[Senate Hearing 112-512]
[From the U.S. Government Publishing Office]
S. Hrg. 112-512
THE PERILS OF CONSTITUTIONALIZING THE BUDGET DEBATE
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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
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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
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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
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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.]