[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





                        CONSTITUTIONAL SOLUTIONS
                    TO OUR ESCALATING NATIONAL DEBT:
                  EXAMINING BALANCED BUDGET AMENDMENTS

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

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2014

                               __________

                           Serial No. 113-85

                               __________

         Printed for the use of the Committee on the Judiciary






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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel


















                            C O N T E N T S

                              ----------                              

                             JULY 24, 2014

                                                                   Page

                           OPENING STATEMENTS

The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Member, Committee on the Judiciary.......     1
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the 
  Judiciary, as read by the Honorable Trent Franks, a 
  Representative in Congress from the State of Arizona, and 
  Member, Committee on the Judiciary.............................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     4

                               WITNESSES

The Honorable Peter DeFazio, a Representative in Congress from 
  the State of Oregon
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
The Honorable Mike Coffman, a Representative in Congress from the 
  State of Colorado
  Oral Testimony.................................................    12
  Prepared Statement.............................................    14
The Honorable Justin Amash, a Representative in Congress from the 
  State of Michigan
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
The Honorable Robert C. ``Bobby'' Scott, a Representative in 
  Congress from the State of Virginia
  Oral Testimony.................................................    23
  Prepared Statement.............................................    25
The Honorable David Schweikert, a Representative in Congress from 
  the State of Arizona
  Oral Testimony.................................................    28
  Prepared Statement.............................................    29
Douglas Holtz-Eakin, Ph.D., President, American Action Forum
  Oral Testimony.................................................    30
  Prepared Statement.............................................    33
Henry J. Aaron, Ph.D., Bruce and Virginia MacLaury Senior Fellow, 
  The Brookings Institution
  Oral Testimony.................................................    40
  Prepared Statement.............................................    42
David Primo, Ph.D., Ani and Mark Gabrellian Professor, University 
  of Rochester
  Oral Testimony.................................................    49
  Prepared Statement.............................................    51

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    79

                                APPENDIX
               Material Submitted for the Hearing Record

Supplemental Material submitted by David Primo, Ph.D., Ani and 
  Mark Gabrellian Professor, University of Rochester.............    84
Revision to the Prepared Statement of Henry J. Aaron, Ph.D., 
  Bruce and Virginia MacLaury Senior Fellow, The Brookings 
  Institution....................................................   122
Material submitted by the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................   123
Prepared Statement of Pete Sepp, Executive Vice President, 
  National Taxpayers Union (NTU).................................   133
Response to Questions for the Record from Henry J. Aaron, Ph.D., 
  Bruce and Virginia MacLaury Senior Fellow, The Brookings 
  Institution....................................................   142

 
  CONSTITUTIONAL SOLUTIONS TO OUR ESCALATING NATIONAL DEBT: EXAMINING 
                       BALANCED BUDGET AMENDMENTS

                              ----------                              


                        THURSDAY, JULY 24, 2014

                        House of Representatives

                       Committee on the Judiciary

                            Washington, DC.

    The Committee met, pursuant to call, at 10:05 a.m., in room 
2141, Rayburn Office Building, the Honorable Trent Franks 
(acting-Chairman of the Committee) presiding.
    Present: Representatives Goodlatte, Sensenbrenner, Coble, 
Chabot, Bachus, King, Franks, Gohmert, Jordan, Poe, Marino, 
Labrador, Holding, Collins, DeSantis, Conyers, Nadler, Scott, 
Johnson, DelBene, and Garcia.
    Staff present: Shelley Husband, Chief of Staff & General 
Counsel; Branden Ritchie, Deputy Chief of Staff Director & 
Chief Counsel; Allison Halataei, Parliamentarian & General 
Counsel; Zachary Somers, Counsel; Kelsey Deterding, Clerk; 
(Minority) Perry Apelbaum, Staff Director & Chief Counsel; 
Danielle Brown, Parliamentarian; James Park, Counsel; and 
Veronica Eligan, Professional Staff Member.
    Mr. Franks [presiding]. The Judiciary Committee will come 
to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time.
    We want to welcome everyone to this morning's hearing on 
constitutional solutions to our escalating national debt, 
examining balanced budget amendments. And I will begin by 
recognizing myself for an opening statement.
    Chairman Goodlatte has asked me to apologize for his 
absence at the beginning of today's hearing. He had an 
unmovable scheduling conflict that is preventing him from being 
here at the start of today's hearing. And given his gallant 
leadership over the years on the balanced budget amendment, I 
know he truly regrets not being here to start this hearing.
    In his absence, Chairman Goodlatte has asked me to give his 
opening statement. However, before I turn to that, I would like 
to make a few comments of my own on this topic, which is one of 
the most pressing problems facing America today.
    We must change America's course on Federal spending and 
enormous Federal deficits. It is absolutely necessary that 
balanced Federal budgets once again become the norm.
    Unfortunately, deficit spending has become the way of life 
for the Federal Government. But it always was not this way. For 
the first 140 years of America's history, we lived under an 
unwritten constitutional rule that budgets should be balanced 
except during times of war. According to Nobel Prize winning 
economist James Buchanan, ``politicians prior to World War II 
would have considered it to be immoral to spend more money than 
they were willing to generate in tax revenue except during 
periods of extreme and temporary emergency.''
    We must return to those roots. The Federal Government 
cannot continue to spend us into oblivion. The one solution 
that has teeth to impose spending restraint on the Federal 
Government is a constitutional amendment.
    Since the 1930's, there have been numerous proposed 
constitutional amendments to require a balanced budget. 
Unfortunately, none of those constitutional approaches to 
spending restraint have been adopted.
    Over 200 years ago, Thomas Jefferson wrote to James Madison 
that ``no generation can contract debts greater than may be 
paid during the course of its own existence'' because, 
according to Jefferson, then the earth would belong to the dead 
and not the living generation.
    Today America is contracting debts that will burden 
multiple future generations. It is time for Congress to put an 
end to this practice.
    And I will now turn to Chairman Goodlatte's opening 
statement.
    March 2, 1995 was a pivotal day in the history of our 
country. On that day, the U.S. Senate failed by one vote to 
send a balanced budget constitutional amendment to the States 
for ratification. The amendment had passed the House by the 
required two-thirds majority, and the Senate vote was the last 
legislative hurdle before ratification by the States.
    If Congress had listened to the American people and sent 
that amendment to the States for ratification, we would not be 
facing the fiscal crisis we are today. Rather, balancing the 
Federal budget would have been the norm instead of the 
exception over the past 20 years, and we would have nothing 
like the annual deficits and skyrocketing debt we currently 
face.
    In 1995, when the balanced budget amendment came within one 
vote of passing, the gross Federal debt stood at $4.9 trillion. 
Today it stands at over $17.5 trillion. The Federal debt held 
by the public is rising as well and it is increasing rapidly as 
a percentage of the country's economic output. Unlike the past, 
when the debt spiked to pay for wars of finite duration and 
then was reduced gradually after the hostilities ended, more 
recently the debt has risen as a result of having to pay for 
entitlement programs that are of indefinite duration and 
difficult to reduce over time.
    As the nonpartisan Congressional Budget Office has 
observed, quote, such high and rising debt will have serious 
negative consequences. Interest rates increase considerably. 
Productivity and wages will be lower. High debt increases the 
risk of a financial crisis.
    What is particularly troubling is that the debts we are 
incurring will burden multiple future generations. Indeed, a 
2013 cross-national study found that the United States ranked 
worst among 29 advanced countries in the degree to which it 
imposes unfair debt burdens on future generations. It is time 
for Congress to stop saddling future generations with the 
burden of crushing debts to pay for current spending. We should 
not pass on to our children and our grandchildren the bleak 
fiscal future that our unsustainable spending is creating.
    The only way to ensure that Congress acts with fiscal 
restraint over the long term is to pass a balanced budget 
amendment. Experience has proven time and again that Congress 
cannot for any significant length of time rein in the excessive 
spending. Annual deficits and the resulting debt continue to 
grow due to political pressures that the Constitution's 
structure no longer serves to restrain.
    Simply raising taxes is not the answer. In order to pay for 
entitlement spending alone solely by raising taxes, we would 
have to double the marginal tax rates for all income brackets 
over the next 30 years. That is all income brackets over the 
next 30 years. Indeed, even if the Government confiscated all 
of the Americans' personal income for the entire year, you will 
could not pay off the national debt.
    In order for Congress to be able to consistently make the 
tough decisions necessary to sustain fiscal responsibility, 
Congress must have the external pressure of a balanced budget 
requirement to force it to do so.
    The Framers of the Constitution were familiar with the need 
for constitutional restrictions on deficit spending. When the 
Constitution was ratified, it was the States that had exhibited 
out-of-control fiscal mismanagement by issuing, quote, bills of 
credit to effectively print money to pay for projects and 
service debt. As a result of that lack of fiscal discipline, 
Article I, Section 10 of the Constitution specifically deprives 
States of the power to issue bills of credit. Over 200 years 
later, it is the Federal Government that has proven its 
inability to adopt sound fiscal policies, and thus it is now 
time to adopt a constitutional restraint on Federal fiscal 
mismanagement.
    Several versions of the balanced budget amendment have been 
introduced this Congress, including two that Chairman Goodlatte 
introduced on the first day of Congress, as he has every 
Congress for the last 7 years. H.J. Res. 2 is nearly identical 
to the text that passed the House in 1995 and failed in the 
Senate by one vote. It requires that total annual outlays not 
exceed total annual receipts. It also requires a true majority 
of each chamber to pass tax increases and a three-fifths 
majority to raise the debt limit.
    H.J. Res. 1, which Chairman Goodlatte also introduced, goes 
further. In addition to the provisions of H.J. Res. 2, it 
requires a three-fifths majority to raise taxes and it imposes 
an annual cap on Federal spending.
    While the Chairman's preference is to pass the stronger 
version of the balanced budget amendment, the two-thirds 
majority requirement for passing a constitutional amendment 
demands that we achieve bipartisan support for any such 
approach.
    Our extraordinary fiscal crisis demands an extraordinary 
solution. We must rise above partisanship and join together to 
send a balanced budget amendment to the States for 
ratification.
    We are at a crossroads. We can make the tough choices to 
control spending and pave the way for a return to surpluses and 
paying down the national debt or we can continue further down 
the road of chronic deficits, leaving our children and 
grandchildren with crippling debt that is not of their own 
making. The choice is ours and the stakes are very high.
    And I look forward to hearing from our distinguished panel 
of witnesses today about this important issue.
    And I would now turn to Mr. Conyers, the Ranking Member of 
the Judiciary Committee, for his opening statement.
    Mr. Conyers. Thank you, Mr. Chairman.
    And welcome to all of my colleagues. I too will have to 
take a temporary leave, as Chairman Goodlatte has, but I hope 
to get back in time to hear Bobby Scott, a distinguished senior 
Member of this Committee, and his testimony.
    Members of the Committee, the balanced budget amendment was 
not a good idea when it was included in the Contract with 
America in 1994, and it is still not a good idea today, 20 
years later.
    To begin with, a balanced budget amendment could undermine 
critical programs such as Social Security, Medicare, and other 
Government programs financed through accumulated savings in 
trust funds. One of our distinguished witnesses, a respected 
economist with Brookings, has made clear a balanced budget 
amendment threatens the ability to pay Social Security, 
Medicare, and other benefits like military and civil service 
pensions. This is because all of the programs are financed 
through trust funds that build their reserves through holding 
Treasury securities as assets which they sell off to pay 
current and future benefits.
    Balanced budget amendment proposals, however, would bar the 
Social Security, Medicare, hospital insurance, and other 
similar trust funds from being able to draw on prior 
accumulated savings to pay benefits because they all require 
that total outlays not exceed total receipts for each given 
fiscal year.
    If a trust fund were to draw on its prior accumulated 
savings, it would count as a deficit, as deficit spending under 
a balanced budget amendment, which would be prohibited unless a 
super majority of both houses of Congress override the 
requirements or the rest of the Federal budget runs a surplus 
for the year. Not likely to happen. This would put current and 
future payment of Social Security, Medicare, and military 
pension and other benefits at risk. It would also undermine the 
Federal Government's absolute guarantee of up to a quarter of a 
million dollars for individual bank deposit accounts. And in an 
economic downturn, such as the one we faced in 2008, that could 
lead to a panic, a run on banks, and another depression.
    A balanced budget amendment, I am sorry to say, is nothing 
but a rhetorical gimmick or worse a political charade.
    Conservatives know that the only way they would actually 
balance the budget is to decimate Social Security and Medicare 
with steep funding cuts which is what they, of course, will not 
want to talk about publicly ahead of time. So instead, they are 
once again talking about the balanced budget amendment fig 
leaf.
    I remind my friends that it was the fiscal recklessness of 
a former President and the Republican controlled Congress that 
first got us into the fiscal challenge we face. In particular, 
the massive tax cuts of 2001 and 2003 for the wealthiest 
Americans caused revenue to fall as of 2004 by more than 4 
percentage points of the gross domestic product. At the same 
time, Federal spending rose in 2000, in 2007, and all while the 
economy was showing signs of weakness leading to its near 
collapse just a year later.
    A large part of that spending increase was a result of 
ballooning defense spending, which jumped dramatically to fund 
the Iraq and Afghanistan wars. According to the Center for 
Budget and Policy Priorities, the Bush administration's tax 
cuts added $2.6 trillion to the public debt. And according to 
the Office of Management and Budget, OMB, these cuts accounted 
for nearly half of the total debt accrued during this period.
    During the 1990's, Congress was able to eliminate the 
deficit and run surpluses without the aid of a balanced budget 
amendment. Remember that, please. There is no reason why 
greater political courage, accountability, and restraint among 
elected officials cannot achieve the same result while avoiding 
the pitfalls of a constitutional balanced budget amendment.
    Finally, a balanced budget amendment would undermine the 
Government's ability to respond to economic slowdowns and 
thereby prevent the Nation a speedier economic recovery.
    This is not the first time that it has been explained to 
this Committee the Government must have flexibility to engage 
in deficit spending through the use of automatic stabilizers to 
improve the economy. When the economy weakens, incomes of 
individuals and businesses fail because of job losses and 
declining purchases which results in reduced tax revenues. And 
to end this downward spiral, Social Security, unemployment, 
nutrition assistance, and other benefits help to stabilize the 
decline in purchases of goods and services resulting from the 
decline in incomes.
    That is why essential programs such as these which, 
especially in the light of declining revenues, must be paid 
through deficit spending, and they are called automatic 
stabilizers. Yet, a balanced budget amendment, by requiring 
that total outlays not exceed total receipts every fiscal year, 
would effectively prohibit the government from using these 
critical stabilizers.
    Although most amendment proposals do contain some sort of 
exception to this prohibition, they also require a super 
majority vote in both houses of the legislative body to 
override the balanced budget mandate. And by the time that 
Congress could react, potentially months after the fact, it 
would be too late for the stabilizers to have any effect, even 
assuming that a super majority in Congress agrees that there is 
a problem to address.
    So in sum, a balanced budget amendment would result in 
longer, more severe recessions. It would prolong the suffering 
of the jobless and impede the ability of Main Street to recover 
in a struggling economy.
    A balanced budget amendment would insert the courts into an 
inherently political matter, creating the potential for a 
litigation nightmare and upending of the principle of 
separation of powers.
    I seldom remember ever quoting the conservative 
constitutional scholar, Robert Bork, but I do now, and he said 
scores or hundreds of suits might be filed in Federal district 
courts around the country. The confusion, not to mention the 
burden on the court system, would be enormous. Nothing would be 
settled, moreover, until one or more of such actions finally 
reached the Supreme Court. Nor is it all clear what could be 
done if the Court found that the amendment had been violated 5 
years earlier. End quotation.
    While I am not known for agreeing with Judge Bork, his 
warning about the potential for endless litigation in the 
courts over budget policy should be heeded.
    In crafting a remedy for a violation, a court could direct 
cuts to spending or increases in taxes in order to meet the 
requirements of the balanced budget amendment. Courts have long 
recognized that such complex economic matters should be left to 
the elected and politically accountable branches rather than to 
unelected judges to decide.
    And for these reasons, Mr. Chairman and Members, I oppose 
the concept of a constitutional balanced budget amendment.
    And I thank the Chair and yield back any balance of time 
that may be remaining.
    Mr. Franks. Well, thank you, Mr. Conyers.
    And without objection, other Members' opening statements 
will be made part of the record.
    We have a very distinguished Member panel today and I 
welcome you all. And if you would all rise, I will begin by 
swearing in the witnesses.[Witnesses sworn.]
    Mr. Franks. Let the record reflect that all of the 
witnesses responded in the affirmative.
    Our first witness is Congressman Peter DeFazio. 
Representative DeFazio was first elected to Congress in 1986 
and currently represents Oregon's 4th Congressional District. 
He serves as the Ranking minority Member on the House Committee 
on Natural Resources. Earlier this Congress, Representative 
DeFazio joined me in the effort to send a balanced budget 
amendment to the States for ratification by agreeing to be the 
lead cosponsor of H.J. Res. 2.
    Our second witness is Congressman Mike Coffman. 
Representative Coffman represents Colorado's 6th Congressional 
District and was fist elected to Congress in 2008. 
Representative Coffman serves as the Chairman of the Veterans 
Affairs Committee, Subcommittee on Oversight and 
Investigations. He is also the Chair of the Congressional 
Balanced Budget Amendment Caucus.
    Our third witness is Congressman Justin Amash. 
Representative Amash is currently serving his second term in 
Congress and represents Michigan's 3rd Congressional District. 
Representative Amash is the lead sponsor of H.J. Res. 24, the 
Business Cycle Balanced Budget Amendment. The Business Cycle 
Balanced Budget Amendment requires a balanced budget over a 3-
year business cycle.
    Our fourth witness is Congressman Bobby Scott. 
Representative Scott was first elected to Congress in 1992 and 
currently represents Virginia's 3rd Congressional District. He 
is a Member of the Judiciary Committee and serves as the 
Ranking minority Member on the Subcommittee on Crime, 
Terrorism, Homeland Security and Investigations.
    Our final witness on this panel is Congressman David 
Schweikert. Representative Schweikert represents Arizona's 6th 
Congressional District and is serving his second term in 
Congress. He is the sponsor of H.J. Res. 10, a balanced budget 
amendment which requires the annual Federal budget to be 
balanced and requires a super majority to raise taxes, the debt 
ceiling, and for the Federal Government to spend no more than 
18 percent of GDP in any fiscal year.
    I just want to welcome you all here, and we are going to 
begin our testimony now. And I would ask that each witness 
would summarize his or her testimony in 5 minutes or less. To 
help you stay within that time, there is a timing light on your 
table. Some of you have seen it before. When the light switches 
from green to yellow, you will have 1 minute to conclude your 
testimony, and when the light turns red, it signals that the 
witness' 5 minutes have expired.
    As is customary, Members will not be asked to stay to 
answer questions, and I would like to thank my colleagues 
sincerely for participating in this hearing. And I will first 
recognize Representative DeFazio. And I welcome all of the 
Members of the House participating on this panel. Mr. DeFazio?

 TESTIMONY OF THE HONORABLE PETER DeFAZIO, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. DeFazio. Thank you, Mr. Chairman. Mr. Chairman, I will 
deviate from my prepared remarks, but I have submitted them for 
the record.
    I strongly supported the balanced budget amendment in 1995.
    And we have heard criticisms of what could occur under a 
balanced budget amendment. Well, let us think about what would 
have occurred had that not failed by one vote in the Senate and 
had gone to the States and been ratified.
    Today we would be paying off the last of our national debt.
    We would have much more capability of dealing with concerns 
that I have regarding our crumbling infrastructure and other 
pressing needs of this country because we would not be burdened 
with high annual interest payments and concerns about ongoing 
and large deficits.
    The world would have been different in that, yes, the 2001 
tax cuts could still have passed because we were in surplus at 
that point in time. But the 2003 tax cuts would have required a 
super majority to pass because we were already in deficit 
spending. We were in military conflict authorized by Congress 
in Iraq and Afghanistan, but we had not declared war. That is 
one of the defects, I believe, in H.J. Res. 2, although I have 
supported it as the best option out there. I think that we 
could improve on it. I would say that if we are going to 
deviate from a balanced budget, it should be under only a 
declaration of war. Other military conflicts should be paid for 
within the annual process, and that I think would both give a 
President and the Congress a bit more opportunity to reflect 
before launching foreign adventures that are very expensive in 
terms of both lives and in terms of our Federal resources.
    Secondly, I think we could improve upon it, and Ranking 
Member Conyers raised legitimate concerns about Social 
Security. We should set Social Security aside, and it should be 
required under a balanced budget amendment to have 75-year 
actuarial balance within its own resources. Those resources 
could neither be borrowed by nor otherwise appropriated by the 
Congress, and it could not be used as an offset to the rest of 
the budget to make it look balanced. But Social Security itself 
should be put on a course of 75-year actuarial balance. And I 
have legislation otherwise pending that would do that. It has 
been scored by the Social Security actuaries.
    And then the debt limit. Again, I believe a defect of H.J. 
Res. 2 is that it requires a simple majority to deviate from a 
balanced budget in a time of military conflict, not war, but 
then goes further to require that you have a three-fifths vote 
to raise the debt limit. One could see a situation in which we 
have an urgent military situation oversees, but it is not a 
war. A simple majority of the House votes to break the balanced 
budget cap, but then later in the year, we would be confronted 
with the need for a three-fifths majority to deal with the debt 
limit. I believe that those things should be equivalent, and 
that is a further problem.
    But, my experience is I came here opposed to a balanced 
budget amendment, and after I had gone through two budget 
cycles and watched particularly the debate over the mobile 
missile and the Midgetman missile, both proposed, very 
expensive systems. Congress in those days had real debates. We 
would debate the DOD bill for weeks. We had days of debate over 
that. We had votes on it. And in the end, Congress decided, 
well, it is a choice between a Midgetman and a mobile missile. 
We will do both because there was no concern for the cost, and 
people did not want to decide between the two. We need to make 
those tough decisions. Day in, day out, we need to make tough 
decisions. You cannot pretend you can balance the budget 
without revenues, and you cannot pretend that we can spend in 
deficit forever.
    So I believe that we need a well thought out constitutional 
amendment to require a balanced budget in order to make 
Congress do its job.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. DeFazio follows:]


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                               __________
    Mr. Goodlatte. Thank you, Mr. DeFazio.
    Congressman Coffman for 5 minutes.

 TESTIMONY OF THE HONORABLE MIKE COFFMAN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Mr. Coffman. Mr. Chairman, I will submit my written remarks 
for the record.
    I think any balanced budget amendment to the United States 
Constitution is, I think, the greatest thing that the Congress 
of the United States can do to change the political culture in 
Washington, to improve, to reform Washington, D.C. by stripping 
the power away from the Congress to continually spend money 
that we do not have as a country. The vast majority of State 
and local governments throughout the United States have a 
requirement for a balanced budget, and I think having a 
requirement like that promotes bipartisanship by virtue of 
requiring all parties to come together at the end of the day 
and decide what the priorities of government are given the 
resources that are there.
    I think we have a limited window of opportunity in which to 
change the trajectory of this country in terms of its growing 
debt and the problems that will come from that. And I think we 
are going to be pressed fairly soon when interest rates 
normalize. They are artificially low now. I think we are 
spending--last fiscal year, we spent $221 billion on servicing 
our debt. And once interest rates normalize, that amount is 
going to dramatically grow and crowd out other programs of 
Government.
    I think that the cost of doing business in the United 
States is already very high when we talk about taxes, when we 
talk about the regulatory burdens. I think it has denied young 
people that are coming into the workforce now economic 
opportunities that folks like me had, and placing an additional 
burden of debt on them and future generations beyond that I 
think is very unfair.
    I think a balanced budget to the Constitution has to 
encompass all spending, only to exclude that which is necessary 
in the event of a declaration of war where the country is at 
war. But outside of that, I think the Congress of the United 
States has to make tough choices in terms of spending.
    I remember the President of the United States coming to 
House Republicans, a meeting behind closed doors, to talk about 
the debt situation a while back, and I remember him saying that 
he really did not think it was all that bad when you look at 
debt-to-GDP ratios historically like in 1945, that it really 
was not that out of line where we are today. But if you look at 
1945, the last year of the Second World War, the minute that 
the war was over practically in August 1945, you get a very 
steep decline in Federal spending.
    If you look at our spending right now, the vast majority of 
it is essentially now what we call mandatory spending, and that 
is entitlement spending, if you will. What Congress does is 
plants the seeds in terms of defining eligibility for a 
specific program, then whoever meets that criteria is funded. 
We do not argue that in annual appropriation bills. And so 
right now in the last fiscal year, 59 percent of all spending 
was in the mandatory category, 6 percent interest on the debt, 
17 percent non-defense discretionary spending, 18 percent 
defense spending. And what we see moving forward is that 
mandatory spending is going to grow and it is going to crowd 
out the rest of the spending.
    We have a limited window of opportunity in terms of time. 
We can make really minor changes now that will make very 
significant changes down the road in terms of the trajectory of 
spending and of debt. When we look at recent programs like the 
Medicaid program, the expansion of Medicaid, we could, I think, 
have a more effective program, cost-effective program by 
delegating more power to the States in terms of the 
administration of that program. I think Washington tries to do 
too much, and I think in the effort of doing that, does not do 
a lot of things very well. And I think we can rely more on 
States to do that.
    I think again if we look at Greece and what has happened to 
them where they have had to make really draconian decisions, 
given their debt-to-GDP ratios, I think we are clearly not 
there yet. We are headed in that direction. We have got to 
change the trajectory of spending. And again, I think we can 
make modest changes now that will make dramatic changes down 
the road.
    And with that, Mr. Chairman, I yield back.
    [The prepared statement of Mr. Coffman follows:]


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                               __________
    Mr. Franks. Well, thank you, Mr. Coffman.
    And we now recognize Mr. Amash.

 TESTIMONY OF THE HONORABLE JUSTIN AMASH, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Amash. Thank you, Acting Chairman Franks, Ranking 
Member Conyers, and Members of the Committee, for the 
opportunity to be here.
    I would also like to thank Chairman Goodlatte, who is 
walking in right now, for his leadership on this issue.
    We all understand the Federal Government's budget problems, 
but we also recognize how difficult it is to prioritize 
responsibly without knowing that our work will ultimately 
matter. Building consensus, forging compromises, and taking 
tough votes are difficult if they can be undone easily.
    That is why I support amending the U.S. Constitution to 
require balanced budgets. We should be cautious about changing 
the Constitution, however, and a BBA in particular must be 
carefully drafted.
    First, it must be clear, simple, concise, and general. Most 
of the Constitution establishes broad principles and we fill in 
the details with legislation.
    Second, it must be narrowly tailored. A balanced budget 
amendment should not impose substantive policy such as 
requiring a super majority to raise taxes or capping spending 
as a percentage of GDP. A balanced budget amendment should 
require overall spending and revenue to match up. That is it.
    Keeping it focused is good politics too. Constitutional 
amendments require the support of two-thirds of both houses of 
Congress and 38 State legislatures. They must be bipartisan to 
succeed.
    It also has to be workable. Michigan's budget must balance 
every year. In the Michigan House, we had quarterly budget 
meetings to adjust programs as spending and revenue estimates 
changed. It is too much uncertainty.
    In addition, we need flexibility to address emergencies. A 
BBA needs a safety valve that is tight enough to avoid abuse 
but loose enough to be usable.
    Finally, a reasonable path to balance is vital. Many 
reforms start with small savings and build over time. 
Establishing the necessary trust and confidence grows gradually 
too.
    I would like to turn to the proposal I have introduced, 
H.J. Res. 24. It meets the standards I have mentioned and has 
substantial bipartisan support.
    I call H.J. Res. 24 the Business Cycle Balanced Budget 
Amendment because it balances over the business cycle instead 
of every year. Spending is based on the rolling average of 
revenue from the 3 prior years. Policies stay predictable not 
only because averaging tames revenue fluctuations but also 
because it does not rely on estimates that can shift.
    It lets Congress choose any level of government spending 
and revenue. Lower taxes with a smaller government providing 
fewer services is possible, as is a larger government providing 
more services with higher taxes. I think you can guess which 
approach I prefer. The only non-option is perpetual deficits.
    It lets fiscal policy be countercyclical. When a recession 
hits, spending is still based on the pre-recession boom years. 
This mechanism allows for temporary deficits. As the economy 
recovers, however, spending begins to incorporate the 
recession-year revenue, producing small surpluses in the good 
years.
    Setting spending this way provides the predictability and 
stability I have mentioned while also letting revenue changes 
feed into spending quickly.
    The idea is to focus Congress on structural balance and 
long-term prioritization instead of on constant tinkering. 
Deficits from recessions and emergencies are offset by 
surpluses in good years.
    As for the safety valve, emergency spending requires a two-
thirds vote in Congress, the normal constitutional super 
majority. Conversations I have had with Democrats and 
Republican Members suggest that it is the right standard.
    The Business Cycle BBA allows a full decade to reach 
balance after ratification. As I said, setting national 
priorities and realizing savings takes time. It lets us phase 
out deficits faster, of course, but a smoother transition might 
be worth taking a little longer.
    The Business Cycle Balanced Budget Amendment has strong 
bipartisan support. Republican cosponsors have included members 
of the Republican Study Committee and the Tuesday Group. 
Democratic cosponsors have been members of the Blue Dog 
Coalition, the New Democrat Coalition, and the Congressional 
Progressive Caucus.
    The Business Cycle Balanced Budget Amendment may be the BBA 
with the broadest support. Only 6 of the 14 Democrats that 
cosponsored it last Congress voted for the balanced budget 
amendment that was brought to the floor. Additional Members 
told me they would vote for the Business Cycle BBA if it came 
to the floor.
    We need to balance our budget and end the downward spiral 
into debt. I am convinced that it will take a constitutional 
amendment, and congressional support already exists for the 
right proposal. We need the confidence that our return to 
fiscal responsibility and sustainability will endure. That is 
why I support a well-crafted balanced budget amendment.
    Thank you again for having me here today. I look forward to 
continuing to work with all of you.
    [The prepared statement of Mr. Amash follows:]


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    Mr. Goodlatte [presiding]. Thank you, Congressman Amash.
    Congressman Scott, welcome to your own Committee.

    TESTIMONY OF THE HONORABLE ROBERT C. ``BOBBY'' SCOTT, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Scott. Thank you, Mr. Chairman and Ranking Member 
Conyers. I am pleased to be here today to discuss the idea of a 
so-called balanced budget amendment to our Constitution.
    Reducing our deficit and balancing our budget is a goal for 
every Member on this panel, and I worry that we get distracted 
by the title of these amendments without having any serious 
discussion about whether the proposed provisions will actually 
help balance the budget. If we are going to balance the budget, 
it is going to require some tough votes on the budget, and many 
of those votes will be career-ending votes.
    One of the first votes I cast as a Member of Congress was 
on the Clinton 1993 budget. It included tax increases and 
spending cuts, all of which were unpopular, but that is how you 
get to a balance--spending cuts and tax increases. Not one 
Republican voted for it. Vice President Gore had to break the 
tie in the Senate. And when the 218th vote was cast in the 
House by then Congresswoman Marjorie Margolies-Mezvinsky, the 
Republicans did not say ``way to go,'' but ``you have got to 
go'' and chanted ``bye-bye, Marjorie.'' That vote was used to 
defeat her and 53 other House Democrats the following year. But 
that is what happens when you vote for a budget that actually 
goes into balance. Some Members are going to lose their seats.
    Needless to say, the 1993 vote was a tough vote, but it 
created millions of jobs. The Dow Jones Industrial average more 
than tripled and led to the first balanced budget in a 
generation with surpluses on track to have paid off the entire 
debt held by the public by 6 years ago. That is how you balance 
the budget. Tough, career-ending votes, not with titles to 
constitutional amendments. So rather than discuss the title, we 
should be discussing the provisions and whether the provisions 
of the legislation will help pass responsible legislation or 
even hurt.
    The fact is that many proposed constitutional amendments 
will make it all but impossible to pass serious deficit 
reduction similar to the Clinton budget. Such provisions, for 
example, that require a three-fifths vote of both houses or a 
super majority to enact new revenues. Now, let us talk 
arithmetic. If you are going to balance the budget, raising 
taxes will help balance the budget. Requiring a super majority 
may be good policy for some Members for some reasons, but 
suggesting that it will help balance the budget is absolutely 
absurd.
    Most of the proposals require the budget not in balance can 
be passed by a three-fifths vote by the whole number of the 
House and Senate. Every budget we considered this year was not 
in balance the first year. So all of the budgets would have 
required a super majority to pass. The Ryan budget only passed 
with 219 votes. It should be obvious that serious deficit 
reduction will be harder to pass with a three-fifths super 
majority than a simple majority. And let us note that these 
constitutional amendments do not strip away Congress' right to 
go into deficit. They just provide a three-fifths vote to pass 
what in likelihood will be any budget that we are going to 
consider. And so it is clear that the provisions--when we ask 
the question of whether the three-fifths majority is likely to 
pass a fiscally responsible budget or fiscally irresponsible 
budget, we have got to note that once you go into the budget 
requiring a three-fifths vote, there is no limit to how 
irresponsible you can be.
    Now, the evidence on this is clear. The 2013 fiscal cliff 
deal, which permanently extended most of the 2001 and 2003 Bush 
tax cuts, got a three-fifths vote, notwithstanding the fact 
that it added $3.9 trillion to the deficit. Incredibly most of 
the no votes in going $3.9 trillion further in the ditch--most 
of the no votes were no because the tax cut was not big enough.
    And so some of the proposals even require a super majority 
to spend more than a certain percentage of the GDP. Eighteen 
percent is one proposal. The GDP has not been below 18 percent 
since Medicare was passed. So if you pass that provision, there 
will be significant pressure on Social Security and Medicare, 
and you could cut Social Security and Medicare to shore up the 
program. You can cut on a simple majority, but to save it with 
new revenue, you need the super majority. That might make sense 
if your goal is to cut Social Security and Medicare, but to 
save them, that is not such a good idea.
    Many proposals require a three-fifths vote to raise the 
debt ceiling. Anybody that was around the last time we raised 
the debt ceiling ought to know that is not a good idea.
    Finally, I would note that the provisions found in these 
proposals are not what is in State budgets. In testimony before 
this Committee in 2011, one former Governor testifying on 
behalf of balanced budget amendments acknowledged that none of 
the proposals in the constitutional amendments before the 
Committee at that time were in his State constitution, no 
three-fifths required to pass a budget, no super majority to 
raise taxes, no three-fifths requirement to borrow money, no 
total balance without an exception for capital spending. He had 
been testifying about the title, not the provisions in any of 
the proposals before us. Mr. Chairman, we should not be 
distracted by misleading titles, but we should notice that the 
provisions of the proposals before us would drastically 
encumber an already difficult process to responsibly reduce the 
deficit.
    Balancing the budget is a good idea, but we have got to 
recognize that it often requires tough, career-ending votes. 
The provisions in these balanced budget amendments will not 
make such votes more likely, will in fact make passage of 
responsible budgets less likely, and will make our fiscal 
situation even worse.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Scott follows:]


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                               __________
    Mr. Goodlatte. Thank you, Congressman Scott.
    Congressman Schweikert, welcome.

 TESTIMONY OF THE HONORABLE DAVID SCHWEIKERT, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF ARIZONA

    Mr. Schweikert. Thank you, Chairman Goodlatte. I appreciate 
the opportunity to be here and actually share and actually 
listen to my fellow colleagues.
    Fellow Members, I have only been here 3\1/2\ years, and I 
am growing to believe that we operate in a mathematical bubble 
that is filled with delusion.
    In 9 fiscal years, 78 percent of our spending will be in 
the mandatory category. Nine fiscal years. That means what you 
and I get to vote on in the discretionary will be down to 22 
percent in 9 fiscal years. Fourteen percent of that mandatory 
spending is going to be in interest. Twenty-two percent will be 
in discretionary. Fourteen percent will in interest, and that 
is assuming that interest rates stay within their historic 
mean.
    Understand how fragile we are making our republic by what 
is going on right now. And if you truly, truly care about the 
social contracts of Social Security, Medicare, walking into 
that type of fragility from a financial standpoint is 
malfeasance if not misfeasance. This is the reality we are up 
against.
    In my resolution, we have actually gone in H.J. Res. 10--we 
have actually tried to deal with some of the realities. And one 
of the realities we have to accept is the spending lobbies we 
all face. How do you move into a balanced budget world when we 
will have so many pressures put upon us, as actually 
Representative Scott even spoke to? Do we do what is easy? Do 
we say we will push this to the States and make that part of 
their burden? Do we create special categories? Do we game parts 
of the system? How do you design a balanced budget amendment 
that deals with the realities of the structures we have created 
around us?
    In my balanced budget, I have tried to address both human 
nature, the structures we are in, the mandatory spending, and 
our entitlement obligations. How do you reach out and have the 
States have a voice? How do you reach out and make sure that 
each Member, when we start to game the definitions of what is 
balanced and what is not, that each one of you will have the 
right to have a cause of action?
    One of the reasons for creating each of these layers within 
my balanced budget amendment is trying to think forward to what 
our world will look like, what our budgets will look like, what 
this country's fiscal situation will be when the pressures from 
both the spending lobbies, our entitlement obligations with the 
demographic curve that is ahead of us, and at the same time, 
trying to find a way to actually keep our promise, keep a 
constitutional amendment functioning.
    And with that, Mr. Chairman, I will submit in writing much 
more detailed comments. Thank you.
    [The prepared statement of Mr. Schweikert follows:]

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                               __________
    Mr. Goodlatte. Thank you, Congressman Schweikert.
    And I want to thank all the Members on the panel for their 
testimony. And as I indicated or Mr. Franks indicated earlier 
and as is customary, the Members will not be asked to stay and 
answer questions. So thank you all for your contribution and 
for your participation today. And you are excused.
    And we will now welcome our distinguished second panel 
today. We will give the clerk a moment to reset the table.
    [Pause.]
    Mr. Goodlatte. We want to welcome our panel.
    If you will all rise, and as is customary, we will begin by 
swearing in the witnesses.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you very much. Let the record reflect 
that all the witnesses responded in the affirmative.
    And I will now introduce our witnesses. Our first witness 
on this panel is Douglas Holtz-Eakin, President of American 
Action Forum. Dr. Holtz-Eakin has served as the sixth Director 
of the nonpartisan Congressional Budget Office, the Chief 
Economist for the President's Council of Economic Advisors, and 
as a commissioner on the congressionally chartered Financial 
Crisis Inquiry Commission. Prior to his public service, he held 
academic positions at Princeton, Columbia, and Syracuse 
Universities.
    Our second witness is Henry Aaron, the MacLaury Senior 
Fellow in Economic Studies at the Brookings Institution. Dr. 
Aaron served as Assistant Secretary for Planning and Evaluation 
at the Department of Health, Education, and Welfare during the 
Carter administration, and from 1967 to 1989, was a professor 
of economics at the University of Maryland. He is a member of 
the board of the Center on Budget and Policy Priorities and on 
the Advisory Committee of the Stanford Institute for Economic 
Policy Research.
    Our final witness is David Primo, a professor at the 
University of Rochester and a senior scholar at the Mercatus 
Center at George Mason University. He received his doctorate in 
political science from Stanford University. His research 
focuses on American politics, Government spending, and campaign 
finance. Dr. Primo has authored or co-authored several journal 
articles and policy reports, as well as three books, including 
Rules and Restraint: Government Spending and the Design of 
Institutions.
    I would ask that each witness summarize his or her 
testimony in 5 minutes or less. And to help you stay within 
that time, there is a timing light on your table. When the 
light switches from green to yellow, you will have 1 minute to 
conclude your testimony. When the light turns red, that is it. 
You are done. Your time has expired. And we hope you will honor 
that timing.
    And we will begin with Dr. Holtz-Eakin. Welcome.

           TESTIMONY OF DOUGLAS HOLTZ-EAKIN, Ph.D., 
                PRESIDENT, AMERICAN ACTION FORUM

    Mr. Holtz-Eakin. Thank you, Mr. Chairman and Members of the 
Committee. It is a privilege to be here today to discuss the 
balanced budget amendment.
    In my written testimony, I make four points that I will 
summarize briefly.
    Point number one is there is a real problem that needs to 
be addressed. The U.S. is on an unsustainable fiscal 
trajectory.
    Point number two is that around the world, fiscal rules 
embedded in constitutions and other legal frameworks have been 
a successful strategy for dealing with such problems.
    Point number three is you can think of the balanced budget 
amendment as one type of fiscal rule, and its characteristics 
are consistent with successful rules.
    And then the last point is there are a number of 
traditional concerns about implementation of a constitutional 
amendment regarding military emergencies, economic distress, 
and recent versions of most BBAs' attempt to address those.
    Let me say a little bit about each.
    Point number one. You have already heard from the first 
panel characterizations of the U.S. fiscal outlook. You can 
look at the most recent Congressional Budget Office 10-year 
projection or the long-term budget outlook that they just put 
out, and what you see is a dire fiscal outlook. We have a 
temporary respite for a year or 2, and then we see an unending 
rise in mandatory spending. We see a continuous rise in the 
interest costs of servicing the debt. We see debt-to-GDP ratios 
on an unending upward spiral. And this picture overwhelms even 
a return to above traditional levels of revenue in the United 
States. The upshot is that we run tremendous economic risks 
with this budget outlook. We could ultimately see a sovereign 
debt crisis if we do not change course, and I believe we will 
begin to see consequences for economic growth much sooner, 
perhaps even now, as global investors recognize that we are on 
an unsustainable trajectory.
    The second point is that fiscal rules have helped. There is 
a Pew-Peterson Commission report that I reference in my written 
testimony that looks around the globe and looks at places like 
the Netherlands and Sweden where they have adopted these kinds 
of rules, and they essentially solve the problem that Congress 
with the best of intentions often passes rules. We have seen it 
in the U.S. We have the sustainable growth rate mechanism in 
Medicare, and every year we override the rule. We have had 
PAYGO rules, and we override the PAYGO rules. We have had caps. 
And right now, we have caps again on discretionary spending. 
And it will be my forecast that a future Congress will break 
those caps. It is very difficult for Congress to tie its own 
hands. The fiscal rules stop that.
    The features that work in fiscal rules, the things to look 
for is they have to directly address the problem. The second 
thing they have to do is they have to link between what the 
Members of Congress, the policymakers, do and the fiscal rule 
outcome, a clear connection so you can see actions and results. 
And the third, it has to be transparent to the public and they 
have to buy into this.
    What does the balanced budget amendment look like from this 
perspective? Clearly, our previous fiscal rules have not 
worked. This would have the advantage of being embedded in the 
Constitution, much more difficult for any Congress to override. 
The process for getting rid of a constitutional amendment is 
very long. So once it was there, it would be hard to override 
it. There is a clear link between budgets passed in Congress 
and the fiscal rule. They have to balance. That is very easy to 
understand. It addresses the problem, which is not emergency 
spending that has been piling up or recessions that have been 
piling up. The problem is sustained rises in mandatory 
spending. This would focus on the long-term path in a 
systematic way. And it is a process of ratification whereby 
House, Senate, 38 States, Republicans, Democrats would generate 
the education that would make it transparent to the public 
about what this rule was. And so it has those characteristics.
    The last point is simply that there are many people who 
express what I view as legitimate concerns about this being 
overly restrictive in times of national emergency, either 
military or economic. And there are a variety of proposals to 
allow super majorities in the House and the Senate to override 
the balance requirement in those circumstances. These strike me 
as good things for the Committee to think hard about because 
these contingencies will arise in the future. There is no way 
to avoid that, and you want to have anticipated them in the 
design of the balanced budget amendment.
    So to summarize, I do not think everyone starts out 
thinking about economic and budgetary policy with the idea that 
we should amend the Constitution to have a balanced budget. But 
I have ended up there because it is a strategy that has been 
successful around the globe. The strategies we have employed in 
the United States have not worked, and I think we should build 
on what we know about other countries' success here in the 
United States.
    I thank you and I look forward to the chance to answer your 
questions.
    [The prepared statement of Mr. Holtz-Eakin follows:]


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                               __________

    Mr. Goodlatte. Thank you, Dr. Holtz-Eakin.
    Dr. Aaron, welcome.

TESTIMONY OF HENRY J. AARON, Ph.D., BRUCE AND VIRGINIA MacLAURY 
            SENIOR FELLOW, THE BROOKINGS INSTITUTION

    Mr. Aaron. Thank you very much, Mr. Chairman, Mr. Ranking 
Member, Committee Members. Thank you for inviting me to testify 
this morning.
    Balanced budget amendments have been around for a long time 
because they appeal to a universally accepted virtue of fiscal 
responsibility. Still, I believe that Congress should not send 
House joint resolutions 1 or 2 to the States for ratification 
for at least five separate reasons.
    First, deficits are sometimes beneficial, and that is not 
just during declared wars, but also during economic slowdowns. 
If either H.J. Res. 1 or 2 had been in effect during the recent 
financial crisis, they would have required either that taxes be 
increased or spending cuts in ways that would have intensified 
unemployment and hammered GDP. The constitutional amendments 
proposed in these resolutions would have become automatic 
destabilizers threatening perverse tax and expenditure policy 
that would raise unemployment and destabilize financial markets 
unless avoided by super majority votes. To require a super 
majority vote to avoid perverse policy is folly. Even if a 
super majority were eventually achieved, recession-fighting 
actions would be delayed by many months.
    Second, requiring a super majority to raise the debt 
ceiling or to run a deficit is a veritable summons to political 
extortion by an intransigent minority. Two-fifths of either 
house could block action unless its pet plans were enacted. 
This threat has no political allegiance. It could be wielded on 
behalf of small Government or large Government, lower taxes or 
higher taxes, lower spending or higher spending.
    Third, the deficit and debt ceiling provisions of H.J. Res. 
1 and 2 would prevent access to Social Security and Medicare 
hospital insurance funds when needed to sustain benefits unless 
the rest of the budget was not just balanced but was in surplus 
unless, that is, three-fifths of the whole membership of both 
houses agreed to sustain pensions for the elderly and disabled. 
A similar problem could stymie important Government activities 
vital to combat financial panic just when they are most needed.
    Fourth, a Congress constrained by the limits of H.J. Res. 1 
or 2 but anxious to accomplish some agreed objective would 
inevitably resort to all manner of devices that would 
circumvent those limits in ways that led to inefficient 
Government. Spending could become tax credits, seeming to lower 
both spending and revenues, or unfunded mandates on State 
governments. No one who is interested in honest Government 
should encourage elected officials to find devious ways to 
accomplish objectives that are geared to them.
    Finally, Mr. Goodlatte, I must note that just 3 years ago 
you proposed an earlier version of H.J. Res. 1 to limit 
Government spending to 18 percent of economic output. Now you 
propose a limit of 20 percent of economic output. That is $345 
billion a year more than the limit you proposed just 3 years 
ago when you would have made such spending a violation of the 
Constitution. Perhaps--just maybe--at some future date, in 
light of new and better information, you might change your mind 
again. Legislation, not a constitutional amendment, should be 
used to implement spending limits that can change so much and 
so fast, as you have changed your mind on how much the Federal 
Government should be allowed to spend.
    Thank you very much.
    [The prepared statement of Mr. Aaron follows:]


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                               __________

    Mr. Goodlatte. Thank you, Dr. Aaron. And since you have 
referenced me, I will take the opportunity to correct you 
immediately. My position has not changed.
    Mr. Aaron. I have a copy of H.J. Res. 1 that was presented 
to the House that----
    Mr. Goodlatte. That was amended in Committee.
    Mr. Aaron. Okay, fine.
    Mr. Goodlatte. That was not amended by me changing the 
bill. It was amended by the----
    Mr. Aaron. I stand corrected.
    Mr. Goodlatte [continuing]. Consensus of this Committee.
    Thank you, Dr. Aaron.
    Dr. Primo, welcome.

   TESTIMONY OF DAVID PRIMO, Ph.D., ANI AND MARK GABRELLIAN 
               PROFESSOR, UNIVERSITY OF ROCHESTER

    Mr. Primo. Thank you very much. Chairman Goodlatte, Ranking 
Member Conyers, and Members of the Committee, thank you for 
inviting me here today to discuss the need for a constitutional 
amendment to help achieve credible and sustainable fiscal 
reform.
    My three-part message today is simple. First, the current 
budgetary status quo is simply unacceptable and must change. 
Second, the short-run focus in politics, combined with this 
institution's prerogatives with respect to rules, make 
achieving this change in the form of durable, long-term reform 
an elusive goal. Third, a constitutional amendment, if properly 
designed, can create the pathway for Congress to do what is 
needed to place the United States' fiscal finances on firm 
ground.
    So, first, why is a change in fiscal course necessary? 
Well, as we have already heard today, we have made promises to 
current and future generations that we have no hope of 
fulfilling given current revenue streams. Just to throw out 
another number, the U.S. Treasury estimates that the national 
debt will approach 250 percent of GDP by 2080. Now, for the 
record, I do not believe this estimate. Not worth the paper it 
is printed on. Now, it is not that I dispute the Treasury's 
calculations. It is just that the Government's finances, the 
U.S. economy, or both will implode long before we ever get to 
that point. This estimate and long-term projections from the 
Congressional Budget Office and others send a clear message: 
the current path is not sustainable.
    So what do we do? Well, to get on a stable fiscal path and 
stay there, Congress needs to act quickly and credibly. The 
solutions, which must include some reform to entitlements, will 
not be easy to implement. As all of you know all too well, 
short-run pain for long-run gain is a difficult sell 
politically. What is worse, the longer Congress waits to act, 
the more difficult reform will be. Financial advisors tell us 
that the earlier we start saving for important goals like 
retirement or our children's education, the easier it will be 
to achieve those goals. Well, while the Federal Government's 
budget is different than a household's budget in many ways, in 
this case the analogy is apt.
    Now, even if these political hurdles can be overcome, 
Congress faces still another obstacle. Itself. Congress, unlike 
a corporation, cannot write a contract that binds future 
Members. This is true with respect both to substantive reforms 
like changes to entitlements and process reforms like budget 
rules. What Congress does today a future Congress can undo 
tomorrow.
    And this is where the Constitution comes in. A well-
designed constitutional amendment would place permanent, truly 
enforceable limits on Congress' ability to tax and spend. Just 
as importantly, it would create an environment under which the 
question for Members would no longer be whether to fix the 
Nation's problems but rather how to do so.
    The promise of a constitutional rule as an enforcement 
mechanism lies in its durability, but this durability is also a 
peril. Bad rules can be locked in just as good rules can be. 
While there are many ways to structure a constitutional 
amendment, there are certain features that all worthwhile 
proposals should possess.
    First, a constitutional amendment needs to be flexible to 
account for major disruptions like war. At the same time, the 
amendment also needs to be precise to prevent illegitimate end 
runs around its provisions. It needs to clearly define spending 
and revenue, for example, and specify how those figures will be 
calculated. I do not believe these definitions should be left 
to implementing legislation. That is when the mischief might 
set in.
    Finally, the amendment should account for economic ups and 
downs by setting targets or limits based on a multiyear period 
on long-term economic performance. A key advantage of this 
smoothing approach is fewer sudden changes to Government 
programs.
    Of course, nothing is perfect, and as we have seen today, 
skeptics of constitutional budget rules criticize them in 
several ways.
    First, they point to specific design flaws such as 
requirements that a budget has to be balanced year in and year 
out. These sorts of critiques reinforce the need for careful 
rule design, but they do not support outright rejection of 
constitutional reform.
    Others worry about U.S. Supreme Court overreach if it is 
given the authority to adjudicate disputes over the amendment. 
These concerns about Court enforcement can be addressed by 
limiting remedies and clarifying which parties have standing. 
Moreover, the clearer you make the balanced budget amendment or 
other constitutional budget rule, the less leeway the Court 
will have in interpreting it.
    Finally, some analysts claim that process reform cannot 
force a consensus where none exists. Yet, this is precisely the 
point of a constitutional budget rule, to force change when 
change makes--when politics makes change difficult.
    In closing, amending the U.S. Constitution is a serious 
step for the country and one fraught with political and 
procedural challenges. We are unlikely to achieve credible, 
long-term budget changes, however, without such a drastic 
measure.
    Thank you again for inviting me here to testify today. I 
welcome your questions.
    [The prepared statement of Mr. Primo follows:]


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See Appendix for supplemental material submitted with this statement.
                               __________
    Mr. Goodlatte. Thank you all for your testimony.
    I will begin with the questioning and I will begin with a 
quote from the person who I attribute raising the alarm bells 
about debt and who I think would very much agree with our 
concern. This is not a new idea at all. In 1798, just 9 years 
after our Constitution took effect, Thomas Jefferson said, ``I 
wish it were possible to obtain a single amendment to our 
constitution; I would be willing to depend on that alone for 
the reduction of the administration of our government . . . , I 
mean an additional article taking from the federal government 
the power of borrowing.''
    Later in 1821, he said there does not exist an engine so 
corruptive of the Government and so demoralizing of the Nation 
as a public debt. It will bring on us more ruin at home than 
all the enemies from abroad against whom this army and navy are 
to protect us.
    In a letter to James Madison at the time of the writing of 
our Constitution or shortly thereafter, he said, then I say the 
earth belongs to each of these generations during its course, 
fully and in its own right. The second generation receives it 
clear of the debts and encumbrances of the first, the third of 
the second, and so on. For if the first could charge it with a 
debt, then the earth would belong to the dead and not to the 
living generation. To preserve the independence of the people, 
we must not let our rulers load us with perpetual debt. We must 
make our election between economy and liberty or profusion and 
servitude.
    Dr. Holtz-Eakin, Members of Congress have been proposing a 
balanced budget amendment for decades, and amendments passed 
the Senate in 1982 and the House in 1995. How does the Federal 
Government's fiscal outlook today compare to 1982 or 1995 when 
those balanced budget amendments passed one house of Congress? 
What is the danger of waiting another 30 years to adopt a 
balanced budget amendment?
    Mr. Holtz-Eakin. The fiscal picture is considerably worse 
in two very specific ways. The first, the level of debt is much 
higher even relative to GDP, and the second, the majority of 
spending is now in the mandatory programs not the discretionary 
programs. And so year-to-year changes are much harder to 
accomplish at this point in time. And the baby boom has now 
retired. The future is here in terms of the demographic shift. 
So I would say that our fiscal outlook is immeasurably worse 
than at those points in time.
    Mr. Goodlatte. You are the former head of the CBO and are a 
longtime observer of Federal budget policy. In your experience, 
have you seen any statutory caps, goals, or cuts that have had 
the same type of long-term effect in getting Federal deficit 
spending under control that a balanced budget amendment could 
have?
    Mr. Holtz-Eakin. No. As I noted in my testimony, the U.S. 
does not have a budget. It often does not have budget 
resolutions in either the House or the Senate. There is nothing 
that makes discretionary and mandatory spending and taxes add 
up in any systematic way. A balanced budget amendment would 
accomplish that.
    Mr. Goodlatte. Thank you.
    Dr. Primo, for decades the Federal Government has run 
deficits during good economic times and bad, and in both 
Republican and Democrat administrations despite the fact that 
Americans overwhelmingly believe the deficit is a problem. What 
is the cause of this systemic deficit spending and how would a 
balanced budget amendment address the problem?
    Mr. Primo. The challenge that legislators face is that 
going home to your district and saying that you have balanced 
the budget, if it means that you also have to tell your 
district that a program was cut or you had to make some hard 
choices on Medicare or Social Security, it is just a very 
difficult sell to make politically. So it is always much easier 
to say we will balance the budget tomorrow. Today let us 
preserve this program that my constituents care a lot about.
    The deficit is this amorphous thing to most Americans. Even 
though they do support balancing the budget, if you start 
asking, you know, do you support cutting Medicare, do you 
support even adjusting Medicare--forget about cuts. Most people 
are not talking about cutting Medicare, just talking about 
reducing the increase in growth.
    Mr. Goodlatte. So if you are required to make the tough 
decisions, it is actually easier for Members to take those 
tough----
    Mr. Primo. The balanced budget amendment or any sort of 
constitutional budget rule essentially gives politicians cover.
    Mr. Goodlatte. Is that the experience of the States? Do 
State experiences with balanced budget amendments offer us any 
insights into the feasibility of a Federal balanced budget 
amendment? Forty-nine out of fifty States have such a 
requirement.
    Mr. Primo. Absolutely. The States are models of fiscal 
responsibility compared to the Federal Government, and that is 
due in part to the fact that they face many more constraints, 
including balanced budget rules. Now, things are not perfect at 
the State level, but the U.S. Federal Government would be in 
much better shape if it had the same profile that the States 
had in terms of fiscal responsibility.
    Mr. Goodlatte. Thank you.
    Dr. Aaron, since 1960 the Federal Government has run a 
budget deficit in all but 6 fiscal years. That is 6 out of 54 
that we balanced the budget. Obviously, previous attempts to 
control spending have not offered a long-term solution. Do you 
have a suggested enforcement mechanism to prevent the Federal 
Government from regularly running annual budget deficits that 
have led us to a $17.5 trillion national debt?
    Mr. Aaron. I think there is no substitute for responsible 
leadership and courage by Members of Congress.
    Mr. Goodlatte. Agreed, but 49 out of 50 States have this 
supplement to their courage.
    Mr. Aaron. 49 out of 50 States are beholden to Standard & 
Poor's and Moody's. They are the disciplines which require 
balance and fiscal responsibility among the States because if 
they fail to do so, they pay a very high price.
    Mr. Goodlatte. You do not think that same economic law 
applies to the Federal Government?
    Mr. Aaron. Not at all, as we have seen very clearly.
    Mr. Goodlatte. I have seen the----
    Mr. Aaron. The Federal Government is borrowing at close to 
a 0 interest rate today despite these deficits, many of which I 
share your concern about, let me emphasize. And I want to see a 
program to bring the budget under control over the long haul, 
as well as you do. But the fact of the matter----
    Mr. Goodlatte. Well, the House has passed budgets the last 
3 years that lead to balance. The Senate has not done so. The 
President has not proposed one. What is it that will force them 
to look at the economic reality?
    And I would agree with you that you cannot balance the 
budget every year, and I would agree with you that sometimes 
incurring debt is a good idea. The very man that I admire and 
cited here borrowed money to purchase the Louisiana Territory 
with the approval of the Congress. So there should be 
exceptions, obviously, but that does not mean the exceptions 
should swallow the rule, which is what I think is happening to 
us here in recent generations.
    Mr. Aaron. Was there a question in there?
    Mr. Goodlatte. I just want to know if you agree with that 
statement or not.
    Mr. Aaron. I am not sure which part of it, sir.
    Mr. Goodlatte. All right. Well, my time has expired.
    And so we will turn to the gentleman from New York, Mr. 
Nadler, for 5 minutes.
    Mr. Nadler. Thank you. Let me make a short statement and 
ask a couple of questions.
    I take issue with the fundamental premise of this hearing.
    Since 2010, deficits have been on a sharp downward path 
from 10 percent of GDP in the first post-Bush budget set by 
this Congress when Bush was still President to 4 percent of GDP 
in 2013. By next year, the deficit will fall to about 2 percent 
of GDP, less than the average of the 4 decades from 1969 to 
2008, and stay there probably at least to 2018.
    From my point of view, the deficit has come down too far, 
too fast. It has held down economic progress, and I wish our 
deficit were a little higher than it is now. But 2-3 percent of 
GDP is fine because at that level, your national debt, assuming 
a reasonable economic growth rate, is not increasing relative 
to the size of the economy at all.
    We are not facing any immediate escalation of the deficit. 
In fact, the exact opposite is true. The deficit is reasonably 
under control now.
    I have a number of questions for Dr. Aaron.
    First, if we pass the balanced budget amendment, aside from 
the fact that it would prohibit us from doing anything to 
recover from recessions, it would have turned the 2008 
recession into a depression, and so forth because you cannot 
take any countercyclical moves, what would the effect on Social 
Security and Medicare be of a balanced budget amendment?
    Mr. Aaron. Well, currently--let us break Social Security up 
into its two component pieces, disability insurance and old age 
and survivors' insurance.
    As we speak, the disability insurance program is dipping 
into its trust fund, selling off securities in order to sustain 
current benefits. If the disability insurance fund were barred 
from doing that, as it would be if there were a debt ceiling 
because when the disability insurance fund cashes in the bonds 
by selling them into the Treasury, the Treasury then has to 
sell them to the general public, and the debt limit in this 
proposal applies to debt held by the public. So that 
transaction would be foreclosed. And unless there was a three-
fifths majority of the whole membership of both houses----
    Mr. Nadler. Which would mean 40 percent could blackmail the 
rest of the country.
    Mr. Aaron. I am sorry?
    Mr. Nadler. Which would mean that 40 percent could 
blackmail the rest of the country.
    Mr. Aaron. Precisely. Unless that vote was forthcoming, 
disability insurance benefits would have to be cut by about 20 
percent this year.
    Currently Social Security is still running a cash flow 
surplus counting its interest income, but starting in 2022, it 
too would be----
    Mr. Nadler. The balanced budget amendment, to make it 
short, would make it impossible under a lot of circumstances to 
pay Social Security as envisioned.
    Mr. Aaron. That is correct.
    Mr. Nadler. Thank you.
    Second, 49 of the 50 States have balanced budget 
amendments. New York passed one in 1847. I was not there to 
vote for it. Is it not true, though, that these balanced budget 
amendments all refer only to operating budgets and permit 
borrowing for capital budgets and that the proposed balanced 
budget amendment on the Federal level is completely different 
because it would say in effect that unless you have an 
extraordinary vote for an emergency, you cannot borrow money 
for any purpose, capital or operating?
    Mr. Aaron. The State balanced budget requirements differ in 
many respects. Some of them are only prospective. The budget 
has to be balanced going into the year, but in fact, it can be 
in deficit. As you mentioned, borrowing for capital purposes is 
frequently permitted. And the fact of the matter is every State 
of the Union has substantial debt outstanding. Their ability to 
service that debt as evaluated by the bond rating houses varies 
widely, and it is that discipline that holds them----
    Mr. Nadler. But a balanced budget amendment on the Federal 
level would, in effect, say that except for extraordinary 
circumstances like a war or a three-fifths vote, you cannot 
borrow money for any purpose.
    Mr. Aaron. Beyond whatever the ceiling is set in the law.
    Mr. Nadler. No. You cannot borrow money----
    Mr. Aaron. That is right. If it is a balanced budget, then 
you cannot borrow for any----
    Mr. Nadler. You cannot borrow money. Does that make any 
economic sense at all?
    Mr. Aaron. I think the key point here is that the Federal 
Government has responsibilities that require a measure of 
flexibility from year to year. Embedding in the Constitution 
hard and fast rules, however cleverly crafted, is going to 
create very serious obstacles to sound policy under all kinds 
of different situations.
    Mr. Nadler. Thank you.
    Let me just make one observation before my time runs out. I 
agree with the Chairman when he said that Congress cannot enact 
laws to bind our successors. That is correct, and thank God for 
that. We should not bind into the Constitution things that bind 
our successors except for fundamental liberties and the means 
of getting things done, a process, how Government operates. But 
specific economic doctrines, which we may agree with today but 
we may find in 30 or 40 years that people disagree with, should 
not be bound into the Constitution. As one of the Justices 
said, the Constitution does not enact the laws of Herbert 
Spencer into the Constitution, for those who remember 19th 
economists, and we should not enact the doctrines of 20th or 
21st century economists or of ourselves into the Constitution 
to bind our successors who may find that they disagree, and 
they should have the freedom--our successors 20, 30, 40, 70 
years from now should have the freedom to make their own 
decisions.
    I yield back.
    Mr. Goodlatte. The Chair thanks the gentleman and 
recognizes the gentleman from North Carolina, Mr. Coble, for 5 
minutes.
    Mr. Coble. Thank you, Mr. Chairman.
    Gentlemen, good to have you with us this morning.
    Dr. Primo, let me ask you a question. If the Federal 
Government does not change its course on deficit spending, what 
will the effect be on discretionary spending?
    Mr. Primo. The effect on discretionary spending will 
essentially be to crowd it out even more than it is already 
being crowded out. As already discussed, in 5-10 years, 
discretionary spending will comprise an even smaller share of 
the budget than it currently does, and if things do not change, 
in 30 or 40 years, there is basically going to be no room in 
the budget for discretionary spending.
    Mr. Coble. Anyone else want to be heard on that question?
    Mr. Holtz-Eakin. I think this is a very important issue in 
the following sense. The discussion about binding the future is 
a serious consideration, but the way mandatory spending is set 
up, we are binding the hands of future voters, future 
Congresses to have no flexibility to enact national priorities 
of their own because they will have to honor these mandatory 
spending commitments. And that is a serious restriction on 
their ability to run this country.
    Mr. Coble. Dr. Aaron?
    Mr. Aaron. I think it is important to recognize that we do 
face in all likelihood the need to take measures either to 
raise taxes or cut spending in order to prevent excessive 
deficits in the future.
    But I want to emphasize the uncertainty here. The 
Congressional Budget Office in 2002 projected that the 2012 
budget would be in surplus by $600 billion. In 2012, in fact it 
was in deficit by more than $1 trillion, a swing of $1.6 
trillion. The Congressional Budget Office has removed from its 
estimates of Medicare spending in just the past 2 or 3 years a 
total of $1 trillion in anticipated Medicare and Medicaid 
spending over the next decade. We are talking here about 
projections as though they were hard facts. They are not. They 
are the product of assumptions that we are currently making. 
They are subject to change because of different economic 
circumstances and because of legislative actions that can be 
taken by you people who are on this Committee. They are not a 
binding constraint that is a reality that is going to occur 
with absolute certainty. These projections may turn out to be 
as serious as the adjectives that Mr. Holtz-Eakin and Mr. Primo 
have used; they may not. And as we get more information, we 
should react through the legislative process to respond to the 
reality on the ground, but we should not treat projections of 
spending in 2040 or 2050 or 2060 as hard realities that are 
already here with us.
    Mr. Coble. Thank you, Dr. Aaron.
    This has been touched earlier, but let me revisit it with 
more detail. Some argue that Social Security and Medicare and 
Medicaid will be cut if we do, in fact, adopt a balanced budget 
amendment. What conversely will happen to these programs if we 
do not adopt a balanced budget amendment or some other 
permanent fiscal rule? Dr. Primo, do you want to start it?
    Mr. Primo. Sure. If we do not adopt some sort of 
constitutional rule, eventually these programs will get fixed, 
and they will get fixed because Congress will not have a 
choice. We will face a crisis situation where the U.S. debt 
will be so high that creditors will lose faith in us. We take 
for granted right now that our dollar--our debt will always be 
held in good esteem by the rest of the world, but things change 
and crises happen overnight in the world of finance. And this 
idea that we should not be concerned about long-run projections 
because they might not come true is like saying you should not 
bother saving for retirement because you might not live to 
retire.
    The fact is that if we do not do anything, we will have to 
make choices down the road with respect to Medicare and Social 
Security, but they are going to be far harder than they would 
be if we made them today. And that is, I think, the real 
central message, is that there is no pressure to act on 
Congress until a crisis hits in the absence of a constitutional 
rule.
    Mr. Coble. Thank you, Doctor.
    Before my red light illuminates, anyone want to be heard 
further on this?
    Mr. Holtz-Eakin. I just want to say that as someone who 
directed the Congressional Budget Office, I am painfully aware 
of the uncertainty that comes with these projections, and I 
understand that. But you have to think then about what is the 
risk management strategy of a Congress or a nation? Do you want 
to error on the side of these numbers turning out to be even 
worse than they are? Or do you want to take measures that get 
them under control? Or do you want to just count on something 
good happening? And I worry about a strategy like that.
    The second thing I will point out is the one thing that is 
not uncertain is that people get older 1 year at a time, and 
the fundamental driving force in the Federal budget for a long 
time has been the demographic shift, and despite the fact that 
there was no uncertainty, the problem was not dealt with. So I 
do not think uncertainty changes some of the dynamics here.
    Mr. Coble. I see my red light is illuminated. Dr. Aaron, do 
you want to briefly respond?
    Mr. Aaron. I agree completely that uncertainty does not 
remove the importance of taking actions in light of 
possibilities. But that does not argue for embedding your 
actions in the Constitution. It argues for the Members of this 
Committee and of this House and of the entire Congress of 
taking the farsighted steps legislatively necessary to deal 
with those steps.
    As Mr. Nadler suggested, one can argue about whether the 
current budget situation if we should have a larger or smaller 
deficit. I tend to agree with him on that point. But I think 
everybody on this Committee and I am sure all three of us agree 
that legislative action to lower the future deficits that the 
Nation probably will encounter now would be desirable 
legislation. So passing legislation today, if the compromise is 
a mix of spending cuts and tax increases--I do not know what 
the mix would be, but taking action now to place in the laws 
changes in policy that will forestall the deficits we fear in 
the future, that is the responsibility of legislators.
    Mr. Coble. Thank you, Mr. Chairman.
    Mr. Goodlatte. The time of the gentleman has expired.
    Mr. Coble. I yield back.
    Mr. Goodlatte. The Chair recognizes the gentleman from 
Virginia, Mr. Scott, for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, I think 
we can all agree that we are in a fiscal mess. Some of us 
actually cast tough votes that cost many of our colleagues 
their seats when they voted for the 1993 Clinton budget. Fifty-
four Democrats lost their seats as a direct result. When 
President H.W. Bush tried to do something about the deficit, 
that was a major factor in his failure to win reelection. So I 
think we can all agree that we are in a fiscal mess.
    Now, all of our witnesses seem to assume that the 
constitutional amendment might actually help without discussing 
the exact provisions in the legislation and how it will help or 
not, ignoring the fact that if you can actually do something, 
somebody is going to have to cast some career-ending votes.
    Now, Mr. Holtz-Eakin, you went to great lengths to show how 
we can break the rules willy-nilly. In there, in all of these 
provisions, a three-fifths exemptions, where you get a three-
fifths vote, you can ignore everything?
    Mr. Holtz-Eakin. There is absolutely I think in any 
sensible balanced budget amendment provision for emergencies.
    Mr. Scott. Right. Three-fifths. Now, you have been around 
long enough. It is easier to get a three-fifths vote for a 
bunch of tax cuts or a simple majority to vote for a budget 
that will end the careers of a substantial portion of whichever 
caucus votes for it? It is obviously easier to get a three-
fifths vote like the $3.9 trillion----
    Mr. Holtz-Eakin. I will leave it to the professionals on 
the politics of that.
    Mr. Scott.--$3.9 trillion in the ditch we passed. And the 
only reason it did not get--the only reason--it got more than 
three-fifths. The only reason it did not get more because half 
the people did not think it was big enough.
    Dr. Primo, you talked about the State budgets. We pointed 
out that the State budgets have a capital exemption. Can you 
point to any provisions found in H.J. Res. 1, 2, or 10 that are 
found in most of the State constitutional amendments called 
balanced budget?
    Mr. Primo. You are asking just to clarify do any of the 
proposals at the Federal level include separate capital 
budgets?
    Mr. Scott. You said the States--their governments have 
balanced budget amendments. A simple question. What in H.J. 
Res. 1, 2, or 10 can be found in State governments, in most of 
the State government constitutions? Governor Thornburgh, when 
he was here, could not think of one.
    Mr. Primo. In my research on State balanced budget rules, I 
have found that rules that are well designed and are enforced 
by courts that are accountable to the people under certain 
conditions actually have lower spending than States with rules 
that are not as well designed. So there is variation in the 
rules, and I think that is a key message.
    Mr. Scott. I take that as a no, you do not find any of the 
provisions in H.J. Res. 1, 2, or 10 that are found in most 
State constitutions.
    Mr. Primo. Well, the State governments also cannot declare 
war, and so, you know, it stands to reason that the amendments 
are going to be different.
    Mr. Scott. I think I have made my point. None.
    Dr. Aaron, Social Security can be fixed. Everybody knows we 
are on an unsustainable trajectory on Social Security and 
Medicare. You can fix it using arithmetic one of two ways. You 
can add revenues. You could cut benefits. If these amendments 
are passed, is it not true that you could cut benefits on a 
simple majority, but to save them or shore them up with 
revenues, you would need a super majority?
    Mr. Aaron. I believe the rules in these resolutions apply 
to aggregate spending and to the debt level. If you wanted to 
raise benefits when the budget was balanced without raising 
taxes, that would create a deficit and would, thereby, require 
a three-fifths vote. You could cut benefits by a simple 
majority. You could not, however, cut revenues by a simple 
majority if it would throw the budget into deficit.
    Mr. Scott. Yes, but you could cut taxes on a simple 
majority, but to raise taxes, you would need on most of these 
proposals a super majority.
    Mr. Aaron. Yes.
    Mr. Scott. In fact, if you cut taxes 1 year and figured out 
that was a stupid thing to do and wanted to go back and fix it, 
you would need a super majority to get it back.
    Mr. Aaron. I believe that is correct.
    Mr. Scott. Can you say a word about if there is a question 
of whether the budget is in balance or not, what the courts 
would do with that question?
    Mr. Aaron. I am not a lawyer, and I confess I have not 
thought about that. But if I were a Member of this House, I 
would be acutely concerned about the prerogatives of the 
legislature and very anxious to make sure that those were not 
impeded by the interference, if you will, of the judicial 
branch in what are genuinely legislative responsibilities.
    Mr. Scott. Mr. Chairman, could I recognize a group that is 
in the audience? G.R.O.W. from Richmond. If you could just wave 
your hands. Thank you. Thank you, Mr. Chairman. They are 
learning all about balancing the budget today.
    Mr. Franks [presiding]. I doubt that.
    [Laughter.]
    Mr. Franks. But we welcome you all here today very warmly.
    Mr. Franks. Mr. Holtz-Eakin, you know, sometimes I wish 
engineering paradigms could be applied in these kinds of 
discussions. Mr. Einstein said that ethical axioms are found 
and tested not so differently than scientific axioms. That 
which stands the test of experiment or experience is the truth.
    Now, we have a lot of experience with budgets, and I am 
always amazed that we do not look at that. If we did that in 
engineering where we ignored the laws of thermodynamics, we 
would be blowing things up every time we turned around. These 
things--we know that they are so consistent that over time we 
can put people on the moon by adhering to them and working 
within those parameters. And yet, throughout history, we have 
seen a real experiment here. The States have balanced budget 
amendments, and we always hear all of the terrible 
possibilities that might occur if the Federal Government had to 
do the same thing that every family in America does, that every 
State has to do. Somehow it is going to bring these untold 
disasters.
    Let me ask you. Do you know in any significant instance 
where the requirement of States to balance their budget has 
brought about or manifested some of these disasters that my 
friends on the left have articulated?
    Mr. Holtz-Eakin. No. In my study of State balanced budget 
rules, I would echo what Dr. Primo said, which is there is a 
lot of difference in the rules and there are differences in 
outcomes, but no disasters that come from having such rules.
    Mr. Franks. Well, again, my friends on the left seem to 
think that we can repeal the laws of mathematics if we all get 
a good enough vote here. But those are stubborn things.
    Let me change to you, Dr. Primo. Again, one of the 
comments, again, my friends on the left suggest, is that the 
social network of programs that we have here, Social Security, 
Medicare--these things will be vitally threatened by a balanced 
budget amendment. I guess I have a two-part question.
    What do you think threatens those programs today and in the 
future the most?
    Mr. Primo. I think what threatens those programs the most 
is not doing anything today to fix them. The longer we wait, 
the harder it becomes. And the Treasury, just very quickly--if 
we wait 10 years to make changes on Medicare, Social Security, 
and other programs, we are going to have to make a sacrifice 
that is 20 percent bigger. If we wait 20 years, it is going to 
be 50 percent bigger. So the point is if we start today, we 
will be in a much better situation. And passing a balanced 
budget amendment today or another constitutional budget rule 
today will force Congress to start moving toward fiscal 
responsibility. Right now, it is very easy to say, oh, you 
know, the deficit is down in the last few years. Let us just 
wait a few years. That is always the answer in Washington.
    Mr. Franks. Well, I could not possibly--I am in violent 
agreement with you.
    But let me ask you then does it not stand to reason that 
one of the very most important things that we could do to save 
Social Security and some of our programs to protect the social 
fabric of the country as they are ostensibly put in place to 
do--would that not be one of the most important things we could 
do, to pass a balanced budget amendment?
    Mr. Primo. A constitutional budget rule will force Congress 
to have an important discussion about how we can design 
Medicare, Social Security, and other social programs to be 
sustainable into the future. The problem I have been seeing in 
the debate over these programs is that some Members will say, 
you know, we will talk about Medicare and Social Security as 
they exist today as though they can stay like that forever. 
Something has got to change, and the question is are you going 
to let circumstances change those programs for you or are you 
going to act and change them proactively so that we can create 
programs that are sustainable over the long run. That is the 
choice facing the Congress.
    Mr. Franks. Well, once again, I agree with you. But you 
postulated that one of the things that threatens these 
programs, the Social Security and other programs like it, are 
the fact that we are not sufficiently motivated to act now to 
deal with them so that they can project and actuarially come 
out in a way down the road that is sustainable. And you have 
also suggested that one of the greatest mechanisms to vitiate 
that problem is a balanced budget amendment. So I just would 
like to suggest that if we really care about things like Social 
Security, if we really care about the fiscal solvency of the 
United States, if we really do not want to end up like Greece 
where people were rioting in the streets because of some of the 
cuts that they had to do, then I would suggest that a balanced 
budget amendment might be something to be considered.
    Dr. Holtz-Eakin, do you have any--I saw you move your head. 
Do you have any thoughts on that? And then I will yield back 
here.
    Mr. Holtz-Eakin. Well, I concur with the concern over the 
fiscal outlook.
    I just want to have a point of clarification in this 
discussion. Social Security will be cut. When the disability 
fund exhausts, disability benefits will be cut down to whatever 
revenues are coming in. When the retirement fund exhausts, 
Social Security will be cut across the board. So there is 
nothing about a balanced budget amendment that changes the 
future for that program. It is going to be cut because Congress 
has failed to enact a sustainable Social Security program. So 
this notion that somehow it is only endangered by a fiscal rule 
that makes the rest of the budget add up is just wrong.
    Mr. Franks. But there may be a difference in cutting it 
reasonably or cutting it precipitously because of a----
    Mr. Holtz-Eakin. I concur with that. At least cut it 
reasonably.
    Mr. Primo. Just 10 seconds. Whatever changes we need to 
make, if we make them today, they will be less painful. I think 
that is the key message.
    Mr. Franks. All right. So a balanced budget amendment is 
the perfect political anesthetic. All right.
    So now I would turn to Mr. Conyers.
    Mr. Conyers. Thank you, Mr. Chairman. And I want to 
apologize to the witnesses for not being able to be with them 
for the full period of this important hearing.
    But Social Security taxes could be covered and not cut by 
merely raising the Social Security tax. Is that not correct, 
Dr. Aaron?
    Mr. Aaron. Yes. I was going to comment on the previous 
discussion, which seems to me to be wrong in a number of 
respects.
    First of all, a balanced budget amendment would require no 
action whatsoever with respect to Social Security, which is 
currently running a surplus and accumulating additional 
reserves. The program does, indeed, face a long-term projected 
deficit, and I fully agree with Professor Primo that early 
action to close that projected deficit is desirable in order to 
phase in changes gradually.
    But the observation you just made, Mr. Conyers, is also 
correct. It is not the case that benefits have to be cut. Taxes 
could be increased. And in that connection, I would report a 
survey taken and released by the National Academy of Social 
Insurance trying to find out what public attitudes were about 
Social Security. The majority view of those surveyed was that 
benefits should be increased and taxes raised enough not only 
to cover the cost of those added benefits but also to close the 
projected financing gap that we now confront. So if that poll 
is reasonably accurate--and I have no reason to impugn it--if 
that is the case, then the view of the American public is not 
that benefits must be cut, but that the program should be put 
on a sound financial footing and benefits should be at least 
sustained.
    Mr. Conyers. Thank you very much.
    Dr. Primo, do you have any notion of what cuts might be 
required to effect a constitutional amendment such as being 
discussed here today?
    Mr. Primo. The specifics of the changes that would need to 
be made to programs I think is properly the purview of the 
Congress. Without a doubt, changes need to be made, but many of 
those will not necessarily be cuts but rather reductions in the 
increases in growth of spending.
    Mr. Conyers. Well, I feel a little bit better about your 
response.
    Let me see if Dr. Holtz-Eakin can help me here. Do you 
concede that there may be cuts necessary if this amendment were 
to be adopted, sir?
    Mr. Holtz-Eakin. The budget is badly out of balance. So 
mechanically one of two things is going to happen. Spending, 
projected spending in particular, will have to be lower or 
projected taxes and taxes will have to be higher.
    I think an important feature about the reality of how this 
would happen, if the Congress were to pass it and send it to 
the States, is it would take years for ratification to occur. 
That is a good thing from two perspectives. Number one, it 
would require a lot of public education about what is going on, 
and it would happen as a byproduct of the ratification process. 
Number two, everyone in this chamber at that time would be 
watching the day approach when things had to add up, and they 
would have to anticipate that. And rather than doing it in a 
single year in an abrupt and, quite frankly, damaging fashion, 
it would be done in a smooth fashion over time. And I think 
that is the right way for Congress to approach the problem.
    Mr. Conyers. Thank you very much.
    Let me turn again to Dr. Aaron. Proponents of a balanced 
budget amendment claim that because States and families are 
required to balance their budget, the Federal Government should 
be required to do so too. Is this analogy a little bit 
overworked or maybe inept?
    Mr. Aaron. Well, in response to a prior question about 
State balanced budget amendments, Professor Primo mentioned 
that the Federal Government has responsibilities that States do 
not have like the ability to declare war. But they have another 
responsibility that is different from the States and that is to 
combat recessions partly through fiscal policy, partly as a 
responsibility of the Federal Reserve system.
    Mr. Holtz-Eakin's statement about the gradualism with which 
spending could be cut might be true in the run-up to 
ratification. It emphatically is incorrect with respect to the 
cuts that would be triggered by a balanced budget amendment 
during a recession. Revenues fall. Spending would have to be 
cut then or taxes increased unless, again, there was a three-
fifths majority of the entire membership of Congress to waive 
those requirements. Those cuts could be very, very abrupt.
    And as I said in my testimony, they create a possibility of 
ransom by intransigent minorities seeking enactment of their 
pet proposals. And I really think that is a danger that Members 
on both sides of the aisle should take very seriously because I 
think it is quite possible that one could get such efforts made 
either on behalf of conservative or on behalf of liberal 
policies that cannot command majority support but that could be 
weapons during a fiscal crisis.
    Mr. Conyers. I think the balanced budget amendment is still 
no better an idea than when Newt Gingrich brought it to our 
attention in 1994 in the Contract with America.
    And I thank you all for your observations, and I yield back 
any balance of my time that may be remaining, Mr. Chairman.
    Mr. Bachus [presiding]. Thank you.
    The gentleman from Texas, Mr. Gohmert.
    Mr. Gohmert. Thank you. I appreciate your being here, your 
testimony.
    I have been contemplating what one of my friends across the 
aisle had said earlier, that we should not be put into the 
Constitution things that bind our successors. And then when I 
contemplated every one of the amendments to the Constitution, 
they do exactly that. They bind our successors, and thank God 
they do. If those amendments did not bind our successors, we 
would have no right to due process. We bound the government. 
You cannot go after us. You cannot get our personal property, 
our records without due process unless, of course, you are the 
Consumer Financial Protection Bureau, the Federal Government 
getting our medical records now under Obamacare, the NSA 
getting all our emails and phone logs. But I digress.
    I would suggest we are binding future generations right 
now. We are binding our successors, forcing them to pay for 
things they got no benefit from. We are the generation that is 
engorging ourselves with things we cannot pay for and the 
future generations will be bound to pay for.
    I was one of four Republicans that voted against the 
balanced budget amendment not because I do not support it. I 
have been for it as far back as I can recall in college and 
high school when we had debates over it. But what I have found 
since I have been in Congress is if we do not put some kind of 
bind on ourselves, our successors are going to be bound to an 
extent that is untenable. We need a spending cap because to 
have a balanced budget amendment without a spending cap forces 
ever higher and higher taxes because we do not do a good job of 
cutting, and that higher and higher taxes gets us into the 
Laffer curve, which I do believe is supported by evidence in 
economics. If you charge a 0 percent tax, you get 0 revenue. 
You charge a 100 percent tax, you get 0 revenue because nobody 
will work if every dime goes into the Federal Treasury. So 
somewhere in between is a maximum effective rate. When you go 
over that rate, you begin to get less revenue. You kill the 
economy.
    And it was Thomas Jefferson that said the natural progress 
of things is for liberty to yield and government to gain 
ground. As yet our spirits are free. Our jealously is only put 
to sleep by the unlimited confidence we all repose in the 
person to whom we all look to as our President. After him, 
inferior characters may perhaps succeed and awaken us to the 
danger which his merit has led us into.
    Washington was selfless. We have not done so well since 
then. We need to bind ourselves.
    So I would ask you, having just seen Obamacare now limiting 
seniors, as the President himself said at a town hall, we 
probably need to tell the senior you are better off getting a 
pain pill than a pacemaker that saves your life because we have 
got to cut costs. Why? Because we have engorged ourselves with 
a massive amount of government workers in health care.
    So I think we have got to have a cap on spending as part of 
a balanced budget, and I would like to ask each of you whether 
you agree or--I am not asking whether you agree or disagree 
with the spending cap. But if you were forced to provide a 
mechanism for putting a cap on spending, what would it be? Dr. 
Holtz-Eakin?
    Mr. Holtz-Eakin. Well, if you were going for a spending 
cap, I think it would have two important characteristics. 
First, it would be a comprehensive spending cap. I do not think 
you should pick particular categories in the budget and single 
them out in advance. It should be applied equally. Second, it 
should be measured relative to the size of the economy or 
perhaps the economy per capita so that it adjusts to the 
capabilities to support the Government automatically. And I 
think those are the two key pieces.
    Mr. Gohmert. Like GDP?
    Mr. Holtz-Eakin. Yes.
    Mr. Gohmert. Sir?
    Mr. Aaron. I am not willing to play the game. I believe 
this----
    Mr. Gohmert. Sir, this is not a game to me. This is a 
matter of life, of freedom for my children. I do not consider 
it a game.
    Mr. Aaron. I apologize for using the wrong word. But I am 
not willing to----
    Mr. Gohmert. So I thank you.
    Our last witness please.
    Mr. Aaron [continuing]. What I think would be----
    Mr. Gohmert. Sir, I had a specific question. I am looking 
for ideas for caps on spending.
    Mr. Primo. I have some hesitation about putting a specific 
cap on spending----
    Mr. Gohmert. I understand that.
    Mr. Primo [continuing]. Only for the reason that over time, 
you might want to deviate slightly from that, but there are 
ways to deal with that particular issue. But regardless of that 
point, in terms of how you design it, you need to be very 
specific about how you are defining terms within the context of 
the amendments. Let us say you want to use GDP as a metric. The 
amendment would need to be very clear about how we are going to 
define those numbers. Otherwise, I am willing to bet any amount 
of money, my retirement savings, that Congress will write 
implementing legislation that will define the cap in such a way 
that they can ignore the cap. And so I think the rule design 
there is essential.
    Mr. Gohmert. So no proposal. Just be careful. All right. 
Thank you.
    I yield back.
    Mr. Bachus. Thank you.
    Mr. Johnson from Georgia is now recognized.
    Mr. Johnson. Thank you.
    This balanced budget amendment has more to do with spending 
than it does with raising revenue. And so it is really an 
attempt to ensure that Government spending remains low. 
Therefore, taxes can remain low. Now, who pays taxes? Not the 
wealthy because they are the ones with all of the lobbyists up 
here in Washington, D.C. to get their tax loopholes inserted in 
our tax code, and that is what makes our tax code so unfair is 
because the middle class and the working people are the ones 
that are paying the taxes and the wealthy, the vulture 
capitalists and the like, end up paying zero taxes. I know that 
General Electric Corporation got tax refund checks of billions 
of dollars.
    So we are not collecting taxes from the wealthy, those who 
can most afford to pay. So, therefore, without the money from 
the wealthy paying their fair share and the middle class paying 
the tax bill for things like the war in Iraq and Social 
Security, Medicare, Medicaid, transportation, FDA, EPA, all of 
the workings of Government, the IRS, these things that America 
has been able to provide some degree of prosperity to 
Americans, all Americans--these institutions, these agencies 
are being dismantled because of costs. And a balanced budget 
amendment would just usher along this period where you had less 
Government, Government that would only be in place--Federal 
Government be in place to deal with the wars that we decide we 
want to create and handle off the books.
    Under a balanced budget amendment, we would not have been 
able to fund the cost of the Iraq War on these contingency 
operations budgets that we arrive at and they are not paid for. 
Is that not correct, Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. Most of the balanced budget amendments 
would have required some sort of vote to declare war and have a 
special ability to borrow to fund operations of that type.
    Mr. Johnson. So when it comes to war, you would be able to 
somehow defeat the balanced budget amendment, but not in a 
situation where there was a catastrophe, let us say, a drought 
like the dust drought back in the 1920's and 1930's and there 
was a need for programs to help put people back to work, help 
people who could not find jobs. You could not do that under the 
balanced budget amendment. Correct?
    Mr. Holtz-Eakin. You would have to cut other spending or 
raise taxes to do it.
    Mr. Johnson. Yes. So you can spend it for the military, but 
you cannot spend it on the people.
    How would we actually implement a balanced budget 
amendment, should we be so unfortunate that it would pass, Mr. 
Eakin? You are the economist, and that is why I am kind of 
focused on you as opposed to you, respectfully, Mr. Primo.
    Mr. Holtz-Eakin. It would fall to the Congress and the 
Administration.
    Mr. Johnson. Yes. Practically how could you implement a 
balanced budget amendment in this day and time?
    Mr. Holtz-Eakin. I am not sure I understand what the 
question is, sir.
    Mr. Johnson. Well, I mean, you vote for it. You are 
advocating for it. We vote for it. We pass it. It gets sent to 
the States. They pass it. Boom. It is the law. Now, how do we 
implement it?
    Mr. Holtz-Eakin. As I said earlier, I think the key would 
be if it were to pass the House, the Senate, go to the States--
--
    Mr. Johnson. How do we----
    Mr. Holtz-Eakin. I am trying to answer, sir.
    You would begin to recognize, as States ratify it, that 
this was in fact going to be a binding constraint on future 
operations of the Federal Government.
    Mr. Johnson. Okay. How do we implement it? Now, you are 
filibustering me, and we do not filibuster over here in the 
House. They filibuster over in the Senate. I am just trying to 
get a straight answer.
    Mr. Holtz-Eakin. I may be answering it poorly, but I am 
answering.
    [Laughter.]
    Mr. Johnson. How do we implement the balanced budget 
amendment? What are we going to do? Stop some expenditures. Are 
we going to get rid of Social Security, Medicare, Medicaid, 
just cut that out and start paying for the military only? How 
does it work?
    Mr. Holtz-Eakin. I could not possibly answer that.
    Mr. Johnson. Well, do you have any idea, Mr. Primo, how it 
would work? Do you have any idea whatsoever?
    Mr. Primo. So I do have a background in economics, by the 
way, and it is telling that you wanted to focus on the 
economics and not the political science of this because it is 
the political science of this that is equally important.
    Mr. Johnson. But do you not think this balanced budget 
amendment is rooted more in politics as opposed to economic 
theory?
    Mr. Primo. A balanced budget amendment is rooted in 
economic theory, but the implementation would be political. And 
that is the key.
    Mr. Johnson. Well, tell me how it would be implemented 
since you have stepped up to the plate. How would you implement 
a balanced budget amendment?
    Mr. Bachus. The gentleman's time has expired, but I will 
let him respond.
    Mr. Primo. This is an important debate to have because I 
think we have been seeing----
    Mr. Johnson. Okay. You are filibustering me now.
    Mr. Primo. I am trying to answer your question.
    Mr. Bachus. Let him answer the question.
    Mr. Primo. I do not have to answer the question. That is 
your choice.
    Mr. Johnson. Because you all do not let Mr. Aaron speak, I 
am just treating you like they have treated Mr. Aaron.
    Mr. Bachus. I was going to let Mr. Primo answer that last 
question of yours. We are over about 10 minutes.
    Mr. Johnson. Please do, sir. Please do.
    Mr. Primo. So a smart way to implement any sort of 
constitutional rule would be gradually over time, as Dr. Holtz-
Eakin has mentioned also. It is not like you say tomorrow, 
okay, we are going to go from a deficit of 2 to 3 percent and 
then all of a sudden we are going to go to 0 overnight. You do 
it gradually. You do it smartly.
    Mr. Johnson. How much time? 5 years, 10 years?
    Mr. Primo. And so what I have noticed is that those who 
disagree with a constitutional budget rule have a tendency to 
focus on specific provisions that they do not like and then use 
those as a way to sort of decimate the entire idea of a rule. 
The key is that you design the rules carefully. I have argued--
and I am a supporter of a constitutional budget rule--that 
design matters, and I would rather see no rule than a badly 
designed rule. So if you have quibbles with----
    Mr. Johnson. You have not told me anything, sir.
    I yield back the balance of my time.
    Mr. Bachus. There is no time.
    Mr. Johnson. Thank you, Mr. Chairman.
    Mr. Aaron. Mr. Bachus, would it be out of order for me to 
respond or do you want to move on to the next question?
    Mr. Bachus. Go ahead.
    Mr. Conyers. You are a generous Chairman.
    Mr. Aaron. I think one way of posing the question of the 
gentleman is to ask what specifically would have been done had 
H.J. Res. 1 or 2 been in effect during the most recent economic 
slowdown.
    Mr. Johnson. Well, that is a great question, sir.
    Mr. Aaron. Let us talk some specific numbers. Revenues 
dropped to 14 percent of GDP. Spending was over 20 percent--23 
or 24 percent of GDP. Under those circumstances, H.J. Res. 1 or 
2 would have required a massive tax increase or massive 
spending cuts. It behooves those who support this amendment to 
give us an illustration of which programs they would have cut 
under those circumstances. And unless they are prepared to do 
that, it is hard to take this proposal very seriously.
    Mr. Bachus. Mr. Holtz-Eakin, you are the only one that has 
not been able to respond. But thank you.
    Mr. Holtz-Eakin. This is an important issue. It comes up a 
lot. So let me say a couple things about it.
    Number one, a sensibly designed constitutional budget rule 
would have the provisions that in extreme economic distress, 
the Congress could run deficits. And so the worst case 
scenarios are not the right way to think about this.
    Then there is just a tradeoff. It has been the case that 
proponents have argued for running deficits as a way of 
managing business cycles. I would argue the historic record of 
our success in doing so has been quite poor. And the cost of 
attempting to avoid this kind of discipline has been chronic 
high deficits, chronic debt accumulation, and an endangerment 
of both our financial and economic futures.
    On balance, I think it merits going to the constitutional 
rule because it is better than what we have done, and that has 
been an excuse to run deficits in the name of doing better 
economic policy. But the policy has not been that good. It is a 
judgment call, and that is where I would come down.
    Mr. Bachus. Thank you.
    Mr. Marino, you have been very indulgent. Mr. Johnson took 
10 minutes. So we have some time.
    Mr. Marino. And you know, the thing of it is I sat here to 
listen to Mr. Johnson, and then it is my turn and he takes off. 
I am going to have a discussion with him in a moment.
    [Laughter.]
    Mr. Bachus. I liked the debate.
    Mr. Marino. Gentlemen, I do recognize that you are all 
economists and experts and very well respected in your field.
    Dr. Aaron, I am not quite sure where you are coming from on 
an issue. You say that let us talk about right now about what 
we would do. There is no way that one could sit down right now 
and say what we could do. I have put together an economic plan 
concerning the balanced budget. I do support it. And that is 
where we, both sides and the Administration, have to take--
probably it would take months, even maybe years to sit down and 
go through each Department, each agency because we have to talk 
about cutting significantly, increasing revenues, but cutting 
significantly in Departments and agencies would increase 
revenues. We have to talk about what impact creating more jobs 
would have on revenues coming in. So there are so many 
variables to this.
    But you know something? I am new to Congress. I am in my 
second term. And so I have not been privy to a time in Congress 
where we have had surpluses. Now, in my reading, since the 
Revolutionary War, we have always accumulated debt, and some 
people do not know the difference between debt and deficit. And 
we have had two Presidents at least in my lifetime that have 
had some surpluses, but when they left office, they still 
contributed to the debt, to the overall debt.
    If we cannot agree on something as simple as legislation 
that we are trying to pass even to create jobs, do you not 
think we need something to force us, to make us sit down and 
discuss the issues? Because if we have a constitutional 
amendment and we do not fulfill that, you can bet we are not 
going to be around in the next election because we have just 
forfeited our responsibility.
    There are 321 bills right now sitting in the Senate on 
Harry Reid's desk that he refuses to take to the floor for a 
vote. Can you imagine trying to sit down with that kind of 
mentality and reach an agreement? Do you agree with me, Dr. 
Aaron, that there are no indicators that the debt will not 
continue to rise in the future?
    Mr. Aaron. I do expect the debt to continue to rise in the 
future. And in fact, recently I took a look at what the course 
of debt was over U.S. history. To my surprise, I discovered 
that we started the Nation with a sizable debt because 
Alexander Hamilton said that we should not defray obligations 
incurred during the Revolutionary War.
    Mr. Marino. I understand that, but do not use up all my 
time now. Please get to the point.
    Mr. Aaron. There was a period when we paid off the debt 
completely.
    Mr. Marino. That was in 1833, 1834.
    Mr. Aaron. Absolutely.
    Mr. Marino. And then after that, boom, it skyrocketed 
again.
    Mr. Aaron. Well, it rose a little bit. The Civil War--it 
rose a lot.
    Mr. Marino. But let us talk about today, Doctor. Let us 
talk about the debt today. It is skyrocketing at an alarming 
rate. You did advise President Obama, and do you still advise 
the President on economic issues?
    Mr. Aaron. No. I have not been an advisor to President 
Obama----
    Mr. Marino. Okay. I thought you were.
    Mr. Aaron. I have been nominated for an advisory board, but 
that is all.
    Mr. Marino. You should have been on that.
    You suggest that we do rationing. Why can we not do 
rationing, for example, in----
    Mr. Aaron. No, I do not suggest that we do rationing.
    Mr. Marino. Did you not write an article which suggested--
--
    Mr. Aaron. I wrote a book. I wrote two books in fact on 
health care rationing.
    Mr. Marino. Well, why can we not ration in conjunction with 
a balanced budget and preparing a framework? Like Dr. Primo 
says, we cannot jump into--today we do not have a balanced 
budget and tomorrow we do, and now it kicks into gear. There is 
so much that has to be done to prepare for that.
    The Constitution, Article I, Section 8, paragraph 1 says we 
are supposed to pay debts. And we are getting to the point 
where we cannot pay debts because we are approaching $18 
trillion of debt. Now, every Administration and every Congress 
over my lifetime is responsible for this. So now I am a 
Congressman and I am responsible for it. But I do not see an 
alternative here other than something forcing us absolutely by 
a constitutional amendment to take this seriously. Whether that 
involves a combination of matters, which I think it will be, 
raising revenues and cutting spending, what is your alternative 
other than that?
    Mr. Aaron. My alternative is the sort of bipartisan 
collaboration that occurred during the 1990's.
    Mr. Marino. Have you not heard anything that I just said 
over the last 15 seconds about bipartisan?
    Mr. Aaron. May I respond to your question, sir?
    Mr. Marino. Yes, you may.
    Mr. Bachus. Yes, let him respond.
    Mr. Marino. No. I am asking questions. He will have an 
opportunity.
    Did you not hear what I said a minute ago----
    Mr. Aaron. I heard you perfectly, sir. I am trying to 
answer.
    Mr. Marino [continuing]. About 321 pieces of legislation on 
the Senate's desk that they will not bring to the floor? Now, 
how? Tell me the secret. Tell me the secret to getting the 
Senate and the Democrats to agree to sit down and talk about 
this.
    Mr. Aaron. Talk about what, sir?
    Mr. Marino. Just what you said, just what you talked about. 
You wanted to make a response to--okay, this is the alternative 
to balancing the budget. We cannot even get them to sit down 
and talk about simple matters other than increasing the debt 
limit, which the President was opposed to when he was a 
Senator. So give me an example of how we are supposed to 
persuade someone like Harry Reid to sit down and talk.
    Mr. Aaron. I am not going to try to provide political 
advice.
    Mr. Marino. Well, then do not sit there and try to provide 
some----
    Mr. Aaron. I am trying to respond to you and----
    Mr. Marino. You are not responding. You are not responding 
to my question. You are not responding to my question.
    Mr. Bachus. Gentlemen, I am going to give you plenty of 
time.
    Mr. Marino. Mr. Chairman, I am aware of that, but I am not 
going to be two-stepped here. This gentleman sat and tried to 
ridicule the Chairman on a piece of legislation. He did not do 
his research and he was wrong on that.
    Mr. Bachus. I understand. And, Mr. Marino, you have got 
every right to ask questions.
    Mr. Marino. Just answer my question, sir. How do you 
propose the Democrats and the Republicans getting together and 
reaching agreement on legislation other than a constitutional 
amendment?
    Mr. Aaron. I do not see how a constitutional amendment does 
what you want.
    Mr. Marino. You did not answer my question. Answer my 
question of how we are supposed to do that.
    Mr. Aaron. Sir, if you wish to engage in the practices of a 
prosecuting attorney, I am not willing to respond----
    Mr. Marino. And if you wish to engage as a defendant to 
refuse to answer the questions, then I will.
    I see my time is up. I yield back.
    Mr. Bachus. Thank you.
    Now it is my turn I guess. I do not know where to start.
    What Mr. Marino--maybe another way to say it--and I will 
maybe start with Mr. Aaron. What would be one of your 
suggestions as an action to take to reduce the deficit?
    Mr. Aaron. My response that I wanted to give before was 
that we have a case study of successfully dealing with the 
deficit. During the 1980's, we had a deficit problem that was 
quite serious. Two successive Presidents, one Republican and 
one Democrat, successive Congresses controlled alternatively by 
Republicans and Democrats passed three deficit reduction bills 
that actually produced 3 successive years of budget surpluses 
and spending levels that were actually below 18 percent of GDP 
at the end of the Clinton administration. Those surpluses 
occurred immediately after the failure of the balanced budget 
amendment to which reference has been made today. It was as if 
Congress was giving a real-life demonstration of the way in 
which responsible leaders of this Nation can and should behave 
and showing that it is not necessary to embed in the 
Constitution an amendment that is likely, in all forms that I 
have seen so far, to be subject to gaming or abuse and that 
would impose severe limits on congressional behavior during 
emergencies.
    I want to say I disagree strongly with what Doug Holtz-
Eakin said before. It is not what Congress can do gradually 
over time if it has time to respond to the ratification of an 
amendment. It is how the amendment is going to affect policy 
during those unanticipated events when emergencies do occur. 
That is the risk that I see in the current H.J. Res. 1 and 2.
    Mr. Bachus. All right. Let me ask all three of you this. 
You mentioned the actions that were taken actually under Carter 
and Reagan to try to stem expenditures and the Social Security 
disability fund. So I think all of you would agree that the 
projection is that it will bankrupt by 2016.
    Mr. Aaron. Disability insurance, yes. Old age and 
survivors, sometime after 2030. We are going to get a trustee's 
report I think early next week.
    Mr. Bachus. Yes. But the projection now I think is 2016. So 
we are talking 2 years. So we all agree on that?
    Mr. Aaron. For disability insurance.
    Mr. Bachus. Yes, the Social Security disability insurance 
fund, trust fund.
    Now, that was really what Reagan and Carter addressed 
successfully. I mean, they did revise it. Now, there were some 
problems with it too.
    I took Brookings Institute, which you are familiar with. 
You are with Brookings Institute. They did a study on Social 
Security disability, saying it had to be addressed. One of the 
things they said--and this is the Center for American Progress 
in the Brookings Institute. While traditional medical causes of 
disability, cancer, stroke, heart attacks, and the like, have 
stayed relatively constant--those claims--Social Security 
disability benefits have exploded for people with 
musculoskeletal or mental disorders. They talked about that an 
applicant can have a subjective claim that he is in pain or 
mentally incapacitated and that sometimes that is enough to 
have a claim paid. In other words, I got back pain. I am 
depressed.
    NPR has said that--they have said that diagnoses that lend 
themselves to subjective manipulation--and this was in a study 
of disability--like back pain and mental illness have grown 
substantially.
    So we have got a Democratic witness, two Republican 
witnesses. Can we all agree that Social Security disability is 
probably as urgent a matter that needs to be addressed by this 
Congress now?
    Mr. Holtz-Eakin. Agreed.
    Mr. Primo. Agreed.
    Mr. Aaron. I think it is the central issue in Social 
Security that needs attention now.
    Mr. Bachus. And, you know, some people are saying, well, we 
might draw out of the retirement account. We might raise the 
Social Security tax. We have got to do something.
    And what bothers me about this is people that have 
legitimate problems, cancer, stroke, heart attacks, Lou 
Gehrig's disease--if we just reduce everybody's, we are not 
taking care of these claims that even NPR--if you saw that on 
TV, it was just--and I think Mr. Marino--that is part of his 
frustration and mine, is that this is something that 
bipartisanally we seem to agree that this thing is out of 
control. And it is going to go bankrupt in 2 years, and we do 
not do anything about that.
    Now, I think that is part of the reason why we are saying 
we cannot do the easy lifts.
    And one other thing. There have been two different 
studies--well, three or four, National Bureau of Economic 
Research. But in the last 40 years, while the claims have been 
going up, medical advances have made people healthier. So we 
ought to be coming down.
    Almost every study says now the aging population, but that 
only accounts for 13 percent of the claims due to that. The 
other are just an explosion, as NPR says, of disability claims 
on subjective evidence.
    Does anybody want to comment on that?
    Mr. Primo. I would just note that your concern about this 
particular aspect of Social Security--or the disability program 
is suggestive of why we need constitutional reform. We lurch in 
this country fiscally from crisis to crisis. Some of them are 
micro-crises, as the one you have just described. Others, as we 
saw a few years ago, were far more macro in nature. And in the 
absence of a constitutional rule, it is always easy to just do 
the small fixes or the temporary fixes or the fixes that might 
get you 10 or 15 years. But you do not fundamentally alter 
these programs.
    And we have heard a lot today about the various times in 
history where--sort of like a rainbow in the sky--we reached 
agreement and we got a balanced budget in, say, the late 
1990's. I mean, you had to hold onto that balanced budget tight 
because it disappeared awfully quickly. And in the absence of a 
constitutional rule, you can enact all the reforms you want 
legislatively. In the absence of constitutional reform, you 
might get a balanced budget for a year or 2. You might get a 
little bit of fiscal responsibility for a few years. And then 
you say, well, look, we are doing so well, we can afford to 
spend more. The phrase that would be used would be ``invest 
more.'' We have ``room to invest'' was a phrase that was used 
last week by a Senator in response to the new budget outlook. 
And so in the absence of constitutional reform, fiscal 
responsibility becomes a justification for further spending, 
which leads ultimately to fiscal irresponsibility. That is why 
we need constitutional reform.
    Mr. Bachus. Dr. Aaron, you mentioned had we had a balanced 
budget amendment, we would not have been able to face the 
crisis we went through in 2008. And then you went on to say 
where we actually ramped up spending to $22 for every $14 would 
be a simple way. For every $14 coming in, we were spending $22. 
But, you know, that is pretty scary in and of itself.
    Mr. Aaron. It is very scary over the long run.
    I would like to respond on your observations about 
disability insurance because I think I share with you real 
concern about the current structure of the program. Like you, I 
believe important structural reforms to the program are 
necessary. It is hard to find a social insurance program more 
complicated and more fraught with real difficulties as to how 
it ought to be put together than disability insurance. That 
does not mean that there is any excuse for neglecting it. It 
is, rather, a reason why we should be turning to it now and 
addressing it in a serious way.
    But my point here is that a balanced budget amendment does 
not promote that discussion any more than the fact that you 
pointed to, which is that the trust fund is going to be 
depleted in 2 years. The balanced budget amendment would have, 
in effect, a broad brush requirement of either cutting taxes 
or--pardon me--raising taxes or cutting spending. But when you 
are dealing with a program like disability insurance, you are 
dealing with something where you have to look at the 
administrative processes by which people are determined 
eligible or ineligible. You have to look at the facts that you 
just described of a change in the medical indications for why 
people get on the rolls. You need to look at the fact that 
people who are denied eligibility have earnings history that 
look pretty dismal. They do not go back to work. So these are 
really tough calls, and that is the reason why there is a real 
need for bipartisan collaboration to address this program. And 
I do not think that is advanced in a material way by the topic 
we are addressing today which----
    Mr. Bachus. You know, any Government program where you can 
qualify simply by saying I am eligible without any medical----
    Mr. Aaron. You cannot do that with disability insurance.
    Mr. Bachus. Well, you know, you cannot find a job within a 
certain area and you have subjective back pain. Now, this is 
according to Brookings Institute.
    Mr. Aaron. I am not suggesting that this is a program 
without instances of abuse. It is hard to find them. The tax 
system has lots of instances of abuse.
    Mr. Bachus. Well, I am glad that NPR--I am just saying that 
would be an easy one. And I think that is why there is a 
general frustration here.
    Let me say this. Humphrey-Hawkins. I will close with this. 
Ben Bernanke, appointed by two Presidents. That is the Federal 
Reserve. And when he comes up here, he is hammered on keeping 
interest rates low and doing things like that and criticized. 
But he has come up here for 6 years, and I have asked him the 
same question. What do we do? And he said you have to have 
long-term structural changes in the entitlement programs, and 
if you do it, he says it will have immediate economic 
advantages. And he asked us to do that. It makes his job harder 
because of all this money we are borrowing from foreign 
countries. If he goes up on the interest rate, it is a problem.
    Mr. Holtz-Eakin, or Doug, do you have any comment? Do you 
agree with him that we have to have--and he said it needs to 
start yesterday with long-term structural changes to our 
entitlement program?
    Mr. Holtz-Eakin. I do not think you would find any 
disagreement on this panel on that fundamental problem. 
Everyone I think has spoken pretty clearly with the importance 
of moving early and getting this under control.
    The disability insurance thing I think is the test of Henry 
Aaron's preferred model, which is bipartisan structural reforms 
to these mandatory spending programs. And I would be thrilled, 
quite frankly, if that is the way that problem got solved and 
if that was a successful model for dealing with the budget 
outlook. I have come to the conclusion that in the brief 
instances when that has happened, we temporarily got some 
progress, but it slipped away quickly. And so you end up with a 
balanced budget not as a first choice but as an acknowledgement 
of reality.
    Mr. Bachus. Almost every--American Cancer Society, all 
these liberal groups, conservative groups, Fox TV, CNN, MSNBC--
they have all highlighted abuses in this program. And what 
happens, sooner or later, we are going to have to raise 
everybody's taxes. We are going to have to reduce people that 
have terminal cancer, strokes, they are disabled, to pay for 
it. And with unanimous--almost--you know, not on just some of 
the minor things, but we cannot even do that.
    Mr. Schweikert said mathematical bubble of delusion. You 
know, Mr. Coffman was talking about entitlement spending at 59 
percent of the budget.
    Mr. Aaron. Mr. Bachus, this Nation is 230 or 240 years old. 
It has gone through some rough patches in which there was 
pretty intense partisanship and it was difficult to get 
legislation enacted. I urge you to take a longer perspective. 
We have gotten through this period with relative fiscal 
responsibility averaged over that period without a balanced 
budget amendment, and I might add the Constitution of the 
United States was enacted to succeed the Articles of 
Confederation which failed because it required three-fifths 
majorities.
    Mr. Bachus. Well, let me say this. Dr. Primo said this and 
I agree with him, and Mr. Scott said this. The wrong kind of 
balanced budget amendment where it starts requiring three-
fifths and two-thirds could actually work against us. So we 
have to consider----
    Mr. Primo. And there are ways to protect against that sort 
of concern that was raised earlier. For instance, if you want 
to allow for waivers of the constitutional rule, you could 
require that that excess money--you amortize the payments over 
10 or 15 years. So it is not that that just goes into the debt 
and then we do not worry about it again. We say we are going to 
commit to paying that back within 10 to 15 years. So you are 
hamstringing future Congresses right there by building that in 
as part of the waiver. And so that is going to make legislators 
more hesitant to engage in that waiver because it is going to 
force cuts very close in the future because you are going to 
have to start paying that debt off essentially right away.
    Mr. Bachus. Well, one of the so-called ``successes''--I am 
using that word sarcastically--of Congress is to get around 
PAYGO or caps. We have been very successful in that. you know, 
everything can be an emergency.
    I am going to recognize Mr. Marino.
    Mr. Marino. Yes. I think the Ranking Member has a comment.
    Mr. Conyers. I just have a unanimous consent request to 
enter into the record a letter to all the members from the 
Constitutional Accountability Center.
    Mr. Bachus. And without objection, all Members' extraneous 
material, including Mr. Conyer's offer, will be accepted into 
the evidence.
    [The information referred to follows:]


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    Mr. Bachus. Did you have a final comment, Mr. Marino?
    Mr. Marino. Would you allow me a minute?
    Mr. Bachus. Yes.
    Mr. Marino. To just make a statement.
    I had a telephone town hall last night and we took a little 
poll, certainly not scientific. But 80 percent of the people in 
my district, after I explained a little bit very briefly, 
support a constitutional amendment to balance the budget 
because they say we are not doing anything.
    And I have done a lot of work with children over my 
lifetime. I still believe with all my heart--and that is why I 
am here--that this is the greatest country in the world. Great 
people on both sides of this Committee and both sides of the 
aisle. But it just breaks my heart to see my constituents and 
hear of others--people are sick, physically sick, mentally ill. 
They do not want to get out of bed in the morning because of 
the shape this country is in. We have kids killing kids in 
Chicago and in Los Angeles and other big cities. We have 
children that are hungry. We have a lack of education in this 
country. We better get our act together because we are better 
than that.
    I am a member of the NATO Parliamentary Alliance, and I 
travel the world and talk to the other 27 NATO members. What 
they say to me constantly is what is happening in the United 
States. We look to the United States for leadership. There is a 
void. And when I say leadership, I mean all of us. I mean the 
White House. I mean the Senate. I mean the House. All of us.
    So I apologize for my Sicilian temper getting the best of 
me, Dr. Aaron. There was no malice intent. You are a brilliant 
man. But it strikes a chord. I am frustrated and I get a bit 
passionate about where I want my children to be and my 
grandchildren to be and all other children in this country.
    Thank you and I yield back.
    Mr. Bachus. And I think what we hear from our 
constituents--they are all scared. They are all frustrated, and 
they do not think this is going to end well. Like I think one 
of our congressional panelists pointed out, we did--you know, 
Mr. Aaron, you mentioned World War II. But we started paying 
that back as soon as the war----
    Mr. Aaron. Actually what happened was there was inflation 
and rapid economic growth. The debt did not go down. It shrank 
relative to GDP, but it continued to grow.
    Mr. Bachus. Well, we need rapid economic growth now.
    Mr. Holtz-Eakin. Yes, we do.
    Mr. Bachus. Thank you very much to all our panelists. We 
appreciate your testimony. We are frustrated and we need a few 
Sicilians when we get frustrated. We are going to have to have 
some Members of Congress that are very upset. So thank you for 
your testimony.
    This concludes today's hearing. Thanks to all our witnesses 
for attending.
    Without objection, all Members will have 5 days with which 
to submit additional written questions or additional materials 
for the record.
    This hearing is adjourned.
    [Whereupon, at 12:35 p.m., the Committee was adjourned.]





                            A P P E N D I X

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               Material Submitted for the Hearing Record

        Supplemental Material submitted by David Primo, Ph.D., 
       Ani and Mark Gabrellian Professor, University of Rochester


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     Revision to the Prepared Statement of Henry J. Aaron, Ph.D., 
  Bruce and Virginia MacLaury Senior Fellow, The Brookings Institution



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