[Senate Hearing 112-512]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-512

 
          THE PERILS OF CONSTITUTIONALIZING THE BUDGET DEBATE

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

                                HEARING

                               before the

                     SUBCOMMITTEE ON CONSTITUTION,
                     CIVIL RIGHTS AND HUMAN RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 30, 2011

                               __________

                          Serial No. J-112-53

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

    SUBCOMMITTEE ON THE CONSTITUTION, CIVIL RIGHTS AND HUMAN RIGHTS

                    DICK DURBIN, Illinois, Chairman
PATRICK J. LEAHY, Vermont            LINDSEY O. GRAHAM, South Carolina
SHELDON WHITEHOUSE, Rhode Island     JON KYL, Arizona
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TOM COBURN, Oklahoma
       Joseph Zogby, Democratic Chief Counsel and Staff Director
                  Walt Kuhn, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Durbin, Hon. Dick, a U.S. Senator from the State of Illinois.....     1
Graham, Hon. Lindsey, a U.S. Senator from the State of South 
  Carolina.......................................................     3
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, 
  prepared statement.............................................    77
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................   106

                               WITNESSES

Furchtgott-Roth, Diana, Senior Fellow, Manhattan Institute for 
  Policy Research, Washington, DC................................     9
Greenstein, Robert, President, Center on Budget and Policy 
  Priorities, Washington, DC.....................................     4
Holtz-Eakin, Douglas, President, American Action Forum, 
  Washington, DC.................................................    11
Morrison, Alan, Professor, Lerner Family Associate Dean for 
  Public Interest & Public Service, George Washington University 
  Law School, Washington, DC.....................................    13
Romasco, Robert, President-Elect, AARP, Burke, Virginia..........     6

                         QUESTIONS AND ANSWERS

Responses of Robert Greenstein to questions submitted by Senator 
  Franken........................................................    45
Responses of Robert Romasco to questions submitted by Senator 
  Franken........................................................    47

                       SUBMISSIONS FOR THE RECORD

American Federation of State, County and Municipal Employees 
  (AFSCME), Washington, DC, statement............................    48
AIDS United, Ronald S. Johnson, Vice President, Policy and 
  Advocacy, Washington, DC, statement............................    53
Coalition for Health Funding, Judy Sherman, President and Emily 
  J. Holubowich, Executive Director, Washington, DC, December 2, 
  2011, joint letter.............................................    54
Constitutional Accountability Center, David H. Gans, Director of 
  the Human Rights, Civil Rights and Citizenship Program and 
  Douglas Kendall, Founder and President, Washington, DC, 
  November 29, 2011, joint letter................................    57
Economists, undersigned, Kenneth Arrow, Stanford University; 
  Peter Diamond, Massachusetts Institute of Technology; William 
  Sharpe, Emeritus, Stanford University; Charles Schultze, 
  Emeritus, Brookings Institution; Alan Blinder, Princeton 
  University; Eric Maskin, Princeton University; Robert Solow, 
  Massachusetts Institute of Technology and Laura Tyson, 
  University of California, July 28, 2011, joint letter..........    60
Furchtgott-Roth, Diana, Senior Fellow, Manhattan Institute for 
  Policy Research, Washington, DC, statement.....................    62
Greenstein, Robert, President, Center on Budget and Policy 
  Priorities, Washington, DC, statement..........................    70
Holtz-Eakin, Douglas, President, American Action Forum, 
  Washington, DC, statement......................................    80
Kinkopf, Neil, American Constitution Society for Law and Policy, 
  Washington, DC, November 2011, brief...........................    89
Leadership Conference on Civil and Human Rights, Wade Henderson, 
  President & CEO and Nancy Zirkin, Executive Vice President, 
  Washington, DC, November 28, 2011, joint letter................   104
Mitchell, Matthew, Research Fellow, Mercatus Center at George 
  Mason University, Arlington, Virginia, statement...............   108
Morrison, Alan, Professor, Lerner Family Associate Dean for 
  Public Interest & Public Service, George Washington University 
  Law School, Washington, DC.....................................   117
National Education Association (NEA), Kim Anderson, Director, 
  Center for Advocacy and Mary Kusler, Manager, Federal Advocacy, 
  November 29, 2011, joint letter................................   149
National Organizations Opposing, 281 undersigned, November 16, 
  2011, joint letter.............................................   150
National Women's Law Center, Nancy Duff Campbell, Co-President 
  and Joan Entmacher, Vice President, Family Economic Security, 
  Washington, DC, November 29, 2011, joint letter................   157
Romasco, Robert, President-Elect, AARP, Burke, Virginia..........   159
State and Local Organizations, 424 Opposing, November 16, 2011, 
  joint letter...................................................   163
Strengthen Social Security, Nancy Altman, Compaign Co-Chair; Eric 
  Kingson, Campaign Co-Chair; Frank Clemente, Campaign Manager 
  and Alex Lawson, Executive Director, Washington, DC, December 
  6, 2011, joint letter..........................................   176


          THE PERILS OF CONSTITUTIONALIZING THE BUDGET DEBATE

                              ----------                              


                      WEDNESDAY, NOVEMBER 30, 2011

                                       U.S. Senate,
                          Subcommittee on the Constitution,
                             Civil Rights and Human Rights,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:01 a.m., 
Room SD-226, Dirksen Senate Office Building, Hon. Richard 
Durbin, presiding.
    Present: Senators Schumer, Whitehouse, Franken, Coons, 
Blumenthal, Hatch, Graham, Cornyn, and Lee.

 OPENING STATEMENT OF HON. RICHARD DURBIN, A U.S. SENATOR FROM 
                     THE STATE OF ILLINOIS

    Senator Durbin. The Subcommittee on the Constitution, Civil 
Rights, and Human Rights will come to order. The title of 
today's hearing is ``A Balanced Budget Amendment: The Perils of 
Constitutionalizing the Budget Debate''.
    I will first provide a few opening remarks and recognize my 
Ranking Member, Senator Lindsey Graham, for an opening 
statement before we turn to witnesses. I'd like to make a short 
statement of my own at this point.
    The Constitution of the United States is the foundation 
upon which our great Nation has been built. Each Member of 
Congress takes an oath to support and defend it; it is an oath 
we take very seriously.
    Since the ratification of the Bill of Rights in 1791, 
Congress has only acted to amend the Constitution a total of 17 
times, 17 times in 220 years. The Founding Fathers set the bar 
high for revising our founding document, and rightfully so. It 
is a bar that has been met for some fundamental issues, such as 
ending slavery, establishing the principle of equal protection, 
and ensuring the right of women to vote.
    We are here today because some Members of Congress believe 
we should enshrine in the Constitution their theories on the 
Federal budget. It is ironic that the strongest supporters of a 
balanced budget amendment also proclaim their love for, and 
fidelity to, the Constitution.
    Yet many who claim to revere the Constitution have been 
trying all year to force a vote on a balanced budget amendment 
that would radically reshape our constitutional framework of 
government. This past August, Republicans threatened to default 
on our National debt unless the House and Senate held a 
balanced budget amendment vote this year.
    In their political passion to take budgeting decisions out 
of Congress's hands, the cut, cap and balance crowd even 
created a fast-track process to try to push their 
constitutional amendment through Congress with little debate 
and little opportunity to change the wording.
    The Constitution and the American people deserve better 
than this. Proposals to amend the Constitution should be 
carefully reviewed, and clearly a proposed amendment should not 
be adopted unless it is worthy of a place in our Nation's most 
treasured document.
    Two weeks ago, the House of Representatives rejected a 
flawed balanced budget amendment after a hurried debate on the 
House floor. Opposition to the amendment was bipartisan, with 
even the Republican Chairman of the House Rules Committee and 
House Budget Committee voting against it. This coming month, 
the Senate is required by law to hold its own vote on a 
balanced budget amendment that was part of the negotiation for 
a budget agreement.
    Although the Budget Control Act requires this floor vote 
regardless of whether the Senate Judiciary Committee reports a 
balanced budget amendment, I thought it was important to hold 
this hearing to look carefully at what such an amendment would 
mean.
    Proponents claim the balanced budget amendment would solve 
our current budget problems, but a closer look suggests it 
would not. Instead, it would create a new and equally serious 
set of challenges and problems, while shifting the 
responsibility for solving those problems from Congress to the 
Federal courts.
    I look forward to discussing today the many challenges and 
perils of the current balanced budget amendment proposals, 
which would make economic recessions worse, endanger vital 
safety net programs that millions of Americans rely on, 
increase the likelihood of debt limit standoffs, increase 
fiscal burdens on the States, and create serious enforcement 
challenges that would end up being resolved by un-elected 
Federal judges.
    These concerns, among many others, will make clear that a 
balanced budget amendment is certainly no easier magic 
solution. The simple truth is this: putting our Nation's fiscal 
house in order will require tough decisions about taxes and 
spending.
    The Constitution assigns that job to us, to Congress. 
Fulfilling this constitutional duty carries the political risk 
that many Congressmen and Senators are well aware of, but 
that's the job we signed up for. Members of Congress should not 
try to change our Constitution to avoid their duty to make 
these hard choices. It's anathema to our Constitutional 
democracy to insulate important decisions about our country's 
values from the people and the political process.
    We are at a point now in our budget debate where some in 
Congress would rather take a red pen to the Constitution than 
reconsider an anti-tax pledge written by a political lobbyist. 
I believe these Members need to get their priorities straight. 
Our oath to support and defend the Constitution of the United 
States has more important than any allegiance my colleagues owe 
to any other individual.
    We do not need to go to the extreme step of amending the 
foundational document of our democracy just to have Congress do 
its job. All we need is a Congress that's willing to work hard, 
show some political courage, make tough decisions, and so 
what's right for the American people.
    Senator Graham.

STATEMENT OF HON. LINDSEY GRAHAM, A U.S. SENATOR FROM THE STATE 
                       OF SOUTH CAROLINA

    Senator Graham. Thank you, Mr. Chairman. I will be very 
brief because we have Senators Hatch and Cornyn, who have been 
leading the effort on our side to craft, I think, a balanced 
budget amendment that would serve the country well.
    I would like to say something about the Chairman here. 
Being a member of the Gang of Six, you've tried to embrace a 
bipartisan solution to what is becoming a national security/
economic crisis in this country. You, with other colleagues, 
have decided to do something about entitlement growth, you 
tried to generate revenue in a way without raising taxes, 
actually lowering taxes.
    So I want to acknowledge that what you and the Gang of Six 
did is really a political breakthrough, and I'd like to be part 
of that process so that we could eventually solve our problems.
    But here's why I think we need a balanced budget amendment. 
If we were required to balanced the budget, the Gang of Six 
proposal would have a lot more wind to its back. The Super 
Committee's efforts to find $1.2 trillion over the next decade 
failed. Good people could not get there under the political 
construct that exists today.
    I would argue, at $15 trillion of national debt, the 
political construct that exists today is incapable of saving 
the American people from financial ruin. The Congress, in a 
bipartisan fashion, cannot solve our Nation's problems without 
some help. The missing ingredient, from my point of view, is a 
constitutional requirement to do what we all desire but were 
unable to achieve.
    The reason I think we need a balanced budget amendment to 
the Constitution is that all of us would be able to go back 
home and say, I have to do this because the supreme law of the 
land requires me to do this. Every special interest group can 
be heard from but their voice will be drowned out by the 
supreme law of the land.
    Right now, the law of the land is the loudest political 
voices who say no to every hard idea. The only way they will be 
trumped and the only way we will find consensus to save this 
country from becoming Greece, Spain and Italy is to impose a 
constitutional requirement on the Congress, like many States 
have imposed upon themselves. If I thought we could do it any 
other way I would say so.
    In 1997, we came within one vote in the U.S. Senate of 
passing a constitutional balanced budget amendment. I can only 
imagine what America would look like today if that requirement 
had been imposed in 1997, because, Mr. Chairman, I am confident 
that if the States had the opportunity to ratify a reasonable 
balanced budget amendment to the Constitution, three-fourths of 
the States would do so within 1 year.
    The problem is not the States wanting to put limitations on 
constitutional action, the problem is the Congress doesn't want 
to submit itself to constitutional oversight and a requirement 
to balance the budget. The day we cross that rubicon and 
understand that the current political dynamic will never lead 
to a balanced budget and change that dynamic by adopting a 
balanced budget amendment to the Constitution, I think 
America's best days lie ahead. Without that change, I'm afraid 
that we'll be here 10 years from now talking about a $20 
trillion national debt.
    With that, I will yield back my time, and I appreciate this 
hearing.
    Senator Durbin. Thank you very much, Senator Graham.
    We're going to turn to our panel of witnesses for opening 
statements. They'll each have 5 minutes. Their complete written 
statements will be made a part of the record. As is the 
tradition of this committee, if you would all please rise and 
raise your right hand, I would like to administer the oath.
    [Whereupon, the witnesses were duly sworn.]
    Senator Durbin. Let the record reflect that all five 
witnesses have answered in the affirmative.
    Let me start, first, with Bob Greenstein, founder and 
executive director of Center on Budget and Policy Priorities; 
before that, administrator of the Food and Nutrition Service at 
the Department of Agriculture. He was appointed by President 
Clinton in 1994 to serve on the bipartisan Commission on 
Entitlement and Tax Reform, a graduate of Harvard College.
    Mr. Greenstein, glad to have you here today. Please 
proceed.

STATEMENT OF ROBERT GREENSTEIN, PRESIDENT, CENTER ON BUDGET AND 
               POLICY PRIORITIES, WASHINGTON, DC

    Mr. Greenstein. Thank you, Mr. Chairman.
    The goal of a constitutional amendment is to address our 
long-term fiscal problems, but it would be an ill-advised way 
to do so because it would risk serious economic damage. To 
require a balanced budget every year regardless of the state of 
the economy is something large numbers of economists have long 
counseled against because it would require the largest budget 
cuts or tax increases when the economy is weakest, and thereby 
holds risk of tipping faltering economies into recession and 
making recessions longer and deeper.
    When the economy weakens, consumers and businesses spend 
less and that causes further job loss. But also, revenue growth 
drops and expenditures for programs like unemployment insurance 
increase and that automatic drop in tax collections and 
increase in UI benefits cushions the blow by keeping purchases 
of goods and services from falling even further. That is why 
economists term these the automatic stabilizers. They occur 
when the economy turns down and they help stabilize the 
economy.
    A constitutional balanced budget amendment effectively 
suspends the automatic stabilizers. It requires Federal 
expenditures to be cut or taxes raised to off-set the automatic 
stabilizers, which is the opposite course from what sound 
economic policy calls for.
    As I've noted, leading economists have long counseled 
against this. Robert Reischauer, a CBO Director in 1992, 
testified, ``If it worked, the constitutional Balanced Budget 
Act would undermine the stabilizing role of the Federal 
Government.'' In testimony earlier this year the current CBO 
Director, Doug Elmendorf, said the same thing.
    A month ago, Macroeconomic Advisors, one of the Nation's 
leading economic forecasting firms which has advised the 
Council of Economic Advisors under Presidents Reagan and George 
W. Bush, among others, issued a conclusion that if a balanced 
budget amendment had been ratified and were not being enforced, 
``The effect on the economy would be catastrophic''.
    Macroeconomic Advisors found that if the 2012 budget were 
balanced through spending cuts, they would total $1.5 trillion 
in this year alone, and they forecast that would throw 15 
million more people out of work, double the unemployment rate 
to 18 percent, and cause the economy to contract by 17 percent 
instead of growing by 2 percent. Macroeconomic Advisors warned 
that regardless of the year that a balanced budget amendment 
took effect, its effect over time would be to eviscerate he 
automatic stabilizers and make recessions ``deeper and 
longer''.
    Now, proponents of a constitutional amendment often dispute 
these claims by noting that a three-fifths vote of the House 
and the Senate, or in some versions a higher percentage, could 
waive the balanced budget requirement. But as you all know, it 
is difficult to secure a three-fifths vote in this body on a 
timely basis for almost anything.
    Moreover when the economy turns down it often takes several 
quarters, many months, before there's economic data showing 
we're actually in a recession. And even after the data became 
available, it's all too likely that a minority in the House or 
the Senate could hold a waiver vote hostage to demand for 
concessions on other issues.
    By the time a recession were recognized to be under way and 
three-fifths votes were secured in both chambers, if that could 
be done at all, extensive economic damage could have been done 
and hundreds of thousands of additional jobs lost. There are a 
variety of other problems as well.
    Consider the savings and loan crisis of the late 1980s. Had 
there been a constitutional balanced budget amendment, in fact, 
we couldn't have moved quickly because doing so would have 
created an unbalanced budget. Valuable time could have been 
lost.
    Now, the comments I've made so far apply to all versions of 
the balanced budget amendment. Some versions, such as S.J. Res. 
10 and 23, raise additional concerns for two reasons: 1) they 
would require a two-thirds super-majority to raise any revenues 
for deficit reduction, and that would protect what President 
Reagan's former Chief Economics Advisor, Martin Feldstein, has 
called the biggest area of wasteful spending in the Federal 
budget. Tax expenditures are what Alan Greenspan has called tax 
entitlements.
    In addition, those versions of the balanced budget 
amendment would bar Federal spending from exceeding 18 percent 
of GDP in the prior calendar year, which translates into about 
16.6 percent of GDP in the current fiscal year. Now, to comply 
with that would require truly draconian cuts.
    If you consider the Ryan budget, which is stunning in the 
degree of reductions it has, CBO says the Ryan budget has 
spending at 20 and three-quarters percent of GDP in 2030. This 
is four points below that. We used the largest CBO 10-year 
projections to model what the effect would be if you had to hit 
this 18 percent of prior calendar GDP stricture starting in 
2018, which is the first year you would if Congress passed the 
balanced budget amendment now and the States ratified it by 
2013.
    What we found was that in 2018, Congress would have to cut 
all programs by an average of 25 percent. If you cut all 
programs the same percentage, Social Security would be cut $1.7 
trillion through 2021, Medicare $1.1 trillion, veterans' 
programs, $120 billion, and defense spending, $880 billion on 
top of the defense cuts, under the Budget Control Act and the 
now scheduled sequestration.
    Now, of course, Congress wouldn't have to cut every program 
by the same percentage, but anything you exempted would require 
deeper cuts in other areas. If you exempted Social Security, 
everything else, including defense and veterans would have to 
be cut by an average of 34 percent.
    The bottom line is, policymakers do need to begin to change 
our fiscal trajectory. Like Senator Graham, I would very much 
commend you and others on the Gang of Six. We need to make hard 
choices like those reflected in the Gang of Six plan. But a 
balanced budget amendment in the Constitution would be unwise, 
as it would exact a heavy toll on the economy and on American 
businesses and workers in the years ahead.
    Thank you.
    Senator Durbin. Thanks, Mr. Greenstein.
    [The prepared statement of Mr. Greenstein appears as a 
submission for the record.]
    Senator Durbin. Robert Romasco is a graduate of Brandeis 
and Harvard Business School, president-elect of AARP, and will 
become its president next year. Currently the chair of its 
National Policy Council, he previously served as secretary/
treasurer and worked as an executive at numerous companies, 
including QVC, J.C. Penney's, Direct Marketing Services, and 
American Century Investments.
    Thanks for being here. Proceed.

 STATEMENT OF ROBERT ROMASCO, PRESIDENT-ELECT, AARP, BURKE, VA

    Mr. Romasco. Thank you, Chairman Durbin, Ranking Member 
Graham, and members of the Committee. Good morning. On behalf 
of all Americans aged 50 and older, including our more than 35 
million members, AARP appreciates the opportunity to comment on 
the impact that a balanced budget amendment to the Constitution 
would have on Social Security and Medicare.
    Such an amendment, while seemingly a common-sense answer to 
America's fiscal challenges, would subject Social Security and 
Medicare to very deep cuts without regard to the impact on the 
health and financial security of real people.
    Such an amendment would also result in significantly 
diminished resources for other services, like delivered meals 
or heating assistance for those Americans who are too frail or 
poor to take care of these basic needs without some community 
support.
    Such an amendment would prohibit outlays for a fiscal year 
from exceeding total receipts for that same fiscal year. This 
is the equivalent of imposing a constitutional cap on all 
spending that is equivalent to the revenues raised in a given 
year.
    For example, Federal spending in 2011 is projected to be 
23.8 percent of GDP, but revenue is only projected to be 15.3 
percent. If a constitutional balanced budget amendment were in 
place today, Federal spending would need to be capped at 15.3 
percent of GDP or revenues need to be increased to that 23.8.
    Based on an analysis prepared by the Lewin Group for AARP, 
the American College of Cardiologists, the American Hospital 
Association, and the AMA, slowly reducing current spending to 
the less drastic 21 percent of GDP over the next 10 years would 
still result in significant cuts to Social Security, Medicare, 
and Medicaid.
    Assuming cuts were phased in and distributed 
proportionately to the rate of growth and the costs of each of 
these programs, by 2021 it would be $1.2 trillion cut in Social 
Security spending, a $788 billion cut in Medicare, and a $527 
billion cut in Medicaid spending. Such cuts will have a severe 
impact on real people.
    Social Security is currently the principal source of income 
for nearly 2 out of every 3 American households receiving 
benefits, and in roughly 1 in 3 households it represents their 
entire income, or 90 percent or more. These Social Security 
earned benefits are modest, averaging only about $1,200 a 
month, for all retired workers of this past year.
    Yet according to the same Lewin analysis, capping spending 
at 21 percent of GDP would increase the number of people living 
in poverty by 2 million people in 2014 and 3.4 million by 2021. 
A shocking number of these people reduced to poverty would be 
older Americans, 1.1 million Americans over 65 in poverty in 
2014, and nearly double that, 1.9 million older Americans would 
be poor by 2021 if the spending were reduced to the 21 percent 
of GDP.
    These outcomes would only be more extreme if a 
constitutional amendment required spending to be capped at a 
lower percentage. In fact, if the balanced budget amendment 
were in place today the average Social Security benefit would 
be cut 27 percent.
    Based on CBO projections of revenue, Federal spending would 
need to be reduced from 23 percent of GDP to 16.8 of GDP in 
2012. If across-the-board cuts were applied to reach balance, a 
low-earning retiree would see his or her 2012 benefit reduction 
from $10,300 to $7,500. A median income recipient would see 
their benefits go from $17,000 to $12,300.
    In addition to the possibility of these drastic reductions, 
there's the issue of predictability. Social Security and 
Medicare would be undermined by the requirement that spending 
outlays equal revenues annually. Revenues fluctuate based on 
many factors, consequently, annual spending would also 
fluctuate under the balanced budget amendment.
    As a result, Social Security and Medicare benefits would 
fluctuate and individuals who have contributed their entire 
working lives to earn a predictable benefit during their 
retirement would find their income and health care benefits and 
costs vary significantly year to year, making planning 
difficult and peace of mind nearly impossible.
    Another element of the balanced budget amendment, the 
requirement of a three-fifths vote to increase the debt limit, 
is especially likely to wreak havoc with the reliability aspect 
of Social Security and benefits in the future.
    The increased threshold for increasing the debt limit was 
part of the balanced budget amendment proposal that Congress 
voted on in 1995, and most recently the House of 
Representatives considered on November 18th.
    In light of the intense debate surrounding the increase in 
the debt limit earlier this year, the uncertainty that the 
debate created for millions would make it almost impossible to 
plan.
    We maintain it is particularly inappropriate to subject 
Social Security to a balanced budget amendment, given that 
Social Security is an off-budget program that is separately 
funded through its own revenue stream, including significant 
trust fund reserves to finance benefits.
    Social Security benefits are financed through the payroll 
contributions of employees and employers each and every year 
throughout their individual life. The payroll contributions and 
benefits paid, including administrative costs, are accounted 
for separately from the rest of the budget. Importantly, Social 
Security has not contributed to our large deficits.
    Our members and older Americans everywhere acknowledge the 
difficult challenge of getting our Nation's fiscal house in 
order, but doing so requires a real debate about the choices we 
need to make and what kind of country we want. A balanced 
budget amendment would result in forced cuts to Social Security 
and Medicare rather than informed decisionmaking about the 
future of our Nation.
    We urge Congress to not simply look at the numbers in the 
budget, but the real people who would be affected by 
fundamental changes that such an amendment would produce. We 
look forward to working with members of this committee, as well 
as members from both houses of Congress and both sides of the 
aisle, to promote a conversation that will address our Nation's 
long-term debt without sacrificing the current and future 
health and retirement security of our Nation's seniors, 
fulfilling our mission to help Americans of every generation 
live with dignity and purpose.
    Thank you.
    Senator Durbin. Thank you very much, Mr. Romasco.
    [The prepared statement of Mr. Romasco appears as a 
submission for the record.]
    Senator Durbin. Before I introduce our next witness I want 
to make sure I get her name right: Furchtgott-Roth?
    Ms. Furchtgott-Roth. Furchtgott-Roth. Yes. Thank you very 
much. Thank you so much.
    Senator Durbin. A collision of five consonants there, and 
I'm trying to get it. Furchtgott-Roth.
    Ms. Furchtgott-Roth. Yes. Well, please call me Diana. It's 
my husband's fault. He had the Furchgott. And he's from 
Columbia, South Carolina, so I'm sure you're going to forgive 
him.
    Senator Durbin. Senator Graham.
    Senator Graham. I've always been a big admirer.
    [Laughter.]
    Senator Durbin. Ms. Furtchgott-Roth is Senior Fellow with 
the Manhattan Institute, and previously served as Chief 
Economist at the U.S. Department of Labor, and Chief of Staff 
at the Council of Economic Advisors under President George W. 
Bush. She served as Deputy Executive Secretary for the Domestic 
Policy Council under President George H.W. Bush, and as a Staff 
Economist on the Council of Economic Advisors under President 
Reagan. She has a B.A. from Swarthmore and an M. Phil in 
Economics from Oxford.
    Please proceed.

 STATEMENT OF DIANA FURCHTGOTT-ROTH, SENIOR FELLOW, MANHATTAN 
         INSTITUTE FOR POLICY RESEARCH, WASHINGTON, DC

    Ms. Furchtgott-Roth. Thanks so much for inviting me to 
testify today.
    Look, none of us really want a balanced budget amendment 
because the best option would be for Congress to work as it's 
supposed to and pass budgets that would enable us to live 
within the revenues that we have. But the Senate hasn't passed 
a budget for over two and a half years. The deficit last year 
was $1.3 trillion. The Super Committee failed even to get $1.2 
trillion of cuts. That's over a decade, not even in 1 year. We 
borrow 40 cents out of every dollar that we spend.
    Congress has considered many balanced budget amendments in 
the past, which is summarized in an excellent study by the 
Congressional Research Service. Versions in nine Congressional 
sessions did not pass. But imagine that the balanced budget 
amendments of 1982 and 1995 had passed and had gone on to be 
ratified by three-quarters of the States. Today we would be in 
a far stronger position, no trillion-dollar deficits, no 100 
percent levels of gross public debt.
    Of course, everyone prefers for us to be able to restrain 
government spending through the normal budget process, but we 
haven't been able to do that, not just in the United States but 
also in Europe. And look at what's happening to Europe now. If 
we look at Europe now, that's what we are facing 10, 20 years 
down the line and that's simply unacceptable.
    Of course, one can quibble with details of this proposed 
constitutional amendment, but the philosophy behind it is 
laudable. It would impose spending discipline and it would 
enable us to live within our means.
    The Senate balanced budget amendment ties outlays to 18 
percent of GDP in the prior calendar year, hence the budget now 
under construction would be based on GDP in 2010. Now, the 
final GDP figure for calendar year 2010 was only available in 
March 2011. This timing is adequate for Congress, but not for 
the President, who sends his budget to Congress in the first 
week in February and starts working on the fiscal year 2012 
budget in the fall of 2010, when even third quarter GDP is 
unknown.
    But if the fiscal year 2012 budget were based on GDP in 
calendar 2009 or some multiple thereof, guidelines and limits 
would be clearer to the President as well as to Congress. So 
another way of structuring a balanced budget amendment would be 
to tie it to spending in a given year, to tie spending to 
revenues 3 years earlier or a multiple so people would know in 
advance how much money we had to spend.
    We have talked here about the problems of recessions, but 
in a recession year when revenues are low it would be possible 
to have a rainy day fund the way many States do, and the rainy 
day fund that could be set aside and be exempt from these 
limits, set aside for recessions. As the amendment is worded 
now, there isn't any provision for a rainy day fund, but I 
would suggest that this should be added and set aside from 
surplus funds in high-growth periods.
    With regard to wartime spending, I would say the balanced 
budget amendment as it's written is, if anything, too flexible 
because the balanced budget amendment provision is weighed for 
any year in which a declaration of war is in effect or when the 
United States is engaged in military conflict. Then a simple 
majority of members can waive the amendment.
    But for the past 10 years we've been engaged in military 
conflicts in Afghanistan, Iraq, Libya, and Somalia, so the 
current version of the amendment would have already been 
overridden. In my opinion, an exception should be made only for 
a declaration of war by the United States against another 
country, and even in that case expenditures should be limited 
to military spending rather than all spending.
    There are other proposed fixes we could do to help the 
budget process. One idea is to get rid of the concept of 
entitlements and put all expenses under the appropriations 
process. Congress should pass a law that says no money gets 
spent unless it gets specifically voted out every year.
    This could happen with a one-sentence law: 
``notwithstanding any other provision of law, the United States 
shall expend no funds and shall be responsible for no 
liabilities and guarantees except in amounts as specifically 
appropriated annually by Congress.'' This would force Congress 
to take a look every year at spending and not rely on 
entitlements that build up year after year.
    Congress should also consider putting the Federal 
Government on Generally Accepted Accounting Principles, like 
these corporations that are the focus of protests by the Occupy 
Wall Street crowd. They may be evil, but they have to stick 
within their accounts and within their budgets. If the 
government had to file its accounts under GAAP, current 
measures of both deficits and public debt would be far 
different.
    Thanks very much.
    Senator Durbin. Thank you.
    [The prepared statement of Ms. Furchtgott-Roth appears as a 
submission for the record.]
    Senator Durbin. Dr. Douglas Holtz-Eakin is currently the 
president of the American Action Forum. He served as Chief 
Economist at the Council of Economic Advisors and as Director 
of the CBO. During 2007 and 2008, he was Director of Domestic 
and Economic Policy for John McCain's Presidential campaign. He 
worked as president of DHE Consulting and at several 
Washington-based think-tanks. He has a bachelor's from Denison 
and a Ph.D. from Princeton.
    Thanks for joining us.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., PRESIDENT, AMERICAN 
                  ACTION FORUM, WASHINGTON, DC

    Dr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Graham, and members of the Committee. It's a privilege to be 
here today.
    Let me just make four brief points; you have my written 
statement.
    First and most importantly, we have an enormous and 
immediate problem in the U.S. The gross debt-to-GDP is now 100 
percent, above the 90 percent of GDP line that history has 
shown imposes two costs: (1) on average, a growth penalty of 
about a percentage point a year, so we're already paying for 
our high debt load; and (2) an increased probability of 
sovereign debt crisis of the type we see in Europe.
    Given that we are projected to accumulate massive amounts 
of debt over the next decade, it is a surety that we will face 
the problems that Europe is facing right now within that 
decade. So this is not something which we have the luxury to 
put off, we have to begin to address it immediately.
    The U.S. has all the characteristics of countries that get 
in trouble. Our debt levels--our projected debt levels, our 
heavy reliance on short-term borrowing, our continued discovery 
of contingent and not well-understood liabilities that pop up 
in the Federal budget, your efforts, Mr. Chairman, and others, 
I applaud because there simply is no time to avoid taking on 
this problem.
    One of the reasons we have this, and the second point, is 
the U.S. doesn't have--the Federal Government does not have a 
coherent fiscal rule that guides its operations. It has no 
budget that's agreed upon between the Congress and the 
administration. Often the House and the Senate do not agree on 
a budget resolution, fail to even do that.
    We have an uncoordinated set of mandatory spending 
programs, discretionary spending programs, taxes and fees that 
don't add up in any coherent way and often give us bad results. 
So the Federal Government does not have a fiscal policy, it 
gets bad fiscal outcomes on a regular basis, and something is 
needed to put this in coherent order. The notion of a fiscal 
rule, something guiding the overall process, I think, is 
essential.
    Now, what kind of fiscal rule could you have? You could 
have a rule that says there's a maximum amount of spending, a 
maximum amount of spending as a fraction of GDP. You could have 
a debt-to-GDP ratio, you know, don't exceed 60 percent of GDP. 
Or you could have something like a balanced budget, and the 
balanced budget amendment falls as one of the possible fiscal 
rules that could bring some coherence to a system that's 
clearly broken.
    Now, what would you want in such a fiscal rule? You'd want 
a couple of things. No. 1, you'd want it to work. We have tried 
fiscal rules in the past, such as pay-go rules, which were 
intended to simply stop things from getting worse. They were 
often waived and didn't stop things from getting worse and they 
would not in any way compel Congress to make things better.
    So you need something that's going to work. You need 
something that has a tight link between the decisions made by 
Congresses and the outcomes. You can't have a lot of 
intervening steps so that you can't control the outcome, and 
you have to have something that's simple and transparent 
because in the end the American public has to buy into the 
fiscal rule. They have to agree to live under the constraints 
that we're imposing on the Federal budget.
    The balanced budget amendment has those characteristics. It 
would work. It has a tight link between the decisions made and 
the outcomes, they have to add up, and it's simple and 
transparent and allows the possibility for the public to 
understand it.
    Some key features of it--the third set of remarks I'd like 
to make--are that the ratification process, which will take a 
fair amount of time in any event, is the opportunity for the 
public to buy into this. If three-quarters of the States ratify 
a balanced budget amendment, the public will have agreed that 
this is how they want to run their fiscal affairs. I think 
that's a very important thing because that is important in 
supporting the Members of Congress. They have to have the 
voters behind them.
    Secondly, is that it will be much harder for a Congress to 
reneg. There are some serious issues in enforcement. You 
mentioned that at the outset. I want to acknowledge those. 
Nothing is perfect, but right now nothing constrains the 
Congress, for example, for waiving the caps imposed in the 
Budget Control Act. History has shown that's exactly what it 
will do, so we need something which is stronger and generally 
constrains the Congress, something it cannot reneg on.
    The fact that we're talking about constitutional 
amendments, I think, is commensurate with the problem we face. 
This is an enormous and immediate danger to the American 
economy and our futures. Other panelists have mentioned some 
concerns. They're legitimate.
    How you deal with economic fluctuations, how you deal with 
wars and other emergencies are things that must be worked into 
a balanced budget amendment, but I think that's doable. You do 
as well have to worry about the size of government and the 
level of taxation, and most balanced budget amendments have 
additional features to cap the size of government.
    So this is not something that I think should be presented 
as perfect, but it is imperative that we move from a system 
that is demonstrably imperfect and broken to something better. 
I think this will be a sensible step in the right direction.
    Senator Durbin. Thanks for your testimony.
    [The prepared statement of Dr. Holtz-Eakin appears as a 
submission for the record.]
    Senator Durbin. Professor Alan Morrison is the Lerner 
Family Associate Dean for Public Interest & Public Service and 
a professor at George Washington University Law School. He 
graduated from Yale and Harvard Law School, served as a 
commissioned officer in the United States Navy.
    Early in his career he worked for Public Citizen Litigation 
Group, which he directed for over 25 years and argued 20 cases 
before the U.S. Supreme Court. He was past president of the 
American Academy of Appellate Lawyers and served as an U.S. 
Attorney.
    Please proceed.

 STATEMENT OF ALAN MORRISON, LERNER FAMILY ASSOCIATE DEAN FOR 
PUBLIC INTEREST & PUBLIC SERVICE, GEORGE WASHING UNIVERSITY LAW 
                     SCHOOL, WASHINGTON, DC

    Professor Morrison. Thank you, Mr. Chairman and members of 
the Committee.
    Even if the balanced budget amendment were a sensible idea, 
the question I want to ask is, how is it going to be enforced? 
My first problem is that almost none of the bills that are 
presently before this house or the other house deals with that 
question openly and tells the American people who is going to 
enforce the balanced budget amendment.
    It surely is not going to be the Congress. That's the 
problem. It is surely not going to be the President. The 
President has no inherent authority to not spend money, and the 
Line Item Veto case proved that Congress cannot delegate that 
authority to him. So either it will be the courts or no one, 
and if it's no one we're back where we started from.
    Now, let me talk about the courts for a minute. In my 
written statement I have established that under current 
constitutional law, no one--taxpayers, Members of Congress--
would have standing to go to court to challenge a budget that 
was alleged to be in violation of the Constitution.
    Senator Lee, to his credit, in his proposed amendment has 
provided that Members of Congress would have that authority to 
go to court. That deals with the standing problem. It does not 
deal with three other doctrines that stand in the equal 
problematic path of any enforcement of a balanced budget 
amendment.
    First is the political question doctrine, and that 
principally deals with the problem of remedy, which I'll talk 
about in a second, then there are the problems of ripeness and 
mootness, that is, getting litigation through in a timely 
manner so that if a court decided that the budget was 
unbalanced, it could actually order a remedy before all the 
money had been spent, and there was nothing left to fix.
    So let me talk for a minute about what litigation would 
look like if we had an actual challenge to an amendment that 
was supposed to be unbalanced. And let me begin by stating the 
optimistic, but highly unrealistic, assumption that Congress 
would actually pass a single bill with a budget before the 
beginning of the fiscal year on October 1, so that we at least 
had a target at which a litigation could begin to focus.
    Obviously nobody who's going to make a challenge is going 
to be limited to what the budget actually says. We all know 
that there will be rosy estimates in the budget and that's how 
the budget will be ``in balance''.
    So anyone who is a challenger will want to go behind those 
numbers and will start to go into the papers at the 
Congressional Budget Office, the Appropriations Committees, and 
we will start to have a massive discovery. We will have expert 
witnesses being deposed, and eventually we will have a trial.
    It will make the trial of United States v. Microsoft look 
like child's play because this will go on forever, not just 
with respect to one department like the Defense Department and 
all of its subsidiaries, but every single department of the 
government could be subject to the same kind of inquiry.
    And then, of course, we'll have to figure out whether the 
tax estimates are sensible and reasonable. At the end of that 
there will be a trial. The judge or judges will have to write a 
decision after the briefs are all in. There will be an appeal 
to the U.S. Supreme Court.
    All of that is supposed to be done within a single fiscal 
year in time for a remedy to be decided upon, issued, and put 
into place to correct the unbalanced budget. It seems to me to 
be impossible, but even if it were possible, think about the 
problem of Federal judges now deciding that the budget is out 
of balance by, let's say, $200 billion. Where are they going to 
make the corrections? Are they going to increase taxes? Are 
they going to take it out of Social Security? Are they going to 
take it out of defense?
    I cannot imagine a job for which Federal judges are less 
suited than trying to make those obviously political, very 
important, value-laden judgments about how the taxpayers' money 
should be spent, yet that is what is going to happen if we 
allow the case to go to court.
    So you are faced with a choice. Either you're going to have 
the judges of the United States courts running the Federal 
budget, or you're going to have to admit that the balanced 
budget is an idea, it's rhetoric, and it's non-enforceable.
    My own view is that this is not the way to go, that the 
balanced budget amendment is a false promise and that it will 
only deter you from engaging in the kind of hard work that you 
need to get done in order to get our fiscal house in order. 
Slogans and constitutional amendments will not solve the 
problem, only hard work will. Thank you.
    Senator Durbin. Thank you, Professor Morrison.
    [The prepared statement of Professor Morrison appears as a 
submission for the record.]
    Senator Durbin. We've got a great turnout here at the 
Subcommittee and we may face a vote, so I talked to Senator 
Graham and we had thought about 7-minute rounds. Let's do 5-
minute rounds so people can have a better chance to ask 
questions.
    I'll kick it off here. Let me just say at the outset, I 
concede what you said, Dr. Holtz-Eakin. We are facing a global 
economic challenge. The United States is in stronger position 
than many other countries, but we are naive to believe that a 
day of reckoning is not coming. If we don't deal with it early, 
the later consequences will be much more difficult.
    That is what has motivated me through this whole 
conversation from my side of the political spectrum. It is 
easier because of the miracle of compound interest and similar 
economic principles to make decisions today which will play out 
in a more sensible way than to wait till the last minute. I 
concede that point.
    When we get to the balanced budget amendment I think we are 
addressing two different levels. We are addressing what 
Professor Morrison has raised, the very fundamental 
constitutional questions of the relationships of our branches 
of government and enforcement between them, and I think you 
raised some excellent points. Casting our fate to the Federal 
court system to resolve our budget difficulties may make all of 
our efforts toward resolving budget issues look like child's 
play as it would go through that court system.
    Secondly, there's the policy question about, if there is to 
be a balanced budget amendment, where do you draw the line? The 
sweet spot, if history is any guide, was 11 years ago when we 
balanced the budget, and if I'm not mistaken--someone can 
correct me here--it was at 19.5 percent. Revenues and 
expenditures at 19.5 percent, and an equal balanced budget.
    Now today we are somewhere in the range of expenditures in 
the 24.5 to 25 percent ranges and revenues in the 15 percent 
range: the delta equals the deficit. Now we have suggestions 
from Mr. Romasco that even 21 percent won't meed our needs 
under our entitlement programs, and suggestions by Mr. 
Greenstein that we're actually talking about somewhere close to 
16 percent. These are dramatic changes in terms of how we're 
going to raise and spend money.
    Ms. Furchtgott-Roth, let me ask you this question, if I 
can. Do you believe that if we are going to honestly deal with 
the budget deficit we have to put everything on the table, 
including taxes, tax expenditures, entitlements, and other 
spending?
    Ms. Furchtgott-Roth. The best way to solve this problem 
would be to have greater economic growth, and we can accomplish 
greater economic growth through fundamental tax reform, getting 
rid of deductions both on the corporate and individual side and 
lowering tax rates, which we call base broadening.
    So, yes, I think that everything should be on the table but 
we should keep a revenue-neutral tax system. In other words, to 
raise the same amount of revenue initially but then additional 
revenue would come in with greater economic growth.
    Senator Durbin. I know I've heard this theory from my 
friends on the Republican side and I would say dynamic economic 
growth may be true, may not be true. Our approach in Bowles-
Simpson and Gang of Six is trust but verify, to go back to one 
of your former bosses, or Mr. Holtz-Eakin's former bosses, and 
that is, CBO plus dynamic scoring.
    Let's make sure that we're at least dealing in that world. 
So when we get to the point where we have an expanding base of 
recipients of Medicare, just as an example, and Social Security 
as the baby boomers reach the age of eligibility, how do you 
deal then with that demographic growth in terms of the budget? 
Does it require then that either taxes be raised or other 
spending be reduced?
    Ms. Furchtgott-Roth. Medicare is one of the most 
challenging problems that we have and Medicare needs to be 
revamped to allow more competition between providers. I would 
recommend something like the plan suggested by House Budget 
Chairman Paul Ryan, where current seniors would keep the 
traditional Medicare plan but people who are now 55 or below, 
when they get to retirement age, would have a choice of 
different plans with the contributions means tested, and they 
can put more in to have different levels of health care. And 
competition among these plans, I believe, would bring down the 
cost of Medicare, just as it has in Lasik and cosmetic surgery.
    Senator Durbin. It's a controversial approach but it is 
certainly one approach that we need to consider.
    Ms. Furchtgott-Roth. Yes.
    Senator Durbin. Dr. Holtz-Eakin, when it comes to 
exceptions under a balanced budget amendment, Ms. Furchtgott-
Roth has spoken about war. Would you concede there should be 
other exceptions? Should there be exceptions for automatic 
stabilizers that Mr. Greenstein has related to? Should there be 
an exception for ``the big one'' in California, God forbid, if 
we ever face it?
    Dr. Holtz-Eakin. So the major objection that comes up and 
the one that Mr. Greenstein mentioned is this issue of 
automatic stabilizers. I think this is more a textbook concern 
than a real one because if you listen to what Diana said about 
the timing that's necessary to actually do this, you're going 
to operate off a GDP from at least 2 years ago, maybe three.
    So if you're going through a recession you're using a 
number that's here and you're going to be spending more than 
you would relative to the economy anyway. When you're coming 
out, you're going to do the reverse. So instead of actually 
having a big pro-cyclical problem it's going to build in an 
automatic stabilizer.
    It's going to work exactly the way the textbook says it's 
supposed to. So I think that's overrated. The exception you 
want is for Great Depressions. Yes, you ought to--you know, in 
those cases, those are the only cases when we want Congress 
doing things in a discretionary fashion.
    Senator Durbin. Look at the current recession. The current 
recession, with 14 million people out of work, not paying taxes 
and needing Unemployment as well as food stamps and other 
things, is a classic example where we need the stabilizers, do 
we not?
    Dr. Holtz-Eakin. So I think you would get the automatic 
stabilizers, and I would hope that for the typical business 
cycle the Congress would get out of the business of trying to 
fine tune it. We tried it in the 1960s and 1970s, it failed 
miserably. We swore off discretionary fiscal policy in the 
1980s and 1990s. That was for the best. Then we unlearned that 
lesson for some reason in this decade.
    We should use fiscal policy to set the parameters for long-
run growth, let the Fed take care of short-term business cycle 
fluctuations, with the exception of major downturns. This is 
the worst recession since the Great Depression. There's going 
to be a line at which Congress is going to have to move, and 
inevitably would. I don't view that as a big deal.
    Senator Durbin. And the question is whether words in the 
Constitution will allow us the flexibility to accommodate that.
    Senator Graham, your turn.
    Senator Graham. Thank you.
    Let's sort of go down memory lane here and look at previous 
attempts by Congress to make sure that we don't over-spend. 
Gramm-Rudman-Hollings. Are all of you familiar with that 
concept? Do you all agree it didn't work? The Balanced Budget 
Agreement in 1997. Are you familiar with that concept? Do you 
agree it worked in the short term but it has failed over time?
    Do you agree that the numbers we set in the Balanced Budget 
Agreement on Medicare spending is continuously weighed by the 
Congress because the doctors are so adversely affected? Well, 
you need to go talk to a doctor. We're going to have a $200 
billion problem with doctors by the end of the year because 
under the Balanced Budget Agreement of 1997 the payments to 
doctors will have to be reduced by $200 billion or waived. So I 
guess the point I'm making, and I'll let you speak here in a 
minute, Mr. Greenstein, is that all in-house efforts have 
failed and I see no hope in sight.
    Mr. Romasco is that it?
    Mr. Romasco. Yes.
    Senator Graham. Would you be willing to accept age 
adjustment, as an organization, for Medicare eligibility, going 
from 65 to 67 for people under 55?
    Mr. Romasco. That's one possibility that is being 
mentioned. You have to look at it in the broad context. The 
initial kind of look at that suggests that that actually costs 
society more than it actually reduces it, so I would be very 
hesitant to----
    Senator Graham. Would you be willing to accept a means test 
on premiums, for Medicare premiums?
    Mr. Romasco. Senator, I think the concept of going down a 
checklist, while certainly helpful, really doesn't get at the 
issue.
    Senator Graham. I'm asking a question: would you be 
willing, as an organization, to accept means testing Medicare 
premiums?
    Mr. Romasco. Not as a single solution.
    Senator Graham. But would you be willing, as an 
organization, to accept means testing when it comes to 
receiving Social Security benefits?
    Mr. Greenstein. Again, Senator, the issue is a complex one 
and any solution that strengthens Medicare or strengthens 
Social Security has to be----
    Senator Graham. I believe that means testing benefits 
received promised by Social Security would save Social Security 
from an inevitable bankruptcy. Would you agree to that concept 
as a way to save Social Security?
    Mr. Romasco. I think your objective is laudable. I'm not 
sure your prescription is the right one.
    Senator Graham. OK. So therein lies the problem.
    Mr. Greenstein, any effort to balance the budget would have 
a dramatic effect on Social Security and Medicare. Do you agree 
with that?
    Mr. Greenstein. That would probably be true.
    Senator Graham. And the reason that would be true is 
because that's where the most spending occurs over time.
    Mr. Greenstein. Tax expenditures now are actually over $1 
trillion a year; Medicare and Medicaid combined, about $750 
billion.
    Senator Graham. Over the next 75 years, the promises made 
under Medicare. How much revenue shortfall do we have to meet 
those promises?
    Mr. Greenstein. I don't have the specific percentage, but I 
will agree with you that it is essential over the long run to 
deal with the rate of growth----
    Senator Graham. Over the next 75 years, how much money are 
we short to honor the benefits promised under Social Security?
    Mr. Greenstein. That's a smaller amount. Over----
    Senator Graham. It's about $5 trillion.
    Mr. Greenstein. Eight-tenths of 1 percent of GDP, less than 
one-half of the cost over 75 years----
    Senator Graham. Do you agree with me----
    Mr. Greenstein.--of making the Bush tax permanent.
    Senator Graham. Do you agree with me that the entitlement 
growth of Medicare, Medicaid, and Social Security, that we have 
close to a $40 to $50 trillion unfunded liability over the next 
75 years?
    Mr. Greenstein. I agree it's very substantial. Exactly how 
you do the numbers depends on how you account for Medicare 
Parts B and D, but your basic concept is correct.
    Senator Graham. The only reason I mention that, it is 
impossible for us as a Nation to achieve a balanced budget 
without affecting entitlement growth. There is not enough money 
coming in because there are fewer workers and we all live 
longer. Everyone is living like a South Carolina Senator, dying 
at almost 90 years old. That's the good news. The bad news is, 
we have not planned as a Nation for that event. If I thought 
there was some other way, Mr. Morrison, to do this without a 
constitutional requirement I would go down that road.
    I would just ask you a question: in South Carolina we have 
in our constitution the requirement to provide a minimally 
adequate public education. That has been in litigation in South 
Carolina. I will tell you, the litigation process has opened 
the eyes of South Carolinians and that the legislature has 
responded to the gaps in education funding.
    My view is, if we had a trial about Congress spending too 
much, that it would be a good thing to put the Congress on 
trial. It would be a good thing to seek remedies. I don't think 
the court has to take over the Congress, but if the court, 
through a trial, could show the public how ineffective we are 
with spending and revenue, I think the remedies would come. 
They're never going to come with the current system, so that's 
where I disagree. I think litigation to get the Nation's budget 
balanced may be the only hope we have because the current 
political engagement doesn't seem to bring about the result. 
You may respond.
    Professor Morrison. Well, I wouldn't compare litigation 
over adequate funding of schools in South Carolina, which 
doesn't have to be completed within one fiscal year, to a 
debate about whether a particularized set of spending and 
revenue meet the constitutional target within that fiscal year.
    I would also imagine that there would be lots of debates 
about all the exceptions to the rules, which would undoubtedly 
be invoked and people would be litigating over those. I agree 
with the Senator that litigation is a wonderful tool for 
getting people's attention focused and bringing the facts to 
light.
    Having said that, I cannot agree that this is an 
appropriate area for litigation. But if the Senator wants it as 
an educational tool but not as an actual enforcement tool, then 
we could have a discussion about that.
    Senator Durbin. Thank you very much.
    Under the early bird rule, on the Democrat side we will be 
recognizing Senators Franken, Whitehouse, Coons, Blumenthal, 
and on the Republican side, Senators Hatch, Cornyn, and Lee.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Mr. Greenstein, in the months preceding President Obama's 
assuming office our economy was sliding precariously into--
almost to a depression. We were losing between 750,000 to 
850,000 jobs per month. States, most of which have balanced 
budget requirements, consequently had to cut jobs and services.
    But a combination of the Federal Government's automatic 
stabilizers, as you talked about, Unemployment Insurance, food 
stamps, along with the Recovery Act cushioned the economy and 
stopped the downward spiral and us from going into a 
depression.
    Mr. Greenstein, in your estimation, what would have 
happened in 2009 and 2010 had a balanced budget amendment been 
in place?
    Mr. Greenstein. Well, the effects would have been far more 
severe. The one analysis we have of this is the one that 
Macroeconomic Advisors did of what would happen in 2012 if we 
had a balanced budget amendment right now, and their estimate 
is the unemployment rate would double to 18 percent and there 
would be 15 million more unemployed people. Real GDP growth 
would drop 17 percent this year rather than rising 2 percent.
    Senator Franken. And what would that do to our deficit?
    Mr. Greenstein. Well, if you had--you'd have this cycle 
that business activity would drop substantially.
    Senator Franken. You'd have a vicious cycle, right?
    Mr. Greenstein. You'd have a vicious cycle. Revenue would 
drop even further and then you'd have to cut more and it would 
put you on a further downward spiral.
    Senator Franken. Mr. Morrison, when they wrote the 
Constitution the framers gave Congress the power to collect 
taxes, to borrow money, and to decide how to spend that money. 
In fact, the power of the purse is the first power granted to 
Congress under our Constitution. The framers did not give the 
courts the power of the purse. In fact, Hamilton wrote in 
Federalist 78 that the judiciary ``will have no influence over 
the sword or the purse''. No influence. That seems pretty clear 
to me.
    But Mr. Morrison, if we passed a balanced budget amendment, 
won't judges, as you testified, be able to decide budgetary 
matters? Aren't we giving judges at least some power over the 
purse?
    Professor Morrison. Well, either judges would have some 
power over the purse and it would be a very significant power 
if the amendment actually so provided. I agree with you, 
Senator Franken, that under the current law judges would have 
to stay out of that debate.
    But the amendment could provide, as all amendments can, 
that that system which has been in effect for 225 years should 
be changed. Instead of the Congress being in charge of the 
budget we can put the Federal courts in charge of the budget. I 
think that would be a terrible idea, as I've expressed before, 
but we could do that. It would be a mess. It would be the wrong 
people deciding the wrong questions.
    But we could amend the Constitution and fundamentally 
change our system, but that is what would happen, or we could 
have it as an amendment which has no impact at all, that has no 
enforcement mechanism, and that it would be empty rhetoric, 
making some people feel good that they had done something but 
doing nothing to fix our budget problems.
    Senator Franken. All right.
    Now, on the other hand, the Articles of Confederation 
sharply limited the legislature's power of the purse. Congress 
needed a super majority both to borrow money and to send States 
their tax bills. The Articles were a total disaster because of 
it. You don't have to take my word for it, take George 
Washington's word for it. His word was good. As the Commander 
of the Continental Army, Washington famously wrote Hamilton to 
basically complain about Congress' inability to effectively 
raise revenues to support the troops.
    In 1783, he wrote that unless Congress was given a greater 
power of the purse, ``The distresses we have encountered, the 
expense we have incurred, and the blood we have spilled in the 
course of the 8-years war will avail of us nothing.'' Yet the 
McConnell-Hatch amendment requires a super majority to raise 
revenues and another super majority to waive that requirement 
in times of military conflict.
    Mr. Morrison, are these provisions going to be the Articles 
of Confederation all over again?
    Professor Morrison. Well, there are many other flaws with 
the Articles of Confederation, but this would certainly change 
the balance of power and the allocation of responsibility in 
our government system and would make it very hard to make 
changes that are needed for whatever reason.
    It seems to me--and this is less a legal question than a 
political question--that we have struck a balance in terms of 
checks and balances over the past 225 years that is about 
right. It doesn't get it right every time, but overall it works 
to the advantage of the American people most of the time.
    I would be very reluctant to tinker with that system by 
starting to impose new three-fifths requirements for anything, 
regardless of whether you were in favor of raising revenues or 
reducing taxes or anything else. It seems to me we ought to 
stick to majority rule. It's worked pretty well.
    Senator Franken. Thank you.
    Mr. Chairman, I have some other questions I'd like to put 
in the record, or if we get to a second round, ask them then. 
Thank you.
    Senator Durbin. Thanks, Senator Franken.
    Senator Hatch.
    Senator Hatch. Thank you, Mr. Chairman. I want to thank you 
and the Ranking Member for the privilege and opportunity to 
participate in this important hearing today. If I may, I'd like 
to ask consent to put a statement in the record.
    Senator Durbin. Without objection.
    [The prepared statement of Senator Hatch appears as a 
submission for the record.]
    Senator Hatch. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, the Senate has voted on a balanced budget 
constitutional amendment six times while I have been in the 
Senate. We passed one back in 1982 when the national debt was 
about $1.1 trillion. We passed it in the Senate and it was 
defeated in the House. When we failed by one vote in 1997 to 
pass a balanced budget amendment that I introduced, the 
national debt was $5.4 trillion. Today it is more than $15 
trillion, larger than our entire economy.
    Now, would we be in this fiscal mess that we are in today 
if Congress had seized one of those previous opportunities and 
the balanced budget amendment were today a part of the 
Constitution?
    Dr. Holtz-Eakin. I think, clearly, not.
    Senator Hatch. Well, it's been suggested here that the 
balanced budget amendment would actually be bad for the 
American economy. Now, this is surprising to me, given the dire 
fiscal situation in Europe and in this country brought on by 
escalating sovereign debt.
    Now, in your view, what would be the long-term impact on 
economic growth if a balanced budget amendment like we've been 
discussing here today--if the balanced budget amendment imposed 
a spending cap on Congress and limited Congress' ability to 
raise taxes, if that was ratified by the American people?
    Dr. Holtz-Eakin. I think the long-run consequences would be 
entirely beneficial. Over the long term, economies only grow by 
putting aside resources in the present to have greater fiscal, 
technological, or human capital. Persistent Federal deficits 
eat away at that seed corn and undermine long-term economic 
growth. Keeping taxes low, I think, is part of the recipe for 
economic growth.
    The Bowles-Simpson Commission, I thought, clearly pointed 
in the right direction, to say if you want to talk about 
revenue you need tax reform. I think we could do that within 
the context of the balanced budget amendment. This is the kind 
of fiscal policy that we need but have never been able to 
consistently generate.
    Senator Hatch. Let me go to Ms. Furchtgott-Roth. Which is 
the greater threat to progress in your viewpoint, such as--
well, greater threat to programs such as Social Security, 
Medicare, and Medicaid, the fiscal discipline required by a 
balanced budget amendment or the spiraling debt that we're 
actually encountering today?
    Ms. Furchtgott-Roth. It's clearly the spiraling debt. We 
have these entitlement programs that keep growing because 
fortunately we are living longer. We need to adjust them as we 
go along by raising the retirement age or making other 
modifications, such as means testing for the benefits.
    If we had had the balanced budget amendment in place, we 
might not have been able to spend the $825 billion in stimulus, 
we might not have had Cash for Clunkers, we might not have had 
the TARP program. In January 2009, Christina Roman and Jarrett 
Bernstein had a paper that said that if we did not pass the 
stimulus package, unemployment would peak at 8 percent and then 
go down, so perhaps we would have been a lot better off.
    Senator Hatch. Now, I reviewed some of the floor debate 
when the Senate has considered balanced budget amendments in 
the past. In 1994, for example, one of our friends on the other 
side of the aisle, who also happens to be a member of this 
committee, said the following: ``We do not need a 
constitutional amendment to balance the budget. As the Cowardly 
Lion puts it, `Courage is not something given to you, it comes 
from within.''' Now, that was 1994 when the national debt was 
$4.5 billion, with a b, less than a third of what it is today.
    Do you think Congress will find fiscal courage from within 
or do you believe it has to be supplied from without through a 
constitutional balanced budget amendment?
    Ms. Furchtgott-Roth. Well, they say those who do not study 
history are doomed to repeat it, and history has shown that 
Congress does not find the courage to keep within any kind of 
spending limit, even spending limits it has set upon itself.
    Senator Hatch. Now, Dr. Holtz-Eakin, BBA opponents predict 
grave consequences for the economy. We've heard that here from 
our illustrious witnesses here today. And, of course, specific 
government programs will be hurt.
    Now, Mr. Greenstein cites a study that was mentioned often 
by opponents during the recent House debate, but they all use 
the same gimmick. They take today's fiscal situation and just 
slap a ratified balanced budget amendment on top of it. If you 
stop and think about that, that's not a very fair way to do it. 
That just seems crazy to me. Had we ratified a BBA in the past, 
the current economic situation would be very different. And I 
like your comment on this gimmick that many BBA opponents are 
using.
    Dr. Holtz-Eakin. I think it's utterly unrealistic and sheds 
no light on the real issues. The balanced budget amendment is 
important not because of the extreme cases that are cited. It's 
the fact that when things are good, Congress can't bring itself 
to balance the budget and, thus, arrives in situations like 
2008 and 2009 with a budget that is already badly out of whack. 
And to pretend that that's sort of the normal starting point 
you'd want to impose a balanced budget on is, I think, just 
utterly unrealistic.
    Senator Hatch. And we allow for a period of time to adjust 
to it.
    Dr. Holtz-Eakin. Yes.
    Senator Hatch. My time is up, Mr. Chairman.
    Senator Durbin. Thanks, Senator Hatch.
    Senator Whitehouse.
    Senator Whitehouse. Thank you.
    States--this will be a question for Mr. Greenstein and for 
Dr. Holtz-Eakin.
    States with balanced budget requirements have capital 
budgets through which they undertake a variety of borrowing and 
spending, as do municipalities. Corporations, under Generally 
Accepted Accounting Principles, assume debt and assume capital 
investment liabilities that they disclose to their 
shareholders, but they're perfectly legitimate.
    Families that believe they are balancing their family 
budgets--and I think in the ordinary sense of the word they are 
balancing their family budgets--nevertheless have mortgages, 
they have student loans, they have credit card debt.
    We in Congress, on the Budget Committee, at least, have 
been talking about how you deal with the capital budget 
problem. We don't do that at the Federal level. How does the 
problem of not having a capital budget interrelate with a 
balanced budget amendment? Would it limit the Federal 
Government's ability to do what corporations, municipalities, 
States, and families all do, which is to borrow within a 
balanced budget structure? Mr. Greenstein, first.
    Mr. Greenstein. Well, the answer is definitely, yes. There 
is no State that has a balanced budget requirement anything 
like the one in these amendments. As you say, States can borrow 
for capital expenditures. They also can run rainy day funds and 
draw them down in recessions. Neither of those----
    Senator Whitehouse. Would be possible under the proposed--
--
    Mr. Greenstein. Would be possible under this.
    Senator Whitehouse. Yes.
    Mr. Greenstein. But there is a----
    Senator Whitehouse. This is pretty unique and unusual.
    Mr. Greenstein. Yes. There's an additional issue, which is 
one that economists have pointed out for years. That is the 
fact though that States have to balance their operating budgets 
in recessions constitutes a drag that makes recessions deeper 
and it makes it all the more important that the Federal 
Government not abide by the same circumstance.
    The study that I and others cited by Macroeconomic 
Advisors, a mainstream firm that has worked for Republican 
administrations as well as Democrats, not only looked at the 
effect today if the balanced budget amendment had been passed 
several years ago, they also looked at the effect of the 
balanced budget amendment were passed during good economic 
times.
    Their conclusion was that because of the ``pall of 
uncertainty'' it would create about what would happen in future 
periods of slow growth that it would fundamentally affect 
cyclical dynamics and retard economic growth in good times as 
well as bad.
    Senator Whitehouse. Dr. Holtz-Eakin, what should we do 
about capital budgeting under the proposal, which doesn't 
appear to permit it?
    Dr. Holtz-Eakin. We don't have capital budgeting in the 
Federal Government and the balanced budget amendment wouldn't 
change that. I mean, this has been a debate that, going back to 
1967, President Johnson's Budget Commission has, in a tiny 
circle of geeks, raged for decades. On balance, it has always 
been the conclusion that a capital budget will be too difficult 
to implement, and we have stayed with what is largely a cash-
flow budget at the Federal level.
    Now, I would point out that----
    Senator Whitehouse.--different than the----
    Dr. Holtz-Eakin.--we appropriate the----
    Senator Whitehouse.--State budgets that people refer to 
often as being a model for what we're doing. It's a very 
significant distinction, is it not? The difference between 
cash-flow budgeting and capital budgeting. There's a 
significant distinction.
    Dr. Holtz-Eakin. It can be a significant distinction. I 
will say my experience at the State level is that the ability 
to have a capital budget is one of the ways that States 
actually evade all sorts of supposedly self-imposed 
restrictions, because things that are capital get relabeled all 
the time. When times are good they put them in the current 
budget, when times are bad they stick them in the capital 
budget.
    I am not a fan--and I say this lovingly--of letting the 
Congress have its hands with more gimmicks that they can use to 
evade discipline. The problem is not finding a way for Congress 
to borrow, the problem is finding a way to get them to stop.
    Senator Whitehouse. I think I took from everybody's answers 
that every witness concedes that there is a counter-cyclical 
role at some point for the Federal Government in the economic 
swings that economies naturally produce. Is that true of 
everybody across the board at some point?
    Professor Morrison. I'm not an----
    Senator Whitehouse. Dr. Holtz-Eakin, you said that you 
wouldn't want it to do just the ordinary up the bounds of the 
economy.
    Dr. Holtz-Eakin. Right.
    Senator Whitehouse. You'd wait for real catastrophes. But 
then it would be important, correct?
    Dr. Holtz-Eakin. Yes. I think that--and every balanced 
budget amendment has provided for a waiver that would allow a 
Congress to step in in extreme circumstances.
    Senator Whitehouse. And Professor Morrison, you wanted to 
say something?
    Professor Morrison. Yes. I'm not an economist but I know a 
little about accounting. This is--in effect, a balanced budget 
amendment would make everybody on the cash accounting basis, 
where no corporation in the United States would ever be allowed 
to be on the cash basis as opposed to the accrual basis.
    So if you're going to do this, at the very least you ought 
to put them on the same basis that everybody else is so that we 
don't hide things on promises in the future. Accrual basis is a 
much more sound way of looking at it, but it's surely not the 
way that our budget has been run.
    Senator Whitehouse. Yes. I'd suggest not only no 
corporation, but no State, no municipality, and no family.
    Thank you.
    Senator Durbin. Senator Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman. I think this 
hearing has been very revealing and important. I guess the 
problem I had with the parade of horribles being marched out 
here with regard to what would happen if the Federal Government 
passed a balanced budget amendment is hard to believe in light 
of the fact that 49 States have some form of balanced budget 
requirement.
    You may say to me, well, the Federal Government is not a 
State, I concede that, but I think most Americans would have a 
hard time believing that while they're required to balance 
their budget, while every business is required to balance its 
budget, that the Federal Government can continue spending and 
is not required to balance the budget because the Federal 
Government can print money and the Federal Government can 
borrow debt that no other person, no other entity, no other 
government could borrow.
    And as far as--the distinguished Chairman has, I think, 
shown great courage in his participation in the Simpson-Bowles 
Commission. Actually, I wish the President would embrace his 
own bipartisan Fiscal Commission report. Instead, he's walked 
away from it and has barely mentioned it since then. Because I 
think that really does demonstrate a way that Congress could, 
working with a leader at the White House, actually solve, or at 
least make great inroads into solving, this problem.
    But because Congress cannot bind future Congresses, we need 
some sort of restraint. If it's not going to be imposed by 
self-restraint, we need some sort of constitutional restraint, 
I believe, in order to require Congress to get back living 
within its means.
    It's not just my idea, it's actually the framers of our 
Constitution, in Article 5, that said that Congress could take 
up a joint resolution to amend the Constitution. We've done it 
27 times, including the Bill of Rights, so it's not a novelty. 
We don't do it often. We do it for important things. But surely 
this would qualify as important.
    And you know what? If Congress doesn't act, the States can 
actually apply and require the invocation of a constitutional 
convention, which if Congress doesn't act, I hope State 
legislatures will take a close look at what the power that the 
people retain in order to force action in Congress unless 
Congress does act. So this is entirely within the mainstream of 
constitutional doctrine and thought and it's regretful we find 
ourselves here.
    Mr. Greenstein, is there any level of Federal debt that you 
would find so threatening to the potential of a sovereign debt 
crisis, such as we're seeing over in Europe, that you would--
where you would say that Congress should be able to accumulate 
debt without end, or is there some point where you would say, 
well, in order to stimulate the economy and keep people at 
work, the Federal Government should have to reign in spending 
because, notwithstanding its desire to stimulate the economy, 
it would threaten the sovereign debt crisis?
    Mr. Greenstein. Senator, my view that the constitutional 
balanced budget amendment is unwise does not at all mean that I 
don't think we face serious fiscal problems. We do. I think the 
work of our centers indicated we have kind of a fiscal hawk 
outlook. We very much commend the Gang of Six, for example, as 
the kind of changes we need to make.
    I think the most relevant metric is the debt as a share of 
the economy. It is the single metric that every bipartisan 
commission elevated as the key. We're currently at about 67 
percent of GDP, but the risk is that in future decades, if we 
don't change course, the debt rises as a share of GDP above 100 
percent, 200 percent, and so forth. That's a serious problem. 
We need to ensure that doesn't occur.
    It's not the case that if you go above 90 or 100 percent of 
GDP that the world immediately falls apart. We were at 110 
percent in World War II, but that wasn't permanent. It then 
came back down when the war ended. The long-term challenges----
    Senator Cornyn. I'm sorry to interrupt you, but 
unfortunately my time is about up and we have votes, and so I'm 
going to have to--I would like to get to other people.
    So the problem is, Simpson-Bowles has been ignored by the 
President of the United States, the very same person who 
appointed the people to serve. I believe that Senator Durbin 
and others, on a bipartisan basis, showed great courage. I 
don't agree with all of it, I don't like all of it, but it 
represents a serious attempt to deal with a real problem, but 
in fact it hasn't been done.
    But I'd like to ask Mr. Romasco, what is AARP's current 
position on reforms to Social Security benefits and the Social 
Security system? What's on the table and what's off the table?
    Mr. Romasco. Our position has been pretty clear. We view 
that Social Security has a solvency problem and a challenge. It 
is a long-term one and actions can be taken to strengthen it 
over the long term. We were active in not wanting to see it 
part of the Super Committee because we thought there was a need 
for that discussion, a broad national discussion about how to 
solve that problem.
    Senator Cornyn. Do you agree with Mr. Rother, AARP's long-
time policy chief, when he told the press in June that AARP was 
dropping its longstanding opposition to cutting Social Security 
benefits as part of an overall reform effort?
    Mr. Romasco. Those context--those comments were taken out 
of context. We certainly didn't authorize that.
    Senator Cornyn. According to press reports, Mr. Rother 
defended the decision, stating that, ``Some of our members will 
no doubt be upset by any such effort, but I believe most would 
welcome a balanced and fair proposal that could strengthen the 
program for future generations and possibly even approve it for 
current vulnerable beneficiaries''. Are you rejecting his 
proposal or his statement?
    Mr. Romasco. Well, he didn't make a formal proposal and we 
have long maintained that both Social Security and Medicare 
need full discussion, a broad range of conversation, and a 
balanced approach.
    Senator Cornyn. And you see what discussion has gotten us 
to this point.
    Mr. Romasco. I'm sorry, Senator?
    Senator Cornyn. And you see what that discussion has gotten 
us at this point.
    Mr. Romasco. I have----
    Senator Cornyn. Without reform, no changes, and 
beneficiaries of Social Security in the future may find 
themselves without the benefits that the Federal Government has 
promised, and that's, to me, unacceptable.
    Senator Coons. Thank you, Senator. As I'm sure both other 
Senators are aware, the vote has begun, thus explaining the 
sudden exodus of the rest of the members of the Committee who 
will return promptly. I've been offered the opportunity to ask 
questions unexpectedly, given the change in order, if I might. 
I'll be relatively brief.
    I'm someone who served as a county executive and lived 
under the strictures of a balanced budget amendment, and thus 
on some level am intuitively drawn to them as a potential 
budgetary solution, but find compelling the question Senator 
Whitehouse asked about the differences between both the Federal 
practices and State, local, municipal that I'm used to that 
have a capital budget that have rainy day funds and so forth.
    Mr. Morrison--Professor Morrison, what experience has there 
been across the country with enforcement actions? The State 
that I'm from, we haven't violated the balanced budget 
requirements at the State, county, or local level. But given 
the dysfunction and the challenges that State legislatures and 
municipal and local legislatures also at times face in 
maintaining fiscal discipline, there must have been some 
actions that enforcement--I may have missed that in the 
portions of this--of your testimony.
    What enforcement actions have been taken by courts? Have 
they been successful, unsuccessful, complex, simple?
    Professor Morrison. I'm not familiar with any actions taken 
at the State level. My principal experience is at the Federal 
level and my concerns are that the State level doesn't 
translate, in part, because of the opportunity for capital 
budget, for borrowing, and other things like that.
    Secondly, certainly at the county level, the States have 
control over anything to be done at the county level. But as 
far as the litigation is concerned, I'm not aware of any that 
has been either helpful or harmful, but I did not look into 
that specifically. I've principally been concerned with the 
Federal laws, and the Federal doctrine of standing is rather 
different than it is in most States.
    Most States have provisions under which taxpayers can go to 
court. You can't do that in the Federal system. So my first 
proposition is that regardless of whether the States have or 
have not been successful, I think we need--if we're going to 
pass a balanced budget amendment, which I do not support--to 
spell out exactly how it's going to be enforced, what the role 
of the courts are going to be, who's going to be allowed to go 
to court, what kind of questions the courts are going to be 
allowed to resolve and what kind of questions are going to be 
out of bounds.
    The members of the Minority have suggested that we have a 
dialog with the American people about this. The American people 
ought to know in advance whether they're turning the process 
over to the courts or not.
    Maybe everyone thinks it's a good idea, but I hear a lot of 
people criticizing the Federal courts for doing too much. This 
is the first time I've ever heard anybody actually propose that 
the remedy for all our problems with our budgets is Federal 
judges.
    Senator Coons. Let me make sure I hear you right, 
Professor. Your concern is that a balanced budget amendment, if 
passed without enforcement provisions, is nothing more than 
puffery, it's just adding to the Constitution something that we 
all hope we will respect because we respect the Constitution 
but that has no actual enforcement mechanism.
    Given--taking as evidence in front of us the demonstrated 
inability of the Congress to achieve balanced budgets for any 
but four of the last 40 years, if memory serves, the likelihood 
that there would be actions to try and enforcement it fairly 
promptly are fairly high and, to your testimony, they would 
inevitably be messy, complicated, and then drag the Federal 
judiciary into the budgetary process in uneven and 
unpredictable ways.
    Professor Morrison. Well, they would be messy and drag the 
Federal courts in only if they got over the threshold 
requirements of standing.
    Senator Coons. Right.
    Professor Morrison. And in my view, and I've never heard 
anybody suggest to the contrary, that unless you specified in 
the amendment to the Constitution that the usual rules about 
standing, political question, ripeness, and mootness were 
changed specifically for the balanced budget amendment, then 
you wouldn't have to worry about any messy trials but you 
wouldn't have any enforcement either.
    And worse than just rhetoric and puffery, as you've said, 
it would be a step backwards because people would say, ah, now 
we've passed the balanced budget amendment, we don't have to 
worry about it anymore, and of course we would have to worry 
about it. So it's not just that it's empty rhetoric, it 
actually would set us back, in my view.
    Senator Coons. Dr. Holtz-Eakin, as one of the advocates of 
a balanced budget amendment, if I remember your position 
correctly, is that correct or incorrect? How would it be 
enforced? How would it actually have an impact in producing 
fiscal restraint?
    Dr. Holtz-Eakin. I'm not a constitutional lawyer so I'm not 
going to pretend I can weigh in on those. But in terms of what 
we've seen at the States' level, there are a wide variety of 
constitutional, statutory, and other balanced budget 
requirements at the State level. Regardless of their severity, 
the commitment to a balanced budget appears to affect outcomes. 
That, in and of itself, I think would be beneficial.
    How you do the enforcement is, I think, an important issue, 
there's no question about it. But to have a public debate that 
would be necessary for three-quarters of the States to ratify 
this would be a national commitment to balancing the budget. I 
cannot believe that wouldn't change things for the better. I 
really believe that.
    And I just want to say on the capital budget, I think this 
is a distraction. You know, the notion of a company borrowing 
to make a capital outlay is really--those are outlays that are 
large relative to the scale of those firms. We have no capital 
outlays that are large relative to the scale of the U.S. 
economy. We can afford to fund our capital and we do it.
    When we buy a missile, the appropriations process pre-funds 
that. You have to appropriate all the budget authority, even 
though the actual outlays might not occur for a long time. You 
had no trouble handling capital expenditures at the Federal 
level. I think this misses the point entirely.
    Senator Coons. Forgive me, I am at some risk of missing 
this vote if I don't call a short recess, but I'm just too 
tempted to follow up on that.
    If you could, Mr. Greenstein, any difference of opinion 
about whether or not a capital budget is simply a dodge? As was 
suggested previously, a capital budget, despite the 
restrictions of balanced budget requirements, if I heard your 
previous testimony correctly, it is the existence of rainy day 
funds in capital budgets that allow States to largely evade any 
enforcement.
    Do we actually have capital investments as a Federal 
Government that are significant relative to the size of our 
economy? My hunch is you would say yes, but I'd be interested--
--
    Mr. Greenstein. Well, we have highways and transportation, 
but I don't think the answer--I--the area where I agree with 
Doug, is I don't think it would be a wise change to change 
Federal budgeting to bring capital budgeting into Federal 
budgeting. I think the answer is not to do a constitutional 
balanced budget amendment with the capital budgeting exception. 
It's not to do a balanced budget constitutional amendment in 
the first place.
    Senator Coons. Mr. Greenstein, is there a world in which 
you can imagine a balanced budget amendment that would have the 
positive effects that Dr. Holtz-Eakin has suggested, meaning 
you would produce a national debate at the State level about 
whether or not we should be pursuing balanced budgets and the 
very real costs that would impose, the very significant 
potential restrictions on entitlement programs that are broadly 
popular, and that this National dialog, in and of itself, would 
have some value, some salutary effect?
    Mr. Greenstein. No. I really think it would be a very 
serious mistake to try to write macroeconomic policy or fiscal 
policy into the U.S. Constitution. I don't think that's what 
the Constitution is for. There were all kinds of unforeseen 
effects that then you can't respond to without having to do a 
new amendment to the Constitution. I think over time we would 
come to regret it in the way we did Prohibition, when that was 
added to the Constitution. We need a national debate on these 
issues but a constitutional amendment isn't the way to get from 
there to here.
    Senator Coons. Can you suggest any alternative way to get a 
constructive and meaningful national debate on the importance 
of achieving a balanced budget and its importance? I mean, I 
think most of the members I've gotten to know in my year so far 
agree that we are fiscally on an unsustainable path, but there 
is obviously, from the failure of the Super Committee, 
fundamental disagreement over, what are the changes that need 
to be made to get there.
    Mr. Greenstein. A couple of points. First, I think that if 
you look at all the bipartisan Fiscal Commissions of the last 
several years they did not erect as the goal balancing the 
budget. They erected as the goal stabilizing the debt as a 
share of the economy at a reasonable level.
    Senator Coons. Correct.
    Mr. Greenstein. I do think it's a significant distinction. 
I think we--you know, if you compare where we are now to where 
we were two or 3 years ago, we've had much more of a national 
debate. If you look at polling data, the public is becoming 
much more focused on these issues.
    Bowles-Simpson, Gang of Six, even the failure of the Super 
Committee, I think we're moving to a point where there will be 
significant changes. I don't share the view that Congress's 
record is nothing but one of failure here.
    In 1990, there was a major bipartisan deficit reduction 
agreement. There was another in 1993. It wasn't bipartisan. 
Then we had the 1997 Balanced Budget Act. The combination of 
those three pieces of legislation, combined with a strong 
economy, got us back to budget surpluses in the late 1990s.
    The biggest mistake we made was when we walked away from 
the pay-as-you-go rules in 2001. Were we to make a decision to 
fully abide by the pay-as-you-go rules going forward for 
everything, from the Medicare physicians to the tax cuts that 
are scheduled to expire, that would produce $7 trillion in 
deficit reduction and would help stabilize the debt over the 
coming decade.
    Senator Coons. So if we simply followed the policy that is 
in place and didn't change it, we would make significant 
progress in terms of----
    Mr. Greenstein. Very substantial progress, even bigger than 
Bowles-Simpson or Gang of Six.
    Senator Coons. If you'll forgive me, with that I'm going to 
call a brief recess. Several members are on their way back, but 
I must vote or I will miss this vote.
    With that, this hearing is in recess.
    [Whereupon, at 11:28 a.m. the hearing was recessed.]
    AFTER RECESS [11:31 a.m.]
    Senator Durbin. I know this has been irregular with our 
roll call vote, and some members will be returning and I'll 
yield the floor immediately when they do. But in the interest 
of a couple questions here I'd like to continue.
    I'd like to ask Professor Morrison to comment on an 
interesting meeting we had, hearing, of the Senate Judiciary 
Committee on October 5th with Supreme Court Justices Scalia and 
Breyer. It was a fascinating hearing. One particular exchange 
I'd like to share with you between Chairman Leahy and Justice 
Scalia.
    Chairman Leahy asked, ``Justice Scalia, under our 
Constitution, what is the role, if any, the judges play in 
making budgetary choices or determining what is the best 
allocation of taxpayer resources? Is that within their proper 
role or is that somewhere else?'' Justice Scalia answered, 
``You know it's not within our proper role, Mr. Chairman. Of 
course it's not. Of course it's not.''
    Naturally, Scalia is pretty outspoken in his response 
there. That is a reflection of--in fairness to him and both 
justices, a reflection of the current interpretation of the 
Constitution. Absent specific language giving the court 
authority to review the provisions of a constitutional balanced 
budget amendment, do you believe the courts--the Federal courts 
have the authority to take up that question?
    Professor Morrison. As my written testimony shows, it's my 
view that the law is quite clear that the Federal courts would 
refuse to get into this balanced budget mess unless directed to 
do so by the Constitution. I think Justice Scalia accurately 
reflects the view of most Federal judges, that they would be 
dragged kicking and screaming and try to find every way they 
could do to possibly avoid having to make the kind of choices 
between Medicare, defense, Social Security, environmental 
protection, transportation, and food stamps, which is the kind 
of choices that would have to be made.
    So I don't think that Federal judges are the right people 
to make those decisions and I think that they would gravely 
resist any effort to do so. But of course, they would follow 
the law if they were required by the Constitution explicitly to 
do that.
    Senator Durbin. Dr. Holtz-Eakin, assuming that the courts 
have the authority, either they find authority where Justice 
Scalia did not or it is expressly given in the balanced budget 
amendment, what are your thoughts about the expertise of 
Federal judges to make these decisions about the budget?
    Dr. Holtz-Eakin. I think it's probably a tie between them 
and what we see in Congress, sir.
    Senator Durbin. I'm going to take that as faint praise.
    Dr. Holtz-Eakin. You should.
    Senator Durbin. But go to the specifics that Professor 
Morrison raised. If you're faced with a challenge or the 
argument's being made that the Congress has overspent in its 
Federal budget, work this through even the quickest Federal 
judicial schedule and come up with the remedy that you think 
would allow us to continue to harmoniously govern this country 
as we go through this question period.
    Dr. Holtz-Eakin. Well, again, let's take some of the 
balanced budget amendments that have been under consideration. 
They typically say balance, but they also say, you know, 
spending shall be capped at this level of GDP, taxes at another 
level of GDP. So, you know, if you've overspent and its clear 
you're above that level of GDP, you're going to have to solve 
this problem by cutting spending, and the judges are going to 
know that. The simplest rule is going to be, they're going to 
just cut everything across the board and get down to the cap. 
So I actually don't think that----
    Senator Durbin. Across-the-board cut, you're suggesting?
    Dr. Holtz-Eakin. That would be my guess.
    Senator Durbin. Veterans, disability, military----
    Dr. Holtz-Eakin. It's strictly--strictly----
    Senator Durbin [continuing]. Retirement?
    Dr. Holtz-Eakin. Strictly conjecture. I mean, there's no 
way to know for sure.
    Senator Durbin. OK.
    I'm going to defer immediately to Senator Blumenthal after 
this question. Would you comment on the notion that has been 
put forward in a number of these amendments that we should 
somehow enshrine the question of revenues and taxes so, for 
example, the court could not order additional revenue be levied 
against the people of this country, a surtax to pay for the 
difference.
    Assuming we are facing a natural disaster, that someone 
argues Congress has over-spent and the President signed it, I 
suppose, and at this point the Federal judiciary could not even 
consider additional revenue to deal with that type of disaster.
    Dr. Holtz-Eakin. So again, every amendment that I think has 
been taken up with serious consideration has had the capacity 
for a waiver. So let's--you know, let's acknowledge that there 
would always be the possibility of raising more revenue, doing 
more spending in extreme circumstances.
    The next question is, you know, how should you set the 
level of--the scale of the Federal Government? In the end, 
that's a question of politics in a representative democracy and 
you wouldn't get such a balanced budget amendment enshrined in 
the Constitution unless the American people signed on. And so I 
think that's how it should be solved.
    Senator Durbin. Senator Blumenthal.
    Senator Blumenthal. Thank you, Senator Durbin. Thank you 
all for being here today. This hearing has been very 
instructive. I want to sort of pursue the point, Mr. Holtz-
Eakin, that you were making just now about the existence of a 
waiver. Isn't there the very real danger, and knowing how the 
Congress operates from my brief experience here of less than a 
year, that the exception of the waiver would swallow the rule?
    In other words, that the balanced budget amendment itself 
would become a sort of message bill, another term that's 
frequently used around here, and that it would have very little 
practical effect because the waiver would be in vogue for other 
reasons, and the difficulties that have been mentioned during 
this hearing.
    Dr. Holtz-Eakin. I'm rarely the one to come to the defense 
of the Congress, but----
    Senator Blumenthal. You did speak of us, to use your word, 
lovingly.
    Dr. Holtz-Eakin. Yes.
    Senator Blumenthal. Give me one of your responses.
    Dr. Holtz-Eakin. I mean, in the end the mechanical ability 
to have a super majority waiver of the rules would be there and 
it could be the case that a Congress would exercise it more 
frequently than we might anticipate or like.
    But remember, prior to that happening the American public 
is going to have to amend the Constitution. Three-quarters of 
the States are going to have to ratify this. There's going to 
be enormous national debate.
    If a Congress then turned around and started violating the 
express wishes of the American public with great frequency, I 
can't believe that many of the members would keep their jobs.
    Senator Blumenthal. Well, I guess that is an optimistic 
view of the way it would operate. But let me also, going into 
some of the practical implications, Professor Morrison, it's 
true that, for example, the education litigation has taken 
years and years and has proved very unwieldy, but in the end it 
has had some effect. Can you think of a way to structure the 
challenge, assuming that the standing obstacle could be 
overcome, that there could be a practically enforceable result 
from the courts?
    Professor Morrison. I've thought a lot about that. I think 
the answer is no. That's because the amendment itself focuses 
on a fiscal year, and the problem is only in a given fiscal 
year and you would have to be able to provide a remedy within 
that fiscal year.
    Of course, the amendment could specify that if in year one 
you improperly run a deficit, then in year two you have to pay 
back that deficit before you spend more. That's not what any of 
the amendments say. I can think of 100 objections as a matter 
of policy to that, but you could legally do that, I suppose, 
and you would get around the problem of mootness.
    I should also point out that even if you manage to get a 
remedy in place by, say, the middle of August that required a 
10 percent reduction, you're taking 10 percent not out of the 
whole year's budget, but you're taking it out of what's 
remaining of the portion of that year so the effect is, in 
effect, a 50 percent--or close to 50 percent--reduction for the 
remainder of the year. And so you really have to be very 
careful with any kind of remedy like that. And then, of course, 
there would be appeals of that order, and people would argue 
about it, and Congress might step in and it's very hard to do 
anything effective.
    Senator Blumenthal. But the major obstacle that you have 
identified, and I think very plausibly and correctly, is the 
time line and the amount of work and time that would be 
required to litigate. There are precedents for dealing with 
very complex and politically charged issues in a narrow window 
of time.
    Professor Morrison. Yes. Yes. I would say this issue, of 
course, is quite different from many other constitutional 
challenges which I've been involved in where the issues are 
purely legal issues. Here, there are going to be very sharp 
disputes about facts, about whether estimates are good or not.
    Meanwhile, by the way, the economy doesn't stand still 
while the fiscal year is going on. That is, the unemployment 
gets worse, tax revenues go up or down, and all of that will 
have to be factored into what will be a moving target. So, yes, 
there's surely precedent for very prompt litigation, but not of 
a kind like this.
    Senator Blumenthal. Where massive fact-finding is required.
    Professor Morrison. And discovery and trials and briefs 
and----
    Senator Blumenthal. Well, of course all that could be 
limited under rules that could be established by the courts for 
defining what amount of discovery and putting very narrow 
deadlines on that. But while the litigation is ongoing there 
would be massive uncertainty in the markets, in the economy, 
which itself could have a negative effect. Is that true?
    Professor Morrison. Yes. But to the extent that you put 
limits on discovery, you put burdens on the challenger, and 
therefore you make enforcement that much less likely and that 
much less effective.
    There's been discussion here about a debate with the 
American people. If we're going to have a debate, item one on 
the debate should be, are we prepared to turn this over to the 
courts if the Congress doesn't do its job, because that's a 
debate that barely has begun in the Congress and it surely has 
not begun with the American people.
    I don't think anybody has really taken this issue and tried 
to explain it. It's not an easy issue to explain to ordinary 
people, that the means by which this amendment is going to be 
enforced is by turning the case over to the Federal courts.
    Senator Blumenthal. Thank you. My time has expired. But 
thank you all for your testimony today.
    Senator Durbin. Thanks for returning, Senator Blumenthal.
    Senator Lee.
    Senator Lee. Thank you, Mr. Chairman. I'd like to thank 
each of you for coming. I also want to thank Chairman Durbin 
for convening this hearing, which I think addresses one of the 
most important issues of our generation. This was a central 
focal point of my campaign for the U.S. Senate. It's also 
something that I've focused on extensively since coming to the 
U.S. Senate.
    I feel so strongly about the fact that we need a balanced 
budget amendment that I've even written a book about it. So 
needless to say, I am an advocate of this. I'd like to respond, 
before I get into questions, to some of the points that have 
been made today.
    First of all, I think one of the reasons we need to 
remember why we need this is because as fun as it is to say 
that Congress just needs to do its job, one of Congress's jobs, 
as it has perceived it, and one of its jobs as is made clear in 
Clause 2 of Article 1, Section 8, is to borrow money on credit 
of the United States.
    The problem is that that power has been abused to the point 
where we're now $15 trillion in debt, to the point that by the 
end of this decade we'll be paying close to, if not in excess 
of, $1 trillion a year just in interest on our national debt.
    Now, this is no longer a simple debate between liberals and 
conservatives, between Republicans and Democrats, because 
whether you're most concerned on the one hand about shoring up 
our ability to fund national defense, or on the other hand most 
concerned about making sure that we have enough money to fund 
entitlement programs, you have to acknowledge that the roughly 
$800 billion delta between what we're paying in interest right 
now and what we could be paying in interest just a few years 
from now has the potential to bring about devastating 
consequences for every Federal program, from defense to 
entitlements.
    This isn't a situation in which we can just do nothing 
because doing nothing will bring about a situation in which 
we're forced to make abrupt, draconian, and very painful cuts 
to every Federal program, and including and especially those 
upon which the most vulnerable members of our civilization have 
come to rely. That's why I think it's irresponsible for us to 
pretend that there isn't a problem that we have to address.
    I want to address the problem that suggests that somehow 
this would be dead letter law unless we turn over the entire 
budgeting process to the courts. I respectfully, but most 
forcefully, disagree with this point. First of all, we have to 
remember that, particularly when Congress is entrusted with 
certain constitutional responsibilities, it does take them 
seriously. There are a number of instances in which Congress is 
required to pass certain things by a super majority threshold. 
That's required in the case of expelling a member under Article 
1, Section 5. It takes two-thirds of that House. That's the 
case under Article 1, Section 7, Clause 2, where it takes two-
thirds to override a presidential veto.
    And yet, we don't find ourselves mired in litigation every 
time those thresholds are implicated, or in the case of Senate 
ratification of a treaty. This is simply that. This is a super 
majority requirement that says Congress needs to spend no more 
than it takes in, and Congress needs to spend no more than a 
fixed percentage of GDP, keeping in mind the fact that there 
ought to be a limit to how much out of every dollar the Federal 
Government ought to be able to take and consume before it's 
even spent, and spend money that future generations have yet to 
make on behalf of people who one day will have to pay it back, 
people who are in some cases not old enough to vote, in other 
cases not yet born, in other cases people who will one day be 
born to parents who have yet to meet. This results in a really 
nasty, pernicious form of taxation without representation. We 
fought a war over that. We won that war.
    Now, if you're suggesting that if this did result in 
litigation--and I understand your standing concerns. I address 
that in Senate Joint Resolution 5. It's not directly addressed 
in Senate Joint Resolution 10. I wish it were. I will continue 
to keep that in mind.
    But if it were to result in litigation there are benchmarks 
against which Congress could ensure that the litigation would 
not be mired down for years, that it wouldn't have to result in 
extensive discovery. The balanced budget amendment that all 47 
Republicans, including myself, have co-sponsored provides that 
Congress may, by appropriate legislation, enforce the terms of 
this amendment.
    This means that Congress could identify as a particular 
entity, a particular office--perhaps the Congressional Budget 
Office--as the entity in charge of deciding whether or not a 
particular budget is or is not balanced. This could result in a 
binary compliance standard, one in which the CBO either does or 
does not say it's in compliance.
    Then you could have a court, assuming you could get around 
the Article 3 justiciability issues that I believe you could, 
because with respect, I think Raines v. Byrd, although it makes 
some important points in this, it's not necessarily the 
inexorable command that you could never have a Member of 
Congress with standing, irregardless of what we came up with.
    So Professor Morrison, in the few seconds I have left, I'd 
like you to just answer the question: have we ever had 
extensive, protracted litigation on issues of public 
importance, national importance that have focused on whether or 
not Congress has complied with its mandate to pass certain 
things by a super majority?
    Professor Morrison. The question is whether a court has 
never had to decide whether Congress has complied with a 
requirement like that. The answer is, there is a case involving 
the question about whether or not a revenue bill originated in 
the House of Representatives or not. The court decided that 
question. That's a kind of technical compliance question. But 
no questions involved----
    Senator Lee. And how did the court decide that case?
    Professor Morrison. It decided that the bill had originated 
in the House of Representatives.
    Senator Lee. OK. So in that one case, the one case that you 
can point to where that resulted in litigation, the court 
decided it.
    Professor Morrison. But that's a very----
    Senator Lee [continuing]. The country in months and months 
or years and years or decades of litigation, did it?
    Professor Morrison. A very different kind--that's a pure 
legal question. No facts, no discovery.
    Now, can I say a word about the Congressional Budget 
Office, for which I have great respect? Under the Gramm-Rudman 
case, it is perfectly clear that, unless you make another part 
of an amendment to the Constitution, the Congressional Budget 
Office cannot carry out the function of deciding whether the 
Congress has complied with the Constitution or not or whether a 
particular budget is in line with the Constitution. That would 
either have to be given to the President or to the courts.
    The Congressional Budget Office is part of Congress and 
separation of powers is very clear that the CBO cannot do that. 
As far as raising standing, I was the losing lawyer in the 
Raines case so it pains me----
    Senator Lee. It was masterfully litigated, nonetheless.
    Professor Morrison. Yes, yes. But we won on the merits 
eventually. If I may say a word, I regret the passing of your 
father, with whom I worked on many cases on both sides.
    Senator Lee. As do I. We miss him. Thank you very much.
    Senator Durbin. Let me ask you, if I can, Professor 
Morrison. There's a provision in here that was topical a few 
months ago. I'm referring to Senator McConnell's balanced 
budget amendment. It's the provision on the limit on the debt 
of the United States shall not be increased unless three-fifths 
of the duly chosen and sworn members of each House of Congress 
shall provide for such an increase by roll call vote.
    We went through this debate not long ago, and the question 
was--and maybe this is something you can or cannot answer, or 
if someone else would like to--do you feel that the President 
had any inherent authority to borrow that money absent an 
express vote of Congress to extend the debt ceiling?
    Professor Morrison. In my opinion, the President does not 
have that authority, but I have not done the legal research 
necessary to do that. I say that because in my view the power 
to borrow money and to incur obligations on behalf of the 
United States is one that is given to the Congress, that it 
must be done pursuant to a law.
    The problem is a little complicated by the fact that there 
was an existing law in effect at the time. Had there been no 
law, if we had had no debt ceiling at all, then it might have 
been a more arguable question. It's rather like the Youngstown 
case in which there were existing laws that limited the power 
of the President. If Congress were to eliminate those laws it 
would be a different question. I'm not sure I would come out 
the same way, but I would at least want to hear the arguments 
about it.
    Senator Durbin. I guess the only element there that I would 
raise is that Members of Congress, having voted for the 
appropriation, for the spending, or many of them, then turned 
around and said, but of course I'm not going to vote to borrow 
the money to cover what I've just voted for. So they had made 
an inherent decision to borrow money by spending it, voting to 
spend it, appropriate it, and then turned around and said, but 
no, not--I wouldn't extend the debt ceiling for that.
    Professor Morrison. I think we will never get an answer to 
that question because even if something actually happened along 
those lines, the Federal courts would say we don't have any 
jurisdiction to decide that question. That's not a case of 
controversy within Article 3, and nobody's got standing to 
raise it.
    Senator Durbin. Mr. Greenstein, one of the things that you 
noted in your testimony and didn't have a chance to put it in 
your oral statement, is a distinction related to child care, if 
I'm not mistaken. It's an important distinction because this 
balanced budget amendment enshrines the Tax Code and says to 
touch the Tax Code you need a super majority vote, but you can 
cut all the spending you want with a majority vote. You made 
the point in there, when it came to child care, that when it 
came to the poorest families in America that child care was a 
matter of appropriation.
    When it came to families of means, it was a benefit under 
the Tax Code. So we clearly are creating, on this one single 
issue, a distinction where, if we are going to change the Tax 
Code and reduce the benefits for child care for people with 
means who itemize, we need an extraordinary vote.
    But if we're going to cut the appropriation for child care 
for those who are of limited means, then that can be done by 
simple majority. It seems to me that is one illustration of why 
we should not make this distinction, why tax expenditures 
should be treated as expenditures. They have the same budget 
impact. I appreciate your comment.
    Mr. Greenstein. Well, not all tax expenditures are equal 
and exactly the same, but a substantial number of tax 
expenditures are really the pure equivalent of spending just 
done through the Tax Code. They are subsidies where the 
mechanism Congress has chosen to provide the subsidies is 
through the Tax Code rather than through the spending side, and 
there are distributional implications here.
    So the child care example, to elaborate on it a little bit 
more, is that if you are a low or moderate income family your 
child care subsidy, if you have one, will come through a 
Federal spending program, appropriated program, or a mandatory 
program--child care and development block grant for example. 
And that's not an open-ended entitlement. Only about 1 of every 
6 low-income families with children that are eligible for 
Federal child care subsidy gets it.
    By contrast, if you're an upper-middle or upper income 
family and you have child care costs, you get a Federal 
subsidy, too. You get it through the Dependent Care Tax Credit. 
That is not subject to appropriation. It is not a capped 
mandatory program. So we have an open-ended subsidy at the top: 
100 percent of the eligibles who apply on their tax return get 
it. We have a limited subsidy at the bottom, where only a 
percentage, a fraction of the eligibles get it, but they're 
both child care subsidies.
    So if you wanted to say we have a deficit and we think the 
Federal Government should do less in child care subsidies, why 
would you want a structure that shields the child care 
subsidies for the people that need it the least that are going 
to work anyway and constrains the child care--you'd want to 
have a level playing field.
    Senator Durbin. So, Ms. Furchtgott-Roth, why would we? Why 
would we put that in the Constitution? Why would we draw this 
distinction? It's a government service provided to American 
citizens, one through direct appropriation, one through the Tax 
Code, and we are protecting one by arguing that to reduce it 
takes an extraordinary vote, but we're not protecting the 
other.
    Ms. Furchtgott-Roth. Well, there are many examples of 
benefits in the Tax Code that affect lower income individuals 
also.
    Senator Durbin. Now, let's take this specific--let's stick 
with this one for a minute. Tell me why you think our 
Constitution should protect, by requiring a higher vote to 
reduce it, this tax expenditure, this tax credit for child care 
for wealthy people but not protect the appropriation needed to 
provide child care for people of limited means?
    Ms. Furchtgott-Roth. So I think if you're going to look at 
particular individual provisions of spending and of the Tax 
Code you need to look at them in the aggregate because the 
EITC, for example, that benefits low-income people, would also 
require a super majority.
    But the general idea is that it constrains Congress more 
because it would be more difficult to raise taxes, because 
otherwise taxes will just go up and spending will just go up. 
One can think of other examples where spending initiatives 
benefit upper income individuals and tax changes benefit lower 
income individuals. The point of the balanced budget amendment 
is to make it more difficult for the Federal Government to 
spend money.
    Senator Durbin. I understand.
    Mr. Greenstein. With all due respect, the answer is not 
correct. The Earned Income Tax Credit and other low-income 
refundable credits are classified in the Federal budget as 
spending, not as revenue. You would not need a super majority 
to cut the refundable Earned Income Tax Credit or the 
Refundable Child Credit. You would need a super majority to 
restrain an egregious tax loophole that was on the tax side.
    Senator Durbin. I would just say, and I'll defer to my 
colleagues here, when we went into the Bowles-Simpson debate 
that was one of the first things that everyone agreed on: the 
Tax Code was not sacred. It is earmarked expenditures through 
the Tax Code to meet certain ends, achieve certain goals, which 
is comparable to what we do with appropriation spending. Each 
has an impact on the deficit.
    When we start drawing distinctions in the Constitution, 
that if it's in the Tax Code it somehow is more sacred, I think 
it belies the reality of politics in Congress. What goes on in 
the Finance Committee, what goes on in the Appropriations 
Committee is very similar in terms of the political push-and-
pull, and to make this distinction in our Constitution, I 
think, goes too far.
    Senator Blumenthal, did you have any follow-up questions?
    Senator Blumenthal. I noticed that at least two of the 
witnesses wanted to respond to your point, so I'm actually 
going to give them the opportunity, if you have a response----
    Dr. Holtz-Eakin. Thank you, Senator.
    Senator Blumenthal.--because I would be interested in it.
    Dr. Holtz-Eakin. Thank you, Senator. I guess my reading of 
this is, there's a super majority needed to raise the level of 
taxes. It doesn't constrain in any way the composition of the 
Tax Code, so if one were to eliminate a tax-based subsidy for 
child care or anything else, and there are lots there, and 
offset that with reduced revenues somewhere else, you wouldn't 
need a super majority to do that.
    So what you would do, is you would broaden the base and 
lower the rates, which means this would in fact drive the kind 
of good policy tax reform that we know we need. So I don't view 
this----
    Senator Blumenthal. But you don't disagree with the point 
that Senator Durbin was making, that there really is a 
comparability as to tax expenditures and what we know as 
appropriations?
    Dr. Holtz-Eakin. Oh, I--the notion that we are providing 
targeted subsidies through both the tax and the spending side, 
I agree with that. My point is that the balanced budget 
amendment provides caps on total spending, it provides caps on 
total taxes, it is silent on the composition. It's a level 
playing field in that sense.
    Senator Durbin. If the Senator from Connecticut would 
yield.
    Senator Blumenthal. Sure.
    Senator Durbin. Section 4, any bill that imposes a new tax. 
The elimination of the mortgage interest deduction will result 
in higher taxes on my family. That, at least, is a question 
that has to be resolved, maybe in the courts, as to whether 
that is a new tax on my family.
    Now, there is a specific exemption in that same section 
which says, but this doesn't apply if you're lowering statutory 
rates of tax. But when it comes to new tax, you know, when you 
get into this area and try to enshrine the Tax Code and say 
it's going to be treated in a different fashion, first, we're 
not paying any attention to the deficit when we do that. 
Secondly--I'm sure the dynamic growth people see this 
differently, but this is how I view it. But secondly, we end up 
protecting earmarks in the Tax Code, as we have condemned 
earmarks in spending, and that troubles me.
    Dr. Holtz-Eakin. Well, I mean, my reading of it is that 
that would not be a new tax. I view this as, we have an income 
tax, we can configure it in many ways, and have through 
history, and that what the amendment would in fact simply do is 
limit the total level of taxation and allow the Congress to, 
within that cap, rearrange--and should rearrange, quite 
frankly.
    Senator Blumenthal. Yes. But aren't you troubled, Mr. 
Holtz-Eakin, by the enforcement issue? You do raise it in your 
testimony. You say we need to consider it. Without an answer to 
that enforcement issue and the standing issue that Senator Lee 
does, as you said, to his credit, address, or I think Professor 
Morrison said to his credit, address, is only one and might be 
viewed as the least important of those issues, the most easily 
soluble. But without enforcement, even with the waiver, isn't 
this really just dead letter?
    Dr. Holtz-Eakin. Again, I'm not a constitutional lawyer, 
but when I look at this and I hear the debate about it, First, 
to repeat what the Senator from Utah said, which is that 
Congress takes its constitutional responsibility seriously and 
I do not think it would, in a frivolous and large way, violate 
a balanced budget amendment so the remedy would have to be 
imposed with this course would be so draconian that--as has 
been portrayed. I just view that as quite unlikely.
    Secondly, the threat of such a remedy would actually impose 
some discipline on Congress. They would not want to have a 
judge imposing that. In fact, we know that Congress dislikes 
the threats of across-the-board cuts and sequesters because it 
regularly waives its self-imposed----
    Senator Blumenthal. But the opposite is also true. The lack 
of an effective remedy would encourage, in effect, disobeyance 
by the Congress. I take the point that Congress has a 
constitutional responsibility, independent of the judiciary, 
independent of the executive branch, but again, on issues that 
are so complex and so politically charged, doesn't that 
enforcement issue have to be solved before we adopt this kind 
of very momentous amendment?
    Dr. Holtz-Eakin. Again, I think we have learned that this 
may be the only way to get real enforcement because every 
budgetary enforcement mechanism that Congress has attempted to 
impose on itself, it has waived. There is no enforcement at all 
now. This at least takes us a step in the right direction. So I 
view this as far less troubling than certainly you and my 
panelists do.
    Senator Blumenthal. Professor Morrison.
    Professor Morrison. There's one other problem that I 
haven't alluded to yet, and that is that I don't even know 
which proposed constitutional amendment is going to be on the 
floor. So when we're discussing what this one means, I say, 
wait a second. You know, usually we have a debate at the 
Committee level. We have a target, we know what it is, and we 
can have perfecting amendments.
    Not that I think this can be perfected, but we surely 
should not be in a position where this kind of question about 
whether something--whether tax expenditures are or are not 
subject to this exception--is to be decided, what, by the 
people out there or by the Federal courts? No. That compounds 
the felony.
    Senator Blumenthal. Thank you, Mr. Chairman.
    Senator Lee. Thank you.
    Professor Morrison, I just want to pick up on sort of where 
we left off. I want to clarify, first of all, that in referring 
to CBO I'm not talking about making CBO the enforcement arm. I 
share your concern that that would create its own range of 
constitutional problems. I'm saying simply that that could 
narrow any discovery that might need to be conducted in court.
    If Congress were to say we're going to use CBO numbers, 
we'll look at those, Congress would then have the opportunity 
to accept or reject their own estimates and that would narrow 
the litigation possibilities--the opportunity for discovery 
significantly to the point that I think it could be shortened.
    But I want to get back to the point about the oath to the 
Constitution. Each of us, when we're sworn in as Members of 
Congress, are required to take an oath to ``uphold the 
Constitution and to bear true faith and allegiance to the 
same''. That does have an effect.
    Much as our popularity rating among the American people--
which is somewhere to the south of that of Fidel Castro--might 
suggest otherwise, Members of Congress, when faced with very 
specific commands, do tend to take those very specific 
constitutional obligations quite seriously.
    Let me point to one of the examples that rarely gets 
brought up, which is the impeachment and removal of sitting 
presidents. You had a situation a few years ago in which a 
Democratic President was not removed--after having been 
impeached by the House, was not removed by the Senate, 
notwithstanding the fact that the Senate was Republican 
controlled and this President was a Democrat.
    One of the reasons why that President was not removed, even 
though the votes might have been there if they wanted to, there 
was extensive discussion about what it means to have committed 
a high crime or misdemeanor. There was Founding Era 
documentation of what that really meant and there were a number 
of members of this body in both parties who said, you know, I 
don't think this is it.
    Congress does police itself fairly well, especially when it 
knows that the buck stops with Congress. So I really think that 
we ought to avoid any situation in which we are simply going to 
assume Congress won't follow it, this has to result in 
litigation, and the only way that this could ever be enforced 
would be through litigation. I simply reject that viewpoint.
    I'd like to ask a question to you, Dr. Holtz-Eakin. Do you 
think an argument can be made--do you agree with my viewpoint, 
and if so, why, that the longer we postpone requiring Congress 
to balance its budget and to live within certain parameters of 
spending, that we really are jeopardizing the very same 
programs that we're talking today about that many have 
expressed concern about preserving.
    Dr. Holtz-Eakin. Absolutely. Our social safety net is 
broken. I mean, the Social Security rate now is running a $50 
billion cash-flow deficit. The current ``plan''--and I put that 
in quotes because it's a disgrace--is for future retirees to 
get an across-the-board cut of 23 percent so that we maintain 
the solvency of the system. That's terrible. That should be 
fixed.
    Medicare, right now, there's a gap of $280 billion between 
premiums and payroll taxes in and spending going out. Ten 
thousand seniors are retiring every day. That program will not 
survive for the next generation of seniors. So we should be 
fixing these now for the programs' and beneficiaries' sakes, 
plus the red ink and the economic consequences.
    Senator Lee. So those are problems that in some respects go 
above and beyond the present-day problems that we face from our 
debt, in other words.
    Dr. Holtz-Eakin. Yes.
    Senator Lee. How far do you think we have to go before our 
interest rates, or the yield rates we have to pay on U.S. 
Treasury instruments, start to return even just to historical 
levels, let alone start to go Greece on us?
    Dr. Holtz-Eakin. The truth is, we don't know. In the end, 
these are relative comparisons and we have the virtue of being 
the best-looking horse in the glue factory at the moment. But 
those relative comparisons can switch quickly and I don't think 
we should take any comfort in that.
    I was asked the same question on a panel in the other body. 
I was sitting next to Carmen Reinhart, who is a subject matter 
expert in this. My answer was, ``I don't know how long we have. 
We should pretend we have no time.'' And she said, ``Doug's an 
optimist''. I take that seriously.
    Senator Lee. Great. That's very helpful. Thank you.
    Dr. Diana.
    [Laughter.]
    Ms. Furchtgott-Roth. Yes.
    Senator Lee. I did want to point out, in response to your 
testimony, the provision dealing with the military conflict or 
declaration of war. That is different in the consensus 
Republican proposal, Senate Joint Resolution 10. That extends 
only to the extent of the funds required to be--that have to be 
expended in connection with that war or military conflict. So 
the specific excess has to be identified and then the specific 
excess above the spending rates of this provision would be 
limited to that military conflict.
    Ms. Furchtgott-Roth. Right.
    Senator Lee. So that isn't present at that moment.
    Ms. Furchtgott-Roth. Yes. That's a big improvement.
    Senator Lee. Oh, thank you. I thought so. We worked pretty 
hard on that.
    I see that my time has expired. I thank each of you for 
coming.
    Senator Durbin. Senator Lee, you've been very patient and 
returned. If you'd like to continue for a couple minutes, 
please feel free.
    Senator Lee. Thank you very much. I appreciate that, Mr. 
Chairman.
    Mr. Morrison, with respect to standing, couldn't Congress, 
pursuant to what I analogized to, our version of Section 5 of 
the 14th Amendment, the portion of this that says Congress may, 
through appropriate legislation, take steps to enforce this 
provision.
    Couldn't Congress provide through that legislation that 
Members of Congress could, under certain limited circumstances, 
have standing to sue under this provision and establish 
standing? Or is it your position that Raines v. Byrd 
conclusively resolves that issue and that there is no 
possibility that they could satisfy Article 3 standing 
requirements in that circumstance?
    Professor Morrison. My view is that Raines would control 
and that Congress could not, and the Supreme Court would agree 
that it could not, create standing for Members of Congress or 
anybody else.
    But if--as you are aware of the standing problem and 
believe that standing is important to have enforcement, then I 
agree that your S.J. Res. 5 does the right thing if you want to 
confer standing on Members of Congress by putting it in the 
Constitution. The Supreme Court would honor that.
    It would not necessarily agree to hear the case because, as 
my testimony points out, the political question doctrine, as 
well as ripeness and mootness, would also stand in the way, and 
surely the political question doctrine, focusing mainly on the 
issue of remedy, I think, as the quotation from Justice Scalia 
indicates, the court would be very reluctant to assume that 
Congress intended to make it the arbiters of the Federal 
budget.
    Senator Lee. And you may well be right in that respect in 
that the court may well be reluctant to become the first and 
last arbiter of the Federal budget. That being the case, I 
think that plays in exactly to my point about how Members of 
Congress, particularly when they understand that the buck stops 
with them as far as their interpretation of a particular 
constitutional provision.
    For example, those clauses dealing with the impeachment 
power, the power to remove individual Members of Congress, the 
power to ratify treaties, the power to override a Presidential 
veto, things like that, Members of Congress have tended, have 
they not, to abide by the Constitution.
    Professor Morrison. Yes. If you want to say that the 
Federal court shall stay out of it then you ought to say that 
in your amendment to make it absolutely clear the Federal 
courts don't get into it, then the American people can then 
decide, based upon a clear statement in the amendment, that 
we're going to depend upon Congress to enforce this amendment 
and we're not going to depend on anybody else.
    I think many people would think that it would be empty 
rhetoric, and by the time the amendment got passed and got 
enacted by all the States, we'd be another 5 years down the 
road, and everybody would say, we're waiting for the amendment 
to take place, then Nirvana will arrive and all our problems 
will go away. I don't think that's a very good bet.
    Senator Lee. But aren't there countless circumstances in 
which we benefit from the fact that there is some perhaps 
minimal uncertainty, the Sword of Damocles effect, in the fact 
that the courts could step in in a given circumstance? Doesn't 
that that keep Members of Congress honest?
    Professor Morrison. I don't think in this situation they 
would.
    Senator Lee. Why is this situation any different than any 
other situation?
    Professor Morrison. Because in this situation the 
temptations to exceed the budget limits are so great, given all 
the pressures from outside groups. The very reason we have this 
problem today is because it's easier to say yes than it is to 
say no. That's why we have the problem. The once-in-a-
generation impeachment is not the same as the regular, annual 
budget cycle, campaign contributions, all the things that cause 
Members of Congress to do what they do in creating deficits.
    I don't think that this alone may do it. Maybe Congress 
should just pass a joint resolution that every Member of 
Congress takes an oath to see that there's a balanced budget, 
and everyone say we'll run upon it next year in the election. 
At least that wouldn't be enshrined in the Constitution and we 
wouldn't have any litigation over that.
    Senator Lee. Although we could find a way to litigate that, 
too.
    Professor Morrison. Well----
    Senator Lee. I'm sure we'd want to retain you.
    Professor Morrison. I'm pretty good at that. I think I 
would have--there's also the speech and debate clause, which 
I've got backed up for you if you don't want to worry about 
that kind of litigation.
    Senator Lee. OK.
    But your bottom-line analysis is: fish or cut bait. Either 
put standing in the amendment itself or leave it out and leave 
it something that is committed constitutionally to Congress's 
discretion.
    Professor Morrison. I would say standing and political 
question also.
    Senator Lee. OK. Thank you.
    Senator Durbin. Thanks a lot, Senator Lee. And thanks to 
all the witnesses. Professor Morrison, I was with you until the 
end until you talked about a new pledge for Members of 
Congress. We've got enough of those. Let's stick with our oath 
to the Constitution.
    Thanks, everybody for coming, and especially thanks to the 
witnesses, for your patience. It's been a good hearing. I want 
to note that there's been a great deal of interest in it.
    I'd like to place into the record statements of the 
following individuals and organizations that oppose the 
balanced budget amendment: a letter from 281 national 
organizations, 424 State and local organizations; 8 leading 
economists, including 5 Nobel laureates; the Leadership 
Conference on Civil and Human Rights; the National Women's Law 
Center; Constitutional Accountability Center; AFSME; Age 
United; National Educational Association; and an issue brief 
from the American Constitution Society.
    Without objection, they'll be placed in the record.
    [The letters and brief appear as a submission for the 
record.]
    Senator Durbin. The hearing record is going to be open for 
a week, and I think some questions may come your way, which is 
always a possibility. I hope you can answer them promptly so we 
can complete the record.
    If there are no further comments, I'd like to bring this 
hearing to a close and thank the witnesses and colleagues.
    The hearing is adjourned.
    [Whereupon, at 12:20 p.m. the hearing was adjourned.]
    [Questions and answers and submissions for the record 
follows.]
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