. You asked my personal preference, and that 
would be it. Yes, sir.
    Mr. Conyers. All right. Well, could I draft one for you and 
send it back for your approval or criticism?
    Mr. Thornburgh. If you want me to draft one for you, I will 
do that. But I didn't come here to discuss drafting techniques.
    Mr. Conyers. Okay. Then I want you to draft one. Could I 
invite you to draft one?
    Mr. Thornburgh. Making a balanced budget the norm rather 
than an occasional exception.
    Mr. Conyers. All right. Will you accept my invitation?
    Mr. Thornburgh. Sure.
    Mr. Conyers. Okay. Thank you.
    Now, let me turn to the doctor here. Which amendment do you 
favor?
    Mr. Holtz-Eakin. I have not studied the----
    Mr. Conyers. You don't know either. Okay. Will you find out 
and get back to me?
    Mr. Holtz-Eakin. Absolutely.
    Mr. Conyers. All right. Thank you.
    And now, Dr. Mitchell, I appreciate your observation that 
this is not the only choice. And I would like to ask you where 
do you think we ought to end up in this process.
    Mr. Mitchell. Well, I guess what I would say is that there 
are a number of characteristics of the balanced budget 
amendment that make it better. So, for example, I would like to 
see one that was as comprehensive as possible, addressed as 
much of the budget as possible. I would like to see one that 
was balanced over the business cycle so that you can deal with 
what I think is--and Professor Joyce brought this up--one of 
the strongest challenges to a balanced budget amendment, which 
is that it would be pro-cyclical. But if you had one that was 
balanced over the business cycle or that had a rainy day fund, 
then you could, in my view, largely take care of that problem. 
And then finally, one that did not require a balance tomorrow 
but that gave Congress some time to come into compliance.
    Mr. Conyers. Would you help me and General Thornburgh by 
drafting one that follows along those lines?
    Mr. Mitchell. I would be happy to answer any, yes, specific 
questions or----
    Mr. Conyers. No. I am talking about drafting one.
    Mr. Mitchell [continuing]. About specific language. You 
know, I don't write----
    Mr. Conyers. You don't draft. You don't do drafting.
    Mr. Mitchell. No.
    Mr. Conyers. Okay, all right.
    Thank you, Mr. Chairman.
    Mr. Goodlatte [presiding]. I thank the gentleman.
    Professor Joyce, in your written testimony, you argue that 
all we need to solve our current problem is, quote, to take 
timely action to reduce the deficit, but all previous actions 
taken to reduce the deficit have been short-lived. If you don't 
support a balanced budget amendment, can you name any fiscal 
rule to balance the budget that you support and which has not 
already been tried since every other rule tried so far hasn't 
worked over the long term since in the last 60 years we 
balanced the budget just six times?
    Mr. Joyce. I think you could create a rule that said that 
you were trying to put the debt on a glide path to a certain 
percentage of GDP and if the majority of the Congress agreed to 
that and it became law, that could be your guiding principle.
    My point is not that rules are bad. I agree. I think one of 
the problems that we had in the 2000's is that the consensus 
around any kind of a norm for fiscal responsibility broke down. 
My point is that any rule that you have is only as good as the 
willingness of the current Congress and the President to abide 
by----
    Mr. Goodlatte. Well, that is my point too. If in 60 years 
we have only balanced the budget six times and we have had lots 
of rules--we have statutes that say the Congress must balance 
the budget. We waived those. We have the Gramm-Rudman Deficit 
Reduction Act. Every year we have 10-year budgeting, and the 
Republican Study Committee this year offered a budget that 
balances in 9 years. It got about 120 Members of the House, 
including myself, to vote for it. But it does not have the 
force of a constitutional amendment which cannot be waived by 
Congresses.
    Dr. Eakin, do you want to respond to that too?
    Mr. Holtz-Eakin. I, as I mentioned in my opening remarks, 
think that the history of Congress reneging on commitments to 
bringing the budget into alignment is a real indictment of all 
other approaches and that you need something stronger to be 
effective.
    I guess with regard to the specifics of picking a debt-to-
GDP ratio and having Congress aim for that, that is an 
economist's dream, and I am thrilled at the prospect. But I 
don't think you can sell that to the American public. It is too 
complicated. The steps between what Congress votes on and does 
and the debt-to-GDP ratio are just too distant, and I think 
that for that reason it would fail to have enduring support.
    Mr. Goodlatte. And can always be waived.
    Mr. Holtz-Eakin. And it can always be waived. So you need 
something that can't be waived and it has got to be simple and 
transparent for the public.
    Mr. Goodlatte. Governor Thornburgh, as a former Governor of 
a State with a balanced budget requirement, what lessons could 
the Federal Government learn about Pennsylvania's experience 
with a balanced budget requirement?
    Mr. Thornburgh. Let me say I am somewhat puzzled by the 
description of the proposal to amend the Federal Constitution 
to provide for a balanced budget, describing it as useless if 
not pernicious. I wonder how many Members who hold to that view 
would be willing to go back and tell the current occupants of 
their State how is it that they ought to repeal the balanced 
budget requirements currently in effect in their States. I 
suspect very few. And my argument this morning is based on 
experience as a Governor of my own State and working with other 
Governors to urge that that module be replicated at the Federal 
level. It does provide discipline and it doesn't lend itself to 
end-arounds or gimmicks to avoid it.
    One of the key things--and I mentioned this briefly, and I 
don't want to dwell on it necessarily--is the separation of 
capital expenditures into a separate capital budget. A dollar 
spent on welfare is not the same as a dollar invested in a new 
highway or bridge, and State budgets all take that into 
account. The Federal Government does not, and I think it is the 
poorer for it. And I think to adopt a separate capital budget 
procedure would clarify a lot of the problems about where cuts 
are to be made or where expenditures can be justified. So I 
would urge that that, in addition to what has been mentioned as 
a line-item veto authority in the President, capable of being 
overridden, of course, be considered along with----
    Mr. Goodlatte. My time is running short. I wanted to ask 
Dr. Mitchell. The Federal budget, as I noted, has been balanced 
only six times since 1960. That is 50 years, not 60 years. Even 
under Keynesian economic theories, do these annual budget 
deficits make sense?
    Mr. Mitchell. No, they don't. If you look at what Keynes 
said and what Keynes' followers say--there is a great post, by 
the way, by Paul Krugman. Look up ``hard Keynesian.'' There are 
two goals. One is you run a deficit when things are bad, and 
two, you run a surplus when things are good to try to pay off 
the deficit.
    Now, there is an enormous amount of debate among academic 
economists about Keynesian economics, but let's just put that 
all aside and assume that Keynesian economics is right. If that 
is the case, we have spent most of the last several decades, 
the last 4 decades--we spent about 80 percent of the time in 
growth. So we would expect for the vast majority of that--if we 
were actually to implement a Keynesian policy, we would expect 
the Federal Government to have run surpluses for most of that 
time. Instead, as I mentioned, we have run systematic deficits. 
This isn't just bad by market-oriented economic policy. This is 
bad by Keynesian economic policy. It completely undermines the 
Keynesian goal.
    So in my view, we are not really achieving the goals either 
of market-oriented policy or Keynesian policy because of this 
systematic bias toward deficit spending.
    Mr. Goodlatte. Thank you.
    The Chair recognizes the gentleman from New York, Mr. 
Nadler, for 5 minutes.
    Mr. Nadler. Thank you.
    Let me begin by clarifying the record. Professor Joyce said 
that the rules worked until the consensus broke down. Well, we 
had PAYGO rules in the 1990's. They did work. Consensus didn't 
break down. We elected George Bush and a Republican Congress. 
They repealed the rules, passed huge tax increases, and engaged 
in two unfunded wars--passed huge tax cuts, engaged in two 
unfunded wars, eliminated the surpluses, and exploded the 
deficits. If we restored PAYGO rules intelligently and started 
behaving the way we did in the 1990's, we may have a different 
situation.
    Governor, you did mention the capital budget. If we pass 
any of the balanced budget amendments that have been 
introduced, they don't recognize capital budgets. They don't 
recognize any kind of entities to issue bonds whatsoever. They 
would require that the Federal Government always run a surplus, 
which means you would never borrow money for any purpose 
whatsoever. Now, if a family did that, they couldn't afford the 
house or the car. No corporation would run that way. If a State 
did that, you would never build anything. Does that make any 
sense to you?
    Mr. Thornburgh. No. My suggestion that separate capital 
budgeting be provided----
    Mr. Nadler. I heard that. So in other words----
    Mr. Thornburgh. Representative Conyers----
    Mr. Nadler. In other words, the balanced budget amendment--
your testimony is that a balanced budget amendment without 
providing for borrowing under a capital budget is economically 
wrong.
    Mr. Thornburgh. I don't think it is as sound as it might 
be. I am just taking up Mr. Conyers on his----
    Mr. Nadler. I didn't ask if it is as sound as it might be. 
Does it make sense economically to pass a balanced budget 
amendment without a capital budget, which means we can never 
borrow money under any circumstances for any purpose without a 
three-fifths vote in Congress?
    Mr. Thornburgh. I think it would be wiser to include a 
capital budgeting provision.
    Mr. Nadler. But we have to vote on the--we have never been 
able to get the supporters of a balanced budget amendment to 
make the distinction between a capital budget and an operating 
budget or an expense budget and exclude the capital budget from 
that. They always come in with one unified budget and say it 
has got to be balanced every single year, which means we can 
never borrow money. That is what the amendment requires. Would 
you support that if that is the way it is?
    Mr. Thornburgh. I have already stated that I feel a 
separate capital budget is wise.
    Mr. Nadler. Thank you. Thank you very much. I don't want to 
be so short, but I have a bunch of questions to ask of 
different witnesses.
    Now, also still Governor Thornburgh, the balanced budget 
amendments before us require super majority votes, three-fifths 
or two-thirds, to increase taxes, to raise the debt ceiling, to 
exceed spending as a percentage of GDP. Those are ideological 
choices which may make sense conceivably in one set of 
circumstances but not in another. Do you think such provisions, 
in addition to the requirements for a balanced budget, should 
be in the Constitution?
    Mr. Thornburgh. No.
    Mr. Nadler. Thank you.
    Third, and again getting back to what Dr. Mitchell said, it 
is true Keynesian economics basically says that budgets ought 
to be balanced over time. You ought to run surpluses in good 
times, deficits in bad times in order to prime the pump, not 
annually as required by this amendment. One of my problems with 
this, Dr. Mitchell, is that requiring an annual balanced budget 
is an ideological choice as opposed to a balanced budget over 
the business cycle or whatever, and we shouldn't put 
ideological choices into the Constitution. It has been said 
that the purpose of this amendment is to bind future 
Congresses. It is another way of saying that we are going to 
make our judgments or the judgments of the voters now bind the 
judgments of the voters 50 years from now. Is that right?
    Mr. Mitchell. Well, I would say the problem is that right 
now current policy binds the choices of future generations and 
future taxpayers.
    Mr. Nadler. Yes, but how do you take into account----
    Mr. Mitchell. Absent change----
    Mr. Nadler. I heard what you said before. You made that 
point. But on that point, you said that we are binding future 
taxpayers to pay the debts incurred by this generation. True. 
But future taxpayers get the benefits of the investments made 
by this generation in roads, bridges, infrastructure, et 
cetera. A balanced budget amendment says you can't make those 
investments unless you can pay for it out of current revenues. 
You can't borrow money. Does that make sense?
    Mr. Mitchell. I think it would be the case that future 
generations would be benefitting from investments if in fact 
the 45 cents out of every dollar that we borrow right now goes 
toward investments. I think that is definitely not true. Much 
of what my daughter's generation will pay for is my 
consumption.
    Mr. Nadler. Should we preclude those investments by a 
balanced budget amendment that says you can't borrow money for 
any purposes?
    Mr. Mitchell. Yes.
    Mr. Nadler. We should preclude any investment.
    Mr. Mitchell. And here is the reason why. I would be more 
concerned about this capital/noncapital distinction if it were 
the case that we were starting from scratch and we were having 
to build every single road right from scratch. But we don't 
have to do that. Right now, all we need to do is to replace 
investments as they depreciate. That happens on a----
    Mr. Nadler. Wait a minute. You are saying that this country 
needs no new investments. All we need is to replace the current 
roads?
    Mr. Mitchell. No. I said----
    Mr. Nadler. We don't need new investments in high-speed 
rail or in Internet or whatever the next scientific 
breakthrough is. We can compete with the Chinese and everybody 
else based only on replacing our depreciating existing assets?
    Mr. Mitchell. I think you might have misunderstood me. No. 
I was just----
    Mr. Nadler. I hope I misunderstood you.
    Mr. Mitchell. I am sorry?
    Mr. Nadler. I said I hope I misunderstood you.
    Mr. Mitchell. What I was saying is all we need to do is 
maintain the investments. And by the way, of course, 
investments are something that can happen at any level of 
government. Economic theory says that it should be a public 
good. If it meets the characteristics of a public good, it is 
not excludable, but most importantly, it should be provided at 
the level of government where it makes the most sense. It is 
very hard to make the case from much of what people call 
investments that they actually are national public investments.
    Mr. Nadler. Let me ask one last question.
    Mr. Goodlatte. The time of the gentleman has expired. 
Without objection, I yield the gentleman an additional minute 
if he will first yield to me for a question of him.
    Mr. Nadler. I will first yield, but that is not on my 
minute. Is it?
    Mr. Goodlatte. That is on your minute.
    Mr. Nadler. I will yield.
    Mr. Goodlatte. It will be a quick question. If you are 
saying that the Congress and, by the way, 38 State 
legislatures, because that is what it takes to amend the 
Constitution, shouldn't bind future Congresses, are you arguing 
that we shouldn't have a written Constitution?
    Mr. Nadler. No. I am arguing, as I said in my opening 
statement, that a written Constitution should provide 
procedures for decision-making, procedures for governance, and 
protection of individual rights. A written Constitution should 
not enact policies which the next generation might differ from 
this generation. It may be the opinion of the majority of this 
generation--I hope it is not--but it may be the opinion of the 
majority of this generation that we shouldn't ever spend more 
than 18 percent of GDP on Federal expenditures. That may not be 
the judgment of some future generation, and we have no right to 
bind them on those kinds of policy questions. Why 18 percent? 
Maybe it should be 22 percent or 19. That is a policy question.
    Sorry. Now can I ask Governor Thornburgh my last question 
if I can now remember what it was? Oh, yes.
    My last question is, Governor, you have stated that you 
wouldn't support or you don't think it is advisable I think is 
what you said or it is not a good idea to have specific limits 
on spending limits and on tax increases in a constitutional 
amendment. If they were in such a constitutional amendment, 
enshrining a policy preference, for example, for spending cuts 
over tax increases, which is a policy preference, and people 
agree or disagree and future generations may change their mind, 
that would limit the States.
    And my real question is if you as Governor had a State 
constitution that said you could never borrow money, you 
couldn't have a debt-issuing agency, housing finance agency, or 
road--State dormitory authority or whatever, and you couldn't 
have a capital budget, you could only operate by spending in 
this year what comes in in tax revenues this year, you could 
only make investments that way, and there is no Federal aid, 
could you have run a State that way?
    Mr. Thornburgh. I wouldn't want to try.
    Mr. Nadler. Thank you.
    Mr. Goodlatte. The gentleman from Iowa, Mr. King, is 
recognized for 5 minutes.
    Mr. King. Thank you, Mr. Chairman. I want to thank all the 
witnesses for your testimony.
    Listening to this discussion that we have here, it occurs 
to me that I have a little granddaughter that just turned a 
year old the other day and she was born into this world with 
$44,000 worth of debt, her share of the national debt. It will 
be $88,000 for her when she is in fifth grade, just our budget 
window, birth to 10 years down the road. I have sat in this 
Congress and listened to the lament about people graduating 
from college with a degree and an opportunity to engage in this 
free market economy with a student loan of perhaps $40,000 as 
opposed to their share of the national debt that is greater on 
the day that a baby is born than it is--that baby that is born 
on the day of the graduation has more debt than the student 
with a degree.
    We have got our priorities in the wrong place here, and 
these young people don't have a choice. And maybe we are 
investing in some of the infrastructure that is good and right 
for them, but that offsets the burden of the debt in a negative 
way in my view.
    I just look back at where we sit today, and I think I would 
direct my first question to Mr. Mitchell, but it could go to 
anybody, and it is this. As I roll this thing back and I look 
at American history, there was a time in American history when 
you had to be a male property owner in order to vote. The 
reason for that was because they wanted the people that voted 
that set the public policy, that decided on the taxes and the 
spending to have some skin in the game.
    Now we have data out there that shows that 47 percent of 
American households don't pay taxes, 51 percent of American 
wage earners don't have an income tax liability, and it is 
pretty clear that there are a lot of people that aren't in the 
workforce at all. In fact, of our unemployment numbers that run 
in the 13 million or 14 million category, when you go to the 
Department of Labor statistics and look at that data, you can 
add up those that are simply not in the workforce, the 
different age groups but of working age, add that number to the 
number of those who are on unemployment, and you come up with a 
number that was just a few months ago 80 million Americans. 
Just as of less than a month ago, that number went over 100 
million Americans that aren't working. Now I don't think they 
are paying taxes, but many of them are voting, and when they 
vote, they vote for more Government benefits because that is 
what comes into their mailbox or into their debit card.
    Mr. Conyers. Could I ask the distinguished gentleman a 
question?
    Mr. King. I think I have set the stage for the question 
just fine, Mr. Ranking Member, who has never done this in his 
entire career.
    So I would direct my question then to Mr. Mitchell and ask 
do you believe that a balanced budget amendment is a means by 
which it can offset the disadvantage that the workers, the 
taxpayers, those who actually fund this Government, have? Does 
a balanced budget help set some of that back in order that was 
sought to be put in order when it was property owners that 
voted?
    Mr. Mitchell. Yes. I mean, the basic problem here is one of 
externalities. So this is a problem that is familiar to 
environmental economists. If a factory is allowed to--in the 
process of making a product for consumers is allowed to bilge 
smoke into the air, that is an externality, and they will make 
too much of the product unless it is internalized.
    So here what is happening is that this current generation 
is allowed to externalize the costs of Government on to the 
next generation. The median voter, as I said before--the costs 
of reform, the costs of avoiding this kind of economic 
contraction that we are staring at--those are going to be borne 
by people like me, the median voter. But the costs of the 
status quo are going to be borne by my daughter. She cannot 
vote. And until we can internalize that externality, I think we 
are going to continue to make the wrong choice because none of 
you have the incentive to make the right choice. It is not your 
fault. You are all good people. You are servants of the public 
and you are listening to what your constituents and your median 
voters are saying. And the incentives that they offer you are 
not right.
    Mr. King. That is a very cerebral answer, and I agree with 
it.
    I would just take us to another step along this way, and 
that would be--remember now, this is not a proposal. This is an 
historical observation of property owners only voting. What if 
that were transferred into a society like today and it were 
taxpayers that were voting? What do you expect, Mr. Mitchell, 
would be the result of the public policy that would emanate 
from such a thing?
    Mr. Mitchell. Well, I think that when more people had skin 
in the game and when people have to pay for the services that 
they consume, they tend to consume fewer services.
    Mr. King. And then I will take you to another step of this, 
and that is something that I have been for, the national sales 
tax, for a long time because everybody becomes a taxpayer. And 
it is another means to get everybody with skin in the game and 
every little boy that grows up in America would have to put a 
couple dimes up on the counter to buy their Skittles or every 
little girl that bought her Barbie Doll clothes would have to 
do the same. Have you contemplated what that might do to the 
body politic here and the American culture and what the results 
might be if everybody were paying taxes on a national sales 
tax?
    Mr. Mitchell. I mean, I would say it is sort of the same 
thing is that again when everybody pays, I think when you 
internalize both the costs and the benefits, you would expect 
people to consume less. There would probably be smaller 
Government.
    I would add a note of caution on something like a national 
sales tax. In my view, if step one isn't repealed, the 
Sixteenth Amendment, you are likely to get two taxes.
    Mr. King. And I reclaim my time, and I am thanking the 
gentleman for his comment and adding my comment to this, that I 
believe the momentum to repeal the Sixteenth Amendment would 
come directly out of the passage of the fair tax. I don't think 
that people would ever re-establish an IRS.
    Thanks very much. I yield back the balance of my time.
    Mr. Conyers. Mr. Chairman, could I ask an additional minute 
for my dear friend, Mr. King?
    Mr. Goodlatte. Without objection, the gentleman from Iowa 
is recognized for an additional minute.
    Mr. Conyers. Could I just ask the previous speaker as a 
successful businessman himself, did he ever----
    Mr. King. Would the gentleman from Michigan care that I 
would be happy to yield to the gentleman from Michigan?
    Mr. Conyers. Yes, I would care. I appreciate it.
    Mr. King. I would yield to the gentleman from Michigan even 
without a request.
    Mr. Conyers. Did you ever have to borrow money as a 
successful businessman yourself?
    Mr. King. Is that directed to me? And I would reclaim my 
time. I would say certainly, yes, and I had to pay it back with 
interest, 22 percent at one point in my life. Should we open up 
that can of worms?
    Mr. Conyers. Well, it is not a can of worms. It is just 
real life. Governments have to do that too, Mr. King.
    Mr. King. I think the point that was made that is most 
significant with regard to the witness' testimony was that 
Governor Thornburgh doesn't believe that many States would want 
to repeal our balanced budget amendment requirement. I know of 
no State that has done so and I know of no State that has 
initiated that. I think that tells you they like having the 
comfort of having to live within a balanced budget. I would 
like to see this country have the comfort of living within a 
balanced budget.
    Mr. Conyers. Sure. It is okay for you to borrow, but it is 
not okay for Governors to borrow.
    Mr. King. It doesn't make me a hypocrite. It makes me a 
businessman, and the United States of America prints the money, 
sets the policy for the country, and we will be in perpetual 
debt, and we will be Greece if we don't get this under control. 
This Congress does not have the will to do so. We need to ask 
the American people to impose that upon us, and I will be 
grateful for the day that comes so we can see it become----
    Mr. Conyers. Look, if you would impose it on little kids, I 
know you would impose it on the Government.
    Mr. King. I would recognize that the time has expired, and 
I will take care of my little kids and I hope you take care of 
yours too, Mr. Conyers. I yield back.
    Mr. Goodlatte. The gentleman from Virginia, Mr. Scott, is 
recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Chairman, there is a serious question as to whether 
this legislation will help or hurt actually balancing the 
budget. At some point, we have got to stop talking about 
process and actually get to balancing the budget. But 
unfortunately many people have run on platforms that violate 
fundamental principles of arithmetic. They are promising all 
these tax cuts and not sufficient spending cuts to come 
anywhere close.
    Now, my suggestion has been that we let all the Bush era 
tax cuts expire. That will give us as much deficit reduction as 
anything on the table. I recognize that is unpopular, but when 
we start cutting Social Security and Medicare in order to 
preserve those tax cuts, I believe that position is going to 
get a lot more popular.
    Now, we have been talking about this balanced budget 
amendment and talking about all these States that have balanced 
budget amendments. The gentleman from Arizona has acknowledged 
that his State Arizona received $6.4 billion in stimulus money, 
$1,000 for every man, woman, and child, $4,000 for a family of 
four. Even after that, they had to sell the State capital 
building, sell the State capital building for $735 million, 
then sold the supreme court building for another $300 million 
in order to help balance their budget.
    We keep talking about some kind of restraint and some kind 
of balanced budget or a balanced budget amendment. As the 
gentleman from Michigan has indicated, we don't vote on ``some 
kind.'' We have to vote on H.J.Res. 1 and ascertain whether 
that is going to help or hurt.
    Now, Governor Thornburgh, you indicated that you need some 
glide path to balance, and you recognize that H.J.Res. 1 
doesn't have any glide path. You recognize that. You talked 
about your balanced budget. You recognize that even the 
Republican Study Group budget that balances in 2020 requires a 
three-fifths vote because it is not balanced this year. An 
irresponsible budget requires a three-fifths vote. Does your 
Pennsylvania legislature require a three-fifths vote to pass a 
budget?
    Mr. Thornburgh. No.
    Mr. Scott. You can cut taxes on a simple majority under 
this amendment, but it would take a two-thirds vote to repeal a 
tax cut or to raise taxes. Does your constitutional amendment 
require a two-thirds vote to raise taxes?
    Mr. Thornburgh. I don't have a constitutional amendment.
    Mr. Scott. In Pennsylvania.
    Mr. Thornburgh. Oh, the Constitution? No.
    Mr. Scott. In Pennsylvania, it doesn't.
    This legislation has a war exception. If you were Governor 
and called out the National Guard, could you run an unbalanced 
budget?
    Mr. Thornburgh. No.
    Mr. Scott. There is no war exception in your constitutional 
amendment. Is there not?
    Mr. Thornburgh. We have no power to declare war.
    Mr. Scott. Okay.
    You have indicated you have a capital budget so you can, in 
fact, borrow money.
    Mr. Thornburgh. Yes.
    Mr. Scott. Exactly what provision in H.J.Res. 1 do you 
think would be helpful to actually balance the budget other 
than the title?
    Mr. Thornburgh. As I indicated, I have not studied the 
details of this. My message----
    Mr. Scott. Provision. What provision in H.J.Res. 1--can you 
name one--that actually helps balance the budget, other than 
the title?
    Mr. Thornburgh. The provision that I would strongly support 
is one that requires a matching of revenues and expenditures, 
also has a separate capital budgeting requirement, also has----
    Mr. Scott. But that is not in H.J.Res. 1. You are talking 
about things that are not in H.J.Res. 1.
    Mr. Thornburgh. I didn't understand that I was asked here 
to talk about a specific piece of legislation.
    Mr. Scott. Okay.
    Mr. Thornburgh. This was more----
    Mr. Scott. We are just getting your testimony straight.
    Professor Joyce, there are provisions in the bill, a three-
fifths vote which would cover the Republican Study Group and an 
irresponsible budget. Would that provision help or hurt balance 
the budget?
    Mr. Joyce. It would hurt.
    Mr. Scott. The two-thirds vote to raise taxes. Would that 
help or hurt balance the budget?
    Mr. Joyce. It would hurt.
    Mr. Scott. The two-thirds vote to spend more than 18 
percent of GDP. You will notice you can cut Social Security and 
Medicare with a simple majority, but to save it with taxes 
would require a two-thirds vote. What effect would that have on 
Social Security and Medicare?
    Mr. Joyce. Well, the obvious effect it would have on Social 
Security and Medicare, because of demographics and because of 
health care inflation, those programs are projected to continue 
to rise. 18 percent of GDP is 3 percent lower than the 40-year 
historical average. The 40-year historical average is not going 
to be sufficient to allow for that growth. So it would clearly 
have an effect of requiring cuts in those programs.
    Mr. Scott. Let me ask Dr. Holtz-Eakin. In 2001, when your 
Administration came in, you weren't there, but when that 
Administration came in, the fiscal challenge was that we were 
running so much of a surplus and we are paying off the national 
debt too quickly, what happened?
    Mr. Holtz-Eakin. I think it is pretty clear that in 
retrospect a big part of the revenue surge in the late 1990's 
was driven by the dot com bubble. We had a bubble burst. We 
know the economic consequences were a recession. We know the 
budgetary consequences were enormous drop-offs in revenues. It 
was also the case that we benefitted in the 1990's from the 
decline of the Soviet Union and we had a peace dividend that 
everyone acknowledged made it much easier to hit spending caps 
which were imposed. That reversed with the advent of the events 
of September 11th, 2001. Everything----
    Mr. Scott. From 2001----
    Mr. Goodlatte. The time of the gentleman has expired.
    Mr. Scott. Can I have 30 more seconds, Mr. Chairman?
    Mr. Goodlatte. Without objection, the gentleman is 
recognized for 30 additional seconds.
    Mr. Scott. From the 2001 projection of a $5.5 trillion 
surplus to what it ended up, a $3 trillion or $4 trillion 
deficit, a swing of about $9 trillion, how much of that was 
attributable to the war? $1 trillion.
    I yield back, Mr. Chairman.
    Mr. Holtz-Eakin. The war in Iraq cost well over $1 
trillion. I don't know the numbers for Afghanistan.
    Mr. Scott. $1 trillion. A $9 trillion deterioration, $1 
trillion attributable to the war.
    Thank you, Mr. Chairman.
    Mr. Goodlatte. The Chair recognizes the gentleman from 
Arizona, the Chairman of the Constitution Subcommittee, Mr. 
Franks.
    Mr. Franks. Well, thank you, Mr. Chairman.
    Mr. Chairman, I wanted to just say a word of thanks to you 
for pointing out the importance of a written Constitution.
    It is also probably important in the context of this 
discussion to remind ourselves that, indeed, some of the 
Founding Fathers, those who put the Constitution together, made 
some pretty dramatic choices and that, indeed, did have some 
binding effects on us today. In fact, most of the 
constitutional provisions, Mr. Chairman, are those that bind 
down Government, that require Government or restrain 
Government, and that certainly is the thing that we are trying 
to do here today.
    I am always reminded, Mr. Chairman, that every budget, 
whether it be a person's budget or a business budget or a State 
budget or a Federal budget, every budget eventually balances. 
It happens. Either someone balances it by wise policy or 
someone else has to pay the price for someone failing to do so, 
but it ultimately balances one way or the other.
    The challenge here that we are trying to deal with is: are 
we as a country going to balance our budget by wise policy or 
are we going to allow cataclysmic financial failure to balance 
it for us, and that is, indeed, the question.
    Let me, if I could, address the gentleman that suggested 
that Arizona had to go through some difficult machinations to 
balance their budget. He is correct. We did. But let me also 
suggest to you that if had not been for Federal meddling and 
for Federal policy related to Fannie Mae and Freddie Mac, there 
wouldn't have been a real estate bubble in Arizona. Arizona 
would have been fine without it. But the fact remains that 
Arizona did, in fact, balance our budget, and if we hadn't had 
a balanced budget amendment, it certainly would not have 
occurred.
    Mr. Joyce has pointed out and I think absolutely correctly 
and eruditely that Congresses have the tendency to ignore 
budget rules. I believe he is correct. That is why we are here 
today because the Congress has ignored every other mechanism, 
and the most powerful mechanism we have is a constitutional 
amendment. And it may not work. Mr. Joyce may be correct. It 
may not work. But if it doesn't, then at least I will be able 
to look back many years from now when my 3-year-old today at 
that time says, well, Dad, where were you when the country was 
going to pieces economically. I will say to him that I was 
trying to pass a balanced budget amendment. I did the best I 
could. And that will help me a great deal.
    Mr. Nadler pointed out that Mr. Joyce's comments related to 
a breakdown in the consensus or as long as the consensus 
remains--that that was his main point. And he pointed out that 
PAYGO rules were changed. And I would just say, Mr. Chairman, I 
think that is prima facie evidence that the consensus did, in 
fact, change and that is why we are dealing with this challenge 
today, is because the consensus goes up and down, up and down. 
But the mathematics remain the same. Unless we can repeal the 
laws of mathematics, we must do something to balance our 
budget.
    With that, I would like to address a question to Mr. 
Thornburgh. Mr. Thornburgh, you know, there are a lot of 
cataclysmic, end-of-day scenarios that are put forward by this 
notion of balancing the Federal budget. Let me ask you. Did 
Pennsylvania--has your society broken down completely because 
you have a balanced budget amendment in your constitution?
    Mr. Thornburgh. No, it hasn't.
    Mr. Franks. Has the balanced budget amendment--did it at 
the time you were Governor give you any leverage or additional 
assistance in trying to make those decisions that you had to 
within State government to balance the tax structure with the 
spending architecture?
    Mr. Thornburgh. Yes.
    Mr. Franks. What do you think would be the result in 
Pennsylvania if you, in fact, did repeal your balanced budget 
amendment?
    Mr. Thornburgh. I can only speculate, but as I stated 
earlier, the temptation to undertake big projects and provide 
increased benefits would be very strong, and my guess would be 
that Pennsylvania or any other State without a balanced budget 
amendment would find themselves in the same pickle that you 
folks are in.
    Mr. Franks. That was kind of the answer I was looking for. 
I was leading the witness there.
    But thank you, Mr. Thornburgh, for your service to the 
country.
    Mr. Mitchell, one argument that is raised against the 
balanced budget amendment is that it will prevent the Federal 
Government from intervening in the economy during recessions. 
Now, we have attempted to do that recently without a lot of 
success. It occurs to me that if we continue on the path that 
we are going on, we are not going to have the ability to 
intervene in anything except our own economic obituary.
    Let me ask you what do you think the down sides of a 
balanced budget amendment would be in terms of our ability to 
intervene with related recessions?
    Mr. Mitchell. So as I mentioned before, there is a wide 
degree of disagreement among economists about the efficacy of 
countercyclical fiscal policy. You can find estimates of the 
multiplier that are very, very large and you can find estimates 
that are very, very small.
    One thing I would point out is there are some interesting 
studies that look at the differences across countries to see in 
what circumstances fiscal multipliers--what makes them larger 
or smaller, so multipliers, the bang you get for the buck of 
stimulus. An interesting thing happens is that countries that 
have huge debts--they are the ones that actually have the 
smallest multipliers.
    So again, I am not necessarily a Keynesian--I don't 
necessarily subscribe to Keynesian economics. I think that 
there are a lot of problems there. But let's just assume 
Keynesian economics. Keynesian models show that you are going 
to be much less able to implement Keynesian fiscal policy in a 
scenario where debt-to-GDP ratios are 90, 100 percent of GDP. 
So in my view, if you are a strong Keynesian, if you are a 
progressive, then the status quo should be pretty alarming to 
you.
    Mr. Franks. Mr. Chairman, will the Committee indulge me for 
30 more seconds for one very quick comment?
    Mr. Goodlatte. Without objection, the gentleman is 
recognized for 30 additional seconds.
    Mr. Franks. For 1 minute.
    Mr. Goodlatte. For 1 minute.
    Mr. Franks. Mr. Mitchell, let me just direct the question 
to you. A lot of people are concerned that a balanced budget 
amendment will hurt the poor. A lot of us believe that if we 
balance this budget, that it will create an incentive for 
Government to try to broaden the tax base to increase its own 
revenue and it will help everyone. Can you address that?
    Mr. Mitchell. So if we have a balanced budget amendment, it 
would broaden the tax base likely?
    Mr. Franks. Well, I am asking you would it broaden our 
economic success and would it be a boon or a disaster for the 
poor?
    Mr. Mitchell. In my view, the biggest disaster would be to 
lure generations into believing that these programs are going 
to be there and then have them cut out from under them 
precipitously and sharply, and that is, again, what the status 
quo calls for. So unless we take measures right now to start, 
again, internalizing the externality and saying that each 
generation pays for what it receives, then we are going to face 
that situation which I think is going to fall hardest on those 
who are least able to deal with it.
    Mr. Franks. Thank you, Mr. Chairman.
    Mr. Conyers. Mr. Chairman, could I just have 30 seconds, 
please, to ask the distinguished gentleman a question?
    Mr. Goodlatte. I think the proper protocol, since his time 
has already expired, would be yield to Ms. Chu who is next in 
line. If she wants to yield to you, that would be perfectly 
fine.
    The gentlewoman from California is recognized for 5 
minutes.
    Ms. Chu. Thank you, Mr. Chair.
    Mr. Mitchell, in the Senate version of this bill, S.J. 
Resolution 10, the CBO estimated that the balanced budget 
amendment would translate to an average effective cap of 16.6 
percent of GDP over the years 2016 to 2021. When was the last 
time that Federal expenditures equaled less than 17 percent of 
GDP?
    Mr. Mitchell. I don't know offhand. They generally have 
been around in the neighborhood of around 20 or 21 percent in 
the last several decades.
    Ms. Chu. Right. In fact, I believe it is 1957 that it was 
17 percent. And in that year of 1957, how many seniors could 
afford health care coverage because they were covered by 
Medicare?
    Mr. Mitchell. I am not sure.
    Ms. Chu. I believe the answer is that it is none because 
Medicare wasn't a Federal program at that time.
    And in that year of 1957, how many children were able to 
see a doctor because their parents could afford it with 
Medicaid?
    Mr. Mitchell. Were able to see a doctor or able to see a 
doctor through Medicaid?
    Ms. Chu. Through Medicaid.
    Mr. Mitchell. I would assume it be again zero.
    Ms. Chu. Yes. The answer is none because Medicaid wasn't a 
Federal program at the time.
    And in 1964, before the introduction of Medicare, how many 
seniors were uninsured?
    Mr. Mitchell. I don't know. I am not a historian on that. I 
would assume that the answer again is different. The answer of 
how many people are uninsured is very different from the answer 
of how many people are covered by Medicare.
    Ms. Chu. Yes.
    Mr. Mitchell. There is a good amount of evidence that 
public provision of services like these do crowd out private 
provision.
    Ms. Chu. Well, nearly half of all seniors were uninsured, 
making the elderly the least likely Americans to have health 
insurance, and today with Medicare, 97 percent of seniors are, 
indeed, covered and the elderly are now the most likely to have 
insurance.
    Mr. Mitchell. I presume you are saying today meaning those 
who are on Medicare, not those who are counting on it in the 
next several decades. Right?
    Ms. Chu. Yes.
    Mr. Mitchell. Because that is very different.
    So again, I just want to stress under current policy--so my 
generation is conservatively going to inherit an unfunded 
liability that is $60 trillion. $1 trillion is a million 
million, and we are talking about 60 of those. And this is the 
conservative end of the estimate. It could get up to $104 
trillion depending on how you measure it.
    So in my view, Government is not going to fulfill that 
promise because in order to actually live up to the promise of 
making $60 trillion funded, it would have to impose hugely, 
enormously costly taxes. In my view, the most likely scenario 
is that someone from my generation will be lured into expecting 
Medicare and then have it precipitously cut right when we are 
eligible.
    I would call for a change to the status quo, get us off 
that course so that we can actually live up to the promises 
that we have made.
    Ms. Chu. Mr. Joyce, could you comment on this?
    Mr. Joyce. Any constitutional amendment which attempts to 
limit the amount of spending is, as Mr. Nadler suggested 
earlier, trying to tie the hands of future Congresses, future 
Presidents. It is particularly problematic in my view to have a 
spending limitation that is as low as something like 18 percent 
because it doesn't account for what is going on in terms of 
Federal programs right now. Moreover, I think the problem of 
having an imbalance between cutting spending and raising taxes 
gets in the way of our ability to actually do what is 
necessary.
    I think just for 1 second--I think that a lot of what is 
going on in this conversation is that I think a lot of people 
are agreeing that the debt is too large and something needs to 
be done about it, but it does not necessarily follow that that 
means that amending the Constitution to require a balanced 
Federal budget is that thing. You can agree that balancing the 
budget, even over the business cycle, would be a good thing to 
do without necessarily believing that amending the Constitution 
is going to get us there.
    Ms. Chu. Thank you for that. In fact, because of Medicare, 
the life expectancy of the elderly is 20 percent longer than in 
1960, and because of Medicare, the numbers of seniors that are 
living in poverty has decreased by half. So what this indicates 
is that Medicare and Medicaid are important programs that 
improve the lives of millions of American citizens and that a 
balanced budget amendment like H.J. Resolution 1, which passed 
this Committee in June and would impose an expenditure cap of 
18 percent, doesn't adequately capture the current or future 
needs of the country. And in fact, Federal spending hasn't been 
at 18 percent--well, it wasn't during a single year of the Bush 
administration nor a single year of the Reagan administration.
    Thank you. I yield back.
    Mr. Goodlatte. Would the gentlewoman like me to yield her 
an additional minute so she can yield to the gentleman?
    Ms. Chu. Oh, yes, absolutely.
    Mr. Goodlatte. I yield to the gentleman for an additional 
minute.
    Mr. Conyers. I thank the gentlelady.
    I just wanted to make sure I understood Dr. Mitchell when I 
thought that he said that a balanced budget would be more 
beneficial to women, infants, and children than not.
    Mr. Mitchell. Well, I didn't women, infants, and children, 
but what I would say is that the status quo is particularly 
harmful to those who are going to be lured into expecting these 
programs and have that expectation ripped out from under them.
    Mr. Conyers. So they should never have gotten it in the 
first place.
    Mr. Mitchell. In my view a balanced budget amendment is the 
much better course for those who are least well off among us, 
yes.
    Mr. Conyers. Okay. I will discuss this with you by letter. 
I mean, the whole idea is astounding to me that if you are 
implying that they are better off getting cuts rather than ever 
having received them in the first place----
    Mr. Mitchell. Well, no. What I am----
    Mr. Conyers. That isn't what you meant.
    Mr. Mitchell. No. What I am implying is that the Medicare 
actuaries and the Social Security actuaries are telling us that 
we have a $60 trillion unfunded liability. And what I am 
implying is that the CBO has said that in order to make that 
unfunded liability funded, it would require all taxes to be 
doubled. And what I am implying is that the estimates of 
Christina Romer, a very respected economist, the President's 
former economic advisor, shows that every 1 percentage increase 
in taxes decreases GDP----
    Mr. Conyers. What you are saying is that it is better that 
they don't ever get any help to begin with as opposed to having 
gotten help and maybe not getting it in the future.
    Mr. Goodlatte. The time of the gentlewoman has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Coble, for 5 minutes.
    Mr. Coble. Thank you, Mr. Chairman. I apologize for my 
belated arrival. I was tied up at a Coast Guard hearing.
    Good to have you all with us.
    Mr. Thornburgh, you have been a longtime advocate for a 
balanced budget amendment, I think probably over 3 decades. Let 
me put a question to you, a layman-like question. Let's assume 
the Congress does, in fact, adopt a balanced budget amendment 
and it is approved, and then we fail to balance the budget. 
What would be the realistic result in that situation?
    Mr. Thornburgh. It is rather hard to envisage that 
happening in terms of experience at the State level, 
Congressman Coble. The question has not really been presented 
because representatives of the people honor their 
constitutional obligations.
    Mr. Coble. It has always been a moot point I presume.
    Mr. Thornburgh. Yes.
    Mr. Coble. Thank you, sir.
    Mr. Thornburgh. If you have a rogue Congress or a rogue 
President, then there are other legal remedies available, but I 
have a hard time looking forward to elected representatives 
behaving that way.
    Mr. Coble. Thank you, sir.
    Doctor, let me ask you a question, if I may. In your 
written testimony, you note that if the Federal spending and 
deficits are not brought under control, keeping taxes at their 
norm of 18 percent would generate an unimaginable debt spiral. 
If the Federal Government does not adopt a long-term fix like a 
balanced budget amendment, how high will taxes need to be 
raised to cover the increasing debt burden?
    Mr. Holtz-Eakin. It is literally not possible to calculate. 
I mean, if you look at the growth of Medicare in particular, it 
has been growing at 7 and 8 percent a year. You could easily 
double taxes over the next 20 to 30 years and have the spending 
continue to increase and accumulate additional debt. There is 
no realistic scenario in which the Federal Government can tax 
its way out of its deficit and debt problems.
    Mr. Coble. Some will argue that Social Security, Medicare, 
and Medicaid will be cut if we do, in fact, adopt a balanced 
budget amendment. What will happen to these programs if we 
don't adopt a balanced budget amendment or some other permanent 
fiscal rule?
    Mr. Holtz-Eakin. They will, in the end, implode. Social 
Security right now is running red ink, left on autopilot. 
Future retirees will get a 23 percent across the board cut in a 
couple of decades. That is a disgrace as a social program. 
Medicare right now--the difference between taxes and premiums 
paid and spending by the Medicare program is $280 billion right 
now, and if left unchanged, it will continue to get larger. 
Medicaid is entirely deficit financed. Those programs are 
broken and they will not survive to the next generation of old 
and low-income, and they will face cuts either at the hands of 
international bankers or Congresses. They simply cannot 
continue as they are.
    Mr. Coble. I thank you.
    The final question to Mr. Thornburgh. Dick, what do you say 
to critics of the balanced budget amendment who say it is not 
necessary. Congress and the President simply should make tough 
legislative choices.
    Mr. Thornburgh. Well, I think my answer would be to read 
the testimony that has been given this morning by the experts 
to my left who have chronicled the effort after effort made 
through legislative enactments to establish a model for 
enacting a balanced budget only to see them crash and burn in 
every respect. So history is the best lesson on that.
    Mr. Coble. Thank you. Thank you all for being with us.
    I yield back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman.
    The Chair recognizes the gentlewoman from Texas, Ms. 
Jackson Lee, for 5 minutes.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman, and I 
have enjoyed the opportunity to serve with you on this 
Committee. I think we have been on this Committee for a period 
of time together, a long number of years, and I know my Ranking 
Member, former Chairman of the Committee, Mr. Conyers, is 
probably seeing the remnants of deja vu. I am trying to see 
whether I am in 2011 or 1995. This is almost like Groundhog Day 
for many of us. And we take it seriously.
    I consider Attorney General Thornburgh, Governor Thornburgh 
as a colleague. I think we were in the Government at the same 
time when he was then Attorney General. You were Attorney 
General, Mr. Thornburgh--forgive me. Forgive my memory, but I 
know that we must have overlapped. And I want to thank you for 
your service as I do others. But we have a philosophical 
difference of opinion and I think it is a philosophical 
difference in reality.
    Let me speak to Mr. Mitchell, and I know they gave your 
bio. Forgive me. I was in a Homeland Security hearing. You 
graduated from where, sir? I am so sorry.
    Mr. Mitchell. George Mason University, Arlington, Virginia. 
Actually I was in the Fairfax campus.
    Ms. Jackson Lee. A great campus. I am a University of 
Virginia graduate. So we were down the road from you. 
Undergraduate. Is that what you are saying?
    Mr. Mitchell. No. That was graduate Ph.D. undergraduate was 
Arizona State.
    Ms. Jackson Lee. All right. We are delighted.
    I quarrel a little bit. I understand your center is funded. 
How are you funded, sir?
    Mr. Mitchell. We are entirely privately funded. So 
thousands of funders from around the world.
    Ms. Jackson Lee. But are your major funders the Cook 
brothers?
    Mr. Mitchell. I don't know much about what our funding 
structure is. One of the nice things is that we have a real 
strict policy that keeps people like me ignorant of that so 
that none of our funders can influence research one way or the 
other.
    Ms. Jackson Lee. We thank you for that.
    First of all, let me just suggest that the Federal 
Government is not a State government. And I respect the 
testimony of any person who wants to use a State government. 
But I would say this. If we were the Federal Government--and 
this is not condescending. This is real--then no one would 
complain as to how Brownie performed during Hurricane Katrina. 
No one would complain of how slow we might have been moving 
on--and I am not suggesting we are. But no one would put a call 
out for us in Vermont or upstate New York or the Carolinas or 
the fires in Texas or the earthquakes that occur on occasion in 
California and elsewhere. No one would call the Federal 
Government.
    If we were, in fact, a State government, no ally such as 
our NATO alliance, such as the folks who were engaged in the 
Communist domino theory during the Vietnam War, no one in the 
Gulf War where President Bush decided that Kuwait needed our 
assistance or where President Bush decided independently that 
he needed to go into Iraq--that is not the challenge and the 
charge of State governments.
    And so I query you with the backdrop of the different 
responsibilities, the emergency calls that the Federal 
Government has to maintain. I query you.
    And then let me secondly get to my professor and ask the 
question. So I need you to be very brief, Mr. Mitchell. And I 
want the professor from Maryland--excuse me--Professor Joyce--
how in the heck is there any rationale to the balanced budget 
amendment? Can you just quickly comment, sir?
    Mr. Mitchell. Sure. So with respect to the first question, 
all the important things that Government does, I would argue 
that we won't be calling on those things if debt-to-GDP ratios 
reach 100 or 200 percent as they are projected to do. So that 
is the greatest threat to Government solving problems.
    Ms. Jackson Lee. Okay. I am going to stop you there.
    Mr. Mitchell. I would say there is good international 
evidence of countries having balanced budget amendments.
    Ms. Jackson Lee. All right.
    Professor Joyce, the way I frame my question--but you 
answer. How in the world does this make any sense at all--the 
balanced budget amendment?
    Mr. Joyce. The balanced budget amendment? I don't think it 
makes a lot of sense for the Federal Government. I think the 
analogies to States are misguided, and I think the reason they 
are misguided is partially because of what you pointed out, 
which is the different responsibilities of the Federal 
Government, but also, as has been pointed out earlier, States 
have separate capital budgets. It is not true that States do 
not borrow. States borrow all the time. There are $2.4 trillion 
in outstanding debt at the State and local level right now.
    And the answer I would give to the question that was asked 
Governor Thornburgh earlier, which is what would happen at the 
Sate level if you didn't comply with the balanced budget 
requirement, is that the markets would discipline the States 
because the State governments have to go into the markets and 
borrow money and the bond rating agencies won't put up with 
irresponsible fiscal practices. That is not a sort of unseen 
hand that we have at the Federal level. So we would have to 
determine in legislation what the sanction would be.
    Mr. Goodlatte. The time of the gentlewoman has expired.
    Ms. Jackson Lee. The gentleman was trying to finish a point 
that I had asked, Mr. Chairman. If I could just let him finish.
    Mr. Goodlatte. Without objection, the gentleman will be 
allowed to finish his testimony.
    Mr. Joyce. My only point is that all of the devil is in the 
details in terms of how we get from a balanced budget 
requirement, whatever it is, to actually complying with that, 
and that involves technical considerations, it involves 
actually increasing taxes and cutting spending, and it also 
involves enforcement procedures. The amendment is silent on all 
of those things. That is the heavy lifting that would need to 
occur.
    Ms. Jackson Lee. Thank you, Mr. Chairman.
    We can be fiscally responsible without a balanced budget.
    Mr. Goodlatte. I thank the gentlewoman.
    The Chair recognizes the very patient gentleman from Ohio 
who is a leader on this issue, Mr. Jordan, for 5 minutes.
    Mr. Jordan. I would just point out to the professor the 
market is disciplining the United States. Maybe you haven't 
noticed, but Standard & Poor's just downgraded the bond rating 
of this country for the first time in 70 years. It does apply 
to the Federal Government just like it would to the States.
    Ms. Jackson Lee. Would the gentleman yield?
    Mr. Jordan. No. I want to ask Dr. Holtz-Eakin a question 
here.
    Doctor, how much time do we have? You know, in your 
testimony, you talked about the dangerous ratio we have now of 
GDP-to-debt. Frankly, it is 1-to-1, a $15 trillion economy, 
almost a $15 trillion debt. For 3 years in a row, we have run 
deficits over $1 trillion.
    The one I always point to is we are spending this year $235 
billion in interest. And what are interest rates like right 
now? Record low, historic low. They are going to go up. And if 
they go up just modestly over the next 10 years, we go to where 
we are spending $235 billion on interest to we are spending 
more in interest than we currently spend on national defense. 
So someone tell me how you can sustain that model where you 
spend more to service debt than you do to defend your country.
    I think what Americans are asking is when is it all going 
to collapse. This is why 80-some percent of the American people 
want a balanced budget amendment because they see Congress 
can't do it. Let's at least try something else that will save 
us from the crisis that is coming.
    So my question to you is how much time do you think we 
have?
    Mr. Holtz-Eakin. The honest answer is neither I nor anyone 
else knows for sure, but you should pretend you have no time. 
The United States has all of the characteristics of countries 
that get into sovereign debt problems. It has a high debt-to-
GDP ratio, above 90 percent gross debt-to-GDP. It has an 
inordinate reliance on short-term finance. If you look at 
countries that get in trouble, they borrow a shorter and 
shorter term. If and when interest rates go up, they are stuck 
and they can't roll that debt over. It has a lot of 
nontransparent and hard-to-value liabilities. We are still 
finding out about housing liabilities. We are worried about the 
State and local pensions. We have all of the characteristics of 
countries that get in trouble. And so we cannot pretend we are 
immune from either the laws of arithmetic or economics. We need 
to set a different course.
    Mr. Jordan. And what does it look like when it really 
starts to get--I mean, I would argue it is pretty ugly out 
there right now. What does it start to look like when things 
really head bad like we are seeing in Europe today?
    Mr. Holtz-Eakin. You will see a sudden and inexplicable at 
the time increase in U.S. borrowing costs. You will see capital 
flight, and people will be running around asking--you know, 
people like me--why is this happening. And it will be like I 
don't know. It just seems odd at this time. Investors lose 
confidence and confidence isn't a number. Confidence isn't a 
point in time. It is a judgment about the future and the 
capacity of both the economy to deliver the resources and the 
Government to use them effectively. When they lose that 
confidence, it is gone.
    Mr. Jordan. Dr. Mitchell, your thoughts.
    Mr. Mitchell. Yes. So, I mean, the old saying here is that 
if you are camping, you don't need to outrun the bear. You need 
to outrun the other campers. And that is exactly the situation 
in the bond markets.
    The reason this is very difficult to predict is that we 
don't know at what point lenders will see Sweden as a better 
investment than the United States or Germany as a better to the 
United States. But on our current course, there is going to be 
some point when that happens, and it can happen extraordinarily 
fast as a number of other countries have experienced. A few 
months ago, I read the Treasury Secretary say, you know, we are 
not Greece. Well, I guarantee you that there was an official in 
Greece at some point that said we are not Argentina. Countries 
don't expect this to happen, but it happens and it happens very 
quickly. And my worry is, again, particularly for those who are 
interested in the progressive side of what Government can do 
effectively, that the rug is going to be pulled out so quickly 
that your programs are the ones that are going to be harmed the 
most.
    Mr. Jordan. Let me ask you a related question. In my mind 
there is no question we need a balanced budget requirement. The 
discipline that that would hopefully bring to Congress, which 
they have just failed to show over the last 4 or 5 decades, I 
think is just absolutely required. But you can't just get there 
with reducing spending alone. You have got to have economic 
growth. I mean, you look at the mathematics of this and you 
have got to have a growing economy.
    So there has been much made by the other side about the 
restrictions placed on making it more difficult for Congress to 
raise taxes and how that may--give me your thoughts on those 
super majority requirements making it more difficult for the 
elected officials to increase the tax burden on Americans and 
how that relates to growth. Mr. Mitchell, then Dr. Holtz-Eakin?
    Mr. Mitchell. Well, I started to allude to this earlier. 
Christina Romer and her husband, David Romer, very extremely 
respected, well respected economists--she, of course, served in 
the Obama administration--they have, as far as I know, the most 
comprehensive assessment of the impact of taxes on an economy. 
A very, very carefully, well-designed study. And they find that 
every 1 percentage point increases in taxes as a share of GDP, 
GDP falls by 3 percentage points.
    Now, by 2035, spending will be 15 percentage points higher 
than it is today. Of course, we can pay for this with taxes. 
Right? Imagine if we increase taxes as a share of GDP 15 
percentage points higher than its historical average. Under 
that scenario, by the Romers' estimates, that would be a 45 
percent reduction in economic output. It is just not feasible 
that we could pay for it that way.
    So in my view anything that says that you live within your 
means is a good policy, and anything that says that we are 
going to reduce debt and reduce taxes on the economy is going 
to be beneficial. And I think the 1990's are an excellent 
illustration of that.
    Mr. Franks [presiding]. Mr. Deutch, you are recognized for 
5 minutes, sir.
    Mr. Deutch. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, I think you said Social Security is 
broken. You said the program will implode. It is a disgrace, I 
think, as a social program. I would like to understand what a 
balanced budget amendment will do for Social Security, a 
program which you acknowledged will pay full benefits if we do 
nothing until 2037. So tell me what the balanced budget 
amendment does to secure Social Security for our retirees.
    Mr. Holtz-Eakin. The balanced budget amendment doesn't have 
anything to do with Congress' policy priorities. It is simply a 
restriction on how they are financed and should be seen just as 
that. It is 2011. We have a debt-to-GDP ratio that is 
dangerously high. We have a proven track record of having a 
bias toward deficit and debt finance, and a balanced budget 
amendment would be a palliative against that clear and 
demonstrated bias.
    Mr. Deutch. Except the funding--I would like to focus on 
Social Security, though, and the funding stream for Social 
Security which you have acknowledged is the payroll tax, right, 
which is the funding stream for Social Security that President 
Roosevelt put in----
    Mr. Holtz-Eakin. It used to be true for payroll tax 
holidays. That no longer appears to be the case.
    Mr. Deutch. I am sorry?
    Mr. Holtz-Eakin. I said that used to be true but since we 
now have payroll tax holidays, so on a regular basis I don't 
know.
    Mr. Deutch. It is true. And you and I are in agreement that 
we shouldn't touch the funding stream for Social Security, and 
I am thrilled to hear you say that.
    I would like to understand, though, at a time when 50 
percent of American households have no retirement savings, 
zero, and for close to 40 percent of American retirees, Social 
Security's $1,100 a month payment or so is the only income that 
they receive, how is it that you call into question a system 
that by all accounts is the most successful retirement program 
and the most successful Government program that exists, 
domestic program that exists?
    Mr. Holtz-Eakin. I call into question the desirability of 
leaving it as it is when it is right now running red ink, when 
it is right now promising future retirees a benefit cut during 
their retirement across the board in a mechanical and not well 
thought-out fashion. I would prefer--and this is my only 
point--that this Congress immediately reform Social Security to 
be durable over the long term and to not run red ink. That will 
be my preference.
    Mr. Deutch. First of all, the Social Security system, as 
you know, functions now the way that it has functioned from the 
very beginning which is workers pay in in order to fund the 
system, and as you point out, there is no red ink. There will 
not be any shortfall until 2037.
    Mr. Holtz-Eakin. No, that is not true. There is red ink 
right now.
    Mr. Deutch. If we don't do anything----
    Mr. Holtz-Eakin. That is a matter of fact.
    Mr. Deutch. Let me just finish. Dr. Holtz-Eakin, let me 
finish.
    You acknowledge if we do nothing, Social Security will pay 
out until 2037. My question is why do we continue to lump 
Social Security in as a contributor to the deficit when the 
dollars that go into Social Security through the payroll tax 
are dedicated for Social Security.
    Mr. Holtz-Eakin. It is contributing to the deficit right 
now. It is in cash flow deficit. It will contribute even more 
in the years to come. That is simply arithmetic. Payroll taxes 
in will not be as large as the benefits going out.
    Mr. Deutch. Right, but the dollars--but I need to correct 
you. This idea that it is running a deficit when the fact is 
the Social Security Administration buys bonds just like anyone 
else buys bonds with the dollars that are paid in. There is a 
surplus in Social Security now. That surplus happens to be held 
in Government securities. And why is it that when it comes to 
Social Security, you view that, you characterize that as a 
deficit and so many who are critical of Social Security as a 
program characterize that as a deficit when, in fact, the 
dollars are sitting there in the form of Government bonds just 
as Government bonds are sitting in retirement accounts and in 
other accounts of Americans all throughout this country?
    Mr. Holtz-Eakin. I, first and foremost, am not a critic of 
the Social Security program. I am not arguing for its 
abolition. I am desiring to put it on the sound financial 
footing, number one. Number two, I do include it with the other 
social safety net programs, Medicare, Medicaid, the forthcoming 
Affordable Care Act that I don't believe we can afford, because 
it like those programs will force the U.S. Treasury to go into 
public markets and borrow to make good on the bonds that they 
have in a trust fund somewhere in West Virginia. But all of 
those programs are driving the accumulation of Federal debt and 
they should properly be debated on the same financial terms and 
let Congress decide priorities. That is it.
    Mr. Deutch. Well, the funding for Social Security, though--
it needs to be restated--isn't being paid for with deficit 
spending. The funding----
    Mr. Holtz-Eakin. It is.
    Mr. Deutch. The funding for Social Security comes from the 
payroll tax.
    And my last question to you is this. If we are going to be 
serious about reforming Social Security at a time when, since 
1980, 80 percent of the growth in income has gone to the top 1 
percent, shouldn't we also be looking at the contribution 
limits of the payroll tax? Is it appropriate that the Social 
Security tax rate for someone earning $50,000 a year is 6 
percent. The Social Security tax rate for someone earning 
$500,000 and $1 million a year is less than 1 percent. And if 
we are going to be serious about reforming Social Security, why 
wouldn't we also consider phasing out that cap, paying more 
out, retaining the system the way that it has always 
functioned? The progressivity of the system, you pay more in, 
you get more out. Why wouldn't that be part of this discussion? 
And aren't we eliminating that discussion if we are going to 
include Social Security in a balanced budget amendment?
    Mr. Holtz-Eakin. Certainly there is nothing about putting a 
balanced budget amendment in that changes the fundamental 
policy choices you face.
    Number two, there have been lots and lots of Social 
Security reform plans, bipartisan in nature, partisan in 
nature, and the cap and the rate are always part of the policy 
discussion. So I think that remains true today.
    But mostly I would say to you and I would ask that you 
please be honest with the American people. The reality is that 
right now Social Security is running a cash flow deficit. So 
what are the rest of these social----
    Mr. Deutch. Dr. Holtz-Eakin, my time is up. No, no, no. 
Please. Please.
    Mr. Holtz-Eakin. It is not----
    Mr. Deutch. Dr. Holtz-Eakin, please. Let me finish.
    Mr. Holtz-Eakin. I am a subject matter expert----
    Mr. Deutch. Mr. Chairman? Mr. Chairman, can I reclaim my 
time, please?
    Mr. Franks. The gentleman's time has expired, but without 
objection, we will grant the gentleman an additional minute, 
and I hope you allow the witness to answer.
    Mr. Deutch. I will. Listen, I appreciate, Dr. Holtz-Eakin, 
this exchange. But please don't sit there and lecture me to be 
honest with the American people when Social Security--the 
honest point that is missing too often from the Social Security 
debate is that without doing a thing, Social Security will pay 
full benefits until 2037 if we do nothing. This idea that 
Social Security is going to be bankrupt tomorrow, that we 
should scare my constituents that somehow their payments that 
they rely upon--those payments are in jeopardy unless we pass a 
balanced budget amendment, unless we slash benefits to seniors, 
it is just----
    Mr. Nadler. Would the gentleman yield for a second?
    Mr. Deutch. I will.
    Mr. Nadler. I would also point out something that is never 
pointed out publicly that if you read the Social Security 
trustee's reports, Social Security is flush--flush--for at 
least 75 years if you assume that the annual growth rate, the 
economic growth rate of the United States, will be 2.4 percent 
or more. In order to get a problem in 30 years, you have to 
assume it is going to be much less. They assume 1.6 percent. 
The growth rate of the United States has averaged over 3 
percent since the Civil War. Right now we got a depression. It 
is less than that, but over any long period of time, if you 
assume a growth rate of over 2.4 percent, then Social Security 
is flush. The intermediate projection of Social Security, which 
is what is always quoted for 2037, assumes a growth rate over a 
long period of time. The last time I looked it was 1.6 percent, 
but that was 5 years ago. So it may be up to 1.8 percent now. A 
highly unrealistic assumption.
    Mr. Franks. The gentleman's time has expired.
    Dr. Holtz-Eakin, if you would like to respond.
    Mr. Holtz-Eakin. Briefly. I think that speaks volumes to 
the importance of having sound economic growth policies in the 
United States. Growth is an essential element. I said this 
earlier. I agree.
    With regard to Social Security, the legal authority to pay 
benefits is exactly as you described. The financial mechanism 
by which the benefits would be paid is that payroll taxes would 
be insufficient and the U.S. Treasury would have to either go 
borrow the money or this Congress would have to cut some other 
spending program or raise taxes. So it is, in fact, going to 
meet its ability to pay those benefits only by contributing to 
the problem we are discussing today, which is the enormous 
current and projected debt, and that is a fact I believe is 
important for Americans to know so they can make a good 
decision about it and the rest of our spending priorities.
    Mr. Franks. And the gentleman from Texas, Mr. Gohmert, is 
recognized for 5 minutes.
    Mr. Gohmert. Thank you, Mr. Chairman.
    I realize that you don't get paid to come be a witness and 
you worry that somebody might ask something very personal, and 
I am about to do that. If you don't want to answer, you don't 
have to. But is there anybody here who has ever gone to a bank 
or credit union and borrowed money that you did not intend to 
pay back but pledged that your children or grandchildren would 
pay back? Anybody?
    [No response.]
    Mr. Gohmert. That is what we are doing.
    I really don't know the answer to this question. But the 
Seventeenth Amendment was ratified in 1913, and that changed 
the way in which Senators were selected. Some publications have 
said, because I bring this up, I must be in favor of doing away 
with the general election of Senators, and I am not, but I am 
in favor of giving States control again like they had before 
the ratification of the Seventeenth Amendment whether it is, as 
someone at the Heritage Foundation proposed, giving States a 
veto, an amendment to give them a veto over bills like the 
President has. A certain number of States do so within a 
certain period of time.
    But does anybody know how many times the budget was 
balanced by the Federal Government before 1913 when the 
Seventeenth Amendment took away the leverage of States to force 
Senators to live within their means at the Federal level?
    Mr. Joyce. The only thing I would say to you--I don't have 
a number, but the only thing I would say to you is that 
historically until we got to World War II, the sort of pattern 
was that we ran surpluses when we were in peacetime and we ran 
deficits when we were in wartime. Now, how many years ago--that 
is sort of a different question.
    Mr. Gohmert. Most of the time, the budget was balanced, and 
as I am sure you are aware historically--well, the State 
legislators selected the Senators which gave States control 
where if you came up as a U.S. Senator and passed some unfunded 
mandates that you sent back and slapped the States with, then 
there was a good chance you were never coming back to the 
Senate again. So it did give the States great leverage there in 
ensuring that the Federal Government didn't do what 
particularly since World War II we have done a great deal of.
    I know just to eliminate one of the misconceptions, I 
constantly hear people say we can't keep printing money and 
they don't have to worry. I found out this summer, when I 
visited with Treasury, that most of our money is not printed. 
They just create it in a computer. So you don't have to worry 
about us printing too much money. They just create the numbers. 
It is not even on paper anymore.
    This past week, one of the great things about not being in 
session is, if you take your job seriously, you go home and you 
visit with your constituents. I was getting gas at a gas 
station at a place where they have a table where some of our 
seniors like to gather. And they came up and asked if I would 
sit down with them and I did. And one of them pointed out I can 
hardly make it on my $800 Social Security check each month. I 
am really not making it.
    I also happen to know--we ran a check when I first got here 
to Congress in 2005 and took arbitrary numbers and said if an 
employee worked this long and paid into Social Security, how 
much would the monthly payment be and did the same with the 
State of Texas employment retirement system and Galveston that 
opted out of Social Security. What would your check be? And it 
turned out that if you were in Social Security, they said it 
would be somewhere between $600 and $900. If you were with the 
employment retirement system of Texas, it was going to be right 
at $2,800. If you were with Galveston, it was going to be 
around $2,600-$2,700.
    I don't know of anybody over here that wants to hurt our 
seniors, but I would sure like to have those seniors living on 
more than $800 a month. And that is what they can get but they 
have to keep begging to their master, the Federal Government. 
And I think it is time we did something about that.
    I also want to point out that, Dr. Mitchell, the Washington 
Post apparently took some of your research and it seemed like 
they came to the wrong conclusion that we shouldn't have a 
balanced budget amendment. I don't think they fully appreciated 
your research. But I just want you to understand they also at 
one time basically sang the praises of Al Awlaki who was just 
killed recently because he was an enemy of the United States. 
So if they were a fan at one time of Al Awlaki and they were 
not a fan of yours, you may be in really good company.
    Did you have a comment on their take on your research?
    Mr. Mitchell. They actually did not mischaracterize it. So 
with a couple of professors----
    Mr. Gohmert. They used it to support the notion we didn't 
need a balanced budget amendment.
    Mr. Mitchell. Yes. So I have conducted a study with a 
couple of professors, Noel Johnson and Steve Yamarik, and we 
look at the impact of these types of rules, and we find what 
many other people have found, which is that they do lead to 
less spending and they do seem to lead to less partisan fiscal 
outcomes.
    But we also found something that was kind of curious which 
is, I think, something we should put on the--just keep aware 
of. Partisan regulatory outcomes seemed more likely in some 
States that had these rules. So, for example, Democrat-
controlled States seemed to regulate more when bound by a 
balanced budget requirement, a strict balanced budget 
requirement.
    In my view, the fact that I look at this and count that as 
a negative and still come to the conclusion that weighing 
carefully the pluses and minuses and keeping your eyes wide 
open and I still stand here before you saying that a balanced 
budget amendment makes sense, I think tells you where I stand 
on it. I think that the pluses clearly outweigh the minuses 
even if they might lead to more regulating.
    Mr. Gohmert. Thank you. Well, my time has expired. But it 
seems like since a constitutional amendment dramatically 
changed how often we balance the budget, maybe we need another 
one to make sure that we do that again.
    I yield back.
    Mr. Franks. I thank the gentleman.
    The gentleman from South Carolina, Mr. Gowdy, is recognized 
for 5 minutes.
    Mr. Conyers. Mr. Chairman, could I ask unanimous consent to 
get an additional minute for Judge Gohmert so I might ask him a 
question?
    Mr. Franks. Mr. Gowdy, would that be all right if I did 
that?
    Mr. Gowdy. Certainly, Mr. Chairman.
    Mr. Franks. All right. We will back up here. Mr. Gohmert, 
you are yielded an additional minute and perhaps you might want 
to yield to----
    Mr. Gohmert. I didn't know the former Chairman had a 
question.
    Mr. Conyers. I do.
    Mr. Gohmert. Okay. Yes, I would yield.
    Mr. Conyers. Thank you.
    Is it your impression that seniors would benefit by a 
balanced budget constitutional amendment?
    Mr. Gohmert. It is my impression if we followed that by 
getting more bang for our buck, yes, I absolutely do. Actually 
in September of 2005 after President Bush had expended all of 
his political capital pushing for changes to Social Security, I 
went to some of our leaders in that area and said, look, 
obviously President Bush is not going to get what he wanted. 
But I really think--I have talked to some Democrats and 
Republicans. I think we could pass a bill that would amend 
Social Security to say for the first time in the history of 
Social Security, all Social Security tax money would go into 
the Social Security trust fund and draw interest and not just 
be invested in the stock market but it could be in revenue-
generating Treasury notes and people would have a whole lot 
more than $800 under the same circumstances. But I was told 
actually we couldn't do that because the Government might buy 
bonds and that would potentially make them the biggest 
bondholder.
    And so imagine my surprise 3 years later when we were told 
by some of the same people that the Federal Government has to 
buy these mortgage-backed securities because they are the only 
ones that can spend that kind of money and buy bonds. So I am 
still hopeful we can have a correction like that, put some real 
money in the account that earns interest instead of being 
squandered--not necessarily squandered but spent on other 
programs. It ought to be spent on Social Security.
    Thank you, Chairman Franks.
    Mr. Franks. I thank the gentleman from South Carolina for 
his patience, and I recognize him for 20--I started to say 20 
minutes. That would be a good payoff, wouldn't it? For 5 
minutes.
    Mr. Gowdy. Thank you, Mr. Chairman. You just scared 
everyone when you said 20 minutes.
    General Thornburgh, I want to thank you for your service to 
our country, particularly in the field of law enforcement.
    Dr. Holtz-Eakin, I am going to ask you a series of, I hope, 
short, precise questions in hopes of kind of a fill-in-the-
blank answer because I want to ask you some longer ones later.
    What is our annual deficit?
    Mr. Holtz-Eakin. $1.5 trillion right now.
    Mr. Gowdy. What is our cumulative debt?
    Mr. Holtz-Eakin. Roughly $14.5 trillion.
    Mr. Gowdy. Are they any spending outlays that are not on 
the books? Are there any unfunded liabilities?
    Mr. Holtz-Eakin. There is nothing that is genuinely off the 
books in the Federal budget. The definition of an ``unfunded 
liability'' is a bit slipperier. I don't think it is actually 
appropriate in the Federal context.
    Mr. Gowdy. Well, let me ask you this. In present-day 
dollars, what do we owe our seniors in terms of Medicare?
    Mr. Holtz-Eakin. The truth is conventional estimates are 
something like $60 trillion, but the reality is that assumes 
that at some point we have a miracle in the future and Medicare 
grows more slowly. An honest calculation never converges. It is 
infinitely large.
    Mr. Gowdy. Infinitely large.
    Mr. Holtz-Eakin. Yes.
    Mr. Gowdy. So the computers can't even figure out how far 
we will be in debt.
    Mr. Holtz-Eakin. In the absence of some change that we have 
not yet seen, yes.
    Mr. Gowdy. All right. When I look at a pie chart of the 
budget for this year or last year, if you zeroed out the 
Department of Defense, would you balance the books?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. If you zeroed out all discretionary spending, 
would you balance the books?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. I think you testified that the wars cost $1 
trillion?
    Mr. Holtz-Eakin. The Iraq war has cumulatively cost about 
$1 trillion as of about a year ago.
    Mr. Gowdy. So laying aside any cost-benefit analysis of 
actually thwarting any attacks on our land since 9/11, our 
cumulative debt would only be $14 trillion if we had not had 
the war. Right?
    Mr. Holtz-Eakin. Roughly, yes.
    Mr. Gowdy. Mr. Marino, my colleague, and I were prosecutors 
in a former life. So we didn't follow politics and economics 
perhaps, obviously, as closely as somebody as learned as you 
did. The 111th Congress--the budget that they passed--was it 
balanced? Not the 112th. The 111th.
    Mr. Holtz-Eakin. The 111th, no.
    Mr. Gowdy. Actually I don't think they passed a budget.
    Mr. Holtz-Eakin. It was not a budget resolution.
    Mr. Gowdy. Assuming arguendo, was there any discussion of 
actually balancing that budget?
    Mr. Holtz-Eakin. Not to my knowledge.
    Mr. Gowdy. The budget proposed by the President--was it 
balanced?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. The budget not proposed nor voted on by the 
Senate--is there any discussion of it being balanced?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. In the 1990's, the glory days when a Republican 
Congress forced President Clinton to have a balanced budget and 
generated a surplus, was that money used to pay down the debt?
    Mr. Holtz-Eakin. During the periods of surplus, we reduced 
Federal debt outstanding.
    Mr. Gowdy. We paid down the debt.
    Mr. Holtz-Eakin. Yes.
    Mr. Gowdy. How much? How far did we get it down?
    Mr. Holtz-Eakin. I don't know. Phil might know.
    Mr. Joyce. Probably in the neighborhood of $500 billion or 
$600 billion over 4 years of surpluses I would say.
    Mr. Gowdy. That is billion with a B?
    Mr. Joyce. That is correct.
    Mr. Gowdy. In the past 50 years, how many surpluses have we 
had?
    Mr. Joyce. Five.
    Mr. Holtz-Eakin. Six.
    Mr. Joyce. Well, I will give you a sixth if you can find 
it.
    Mr. Gowdy. We have a constitutional amendment that provides 
for the generation of revenue, but yet you argue we should not 
have one for capping spending. Is that a fair assessment?
    Mr. Joyce. I don't think you should have a balanced budget 
amendment that takes any of the tools to reduce the debt off 
the table. That would be my position.
    Mr. Gowdy. We do have a constitutional amendment that 
provides for revenue production. Correct?
    Mr. Joyce. If you are talking about the amendment that 
allowed for the income tax?
    Mr. Gowdy. That one.
    Mr. Joyce. That is correct.
    Mr. Gowdy. We have two that relate to alcohol. Right?
    Mr. Joyce. Yes.
    Mr. Gowdy. We have one that even limits congressional 
salaries and how they can be impacted.
    Mr. Joyce. Yes.
    Mr. Gowdy. And in 50 years, we have managed to produce a 
surplus either five or six times, and you think we have the 
self-restraint to balance our budget.
    Mr. Joyce. I didn't say I think you have the self-restraint 
to balance your budget. I said that the restraint is not going 
to be provided by amending the Constitution. You have 
demonstrated the restraint to reduce the Federal deficit at 
times when there was a consensus around doing that. That is 
what happened in the 1990's.
    Mr. Gowdy. We also are $15 trillion in debt. Agreed?
    Mr. Joyce. The gross debt, yes, is $15 trillion.
    Mr. Gowdy. Mr. Chairman, could I have an additional 30 
seconds to ask Dr. Holtz-Eakin two more questions?
    Mr. Franks. Without objection.
    Mr. Gowdy. If we were to take our colleagues on the other 
side of the aisle up on their idea of punishing the people who 
had the unmitigated temerity to be successful, let's tax the 
billionaires at, say, 50 percent, would that solve our fiscal 
woes?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. Let's say that we took them up on their idea to 
do away with the subsidies for so-called ``big oil'' and while 
we are at it, let's do away with the subsidies for the entire 
green industry as well. Will that balance the budget?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. What about those dreadful corporate jet owners? 
If we just did away with that, would that balance the budget?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. Can you balance the budget without taking on 
entitlements?
    Mr. Holtz-Eakin. No.
    Mr. Gowdy. Thank you, Mr. Chairman.
    Mr. Franks. These prosecutors get pretty good at asking 
questions, don't they?
    With that, I would recognize Mr. Marino for 5 minutes, 
another prosecutor.
    Mr. Marino. Thank you, sir.
    Gentlemen, thank you for being here. General, it is always 
a pleasure. And gentlemen, I appreciate your candor and your 
politeness. Thank you so much for that, and I will reciprocate 
that.
    Mr. Mitchell, I think that then Senator Obama did agree 
with you--then Senator Obama--that raising taxes during a 
recession is dangerous and not advisable. Do you recall that?
    Mr. Mitchell. I do recall that, yes.
    Mr. Marino. I am going to switch gears a little bit. 
Professor Joyce, would you be so kind--rules have always been 
waived particularly for our budgets. Is that correct? I mean, 
we all realize----
    Mr. Joyce. I wouldn't say always, but I would say----
    Mr. Marino. For the most part.
    Mr. Joyce. I would say when the rules got too tight that 
they wouldn't allow for whatever policies wanted to be pursued, 
they were waived.
    Mr. Marino. Right. And I have been told it has been done 
many times, maybe even hundreds of times. What do we do when 
Congress reneges on that without having a balanced budget, or 
in addition to the balanced budget, more legislation that 
prevents that?
    Mr. Joyce. I think again, you pass a balanced budget 
amendment and the States ratify it, and I will tell you that I 
think that even though 18 States might have called for that to 
occur, there might be some States out there that would figure 
out it is not in their interest to ratify the balanced budget 
amendment and for the Federal Government to balance its budget.
    But I think you would have to follow it up with some kind 
of enforcement legislation. That is, the balanced budget 
amendment is not self-enforcing and you would have to determine 
what the consequences of failing to enact balanced budgets.
    The amendments that are under consideration say that the 
budget should be balanced and that should rely on estimates of 
revenues and outlays. And so the obvious question is if the 
actual budget is unbalanced but the estimated one is balanced, 
what do you do in order to account for that. That is the 
problem we ran into in Gramm-Rudman. It wasn't that we couldn't 
estimate that budgets were balanced. It is that we didn't get 
there in fact.
    Mr. Marino. Then are you suggesting--and I don't want to 
put words into your mouth--that we do strengthen a balanced 
budget amendment to address what happens?
    Mr. Joyce. No. I am suggesting that you can't put those 
kinds of details into a balanced budget amendment, and I am 
suggesting that what it would be far preferable to do would be 
to enact the tax increases and spending cuts that were 
necessary in order to reduce the debt, put the enforcement 
mechanisms in place that would attempt to enforce those----
    Mr. Marino. How about a combination? How about a 
combination of what you just recited with a balanced budget 
amendment? More strength?
    Mr. Joyce. I would differ with Dr. Mitchell in the 
following respect. He thinks the balanced budget amendment does 
more good than harm, and I think the balanced budget amendment 
does more harm than good.
    Mr. Marino. Let me ask you this. Are you still at the 
University of Maryland?
    Mr. Joyce. I am.
    Mr. Marino. And you have a budget personally like we all 
have a budget.
    Mr. Joyce. You mean at the University of Maryland?
    Mr. Marino. University of Maryland and you personally.
    Mr. Joyce. I do.
    Mr. Marino. Would you recommend that the university and you 
and I spend like the Federal Government is spending, keep 
borrowing money without any indication of paying it back and 
passing it on to a generation? Mr. Gohmert stole my thunder a 
little bit there.
    Mr. Joyce. No. I am sorry to----
    Mr. Marino. No, go ahead, please.
    Mr. Joyce. If this hearing was called ``should the Federal 
debt be reduced,'' then I would say, yes, the Federal debt 
should be reduced. This hearing is about should we amend the 
Constitution to require an annually balanced budget.
    Mr. Marino. But would you agree with me that if you or I 
went to the bank or the University of Maryland went to the bank 
and, let's say, just to put it in perspective, we owed a 
quarter a million dollars, we give an IOU, we are going to pay 
interest, but we wanted another quarter million and we haven't 
paid anything on the principal in 50 years, do you think they 
would lend us any money?
    Mr. Joyce. I do not think so.
    Mr. Marino. Okay. Thank you, sir.
    I guess this is a little bit of a rhetorical question, and 
I am going to throw it out to each of you to respond to it. It 
has been suggested that the Federal Government is supposed to 
come to the aid of the States. And I do agree with that. But 
who is to come to the aid of the American people, the 80 
percent of the people who are looking at this deficit and this 
debt and saying it is having an impact on me now at this level? 
Dr. Mitchell?
    Mr. Mitchell. No one.
    Mr. Marino. Professor Joyce?
    Mr. Joyce. I think only the Congress and the President can 
come to the aid of the people.
    Mr. Marino. Dr. Eakin?
    Mr. Holtz-Eakin. I would concur with Professor Joyce. Only 
the Congress and the President can.
    Mr. Marino. And General? And we can't seem to do that 
without a balanced budget.
    Professor Joyce, do you know how long it would take for us 
to even put a dent--a dent--in the debt if we were to eliminate 
the tax cuts?
    Mr. Joyce. I believe that the CBO has estimated that the 
effect of eliminating the tax cuts is something like $2.1 
trillion over 10 years, and so if you eliminated the tax cuts, 
that would decrease the debt by that amount, sort of all other 
things being equal.
    Mr. Marino. And if we continue to borrow and spend money on 
the same path that we are doing now, would you be surprised if 
even the experts were saying 60 years to put a dent?
    Mr. Joyce. No, that wouldn't surprise me.
    Mr. Marino. We talked about--you were asked--and I would 
not put you in this position, but you are not here to draft 
legislation. Would you agree with me, though, that every time 
we draft legislation--and everyone sitting here are ladies and 
gentlemen of honor and want this country in the same direction. 
It is just how we go about it. Can you just give me, each of 
you, a one line on what you would put in a piece of 
legislation, not the whole thing, what you think would be 
important to put in a piece of legislation that would help, in 
conjunction with a balanced budget and legislation, that we in 
Congress have the responsibility to pass? Dr. Mitchell?
    Mr. Mitchell. Well, I would say that it should balance the 
budget over a time period that allows you to still deal with 
the business cycle.
    Mr. Marino. Professor Joyce?
    Mr. Joyce. I would say that what you need to put in a piece 
of legislation are the spending cuts particularly related to 
the entitlement programs and the revenue increases that would 
be necessary in order to get to a balanced budget or reduce the 
debt.
    Mr. Marino. Dr. Eakin?
    Mr. Holtz-Eakin. I would have roughly the same answer. I 
think the legislative route should be focused on entitlement 
reforms and spending limits going forward.
    Mr. Marino. And General?
    Mr. Thornburgh. A workable balanced budget amendment would 
include a mandate to match expenditures and revenues, number 
one. Secondly, to provide for a glide path for the reaching of 
zero deficit over a, say, 10-year period. Third, a super 
majority exception to make expenditures for military or defense 
purposes, for natural disaster emergency aid, and in times of 
economic crisis, each of which would have to be certified by 
the President and the Congress to actually be the case so that 
it couldn't be done on a whim. And finally, to add to that 
package a requirement for separate capital budgeting so that 
expenditures for entitlements are not treated the same as 
expenditures for highways and bridges, a line-item veto which 
would empower the President, subject to override, to deal with 
unwise or unlawful expenditures. And I think that would pretty 
well wrap it up.
    Mr. Marino. In conclusion, gentlemen, if you ever have the 
time, you find the spare time, please don't hesitate, if you 
would like to send those suggestions and others to me because 
apparently we are not able to do it in and of our right and we 
need the input from experts like each and every one of you. And 
I thank you.
    And I yield back.
    Mr. Franks. The gentleman's time has expired.
    Mr. Conyers. Mr. Chairman, could I ask that the 
distinguished gentleman, Mr. Marino, have 2 additional minutes 
so that we could yield to the gentlelady from Houston, Texas?
    Mr. Marino. Yes, of course.
    Mr. Franks. The gentlelady is recognized.
    Ms. Jackson Lee. The Chairman is very kind. Thank you, Mr. 
Ranking Member, and thank you, Mr. Marino.
    Dr. Joyce, I am pointedly going to ask you--I need some 
bionic and immediate quick questions. A comment was made about 
S&P and the S&P, if you will, assessment. Wasn't part of that 
discussion the actions of Congress' seeming inability to come 
to a resolution on the debt ceiling?
    Mr. Joyce. Yes.
    Ms. Jackson Lee. One comment was made that a senior was 
complaining about $800. Wouldn't there be jeopardy in terms of 
some approaches to Social Security that the $800 would turn to 
$0 and that most seniors are complaining because we have not 
been able to give a cost-of-living increase as opposed to 
getting Social Security?
    Mr. Joyce. I am not an expert on Social Security. The only 
thing that I would say is that any effort to substantially 
reduce the debt and the deficit would have to deal with all the 
major entitlement programs in addition to taxes in my view.
    Ms. Jackson Lee. But it is important to preserve a lifeline 
for seniors. Is that not correct?
    Mr. Joyce. I would say that is true.
    Ms. Jackson Lee. All right. And with respect to the cap 
that Mr. Deutch was discussing, isn't it reasonable to look at 
whether that cap should be the same on everybody's income as it 
relates to investment in Social Security or returning the money 
back?
    Mr. Joyce. Yes. I think one of the things that should 
clearly be on the table is looking at the cap.
    Ms. Jackson Lee. And do you realize, having traveled up 
from Houston, sitting next to a seat mate who is part of a 
venture capital that indicates that new starts are alive and 
that many people are investing in those markets? In this 
instance, it was satellite. Is that not still going on and is 
not a component of improving our economy is to create jobs? 
Should we not be focused on job creation? And isn't the 
Government part of job creation, as well as the private sector?
    Mr. Joyce. Yes.
    Ms. Jackson Lee. And finally, is it not a moral compass 
that we should utilize, in addition to our own fiscal 
responsibilities, in terms of looking at how we make cuts? The 
1997 budget that you said was very helpful--and that was the 
budget that I was very engaged in. President Clinton signed it. 
We established the CHIPS program--had a morality compass to it. 
Did it not in your opinion?
    Mr. Joyce. I think it is always something that should be 
considered, not only what is the fiscal effect of something, 
but it is also what is the human effect of whatever actions you 
are taking.
    Mr. Franks. Thank you.
    Ms. Jackson Lee. I thank the gentleman and yield back.
    Mr. Franks. The gentleman's time has expired.
    You know, I am just an old roughneck, but we learned in the 
field that certain realities always have the last word. I don't 
think there is anybody on this panel who doesn't want very much 
for every American to be productive and to do well in life. And 
it is incumbent upon all of us to remember that only the 
productivity of the people has the opportunity to meet those 
needs. And so every policy should be bent toward that 
direction.
    Just for the record, I want to make sure everyone 
understands that my support for a balanced budget amendment is 
not just one of fiscal sanity. It is one that I believe will 
result in the most prosperity for rich and poor alike in this 
country. That is the motivation.
    And I thank all of you as witnesses here for contributing 
to the discussion.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses.
    And without objection, all Members will also have 5 
legislative days to submit any additional materials for the 
record.
    And with that, this hearing is adjourned. Thank you.
    [Whereupon, at 12:43 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Letter submitted by the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary






                                

Article submitted by the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary
































                                

Letter from Gary R. Herbert, Governor, State of Utah; Rebecca Lockhart, 
     Speaker, Utah House of Representatives; and Michael Waddoups, 
                      President, Utah State Senate













                                 
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