[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE NEED FOR THE BALANCED BUDGET AMENDMENT
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HEARING
before the
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 27, 2017
__________
Serial No. 115-42
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
31-630 WASHINGTON : 2018
COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio LUIS V. GUTIERREZ, Illinois
TED POE, Texas KAREN BASS, California
JASON CHAFFETZ, Utah CEDRIC L. RICHMOND, Louisiana
TOM MARINO, Pennsylvania HAKEEM S. JEFFRIES, New York
TREY GOWDY, South Carolina DAVID CICILLINE, Rhode Island
RAUL LABRADOR, Idaho ERIC SWALWELL, California
BLAKE FARENTHOLD, Texas TED LIEU, California
DOUG COLLINS, Georgia JAMIE RASKIN, Maryland
RON DeSANTIS, Florida PRAMILA JAYAPAL, Washington
KEN BUCK, Colorado BRAD SCHNEIDER, Illinois
JOHN RATCLIFFE, Texas
MARTHA ROBY, Alabama
MATT GAETZ, Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona
Shelley Husband, Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
C O N T E N T S
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JULY 27, 2017
OPENING STATEMENTS
Page
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the
Judiciary...................................................... 1
The Honorable John Conyers, Jr., Michigan, Ranking Member,
Committee on the Judiciary..................................... 3
WITNESSES
The Honorable John Ratcliffe, 4th District of Texas, U.S. House
of Representatives
Oral Statement............................................... 5
The Honorable Bobby Scott, 3rd District of Virginia, U.S. House
of Representatives
Oral Statement............................................... 6
The Honorable Vern Buchanan, 16th District of Florida, U.S. House
of Representatives
Oral Statement............................................... 8
The Honorable Steve Stivers, 15th District of Ohio, U.S. House of
Representatives
Oral Statement............................................... 9
The Honorable Justin Amash, 3rd District of Michigan, U.S. House
of Representatives
Oral Statement............................................... 11
The Honorable Barry Loudermilk, 11th District of Georgia, U.S.
House of Representatives
Oral Statement............................................... 13
The Honorable Stephanie Murphy, 7th District of Florida, U.S.
House of Representatives
Oral Statement............................................... 15
Douglas Holtz-Eakin, President, American Action Forum
Oral Statement............................................... 17
Alan S. Blinder, Gordon S. Rentschler Memorial Professor,
Economics and Public Affairs, Princeton University
Oral Statement............................................... 19
David M. Primo, Ani and Mark Gabrellian Professor, Political
Science and Business Administration, University of Rochester
Oral Statement............................................... 21
Nick Dranias, President and Executive Producer, Compact for
America Educational Foundation, Compact Administrator, Compact
for a Balanced Budget
Oral Statement............................................... 22
THE NEED FOR THE BALANCED BUDGET AMENDMENT
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THURSDAY, JULY 27, 2017
House of Representatives
Committee on the Judiciary
Washington, DC
The committee met, pursuant to call, at 10:13 a.m., in Room
2141, Longworth House Office Building, Hon. Bob Goodlatte
[chairman of the committee] presiding.
Present: Representatives Goodlatte, Chabot, King, Franks,
Poe, Labrador, Collins, Buck, Ratcliffe, Johnson of Louisiana,
Biggs, Rutherford, Handel, Conyers, Nadler, Lofgren, Richmond,
Lieu, and Schneider.
Staff Present: Shelley Husband, Staff Director; Branden
Ritchie, Deputy Staff Director; Zach Somers, Parliamentarian
and General Counsel; Paul Taylor, Chief Counsel, Subcommittee
on the Constitution and Civil Justice; James Park, Minority
Chief Counsel, Subcommittee on the Constitution; David
Greengrass, Minority Counsel; Matthew Morgan, Minority
Professional Staff Member; and Veronica Eligan, Minority
Professional Staff Member.
Chairman Goodlatte. Good morning. The Judiciary Committee
will come to order. And without objection, the chair is
authorized to declare recesses of the committee at any time.
We welcome everyone to this morning's hearing on the need
for the balanced budget amendment. I'll begin by recognizing
myself for an opening statement.
On March 2, 1995, a pivotal day in the history of our
country, the United States 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 19.5 trillion. The Federal debt held
by the public is rising as well and 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 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, such high and rising debt will have
serious negative consequences: interest rates will increase
considerably, productivity and wages will be lower, and 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
few years ago, a 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's 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 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, reign in excessive
spending. Annual deficits and the resulting debt continue to
grow due to political pressures that the Constitution structure
no longer serves to restrain.
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 State's that
had exhibited out-of-control fiscal mismanagement by issuing
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 deprived 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 management.
Several versions of the balanced budget amendment have been
introduced to this Congress, including two I introduced to this
Congress, as I have every Congress for the last decade.
H.J. Res. 2 is nearly identical to 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 I also introduced, goes further. In
addition to the provisions of H.J. Res. 2, it requires a three-
fifths majority to raise taxes and imposes an annual cap on
Federal spending.
While my 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 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 high.
I look forward to hearing from our distinguished panel of
witnesses today about this important issue. But first, we want
to hear from the ranking member of the committee, the gentleman
from Michigan, Mr. Conyers.
Mr. Conyers. Thank you very much, Chairman Goodlatte. Top
of the morning to all of our colleagues that are gathered here
to share their perceptions of this amending the Constitution to
require a balanced budget. Great to see you. I look forward to
hearing your views on this matter.
For me personally, I've long been reluctant to amend the
Constitution to require a balanced budget, because such an
amendment could have a devastating consequence for millions of
Americans. Simple as that for me. Most importantly, such an
amendment would gut our most important social safety net
programs, like Social Security and Medicare that are funded by
trust funds. So I know you are going to help me see things
maybe a little bit differently, and I look forward to your
interpretations.
Therefore, critical programs such as Social Security,
Medicare, and military and civil service pensions, all of which
depend on drawing upon savings accumulated and trust funds,
would be prevented from paying current and future benefits.
Way back in the 104th Congress, the Republican chairman of
this committee, I remember him well, Henry Hyde, recognized
that Congress would not be able to balance the budget without
using retiree funds in the Social Security Trust Fund. Here is
how he explained it: If you exclude receipts from the revenue
that are received by the Social Security system from computing
the total revenues of the government, if you take it out of the
equation and then the cuts that are necessary to reach a
balanced budget become draconian. They become 22 to 30 percent.
And you know that we cannot and will not cut programs that we
want to subsist and continue by 22 to 30 percent. You have to
compute Social Security receipts in determining the income of
this government so that the cuts you make to balance the budget
are livable and not impossible. That is our former colleague
and chairman, Henry Hyde.
I think he was right then, and I think there is much truth
in his statement that makes it correct now.
A balanced budget amendment could be used to loot our
Nation's savings funded by money taken out of every American's
paycheck to pay for other things and to balance the budget,
instead of being used to pay the benefits that Americans have
earned. It would, in effect, breach the trust embodied by the
Social Security Trust Fund.
Additionally, a balanced budget amendment would undermine
the Federal Government's ability to respond to a national
crisis. Although most amendment proposals contain some sort of
emergency exception to the prohibition of deficit spending,
they nevertheless also require a supermajority vote in both
houses of Congress to override the balanced budget mandate. As
a result, Congress may be unable to act in time to respond to a
crisis like a war or a hurricane, a flood, or a plain old-
fashioned financial meltdown.
Finally, a balanced budget amendment would force the
Federal courts to determine inherently political issues,
upending the principle of separation of powers and generating
massive litigation.
As the late judge and conservative constitutional scholar
Robert Bork explained: Scores of 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 such actions finally reach the Supreme Court, nor is it at
all clear that what could be done if the court found that the
amendment had been violated 5 years earlier.
Now, it's not all the time that I agree with Judge Bork. We
should heed his warning in this instance about the potential
for endless litigation in courts over budget policy.
To satisfy the dictates of the Constitution's balanced
budget amendment as envisioned by these proposals, these courts
would need to decide complex economic policy issues that I
think are left better for the elected and politically
accountable branches to determine. So for those reasons, I
oppose the concept of a Constitutional balanced budget
amendment.
And so I look forward to hearing from my colleagues on the
Members' panel, as well as from all of today's witnesses, on
these critical issues. And I thank the chairman.
Chairman Goodlatte. Well, thank you, Mr. Conyers.
And let me now introduce our first panel of witnesses.
Our first witness is the Honorable John Ratcliffe.
Mr. Ratcliffe is a member of the Judiciary Committee and
represents the Fourth District of Texas. Our second witness is
the Honorable Bobby Scott. Mr. Scott has previously been a
member of this committee, and he represents the Third District
of Virginia. Our third witness is the Honorable Vern Buchanan.
Mr. Buchanan represents the 16th District of Florida. Our
fourth witness is the Honorable Steve Stivers. Mr. Stivers
represents the 15th District of Ohio. Our fifth witness is the
Honorable Justin Amash. Mr. Amash represents the Third District
of Michigan. Our sixth witness is the Honorable Barry
Loudermilk, and Mr. Loudermilk represents the 11th District of
Georgia. And our seventh and last, but certainly not least,
witness is the Honorable Stephanie Murphy. And Mrs. Murphy
represents the Seventh District of Florida.
Welcome to all of you. Thank you for agreeing to
participate today. We look forward to your testimony. Your
written statement will be entered into the record in its
entirety. And as you know, we ask that you summarize your
testimony in 5 minutes. And we have timing lights in front of
you on the table that you all know how to operate.
And, Mr. Ratcliffe, we will start with you. Welcome.
STATEMENT OF THE HON. JOHN RATCLIFFE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Ratcliffe. Chairman Goodlatte, Ranking Member Conyers,
and my fellow members on the House Judiciary Committee, good
morning, and thank you for giving me the opportunity to speak
on the importance of amending the Constitution to require the
Federal Government to balance its budget.
The issue of balancing the budget is about more than just
dollars and cents. It is about more than making sure Federal
spending doesn't exceed revenues. It is about accountability to
the people who elected us and about restoring the trust that we
have broken with the American people. Sure, we talk a lot about
what needs to be done. We do that with passionate speeches and
with carefully crafted cliches that make for good sound bites.
But speaking candidly to you today as my colleagues, I
would ask, if we are going to just continue to promise results
only to then later just deliver excuses, or can we instead
agree to finally take on the tough choices that are necessary
to preserve freedom and opportunity for future generations to
allow every American to go as high and as far as their own hard
work, determination, and ability will carry them.
Mr. Chairman, the importance of these fundamental questions
are what compelled me to introduce what I think is the toughest
balanced budget amendment in Congress. It is tough, but
governing isn't easy. It is not supposed to be. Making tough
decisions after careful deliberation, explaining those
decisions with clarity and transparency to our constituents, I
think that is what we all signed up for.
The debate regarding the balanced budget amendment is
certainly nothing new. But the history of that debate is
perhaps the most compelling argument that I can offer you
regarding the imperative necessity of passing a balanced budget
amendment.
Mr. Chairman, as you mentioned in your opening statement,
Congress had the chance to do exactly that in 1995 when a
balanced budget amendment passed the House only to then fall a
single vote short over in the Senate. At that time, the Federal
debt was just $4.6 trillion. But without a balanced budget,
what followed over the last two decades has been yearly waves
of Federal deficits from Congresses and Presidents of both
parties. And the American people have had to watch the Federal
debt rise at an alarming and obscene rate, now quadrupling to
almost $20 trillion.
Now, critics and opponents of a balanced budget amendment
will argue that the real cause of these fiscal imbalances is
just a lack of political will, not something that can be cured
by amending the process. It very well may be right with respect
to the political will part. But can any of us honestly look
into the eyes of the American people and tell them that we
expect that to change without a constitutional constraint
strong enough to stop legislators from being fiscally
irresponsible? I can't and I won't.
The 700,000 Texans that I am grateful to represent didn't
elect me to posture or message. They elected me to act and to
lead on the toughest issues facing our country and impacting
our children's future. I think all of our constituents want
action and leadership on this issue. They are so tired of
hearing us talk a good game, but when it comes time to taking
action, watching us consistently fall short of the expectations
that we have set. It is no wonder that Congress has such a low
approval rating. We consistently overpromise and underdeliver.
So, Mr. Chairman, the opportunity and the choice to finally
change this narrative is really now ours. A balanced budget
amendment will restore fiscal sanity, it will provide certainty
to our national finances, it will save future generations from
having to pay off the excesses of today. But most of all, a
balanced budget amendment will restore the American people's
trust in the Federal Government.
It is my hope and prayer, Mr. Chairman, that this is the
Congress that will be remembered for being on the right side of
history on this issue. Thank you again for giving me the
opportunity to testify today.
Chairman Goodlatte. Thank you, Mr. Ratcliffe.
Welcome, Mr. Scott.
STATEMENT OF THE HON. BOBBY SCOTT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Scott. Thank you, Mr. Chairman, Ranking Member Conyers,
and thank you for the opportunity to return to the Judiciary
Committee hearing room. I spent many great days here, and I
appreciate the opportunity to return, and also the opportunity
to discuss my concerns with the idea of adding a so-called
balanced budget amendment to our Constitution.
Reducing our deficit and balancing our budget are goals
that every Member here supports. But I worry that we often get
distracted by the title of these resolutions without paying
serious consideration about whether the specific provisions of
the proposal will actually help balance the budget. If we are
ever going to balance the budget, the fact is we are going to
require members to cast some tough votes. Many of these votes
will be career-ending votes, and a constitutional amendment
will not change that reality.
One of the first consequential votes I cast in this body
was in 1993 on the Clinton budget. It--not one Republican voted
for it. Vice President Gore had to break the tie in the--in the
Senate. We will remember 53 Members, in addition to Marjorie
Margolies-Mezvinsky, lost their seats in the next election by
passing a budget that created, in 8 years, over 20 million
jobs, tripled--more than tripled the Dow Jones Industrial
Average. And by 2001, as a result of that budget, the CBO
projected surpluses large enough over the next decade to
totally pay off the debt held by the public by 2008. But 53--54
Members of the House lost their seats as a direct result of
that vote.
Now, notwithstanding the title, the fact is that most of
the proposed balanced budget amendments would actually make it
impossible to ever pass a strict deficit reduction plan similar
to the 1993 Clinton budget. One proposal requires a three-
fifths majority in both houses to enact a revenue increase.
Sometimes revenue increases, or tax increases, are necessary to
reduce the deficit. But a supermajority will make such
necessary revenue increases more difficult and obviously more
difficult to balance the budget.
Now, there may be policy reasons that you want to avoid tax
increases. But suggesting that that would help balance the
budget is just simply absurd.
Now, no tough budget gets three-fifths of a vote. If you
look back over the years, over the last decade of fiscally
responsible budgets, we haven't had many of them, none of them
get close to three-fifths. But let me tell you what can three-
fifths of a vote: The fiscal cliff deal. $3.9 trillion in tax
cuts passed. It got not only--it got three-fifths. And
incredibly, most of the no votes were no because the tax cuts
weren't big enough. The deficit wasn't big enough.
Now, the proponents of these amendments say--they will
argue that their proposals include a 5-year window from the
time of ratification for a glide path to give Congress an
opportunity to get its act together so that when the provisions
kick in, we will be close to balanced. But there is nothing in
any of these proposals that require Congress to make any of
this kind of progress. And while passing a balanced budget
amendment might give Members of Congress the idea that they can
prance around like they have done something, all you have done
is just delayed the situation for 5 years. At some point, you
are going to have to cast those tough votes.
So under almost all of the proposals, a three-fifths vote
would be required to pass any credible budget. You are not
going to pass a budget--you are not going to balance it
overnight. If you have a really severe deficit reduction plan,
the first year is going to be out of balance, so you need
three-fifths. Now, the question is does the three-fifths vote
make it more likely or less likely that you are going to do
something fiscally responsible? Like I said, these are career-
ending votes that you are going to have to cast if you want to
get this budget in balance.
But there is nothing--we talk about constraint. There is
nothing in any of these amendments that limits at all the
deficit you can run up once you get to three-fifths. You get
three-fifths, no limit at all. You are talking about a
Christmas tree and presents for everybody. That is what would
happen when you start buying up the votes necessary to get
there.
Now, the ranking member talked about litigation. There is
going to be litigation over in some of the--there is a limit on
what you can--what you can spend based on a percentage of GDP
or economic output. There is going to be litigation over what
is the GDP in a given year and what was the output. Another
question would be on the share of economic output, which--
whether or not you want that to happen when there is an
economic distress or a national emergency. And another would
actually jeopardize spending in a trust fund. If you have
collected money one year and want to spend it the next, that
might get you out of balance. And what happens to Social
Security and Medicare?
The three-fifths vote on a debt ceiling would only
institutionalize a dysfunctional system that we have got now.
And that is a bad----
But finally, Mr. Chairman, rather than focus on the title,
let's talk about the actual provisions. We had a hearing a
couple of years ago when the Governor was bragging about his
constitutional provisions of a balanced budget. Unfortunately,
he had to acknowledge that not one of the proposals--none of
the provisions in the proposed constitutional amendment--in his
constitutional amendment were in any of the resolutions. No
three-fifths requirement to pass the budget, no two-thirds or
three-fifths to raise revenue, no three-fifths to borrow money.
He was discussing the title but not the actual provisions of
the bill.
We shouldn't be distracted by titles, Mr. Chairman. The so-
called budget--balanced budget amendment would actually
encumber the route to a balanced budget.
And as I said, Mr. Chairman, if you are going to balance
the budget, people are going to lose their seats. Nothing in
these provisions is going to change that reality, because
this--these provisions would actually make it more likely that
we would go into more debt and not that we would go in a
fiscally responsible way.
Thank you, Mr. Chairman. And I appreciate the opportunity
to be with you today.
Chairman Goodlatte. Thank you, Mr. Scott.
Mr. Buchanan, welcome.
STATEMENT OF THE HON. VERN BUCHANAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Buchanan. Well, thank you, Mr. Chairman Goodlatte,
thanks for this opportunity, and Ranking Member Conyers, and
fellow members. You know, everybody--and I want to first say I
want to thank you, Mr. Chairman, for your leadership on this
issue. I have been here 10 years, and you have been in the
forefront of this.
But everybody has a reason why they ran for Congress. I ran
10 years ago. And my biggest issue was I was concerned about
deficit spending. At that point, we spent--$130 billion was the
deficit in that particular year. We have gone from, in 10
years, from 8.6 billion to $20 billion almost in terms of
deficit spending.
You know, there was a lot to be made about the stimulus of
$800 million. And people asked me about that. But, you know--
and it was somewhat controversial, but it got done. We have had
a $10 trillion stimulus in the last 10 years. Someone asked me,
Why isn't anybody talking or looking at that? So think about
that. We have so much outrage on the 800 million. If you look
in the last 10 years, and there is plenty of blame to go
around, we have had a $10 trillion stimulus. We have created
more debt in the last 10 years since the beginning of our
country.
So someone says let's just state the facts. The CBO is
saying the next 10 years we are going to add another 10
trillion. So at what point do we not understand that we have
got to deal with this?
If you look at the--in terms of balancing the budget in the
last 50 or 60 years, we balanced it five times. And that was
primarily under the Clinton administration. I think it is five
or six times. So just the facts. We are clearly bankrupting our
children. Our generation, for some of us in here, might be
fine, but for our children and grandchildren, they are going to
have a bankrupt situation.
I would just say to Mr. Conyers, in terms of--I was born in
Detroit. Grew up in the Detroit area. You know, in Inkster. And
Detroit was the most--one of the most prosperous cities in
America. It was the fourth largest, and it went bankrupt. So it
can happen, so----
I would just also just mention that, when we look at the
debt in terms of the interest, historically, it is 4 to 5
percent. Four to 5 percent on 20 trillion, you are good at
math, is a trillion a year. We only take in 3.3 trillion. So at
what point, if the interest rates get there--now,
unfortunately/fortunately, the Feds can't raise the interest
rate. But I can tell you, seniors in my area in Florida, all
over Florida, that were counting on their retirement in terms
of CDs, in terms of a bond portfolio they might have, they are
getting 1 or less percent. They are eating into their
principal. So we are hurting a lot of our seniors, because the
Feds can't really raise the rate. They can raise it. If they
raise it one point, it is 200 billion. That is the fact.
And we are talking about looking at interest rates down the
road. You are talking about $800 billion in the next 10 years
per year. So the fact that we don't deal with this is a big
issue.
The other thing I would just tell you, after 2008, October
2008, 49 out of 50 Governors have a balanced budget amendment.
Florida had to make those tough choices. They cut the budget
for the next 3 or 4 years. And people complained a little bit,
and then we got back on track, because we are one of the top-
rated States now in the country. But it is a big issue. We
can't continue to ignore it.
I think also, as I mentioned a little bit earlier today, my
bill in terms of a balanced budget amendment--in the first week
I was here in Congress, I introduced a balanced budget
amendment, and I have done it every year. We can talk about a
lot of these other issues. But the biggest issue I think that
all of us have to come to the realization with is what are we
going to do about outlandish spending? Because at some point,
it is not a matter ``if,'' it is a matter of ``when'' it ends
badly. There is no question about it. I have been a business
guy for a lot of years. Leverage makes some sense in the right
scenario, as long as things are going up, but at some point it
ends badly.
I mean, if we thought October 2008 was bad, we are going to
have the same impact, but maybe a much bigger collapse. And
what--to me, that is just completely unacceptable. So we are
leaving this--we are going to leave this country in a bankrupt
state for our children and grandchildren. We need a
constitutional balanced budget now. It should be the most
important thing we are talking about. We have got a lot of good
ideas up here. We need to find a way we can all come together,
we all have a different amendment, and get this in place,
because I have no confidence in the Congress, Democrats and
Republicans, of doing anything on this issue short of a
Constitutional balanced budget amendment. And we need to act
now.
Thank you for the opportunity.
Chairman Goodlatte. Thank you, Mr. Buchanan.
Mr. Stivers, welcome.
STATEMENT OF THE HON. STEVE STIVERS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Stivers. Thank you, Chairman Goodlatte and Ranking
Member Conyers. Thanks for holding this hearing. And thank you,
Mr. Chairman, for your leadership on the balanced budget
amendment.
You know, you appropriately mentioned that, in 1995, we
came so close to a balanced budget. And in the 20 years since,
not much has changed, except that we keep spending more than we
bring in. And, you know, what unites all these great folks
today that have worked so hard to try to put forward a movement
toward a balanced budget is, you know, their belief, and my
belief, that if we spend more than we bring in over time, the
system will collapse. And so it is--we have to act.
And the ranking member talked about what might happen with
a balanced budget amendment, some draconian cuts. Actually, I
believe the true draconian option is to do nothing.
A recent CBO report talked about what would happen under
the current law with the old-age survivors insurance of Social
Security. By 2030, it will be exhausted. In 2031, the cuts will
be about 31 percent. We have never seen cuts like that. Other
mandatory programs, Medicare hospital insurance will be
exhausted by 2028. And you will see draconian cuts there as
well.
This--my dad used to tell me, we can do this the easy way
or the hard way. And that is the truth here too. We can do this
the easy way, which is us deciding to come together.
My proposal for a balanced budget amendment is a bipartisan
amendment, Mr. Conyers, that it--it does not require a
supermajority to raise taxes. It does not require a
supermajority on cap spending. It simply requires us to do
things. Because I haven't been here a long time. I have been
here 6 years. But I have been here long enough to learn that
the only things that happen in Congress are the things that
have to happen. We need to make balancing our budget something
that has to happen. And if we don't, millions of Americans will
see draconian cuts as a result.
I think the gentleman from Florida very accurately talked
about what could happen with interest rates. Interest rates are
at an artificial low. Our servicing costs on our debt is tiny
now, yet it is already more than we spend in veterans'
benefits. And if interest rates were to normalize back to
normal, 4 to 5 percent rates, you know, we would be spending
about 30 percent of everything we bring in just to service the
debt. And that doesn't account for anything else. We have to do
something, and we have to do something now.
And I would plead to all of you that we--I believe we have
to do it in a bipartisan way. You know, would I like a limit on
how much we could spend as part of our GDP? Yeah, I would like
that. I didn't put it in my balanced budget amendment because I
know we need to compromise. I know it has to be bipartisan. To
get to the numbers we need, we need Republicans and Democrats
to come together to do this and control our own fate, because
if we don't, our fate will be controlled for us by other
people, by our creditors around the world. And we all saw what
happened to Greece, we all saw what happened to Portugal. We
all know how bad that situation could be. I don't want to let
that happen to the citizens of the United States of America and
to the people who depend on our government to do the things
that it needs to do to help and--to defend our country.
And, you know, one of the greatest threats--I have been a
military guy for 32 years. One of the greatest threats to our
national security, as Admiral Mullen said almost 5 years ago,
is that our national debt risks our national security. And we
all know that. In our own lives, when you owe people money, you
are at their mercy. And that is why we need to live within our
means and start to pay down our national debt.
I want to thank my cosponsor, Henry Cuellar, for our
balanced budget amendment, H. Res. 110. Mr. Conyers, I hope you
will look at it. It doesn't require many of the things that you
talked about. I know we as Republicans and Democrats have to
come together to solve this problem. And I am willing to give
up on some of the things that I might like in a balanced budget
amendment and simply require it.
I think my--the gentleman from Florida explained it. Forty-
nine States, everybody but Vermont, has a balanced budget
requirement in their State constitution. And since 2008,
countries like Germany, Austria, Poland have added a balanced
budget amendment to their constitution as countries because the
financial crisis demanded that they do it. And I am not talking
about our financial crisis in 2008. I am talking about what
happened in Europe in 2007 and 2008.
So there is a way forward. It is a bipartisan way forward.
I hope we can all work to make that happen, because the
alternative is grim for millions of Americans. And I hope we
don't do this the hard way. But the problem will be solved one
way or the other. I hope we take the reigns, provide
leadership, and lead the country on a better path of a balanced
budget.
Thank you for the opportunity to be here. I appreciate all
the very passionate advocates that are here today to talk about
the future of our country. Thank you, and I appreciate it.
I yield back the balance of my time.
Chairman Goodlatte. Thank you, Mr. Stivers.
Mr. Amash, welcome.
STATEMENT OF THE HON. JUSTIN AMASH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Amash. Thank you, Chairman Goodlatte, Ranking Member
Conyers, and members of the committee, for the opportunity to
be here. I have enjoyed working with you over the years, and I
hope this is another opportunity to find common ground.
The Federal Government's budget problems are no secret. But
hearing that the U.S. national debt will soon exceed $20
trillion still shocks the conscience. We have had persistent
deficits for most of the last half century, forcing future
generations to pay the price of past and current government
spending. And there is no sign of change under current
policies. This high-debt burden is already undermining economic
growth, crowding out other budget priorities through escalating
interest payments, and risking a debt crisis with dire economic
and fiscal consequences.
If we continue down this path, we will go bankrupt. We all
recognize the need for change, but we are faced with the
difficulty of prioritizing responsibly without knowing that our
work will ultimately pay off. For while this majority may be
willing to work to build consensus, forge compromises, and take
tough votes, we can have no assurance that future majorities
will follow suit. That is why I support a well-crafted balanced
budget amendment.
A balanced budget amendment is a binding commitment to be
responsible, set priorities, avoid a debt crisis, and lighten
the growing burden of indebtedness. But not all BBAs are equal.
We should always be cautious about amending the Constitution.
And a BBA, in particular, must be carefully drafted.
First, it must be simple, concise, and general. Most of the
Constitution establishes broad principles, leaving the details
to be filled in by Congress through legislative enactments.
Second, it should be narrowly tailored. It should not impose
substantive policy, such as requiring a supermajority to raise
taxes or eliminating spending to a percentage of GDP.
A BBA should require overall spending and revenue to
balance. That is it. And keeping it focused is not only good
policy but also good politics. Ratifying a constitutional
amendment requires the support of two-thirds of both houses of
Congress and 38 State legislatures. It must be bipartisan to
succeed. To obtain bipartisan support, it must be workable.
In the State of Michigan, the Constitution mandates that
the budget balance every year. Accomplishing this requires
multiple revenue-estimating conferences. It also requires the
Michigan legislature to conduct quarterly budget meetings to
adjust programs as those spending and revenue estimates change.
This structure creates too much uncertainty.
In addition, we need flexibility to address emergencies. A
BBA should include a safety valve that is tight enough to avoid
abuse but loose enough to be useable.
Finally, a reasonable path to balance is vital. Many of the
reforms that bend the cost curve start with small savings that
become meaningful only over time. Avoiding a shock to the
system and instead setting upon a gradual path to balance also
will help build trust and grow confidence in the new budget
rule.
I would like to briefly discuss my balance budget proposal,
H.J. Res. 15, which meets these standards I have mentioned and
has garnered substantial bipartisan support over the last few
Congresses. I call H.J. Res. 15 the Business Cycle balanced
budget amendment, or BCBBA, because it requires balance over
the business cycle instead of every year. The spending limit is
based on the rolling average of revenue from the three prior
years. Because averaging softens revenue fluctuations and
avoids the need for shifting estimates, policies would stay
predictable.
Under the BCBBA, Congress could choose any level of
government spending and revenue. Lower taxes with a smaller
government providing fewer services would be possible, as would
be a larger government providing more services with higher
taxes. The only option taken off the table would be perpetual
deficits.
Fiscal policy would be countercyclical. When a recession
hits, spending would still be based on the prerecession boom
years. This mechanism would allow for temporary deficits. But
as the economy recovers, the spending limit would begin to
incorporate the lower recession year revenues, producing small
surpluses in good years. Setting spending this way would
provide the predictability and stability I have highlighted and
allow Congress to focus on structural balance and long-term
prioritization instead of on constant tinkering to meet
immediate desires.
Deficits from recessions and emergencies would be offset by
surpluses in economic upturns. Based on conversations with
Republicans and Democrats, I chose two-thirds, the normal
constitutional supermajority, as the necessary support for
emergency spending.
And finally, the BCBBA allows a full decade to reach
balance after ratification, because setting national priorities
and realizing savings takes time. Phasing out deficits faster
would still be an option, but a smoother transition period
might be worth taking a little longer.
We need to balance our budget and end the downward spiral
into debt. I am convinced that it will take a binding rule, a
constitutional amendment to accomplish it. And congressional
support already exists for the right proposal.
We can come together to confront the challenges facing our
great Nation. But to do so, 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.
And I urge the Judiciary Committee to continue these hearings
and ultimately to bring such an amendment to the floor.
Thank you again for having me here today. I look forward to
working with you on this important issue.
Chairman Goodlatte. Thank you, Mr. Amash.
Mr. Loudermilk, welcome.
STATEMENT OF THE HON. BARRY LOUDERMILK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Loudermilk. Thank you, Mr. Chairman, Ranking Member
Conyers. I appreciate you inviting me to this hearing and, more
importantly, Mr. Chairman, your interest and the committee's
interest in this critically important topic to America.
I serve on the Financial Services Committee. And during our
committee hearings, the chairman displays a constant reminder
of American's looming crisis. On the monitor in front of the
committee room, the U.S. debt clock is constantly running at an
alarming pace. Our debt is increasing. As I was a sitting in
the committee hearing yesterday, I was looking at the debt
clock as it was racing toward $20 trillion at a pace of over
$10,000 every second. Most Americans have a hard time grasping
just how huge a $20 trillion debt really is.
When I was running for Congress just 3 years ago, that debt
was only at $17 trillion. But, in fact, most of us in this room
probably don't even have a good idea or have a hard time
putting in perspective how massive $20 trillion actually is. So
I would like to put it in perspective using something I think
everyone can relate to.
Our modern calendar is based upon the traditionally
observed birth date of Jesus. Regardless of religious
affiliation, if you know what the current date is, especially
the current year, you have a general idea of when Jesus was
born. Using this common reference point, I calculated how much
money you would have to save over this time period just to pay
off our national debt. The results were astounding.
If you were to start in a savings account with $17,000
starting at the moment of Jesus's birth and deposited $17,000
every minute, that is every 60 seconds consistently till this
moment today, you still wouldn't have enough money to pay off
our national debt. That is $17,000 every 60 seconds for over
2,017 years. That should alarm everyone.
Not only is this--the principal on debt overwhelming, but
the interest on that debt is increasing exponentially. We must
address this crisis immediately or we will be overcome by the
interest that soon will be one of the single largest
expenditures in our budget. This is why Defense Secretary James
Mattis stated in his confirmation hearing that our national
debt is the biggest threat to our national security.
Since I have been in Congress, and for the past several
years, Congress has attempted to address our debt and deficit
through long-term budgeting. This year, as we have done in the
past, we will bring to the floor a budget proposal that
attempts to balance our budget within a 10-year window. Our
Fiscal Year 2018 Budget addresses the fact that we cannot close
the fiscal gap in 1 year or even 5 years. It requires a long-
term approach to balance the Federal revenues with Federal
spending.
Unfortunately, we have been proposing this same course of
action year after year, but we never get any closer to actually
balancing the budget. If history repeats itself, as it tends to
do on Capitol Hill, I expect that next year we will once again
be discussing a budget that balances within 10 years. Not 9
years, not 8 years.
If we are serious about securing the Nation for future
generations, we must take bold but measured actions to reign in
Federal spending before rising interest rates drive it out of
control.
In fiscal year 2010, Congress passed a budget that would
balance by the year 2020. However, 8 fiscal years later, we are
not any closer to actually balancing our budget. In fact, as I
have already stated, this year's budget proposes balancing by
the year 2028.
In the entitlement-dependent culture of modern America, it
will be increasingly difficult to secure the votes needed to
cut spending at the levels needed to put us on the path of
fiscal responsibility. That is why it is imperative that we
pass a balanced budget amendment to force us to make difficult
decisions.
My balanced budget amendment, H.J. Res. 29, is built upon
the premise that Congress can balance the budget within a 10-
year window without major disruption of critical government
services. My balanced budget amendment would take effect in the
10th fiscal year after ratification. This would force Congress
to implement gradual cuts over time and reform costly
government programs. It will also allow Federal agencies, State
governments, and the Nation as a whole adequate time to adjust
to the leaner and more effective Federal Government.
With a clear and constitutionally mandated path for a
fiscally sound government, we must also ensure future debt is
only used for times of war or other national emergencies. H.J.
Res. 29 forces fiscal responsibility by limiting spending to 18
percent of the previous year's GDP. However, with a two-thirds
vote, Congress may exceed the 18 percent limit for one calendar
year.
To ensure that the burden of fiscal irresponsibility of
future Congresses is not solely placed on the backs of American
taxpayers, H.J. Res. 29 requires the vote of two-thirds of
Congress to enact any new tax or increase the rate of any
existing tax.
Now is the time for Congress to take bold measures to avoid
a pending fiscal catastrophe and stabilize our national economy
for future generations. Prior to the financial crisis, our
national debt was approximately 60 percent of GDP. Today, our
debt has grown to over 104 percent of GDP. We must put
ourselves on a path forward, but a sustainable path to fiscal
solvency. H.J. Res 29 uses a proven concept that Congress can
balance the Federal budget in 10 years and then forces us to
follow through with that plan.
Mr. Chairman, doing what is right isn't easy and it is
often not popular, but it is always right. Again, I thank you
for giving me time to present this bill at the committee, and I
appreciate your interest.
Chairman Goodlatte. Thank you, Mr. Loudermilk.
Mrs. Murphy, welcome.
STATEMENT OF THE HON. STEPHANIE MURPHY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mrs. Murphy. Chairman Goodlatte, Ranking Member Conyers,
and members of the Judiciary Committee, thank you for inviting
me to testify.
Last month, I introduced a balanced budget amendment which
has been endorsed by the Blue Dog Coalition. Like other BBAs,
my bill generally prohibits the Federal Government from
spending more than it receives in a fiscal year, though
prohibition would take effect 5 years after ratification to
allow for a smooth transition period.
Unlike some other BBAs, my bill does not dictate how
Federal policymakers should bring receipts and outlays into
balance. Lawmakers on both parties must take a long look at
both the revenue and the spending side of the ledger.
In terms of spending, policymakers should scrutinize both
domestic and defense spending, both discretionary and mandatory
spending. There is no way to achieve budget balance unless a
problem is examined in a holistic manner.
By bill does, however, contain provisions to protect Social
Security and Medicare benefits that seniors have earned through
a lifetime of hard work. We simply cannot break these promises
to the American people.
Moreover, unlike some other BBAs, my bill recognizes that
there are times when running of deficit is necessary or
sensible, like when we are engaged in military conflict or
mired in an economic slump. Therefore, the bill authorizes an
exception to the balanced budget requirement when Congress
declares war, when GDP does not grow for two consecutive
quarters, or when unemployment exceeds 7 percent for 2 straight
months. Additionally, a supermajority of the House and Senate
may vote to authorize outlays to exceed receipts.
In short, the goal is not to make annual deficits
impossible. Instead, the objective is to make it harder for
policymakers to sacrifice the long-term stability of our
economy or to compromise our children's future for the sake of
short-term gain. If the Federal Government is going to spend
more than it receives, that decision should be taken in a
deliberate and bipartisan fashion and not merely because it is
politically expedient.
My broader goal in filing this bill is to spur an honest
conversation in Congress, in my Central Florida district, and
around the country about the consequences for our economy and
for our national security of piling deficit upon deficit. This
conversation, if it is to lead to real action, must be
bipartisan.
To generalize, the Republican party skillfully talks the
talk on this issue, but rarely walks the walk when in power.
Meanwhile, the last time our country ran budget surpluses was
when a Democrat sat in the White House. Yet today, some Members
of my party no longer bother even to talk the talk, with some
going so far as to suggest that we can run large deficits in
perpetuity without consequence. If this sounds too good to be
true, that is because it is.
The problem is clear. In 45 of the last 50 years, the
Federal Government spent more than it received. As a result,
debt held by the public now exceeds $14 trillion, which is 77
percent of GDP, the highest percentage since 1950.
CBO projects that the debt-to-GDP ratio will reach an
unprecedented level in the coming decades. According to CBO,
this will have serious negative consequences for the Nation.
Federal spending to pay interest on the debt will increase
making it harder to fund investments in healthcare, education,
transportation, housing, and homeland security. Every dollar
spent to pay interest is a dollar less spent to empower the
American people. Indeed, CBO projects that, within a decade,
the government will spend more on interest than it spends on
all domestic discretionary programs combined.
The large and growing debt makes us less safe. Recently,
about two dozen former defense, foreign policy, and economic
leaders from both parties expressed a view that our long-term
debt is the single greatest threat to our national security.
That--they noted that putting our debt on a sustainable course
over the long term will lead to higher levels of economic
growth, continued availability of resources to invest in our
defense and our future, and a sustained leadership role in the
United States--for the United States in the world. We should
heed the warnings of economists and national security
professionals before we reach the point of no return.
It is clear our country must change course. Smart policies
that generate growth will enable us to reduce deficits and
debt. This will require bipartisan leadership, both parties
working together to adopt a sensible budget resolution, to pass
annual appropriation bills in a timely manner, and to avoid
dangerous brinksmanship on the debt ceiling. We still have the
time to act. The question is, do we possess the will to act?
Thank you.
Chairman Goodlatte. Thank you, Ms. Murphy.
I want to thank all the members of this panel. This has
been excellent testimony on the part of many Members of
Congress, some differing perspectives, but all of your
testimony is welcomed here today as we attempt to address this
serious, serious problem of our country's growing debt.
It is not our custom to ask questions of Member panels, so
we are going to thank you and excuse you. But we would like to
work with all of you moving forward as we address this issue.
Thank you.
Chairman Goodlatte. We welcome our distinguished second
panel of witnesses. And if you would all please rise, I will
begin by swearing you in.
Do you and each of you swear that the testimony that you
are about to give shall be the truth, the whole truth, and
nothing but the truth, so help you God?
Thank you.
Let the record reflect that all the witnesses answered in
the affirmative.
I will now introduce our second panel.
Our first witness is Douglas Holtz-Eakin. Mr. Holtz-Eakin
is the president of the American Action Forum. Our second
witness is Professor Alan Blinder. Mr. Blinder is an economics
and public affairs professor from Princeton University. Our
third witness is Professor David Primo. Mr. Primo is a
political science and business administration professor from
the University of Rochester. And our fourth and final witness
is Mr. Nick Dranias. Mr. Dranias is the president and executive
director of the Compact for a Balanced Budget.
Welcome to all of you. We--as you have noted from our
earlier panel, your entire written statement will be entered
into the record. And we ask that you summarize your testimony
in 5 minutes. And we have a timing light in front of you on the
table. When the light turns to yellow, you have 1 minute to
conclude your testimony. When it turns red, we wish you to sum
up quickly.
Mr. Holtz-Eakin, welcome back to this committee. You have
been here a number of times before.
TESTIMONY OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION
FORUM; ALAN S. BLINDER, GORDON S. RENTSCHLER MEMORIAL
PROFESSOR, ECONOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSITY;
DAVID M. PRIMO, ANI AND MARK GABRELLIAN PROFESSOR, ASSOCIATE
PROFESSOR, POLITICAL SCIENCE AND BUSINESS ADMINISTRATION,
UNIVERSITY OF ROCHESTER; AND NICK DRANIAS, PRESIDENT AND
EXECUTIVE DIRECTOR, COMPACT FOR AMERICA EDUCATIONAL FOUNDATION,
COMPACT ADMINISTRATOR, COMPACT FOR A BALANCED BUDGET
TESTIMONY OF DOUGLAS HOLTZ-EAKIN
Mr. Holtz-Eakin. Chairman Goodlatte, Ranking Member
Conyers, and members of the Judiciary Committee, thank you for
the privilege of being here today. Let me briefly make four
points, and then I look forward to answering your questions.
First, the U.S. has a large and growing deficit and debt
problem. Second, left unchecked, the consequences of that will
range from bad to disastrous. Third, traditional approaches to
dealing with deficits and rising debt have failed. And as a
result, it would be wise for Congress to consider adopting a
fiscal rule. And the balanced budget amendment is a
particularly desirable example of such a fiscal rule. Let me
elaborate.
I won't belabor the numbers. Each year, the Congressional
Budget Office puts out the Long-Term Budget Outlook. It shows a
sustained divergence between projected spending and projected
revenues, rising debt relative to GDP, and in the absolute, and
an increasing fraction of the budget consumed by interest
payments. This outlook has been essentially unchanged since I
ran the CBO in 2003. All that has differed is we have changed
the dates on the lower axis. It is exactly the same picture.
The consequences of this are significant. It is bad that
interest increasingly consumes larger fractions of the budget.
In the next 10 years, interest is projected to rise to be the
second largest program of the Federal Government, larger than
everything but Social Security. Worse, that sustained high
deficit and debt is crowding out productive investments in the
private sector, hurting the growth of productivity and the rise
in the standard of living. And, indeed, there is evidence that
the U.S. has entered the zone of debt relative to the GDP that
comes with a growth penalty. And we may be experiencing slower
consistent growth as a result.
And then in the disastrous scenario, left unchecked, the
U.S. will inevitably go into a sovereign debt crisis. The debt
spiral is unsustainable, and it will rise. If that happens,
households in America will experience a sharp rise in interest
rates. Their personal finances will end up in disarray. If we
saw 1,000 basis point rise in interest rates overnight, say if
the Treasury is going from 3 to 13, you would see the cost of a
$250,000 mortgage jump from about $1,200 a month to almost
$3,000 a month. A $20,000 car loan, the servicing of that would
rise from about $440 a month to $540 a month.
And that is just the beginning, because inevitably, the
Members of Congress would have to respond to that crisis by
sharp increases in taxes and sharp cuts in annual
appropriations for spending in order to satisfy credit markets,
and the repercussions will be even more severe than the initial
impacts.
We have seen over time a variety of efforts by the Congress
to deal with budgetary problems. Whether they are PAYGO rules
or the most recently, the Budget Control Act, they share the
characteristic that it is too easy for Congress to renege. And
inevitably, Congress has reneged on those attempts to constrain
itself. And that has led me to conclude that the only way for
this to get solved is to impose a fiscal rule that governs the
Congress that it cannot easily circumvent.
Other countries have tried such fiscal rules. There is some
examples in my testimony of the Netherlands and Sweden imposing
constitutional-like rules to govern their Congress. This
appears to be the mechanism necessary to get the U.S. to avoid
the disastrous consequences of the trajectory that we are on.
And so it seems to me that one--one should consider the fiscal
rule. There are a variety of potential options, one of which
might be a debt-to-GDP target or something like that.
But I think the balanced budget amendment is a particularly
desirable rule because it is simple and transparent. People
have to understand the rule in order to politically support it.
I don't think they will support a complicated debt-to-GDP kind
of formulation. There is a direct link between the actions of
the Congress and the outcome of the rule. You can raise taxes,
lower taxes, raise spending, lower spending, balance the
budget. And those linkages are important. And there are ways
that you can deal with emergencies. And most balanced budget
amendments come with contingencies to deal with wartime or
other emergencies.
And lastly, I think the concern over sharp, abrupt
balancing what is clearly a nonsustainable budget outlook is
overstated. If you were to pass out of the Congress a balanced
budget amendment, it would take years for the States to ratify
it. Those years would provide a trajectory glide path to
balance, and I think the adjustment would be a lot smoother
than most people fear.
And so I appreciate the chance to be here to talk about the
economics of this approach today, and I look forward to your
questions.
Chairman Goodlatte. Thank you, Mr. Holtz-Eakin.
Professor Blinder, welcome.
STATEMENT OF ALAN S. BLINDER
Mr. Blinder. Thank you, Mr. Chairman, Ranking Member
Conyers, and members of the committee, for this opportunity to
testify here today on why, in my view, we should not enact a
balanced budget amendment to the U.S. Constitution. There are
so many reasons that I can't touch on all of them in 5 minutes,
so I will just make five points very quickly. Doug had four; I
was his teacher once, so I will get five.
First, a balanced budget is the wrong long-term goal for a
growing economy, which I haven't heard mentioned before. If the
U.S. economy didn't grow from year to year, then balancing the
budget might be a sensible long-term goal for this Congress,
but every year there are more Americans and higher GDP per
capita, so, as a matter of pure logic, the analogy to a
balanced budget for an economy that is growing is for the debt
to grow at the same rate as nominal GDP, which is what Doug
just mentioned. These days, by the way, that would mean a
deficit in the range of 3 percent of GDP.
Second, balancing the budget every year would put fiscal
policy in a straight jacket that would, among other things,
deepen recessions.
As you know, the budget naturally moves in the direction of
deficit whenever the economy sags because receipts decline and
expenditures rise. These automatic stabilizers, as they are
called, make recessions milder by boosting spending when the
economy is weak. And, by the way, it is private spending that
gets boosted.
To force the budget to remain balanced during a recession,
Congress would have to either raise taxes or reduce spending,
as has been mentioned already today. That would siphon off
demand just at the time when the government should be putting
demand back in to shorten the recession. So versions that, for
example, balance the budget over the cycle, as I just heard
from one of the Congressmen previously, are much, much better
than versions that balance it every year.
Third, there are--and here is why where I think I differ
from Doug--I know I differ--there are better ways to impose
fiscal discipline than a balanced budget amendment. One real-
world example is very familiar to members of this committee and
to every Member of Congress and was just mentioned; that was
the Pay-As-You-Go requirement that began under the first
President Bush in, I think it was, the 1990 budget agreement.
That was a smart innovation that subsequently helped President
Clinton balance the budget by fiscal year 1997 and then to
produce a string of surpluses following that.
Shortly after that string of surpluses, however, Congress
discarded the PAYGO requirement, and the deficit exploded. That
doesn't look like a coincidence to me. It looks like--it is not
literally but it is closer to a controlled experiment than to a
coincidence. PAYGO came on; the deficit shrank. PAYGO came off;
the deficit exploded.
Congress can easily--well, maybe not easily. Congress has
the power to go back to the good old days when we paid
attention to PAYGO.
Fourth, a balanced budget amendment invites gimmicks and
bad policy to work around the strictures of the amendment. I
can't go into detail, but such gimmicks are likely to give rise
to court cases in which judges are called upon to decide
whether the balanced budget amendment has been violated or not
violated, thereby, in effect, making judges the arbiters of
economic policy. And I don't think that is any better an idea
than making economists the arbiters of judicial issues.
Fifth, a balanced budget amendment that imposes a higher
bar for raising spending than for cutting taxes--and, as you
have just heard, some of them do and some of them don't--such a
version of the BBA would create biases and distortions.
So, for example, if the Constitution--I think this is an
important example--if the Constitution makes it easier to cut
taxes than to raise spending, Congress may decide to pursue its
goals through tax expenditures rather than through direct
appropriations, which it does too much anyway. That is almost
always a bad idea because appropriated funds get far better
congressional oversight and much more monitoring and
enforcement by the executive branch than tax expenditures do,
which just go on and have almost no enforcement.
Finally, it is worth pausing to consider the 20-percent-of-
GDP spending limit that is in section 2 of H.J. Res. 1. We have
crossed that line many times in the past, in fact, in 26 of the
last 40 fiscal years, including all 8 Reagan years, but we
typically haven't passed it by much. The average over that
period was 20\1/2\ percent. So if you are worrying about
limiting Federal spending to about 20 percent of GDP, roughly,
I think you can stop worrying because the political system we
have had for four decades basically does that.
Thank you very much for your attention.
Mr. King [presiding]. The gentleman's time has expired, and
we appreciate his testimony.
The chair would now recognize Professor Primo.
STATEMENT OF DAVID M. PRIMO
Mr. Primo. Mr. Chairman, Ranking Members Conyers, and
members of the committee, thank you for inviting me here to
discuss the need for a constitutional amendment to help rescue
the Federal Government's finances.
My three-part message today is this:
First, the United States faces fiscal pressures that
threaten our economy, and it is a serious mistake to let
relatively low deficits today lull us into a sense of
complacency about the future.
Second, the short-run focus on politics combined with
Congress' institutional prerogatives make it difficult for
legislators to implement durable reforms to address these
fiscal threats.
Third, a constitutional amendment, if well-designed, will
provide the foundation for Congress to enact credible and
sustainable fiscal policies.
So, first, do we even have a debt and deficit problem
still? One Washington observer commented recently, quote,
``Anxiety about the Federal deficit seems to be fading
everywhere--in Congress, among voters, and on the 2016 campaign
trial,'' end quote.
Well, today's deficits may seem manageable, but within a
decade they will again exceed $1 trillion if we continue on our
current trajectory. These deficits will be piled on top of a
national debt that has more than doubled in the past decade,
and it is only going to get worse. The debt is projected to hit
150 percent of GDP by 2047 and an unimaginable 250 percent of
the Nation's economic output by 2091. The current path is
simply unsustainable and threatens the well-being of Americans,
especially those in future generations, who will bear the brunt
of the economic pain and lower economic growth caused by our
inaction today.
While analysts disagree about how much debt is too much
debt for the health of the economy, researchers at the
International Monetary Fund have found that a nation is
especially vulnerable when its debt grows faster than its
economy. That is us, that is this country, if we do not take
action.
So it is clear that, to get on a stable fiscal path and
stay there, Congress needs to act quickly and credibly. So why
hasn't it? And this takes me to my second point: Congress is
its own worst enemy when it comes to long-term fiscal
management. Congressional reelection motivations make it
tempting for lawmakers to leave difficult decisions about
programs like Medicare for tomorrow. But waiting until there is
the political will to act typically means waiting until a
crisis occurs.
Now, even if these political hurdles are overcome, Congress
faces still another obstacle, specifically Article I, section 5
of the Constitution, which reads, in part, ``Each House may
determine the rules of its proceedings.'' This single line
constitutes a major obstacle for legislators attempting to
enforce budget rules. More generally, Congress, unlike a
corporation, cannot write a contract that binds future Members.
This is true both with respect to substantive reforms, such as
changes to entitlements, and process reforms, such as changes
to budget rules. As we saw with budget reforms like PAYGO, what
Congress does today a future Congress can undo tomorrow.
And my third and final point proposes a solution to this
quandary: a well-designed constitutional amendment that places
permanent, truly enforceable limits on Congress' ability to tax
and spend. Such an amendment will create an environment under
which the question for Members is no longer whether to fix the
Nation's fiscal problems but, rather, how to do so.
Now, the promise of a constitutional amendment as an
enforcement mechanism binding Congress lies in its durability,
but this durability is also a peril. Bad rules can be locked in
just as easily as good rules can be. And that is why we must
pay careful attention to rule design.
For instance, the amendment should account for economic ups
and downs by setting spending targets or limits based on a
multiyear period or long-term economic performance. The
amendment should be flexible enough to account for major
disruptions like war and, at the same time, should be precise
enough to avoid end runs around its provisions. Concerns about
U.S. Supreme Court involvement in enforcing the amendment could
be addressed by limiting remedies and clarifying which parties
have standing.
The one thing we don't want to do is reject the entire
enterprise of constitutional budget rules, as some skeptics do,
based on critiques of specific proposals.
In closing, an amendment to the U.S. Constitution is a
serious step for the country and one fraught with political and
procedural challenges. But we are much less likely to achieve
credible, sustainable budget changes otherwise. While successes
in budgeting do occur on occasion, these successes have
typically been short-lived. A well-designed constitutional
budget rule will make agreements durable, reduce political
uncertainty, and ensure that future generations are protected
from a fiscal crisis.
Thank you again for inviting me to testify. I welcome your
questions.
Mr. King. The gentleman's time has concluded precisely with
the conclusion of his testimony. Excellent.
The chair would now recognize Mr. Dranias.
STATEMENT OF NICK DRANIAS
Mr. Dranias. Thank you.
Mr. Chairman, Ranking Member Conyers, members of the
committee, I am here to make one fundamental point, and that
is: A balanced budget amendment is a civil rights issue. We
cannot protect the voices and the right to representation of
future generations if we leave a limitless credit card in the
hands of the Federal Government.
The Federal Government is a radical outlier, in that it has
no limit whatsoever, constitutionally, on its credit card, on
its borrowing capacity. And that creates a huge potential for
abuse of shifting bad policy decisions and the bill--taxation
without representation--to future generations.
I am here before you today because a civil rights issue
like this should unite everyone--it should not be decided on
the basis of any partisan divide--and as a representative of
the Compact for a Balanced Budget Commission, the first
interstate agency formed to partner with Congress, representing
five States who have agreed solemnly in a compact to ratify a
specific balanced budget amendment.
There is finally the opportunity to get this job done,
because H.C.R. 73 was filed today. It is being prime sponsored
by Representative Luke Messer, and, unlike any other proposal
before you, it only requires simple majorities to pass.
It does require yielding some leadership to the States, but
that is entirely consistent with the constitutional design.
Because we have talked about a well-crafted amendment and a
well-crafted constitution, and fundamentally it is about checks
and balances, separations of power, and finding a way to ensure
that, structurally, incentives exist that no one's rights are
abused. That is precisely what this balanced budget amendment
and the Compact for a Balanced Budget is about.
It is a well-crafted amendment because it strikes at the
core problem. The core problem is not budgetary symmetry. The
core problem is not really even budgetary processes. The core
problem is limitless borrowing capacity.
In 1798, Thomas Jefferson said, if he had one amendment to
restore the Constitution to its first principles, it would be
removing the capacity to borrow from the Federal Government.
Now, that is a little radical; it goes a lot farther than is
necessary. But he was striking at a recognition that, with
limitless borrowing capacity in the hands of any debtor, any
human being, let alone an elected official, it is a structural
incentive to create fiscal abuse, particularly if you are
sending the bill to the next generation.
Now, I am here to urge you today to recognize that many of
the concerns expressed by Representative Conyers, by Professor
Blinder, and others on, some would say, the other side of the
ideological spectrum from me are legitimate in many respects.
It is not the right way to go about fiscal responsibility, to
have some fixed demand for a balanced budget all the time.
But they are wrong in assuming that you can safely place
limitless borrowing capacity in the hands of Congress and just
hope for PAYGO to arise simultaneously. There is a reason why
PAYGO failed. There is a reason why it went on and it went off.
It is because the pressure to spend beyond our means is
unstoppable over time when you have limitless borrowing
capacity and you can send the bill to future generations.
So, in conclusion, I just wanted to emphasize--I would be
happy to take a lot of questions on this--the balanced budget
amendment that has been already drafted, that five States--
Alaska, Arizona, Georgia, Mississippi, and North Dakota--have
agreed to ratify if and when it is proposed, is designed very
carefully to address every concern that has been ever raised
about past balanced budget amendments. Those concerns are
addressed reasonably. And it is critically important to
emphasize that it does what every good constitutional reform
should do, which is check and balance power.
And with that said, I hope that this civil rights issue of
protecting future generations from being saddled with our
policy choices and taxes for decisions on spending they never
had a chance to influence will be protected and that we will
come to view a balanced budget amendment as akin to the same
sorts of amendments we have approved in the past to represent
folks that have been excluded from the political process.
Thank you very much.
Mr. King. I thank the gentleman for his testimony.
That concludes the testimony of the witnesses. We will now
proceed under the 5-minute rule with questions. And I am going
to honor the queue that we have and recognize Mr. Franks first
for his 5 minutes.
Mr. Franks of Arizona.
Mr. Franks. Well, thank you, Mr. Chairman.
Mr. Chairman, someone once said that great societies
finally come when old men plant trees under whose shade they
will never sit. And I am convinced that statesmanship and
everything that we are about here today is ultimately about
coming generations. We have it pretty good right now, in many
ways, but some of the trajectories and some of the directions
that we are going I think do, in fact, threaten our children's
future.
And, Mr. Dranias, I was especially moved by your analysis
that the balanced budget amendment is a civil rights issue,
because I could not agree with you more. With all the arguments
that say, you know, we want to make sure that we are able to
spend to help people, do we not realize that bankruptcy will
preclude all of that? And I think that we do face a potential
sovereign debt crisis in the near future. And I am kind of
giving a little speech here because I think what you are doing
here is vitally important.
In all candor, Mr. Chairman, I have signed on to the
Compact for America balanced budget amendment approach just
recently because I looked it over carefully and I believe it to
be the most comprehensive, competent, well-considered approach
I have ever seen since I have been in Congress and have been
fighting for a balanced budget amendment for a long time. And I
certainly want to express my thanks to Mr. Goodlatte for his
commitment to this issue for so long.
I guess what it comes down to, Mr. Dranias, is that
sometimes people need to understand not only the implications
of continuing on the road that we are on but how the best
approach would be to ameliorate the problem.
And so what I would like to do is to ask you, first, two
questions. One, what is your prediction in terms of the
likelihood of having a sovereign debt crisis? And, two, what
will it really mean to this country if that should occur?
Mr. Dranias. Mr. Chairman, Representative Franks, if I may,
the Compact has a sunset date of April 12, 2021, because 5
years ago when our team of experts were engaged in drafting the
amendment and the approach and we looked at the exponential
growth in the national debt and we looked at Third World
countries and how their debt trajectories went, it became very
clear to us that 8 to 10 years out, which now is April 12,
2021, was when perhaps the only real option, from a policy
perspective, might be some form of default.
And so you have asked when is the crisis coming. Our
judgment, as embodied in the sunset in the Compact, where it
self-repeals April 12, 2021, is it is coming soon. And it is
coming soon because the level of debt is simply unsustainable.
We are now beyond 100 percent of the GDP, where Greece was 7
years ago, if you count all of the debt.
And, by the way, we don't believe in just counting the
publicly held debt. The debt that is being held in the Social
Security Trust Fund counts too, unless we are planning to
default on it.
And so the reality is it is coming; it is coming fast. And
that is why something like H.C.R. 73, which only requires
simply majorities, and yielding some leadership to the States
is what we need to do.
Mr. Franks. Well, I have also been struck by the Compact
for America balanced budget amendment approach because I think,
first of all, that it is in line with some of Mr. Holtz-Eakin's
concerns, and I think that it actually is very parallel. And I
also believe, in all deference, that it vitiates most of
Professor Blinder's arguments and that it deals with them in a
forthright way.
I also am convinced that your approach is especially unique
in that it does not conflict with other balanced budget
amendments. In other words, if this Congress should ever find a
way to get that two-thirds necessary for a balanced budget
amendment, some of which has been expressed here today, the
different versions, there is no conflict in what you are doing.
So I guess I would just ask Mr. Dranias, with the time that
I have left here, if you would just give us the quick overview
of what your amendment does.
Mr. Dranias. Mr. Chairman, Representative Franks, I would
be happy to.
First, the amendment fixes the debt capacity, the credit
card limit, of the Federal Government at 105 percent of what is
outstanding when it is ratified. So if we had $20 trillion in
debt outstanding on ratification, the credit card limit, so to
speak, of the Federal Government would be $21 trillion.
Now, that would be a permanent, nominal limit. You could
pay it down, borrow it back, do what Keynes said we would do,
which is pay it down in good times, borrow it in bad times, not
do what we actually do, which is borrow all the time, right?
And the other key component of this amendment--and there
are a couple more beyond--is that any further flexibility in
this fixed debt limit is not held by the debtor who has the
spending problem. Any additional debt capacity that Congress
may obtain has to be obtained by a referendum to the States,
reinstating the States into a position of oversight on Federal
debt policy, like they had before the 17th Amendment when they
controlled the Senate. And the States would have to approve,
with simple majorities--not an impossible threshold--26 State
legislatures would have to approve an increase in that debt
limit.
Now, we don't imagine that that would be utilized all that
often, because $21 trillion, if we ratified it today, is a lot
of debt capacity. If Congress just got the hang of, you know,
not borrowing so much, paying it down in good times, living
within its means, the opportunities to go to the States, hat in
hand, should be few and far between.
But the critical structural component is you can't have,
with all due respect, the debtor in charge of deciding what his
credit card limit is. There has to be outside oversight. This
is a check and a balance. It is more important than any words
on parchment. You could have the most wonderful words on
parchment and if you control the words, you are not going to
control the problem.
Mr. Franks. Mr. Chairman, I know my time has expired, so
let me thank the chairman.
And let me thank you, Mr. Dranias, on behalf of my
children. I hope you succeed--and all their contemporaries--and
I will do everything I can to help.
Thank you, Mr. Chairman.
Mr. King. The gentleman's time has expired.
The chair now would recognize the ranking member of the
full committee, Mr. Conyers from Detroit.
Mr. Conyers. Thank you, Mr. Chairman. I appreciate the
varied testimony here.
Before I begin, could I ask unanimous consent to submit for
the record on behalf of Congressman Scott--who made a brilliant
statement and led us in a good discussion. But he has a survey
by the National Conference of State Legislatures that he would
like to put in the record.
Mr. King. Hearing no objections, so ordered, Mr. Conyers.
This information is available at the committee and can be
accessed online at: https://docs.house.gov/meetings/JU/JU00/
20170727/106327/HHRG-115-JU00-20170727-SD002.pdf.
Mr. Conyers. Thank you very much.
Mr. Conyers. Professor Blinder, your testimony attracted
three questions from me. The first was, how could a balanced
budget amendment devastate Social Security or Medicare?
And my second question was asking you to explain why
automatic stabilizers are important and how a balanced budget
might negatively affect it.
And the last part of my discussion would be, would a court
have to decide budget policy questions if someone alleges a
violation of a balanced budget amendment?
Why don't you see where our discussion leads us on those
three considerations, sir. Thank you.
Mr. Blinder. Okay. Thank you, sir. I will do my best,
though the third one that you pose is a really hard question.
First, exempting pieces of the budget, whether it be taxes,
Social Security, Medicare, defense, whatever is the favorite of
the particular Members of Congress that want to exempt that,
shrinks the base to which either tax raising or expenditure
cutting would be necessary to get the budget from an unbalanced
situation to a balanced situation.
Every member of this committee has lived through a process
in recent years where the nondefense discretionary part of the
budget is just getting squeezed and squeezed and squeezed and
squeezed. That is a likely candidate, by the way, for the
residual. But my point is there will be a residual and it will
just be tougher on what is left, rather than leaving that to
congressional decisions when the issue is extant.
The automatic stabilizers are very important, and their
importance is much underestimated. On the fiscal side, given
the realities of Congress, fiscal stabilization comes almost
100 percent and sometimes more than 100 percent from the
automatic stabilizers, not from discretionary policy. Monetary
policy is entirely different. The people of the Federal Reserve
are engaged in discretionary monetary policy to fight
recessions whenever they look imminent or are upon us; don't
have to rely on automaticity. But the Congress relies on
automaticity.
So what does that mean? It means that the income tax, the
payroll tax, and just about every other tax you can think of,
the receipts from those taxes shrink automatically as the
economy shrinks. Nobody has to legislate anything. Unemployment
benefits, TANF, food--I am not supposed to call it ``food
stamps''' anymore--SNAP, and a whole variety of other programs,
their spending rises automatically, again, without Congress
having to do that.
The automaticity is important, I mentioned, because of the
problems in the wheels of Congress but also because of the
speed. Even if the wheels of Congress turned perfectly, nobody
can react instantly, even before the data. You don't have to
have the data, because the economy is just shrinking, and the
automatic stabilizers go to work automatically. So it is
extremely important, and short-circuiting them is a potential
catastrophe--complete catastrophe.
On the ``who will enforce it,'' you know, I almost like to
throw the question back to the Judiciary Committee. This is
really a big problem. When Congress is not obeying the law, who
enforces it? Generally what happens is somebody either has or
claims standing to sue and brings a suit or something like
that. How that might play out is going to be completely
dependant on circumstances, and, frankly, I haven't the
foggiest, but don't want to go there. I think it is a bad idea
to go there.
Mr. Conyers. Just in the few seconds left, what would
happen to Social Security or Medicare facing a balanced budget
amendment?
Mr. Blinder. That is going to be up to Congress. Social
Security and Medicare are, in a large sense, on autopilot. They
are entitlements, basically. And it would be up to the Congress
in a particular year, say, when it had to balance the budget
and it was unbalanced, does it pass legislation cutting Social
Security benefits or cutting Medicare benefits or raising the
taxes that finance those. It will be one of those horrible
questions that Congress has to face if we had a requirement for
an annually balanced budget.
Mr. Conyers. Okay.
Thank you very much, Mr. Chairman.
Mr. King. I thank the gentleman from Michigan.
The chair would now recognize the gentleman from Arizona,
Mr. Biggs.
Mr. Biggs. Thank you, Mr. Chairman. And I appreciate each
of the participants being here on the panel today and also our
colleagues who testified earlier. And I really appreciate this,
because I do think this is one of--it is perhaps, quite
frankly, the most fundamental and basic problem we face, and it
is a threat that is really existential. And so I am glad we are
having this discussion today. I hope we continue to have this
on a more regular basis until we can start bringing this
problem under control.
We have talked in the previous panel a lot about the fact
that 49 States have some version of a balanced budget
requirement constitutionally. Arizona has one. And I had the
privilege of working on numerous Arizona budgets, and I want to
just relate how Arizona's balanced budget amendment works. It
simply basically says, if you have a deficit at the
commencement of the new fiscal year, you must either raise
revenue or reduce spending. That is really it.
But then we have some additional constraints. It takes a
supermajority to raise revenue in Arizona. And you will never
get--at least not in my experience, and that was 14 years--you
will never get a supermajority to raise revenue. But what you
will get is something you will have to do, and you will have to
reduce spending and try to bring your budget into balance that
way. A lot of people didn't like that, but I am pleased to say,
at least when I left, we had finally achieved a balanced
budget. And that is including years of difficulty following the
2008 real estate bubble bursting in Arizona.
I raise that to you because we heard in the previous
panel--I can't remember how many testified, about eight people.
Virtually each one of them has kind of their own version of how
this should work. Chairman Goodlatte has his version of how
this should work. There are others that have how that should
work. And in the Article V States movement, there are
additional. And I would say I have probably read at least two
dozen different balanced budget amendments over the last few
years.
I support a balanced budget amendment. The question is what
that amendment does and what it looks like. I don't support all
balanced budget amendments, but there are some out there that I
can support.
And so I think we all agree--at least--I just want to--when
I was in college my freshman year, in macroeconomics we were
taught about guns and butter--this was a long time ago--guns
and butter. You can't have guns and butter, right? But we
continued to do that in the United States. And if a balanced
budget amendment doesn't address that fundamental problem, you
will never succeed in whatever you do with regard to balancing
your budget. And that requires political will.
Now, two other things. I think if you repealed the 16th and
17th Amendment, a balanced budget amendment would probably
become not unnecessary, to be honest with you, because all of a
sudden the States would be fully engaged and active in what
happens here at the Federal level instead of being recipients
of all the mandates that we give.
So I am giving that little diatribe--I didn't meant to run
on with my little diatribe too much, but I just needed to point
that out.
Now, I want to talk briefly about Mr. Dranias, because he
and I have known each other a long time, and we have debated
this thing for 10 years, at least, back and forth. And I will
say that I find his approach to be one of the most ingenious in
attempting to try to resolve some of the issues that I think
exist in a States-initiated Article V process.
But, nonetheless, I still think that there are
constitutional issues with that approach as well. I think that
Article I, section 10 would require the Congress to approve an
interstate compact. I know that is debatable, but I am pretty
firm in my conviction there because that would be a problem.
So I would just say, you know, because I am out of time
already--which is funny how that happens to a politician; you
just run right out. But I would commend Mr. Dranias because I
think his is the most assiduous at trying to control and direct
an Article V States-initiated procedure to a unique end.
I am not satisfied--and Mr. Dranias knows this. I have
written about him in my book, even, and we have discussed this
at length. But I appreciate all the approaches, because this
issue--and I will just close how I began--is an existential
threat to this Nation. Nothing else will ultimately matter
unless we bring this under control. And so I encourage the
chairman and all of us to get on the train and do this as
quickly as possible and work out this assiduously.
And, with that, my time has expired. Thank you, Mr.
Chairman.
Mr. King. The gentleman returns his time.
And the chair would now recognize the gentleman from New
York, Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chairman.
Let me start off by saying that it is hard for me to
imagine a more pernicious proposal than the balanced budget
amendment.
In 1905, in the Lochner case, Oliver Wendell Holmes,
dissenting, said, ``The 14th Amendment does not enact Mr.
Herbert Spencer's Social Statics.'' That is to say, the 14th
Amendment does not enact a particular view of economics. And I
believe it is fundamentally wrong to bind future generations
and future Congresses to a particular economic doctrine--
balanced budget or any other doctrine--that may be popular
today.
The Constitution should provide procedures for government
and should protect individual rights but should not lock in
policies, especially economic policies. Whatever one may think
of the debt or how to reduce it or the proper level of
government expenditures as a percentage of GDP, those kinds of
policies should be enacted as legislation, which can be
modified, amended, or repealed by future majorities, not
enshrined in the Constitution to bind future generations to the
opinions of this generation. That is fundamentally undemocratic
and tyrannical.
If you thought I was reading a quote, I was. It is a quote
from myself at a prior hearing on this topic.
Let me go further and say that we are told that States have
balanced budget amendments. Indeed, they do. But States have
capital budgets. If they borrow in the capital budget, they
must balance the operating or expense budget. To say that a
budget that does not distinguish between operating and capital,
a combined budget as we have, must be balanced is to say we
should never borrow money, which is an insane view. We should
borrow money to make investments. Any corporation, any State
borrows money to build a bridge, to make an investment and earn
a return on capital.
I would also observe that someone said we should limit the
debt to 20 percent--or the expenditures to 20 percent. Why 20?
Maybe it should be 24 or 16. That should be determined by a
majority of the day. If we had enacted this kind of amendment
before we adopted Social Security, we would have said 14
percent, and you never would have had the ability to enact
Social Security. And maybe we want to make other changes in the
future.
Mr. Dranias' proposal is particularly--I was about to say
``insane,'' but I will be more kind--ridiculous, because he
would inshrine in the Constitution a limit on debt, let's say
$20 trillion, which, as inflation goes up, means a constantly
lower debt ceiling every year, which means that you would have
a tighter and tighter budget every year, no matter what the
popular will and no matter what the economics may dictate.
Now, if you had said that the debt should not be more than
a percentage of the economy, I would still disagree with you,
because that should be determined annually by Congress, but at
least that wouldn't lock you into a constantly declining and a
constantly declining budget.
These are some of the basic problems. A balanced budget
amendment enshrines a particular economic view and binds future
generations, a particular economic view that precludes
investment--that may very well preclude investment, preclude
economic gains. And, again, any particular thing you write into
the Constitution, a 20-percent limit, why is that sacred?
Because we believe it in this generation and not our children,
we should bind them. It is fundamentally wrong for a
constitution.
Let me ask Professor Blinder--oh, let me also point out
that we did achieve a balanced budget during President
Clinton's term, and what stopped the balanced budget were the
Bush tax cuts. That was an economic decision. The country
determined, or the Congress, the Republican Congress,
determined that it is more important to have tax cuts than to
have a balanced budget.
Remember that Alan Greenspan testified at one of the
hearings that we had to enact the tax cuts because, otherwise,
we would pay off the entire national debt in 10 years, and that
would be a bad thing for various reasons. So we know how to
do--well, he did testify to that.
And we know how to achieve balanced budgets. We know how to
achieve paying off the national debt if we wanted to. But those
are political decisions that each generation should make for
itself. And the fundamental flaw in the constitutional
amendment, besides tying our hands from economic crisis, tying
our hands from any decisions, is it ties the future hands.
What if, for example, a future generation determined that
they wanted to make medical care a Federal responsibility
entirely? Might not increase spending, but it would mean that
the spending would now be in the Federal budget, not in terms
of insurance budgets. Now, maybe that is a good idea, maybe it
is a terrible idea, but how can we determine that our
grandchildren or our children should be precluded
constitutionally from making such a decision if they want to?
We can't foresee future economics; we can't foresee future
possibilities. And to bind our children and grandchildren to a
particular economic view and, even worse, to a particular
figure in an economic view is extremely pernicious and would, I
think, destroy economic growth in the country over the long
term.
My time has run out before I have time for questions
because I feel so strongly on this. I yield back.
Mr. King. I thank the gentleman from New York, who has
returned his time.
And the chair would now recognize Mr. Johnson from
Louisiana for his 5 minutes.
Mr. Johnson of Louisiana. Thank you, Mr. Chairman. Sorry I
missed some of the testimony. I have had other things down the
hall.
Mr. Holtz-Eakin, you testified before this committee almost
2 years ago on the same topic, and in your testimony then you
wrote that, quote, ``the Federal Government faces enormous
budgetary difficulties, largely due to long-term pension,
health, and other spending promises, coupled with recent
programmatic expansions,'' unquote.
So you may have addressed this already, and if you have
spoken to it, I apologize for missing it. But here we are 2
years later, and some of those programmatic expansions have
continued even more so. I assume you still feel that statement
is true? Or would you elaborate on that further, about the
overall concern?
Mr. Holtz-Eakin. Nothing has changed fundamentally. I mean,
we have an unsustainable budget outlook, largely because of the
projected growth in the mandatory spending programs. And those
are programs which have not been touched in any significant
way.
Mr. Johnson of Louisiana. You may have addressed this as
well, but when we talk about modifying the mandatory spending
programs, there are often scare tactics that are employed by
the opposition of that, certain special interests, and they are
trying to prevent necessary changes from being made.
When I do townhalls back home in Louisiana, I see the
result of that, because people are just alarmed. They feel
like, you know, the government is going to end their lives,
and, you know, they hold up signs that we want people to die
and all that.
What is the simplest approach to explaining that? What I do
is I put the U.S. debt clock up on the screen at my townhall
and I make them watch that number, which increases $10,000 per
second, you know. When you are just talking to the average
citizen, not to professors and academics, what is the best way
that you explain the crisis, in your own words?
Mr. Holtz-Eakin. So it is clear that we are on a trajectory
for a sovereign debt crisis and the only question is when, not
if. You can look at Greece, Portugal as examples of the
consequences of that, and people understand that.
But, to me, the most important point to be made is no one
wants to change Social Security, for example, for green
eyeshades reasons. When I look at Social Security, I see a
program that, under current law, is kept solvent--the actuaries
can certify it--because we are promising to cut benefits about
30 percent across the board in less that two decades. It is a
disgraceful way to run a pension program.
This is the United States of America. We should have a
sustainable social safety net. And so, yes, we should modify
Social Security, take care of the red ink in the Federal
budget, but also give people a safety net that is going to be
durable.
Medicare is even worse. Payments in, plus the premiums
saved by seniors--the gap between that and spending, it is
about $300 billion a year and rising. It is responsible for a
third of all the Federal debt outstanding, and we have seniors
not receiving the best possible medical outcomes. So that is
not a program you want to enshrine forever and say, ``Don't
touch it.'' You want to fix it. We should have much better
programs.
And I think if people understood that, they would be less
resistant to structural changes in the safety net. And we need
to make those changes from a financial point of view.
Mr. Johnson of Louisiana. I guess this might be a question
for any or all of you, but I saw a CBO study, and this may have
been covered this morning as well, but it said that--I think it
said that entitlement spending will eclipse GDP in 2030. So it
is not 100 years down the road; it is right around the corner
in relative terms. Does that estimate----
Mr. Holtz-Eakin. I don't think that is right. The spending
per se is not going to eclipse GDP.
I think the most striking thing about this conversation, to
me, is this is a conversation that used to be called the long-
term budget outlook in 2003 when we published it; it is now the
budget outlook. It is here in the next 10 years. Within 8
years, we will run a trillion-dollar deficit. Of that, 60
percent will be interest on previous borrowing. We are
perilously close to borrowing just to pay off the credit card.
That is an unsustainable trajectory.
And so, whether we want to or not, we have to do something
different. And if Congress is unable to do it of its own
volition, I am here today beaten into the position that we
ought to constrain it somewhat.
Mr. Johnson of Louisiana. Thank you.
I will yield back, Mr. Chair. Thank you.
Mr. King. The gentleman returns his time.
The chair would now recognize the gentlelady from Texas,
Ms. Jackson Lee.
Ms. Jackson Lee. Mr. Chairman, thank you so very much. And
thank you and the chairman of full committee for giving this
moment of discourse. And I thank the ranking member for his
thoughtful presentation.
I think those of us who are sitting at least in the four
seats on this side of the aisle have been through this before,
I might say, over and over and over again.
And I do appreciate all of the witnesses who have come to
express views. And there is one, I think, general theme that
none of us would disagree with, is that we want the Nation to
be fiscally sound. I can't imagine that any of us would
disagree with that. And we would want to be creative, to a
certain extent, in that fiscal solvency.
But let me lay the premise--and, Professor Blinder--excuse
me. Is it Blender or----
Mr. Blinder. Blinder.
Ms. Jackson Lee. It is Blinder. Let me pose questions to
you, without ignoring my friends to your left or your right,
because I come with a different perspective, or a perspective
that all is not well in the 50 States. So for there to be a
restraint on the Federal Government's ability to be the
umbrella in rainy day, it is a difficult posture to be in. And
as I listened to the testimony of some, they have indicated
that we can do a contingency here, we can refine it here. All I
know is that, when the States call, they expect for you to
come.
The other thing is that the States have not been too
effective with their balancing budget responsibilities. Take,
for example, the political collapse--and I do not want to
reflect negatively on my friends in Illinois, but my colleagues
tell me it is a complete collapse. There is a definitive fight
between the Governor and the legislature. They have a
requirement for a balanced budget. I don't know if they have
ever balanced it, but they are in an outright fight. And I find
that to be an enormously difficult posture to put us in.
So I want to raise these questions, Doctor. We have already
asked the question about Social Security and Medicare, but
today is the 52nd commemoration of Medicare and Medicaid.
Obviously, we are in a big fight in the Senate on its very weak
and ineffective attempt to undermine the Affordable Care Act
because they cannot find a substitute. In the course of that,
they are threatening millions of losing their insurance.
That is a place where the Federal Government had to step
in. We would have been very happy for all 50 States to say: We
are okay. We have provided health insurance for those with
chronic illnesses, preexisting conditions, and families. And we
would have put a stop sign in Washington and said, it is done.
So I would like you to speak to those issues. I do believe
that a balanced budget is anti-democratic, but I would like to
speak to the issues of an economic downturn, contingencies that
are beyond our imagination, and the ineffectiveness of many
States in their balanced budget. I think the gentleman from New
York talked about the capital budgets.
And so, yes, be fiscally responsible. I am interested in
Pay-As-You-Go. I think, however, it would have to not be
political, and that is the problem with Pay-As-You-Go. It is a
``gotcha'' sometimes, the party that is in, rather than a
balance, even though I was here for the 1997 balanced budget,
and the only thing that we needed to fix after that was the
Medicare issue with doctors, called the doctor fix, but we did
get in CHIPS and we balanced the budget. And I guess we were
able to do so, as you indicated, because we were getting the
benefit of the Pay-As-You-Go, but then we created surpluses as
well.
So would you answer those questions about contingency,
responsibilities for the least of those, and that our friends
in the States have their challenges too, and why would we, in
essence, strap ourselves down to not be able to respond to
these major issues?
Mr. Blinder. I will. Thank you, Congresswoman.
First, let me start with the point that Congressman Nadler
made a moment ago, rephrased slightly differently. The States
do not balance their budgets on Federal definitions. So it is
just a false analogy. If it was true, there wouldn't be any
State debt out there. And I come from New Jersey, and I can
tell you there is State debt.
Ms. Jackson Lee. And I come from Texas, and there is.
Mr. Blinder. There is State debt. And all the States have
debt. So they do not balance by Federal definitions.
Ms. Jackson Lee. But that is a representation, and you
are--both of us--all three of us are debunking that. But go
ahead. I yield.
Mr. Blinder. It is a fact.
The second thing is to your point about the automatic
stabilizers. Because of the versions of balanced budget
amendments that almost all of them labor on, the States are
often automatic destabilizers in a recession. Their revenues
fall off. They have this balanced budget requirement, excluding
capital expenditures, for the operating budget. They have to
cut the operating budget or raise taxes--exactly the wrong
thing.
Part of what we rely on the Federal Government to do--
part--is to offset these pernicious effects of procyclical
State and local government budgets. That is a part. That is not
the biggest part, but it is a part. We don't want to take that
away.
Thirdly, for a variety of reasons, of which I will mention
one, when it comes to the need to raise revenue, the Federal
Government has much greater taxing powers than the States. Now,
that is not in the Constitution. There is nothing in the
Constitution that says the Federal Government can raise a lot
of money and the States can't. It is because of mobility.
If Texas--let's take New York instead. It is less fanciful.
If New York State would double its personal income tax rate,
people would move to New Jersey and Massachusetts and Texas and
Florida and all over the place. There is much less mobility--
and the same goes for businesses, by the way, even more. There
is much less mobility for businesses and for people across
national lines. Not that many people are going to flee to
Monaco. Some will, but not many.
And so the States are strongly constrained in their ability
to raise tax revenue. Again, I know. New Jersey has pushed it
out to the limit----
Mr. King. If the gentleman can conclude his thought, the
time has long passed, please.
Ms. Jackson Lee. Can he finish his thought?
You can finish, Professor.
Mr. Blinder. No, I was basically finished.
Ms. Jackson Lee. Okay.
Mr. Chairman, I am yielding back, but I do want to put on
the record and maybe get a response in writing, is that our
economy is at $22 trillion. It is a growing economy. And so I
would like to hear from all of the speakers on the effect of a
balanced budget on the growing economy. Why not utilize that
growth to be fiscally responsible and invest in the American
people?
I yield back. I would like that answer from all of those. I
yield back.
Mr. King. The gentlelady's time has expired.
And the chair now recognizes the freshest member of this
committee, the gentlewoman from Georgia, Mrs. Handel.
Mrs. Handel. Thank you, Mr. Chairman.
And thank you to all of our witnesses today.
We heard earlier about a number of balanced budget
amendment proposals, and, interestingly, several of them have
fairly broad, bipartisan support. So that says to me that there
is really a growing realization that the crushing debt that we
are facing is unsustainable and, frankly, irresponsible and
that some type of a balanced budget amendment is necessary.
We just heard one case for why a State budget is not
analogous to a Federal budget and not an appropriate reference
point. I would like to hear from you, Professor Primo, if you
have a different perspective or if it is the same perspective
on that.
Mr. Primo. Without a doubt, the States are different than
the Federal Government. The Federal Government can mint money;
the States can't. And we do hear the argument, well, the States
carry debt, so obviously they are not balancing their budgets.
But if I had to pick right now, would I rather have the fiscal
responsibility we see at the State level writ large--there are
exceptions--or the fiscal responsibility we have at the Federal
level, I would pick the States every day.
And so, just because the States aren't perfect, just
because balanced budget rules may not capture all spending, it
doesn't mean that we can't learn from the fact that the States
do, year in and year out, have to be much closer to balance
than the Federal Government does.
And the research I have done shows that States that have
the strictest balanced budget rules spend less, they have lower
deficits, they are more fiscally responsible.
Mrs. Handel. Yes. And to the credit of the Georgia State
legislature--and we have one member with us, Legislator
Rakestraw--I have seen that in practice.
Let me ask you one more question before I move to another
witness. We also heard earlier that there is a sense that
perhaps a balanced budget amendment would enshrine a particular
economic policy into the Constitution and put it as a burden
onto further Congresses, et cetera. Share with me your
perspective on that, if you think that is the case or not the
case and why.
Mr. Primo. I am really glad you asked that because, as
Representative Nadler was making that point, I said to myself,
wait, what we are doing now as a country, what the Congress is
doing now in letting debt continue to go up year in and year
out, that is imposing on future generations.
Saying that you have to live by the realities of the
marketplace, the realities of if you carry too much debt you
are going to default, that is not imposing an economic view,
that is imposing economic reality, whereas saying we are going
to run up debt, we are not going to worry about it because we
can deal with it tomorrow, which is what this Congress has been
doing for decades, that, to me, is imposing on a future
generation.
Mrs. Handel. Exactly. Thank you. And I talk about this
often with my sister, who is the mother to my beautiful nieces,
12 and 13, and I worry about that significantly.
I want to move to Mr. Dranias. We obviously have talked
about a number of balanced budget management approaches, and
there is any number of ways to come at this. And we have seen,
frankly, a real difficulty in trying to move it forward. The
closest we have come, 1995, where we got it passed on the House
side but failed on the Senate side by one vote.
Given that difficulty and the different approaches, could
you walk us through--and we have about a minute, 40--walk us
through how the steps to doing the Compact, what that entails
and if that is really a realistic approach? Is it doable, I
guess--doable?
Mr. Dranias. I would be happy to, Mr. Chairman, Madam
Representative.
The Compact involved two overarching components. One is a
congressional resolution activating it, which is H.C.R. 73,
filed today by Representative Luke Messer. That only requires
simple majorities. It is a concurrent resolution. We have a
good argument against filibuster we can talk about off line.
Okay? If that passes, we are done on the Congress side.
On the State side, we need to get 38 States, the number
needed for ratification to agree to the Compact. We have 5 in;
we need to get 33 more. We have a pretty heavy lift to get it
done before 2021, but hopefully the critical mass will be
provided by H.C.R. 73.
Mrs. Handel. Okay. Thank you very much.
And let me just also thank Representative Rakestraw for
being with us today. I appreciate your being here and your
leadership on this issue.
Mr. Chairman, I yield back the balance of my time.
Mr. King. The gentlelady returns her time.
The chair now would recognize himself for his 5 minutes.
And I would reflect that, when I arrived here in this
Congress, I was elected in 2002, and we had a balanced budget.
We had balanced it for several years in a row, as some of the
witnesses have testified today. I expected to arrive here in
this Congress and continue with a budget that was balanced by
the will and the majority of the House and the Senate.
And the first budget that I encountered way over-blew our
spending. And I went to the chairman of the Budget Committee,
who is a good friend to this day, and I said, where is our
balanced budget? And he said, it is impossible to balance the
budget. Our financial centers have been hit on September 11,
2001. We are at war. We had to stand up TSA. We have all kinds
of security expenses all across this country to protect
ourselves from the scope of an enemy at that time which was
unknown.
It was frustrating to me, and I said, I am going to go out
and write my own balanced budget. I am going to have a balanced
budget that I get to vote on the floor of the House. I didn't
have the skill set at that time in the first weeks of my term
here to rewrite the entire budget of the United States
Government.
I worked on that. I joined the Republican Study Committee
immediately. I went on the steering committee so that I could
have more of a voice on the agenda of that Study Committee, and
I pounded on the table and said, we have to bring a balanced
budget. I did that every year for 5 years.
And, finally, the chairman of the Republican Study
Committee, Tom Price, now Secretary of HHS, brought a balanced
budget to that table at the Study Committee. And I said, what
got into you? He said, well, we have been listening to you,
King. Well, it is was a surprise to me that that was the case.
But that budget balanced in 10 years, from the Republican
Study Committee. The next year, we brought it down to 9, then
8, then 7. I am not actually sure what has happened with this
now by the time we got down to 5 or so.
That is how hard it is to bring a county that is in a
crisis from a war into a place where we are today, where, now,
somebody testified that the anxiety is diminishing about
balancing the budget because, politically, we seem to have
accepted the idea that we are going to have to cut some taxes
and spend some money and look for a stimulation in this
economy.
Well, I am at this place where I want to see a balanced
budget, and I will vote for the one that is most likely to get
us to balance this as strongly as we can. But I was very
interested in the testimony about looking at a span of time and
balancing this budget within economic cycles as opposed to a
fiscal year. I think that is a thought that we haven't debated
very much in this committee over the years, and that is one
that hopefully is front and center.
But I also wanted to turn to Mr. Holtz-Eakin and ask him a
question about something I didn't hear brought up, and that is
that, of the different ways that we can get to balance--raise
taxes, cut spending--I am, of course, in favor of cutting the
spending--but what about the component of printing money on
this and injecting more money into the currency? How does that
fit into the equation as you see it, Mr. Holtz-Eakin?
Mr. Holtz-Eakin. It is an option that one could basically
monetize the deficit, and over time, that will lead to higher
inflation, inevitably. The real value of the debt will decline.
The nominal dollars will be there. I don't think there is
anyone who has looked at economic history in the U.S. or across
the globe that would argue this is a good approach to dealing
with fiscal problems.
The best approach to dealing with fiscal problems is better
fiscal policy, and I think the fundamental issue that the
Federal Government has is it doesn't have a fiscal policy.
There's a budget resolution in the House sometimes. There's a
budget resolution in the Senate sometimes. They agree on one,
occasionally. But there is no single thing that the President,
the House, and the Senate agree on that adds up spending and
revenues in a coherent way, and that is what is needed.
Mr. King. Again, let me take you to another place. Fast-
forward to the economic crisis when this all comes to a head,
which some of you have testified about and some of the members
have, to that crisis. Now, the political scenario in the House
and the Senate and across the Nation is feeling this crunch.
And if we hit a collapse that would be a global bankruptcy
situation, and Greece has been mentioned here, but--there are a
number of countries in the world that could bail Greece out,
but there is nobody that can bail out America.
So what does--since no one can bail us out, does that
create a global Great Depression far worse than the 1930s or
the 1980s, that I feel like? And then is printing money to
service that debt become such a high temptation that that is
how we do that or we create this economic chain letter?
Mr. Holtz-Eakin. In that moment, there will be global
repercussions. The U.S. treasuries are the foundation of the
global financial system. Their liquidity will be impaired
badly, which means you won't be able to buy or sell them. And
chaos will prevail.
There will be no good responses if we get to that moment,
whether it is trying to print money, raise taxes, slash
spending across the board. Those will all be bad outcomes. We
shouldn't even run the experiment. We should fix it in advance.
Mr. King. I would just quickly ask Professor Primo if he
would respond also to that.
Mr. Primo. Mr. Chairman, the--you know, these situations
that you described, printing--monetizing the debt and so on,
you know, it is conceivable they could occur under a balanced
budget amendment, if it didn't specifically prevent that. But
it is far more likely to occur if we don't take action and we
let a crisis emerge. And this is sort of one of the things that
economists, like, call creeping risks, that the economy is not
going to implode tomorrow. It is not going to implode the day
after tomorrow. But it is consistently getting worse a little
bit every day, every year. And, you know, there is no, you
know, announcement that we are going to have an economic crisis
tomorrow. And that is--that is the risk, because we don't know
exactly when it is going to occur. And so to deal with it now
is going to make us much better off.
Mr. King. But you don't believe that we can go on in
perpetuity the way we are going?
Mr. Primo. It is simply unsustainable. And that is--sort of
one of the issues is, very quickly, that, you know, people will
say, oh, but, you know, you are going to make these cuts or
those cuts. You are going to hurt people. But the reality is
not doing anything. That is what is going to jeopardize future
generations.
Mr. King. Great. Thank you, Professor Primo.
My time has expired. And the chair will now recognize the
gentleman from Colorado, Mr. Buck.
Mr. Buck. Thank you, Mr. Chairman.
Professor Blinder, you probably don't remember me. I took
your class almost 40 years ago, and I intended to be an
economics major. And after doing poorly in your class, I
changed to politics, and here I am in Congress. So I----
Mr. Blinder. I apologize.
Mr. Buck. Oh, no. It wasn't your fault. You are a world-
renowned economist. And I have a huge amount of respect for
you. And I very much appreciate you helping me make a career
decision early in my life.
There is a young man who is interning for me, who is seated
behind you on your right, and he is also a--Jonathan Feld, he
is also a student of yours, much more recently than 40 years
ago. But I really appreciate you. I have followed your career
in public service as well as a professor.
Professor Blinder, the only problem I have is that--I think
you are absolutely right on the economics. If we followed
PAYGO, we would be much better off than where we are right now.
And if we did other things in Congress that were responsible,
we would be much better off than where we are right now. But I
feel like you are outside your wheelhouse in the political
reality of this particular subject.
Congress cannot act responsibly. The pressures, the
incentives on Congress are to get reelected. That is what most
Members' priority is when they are here. And to get reelected,
we need to keep taxes low and benefits high. And the problem--
nobody is going to say, well, I am voting for you because you
gave me less. And so the--the only way to create some sort of
accountability in Congress is with an outside force.
And by the way, one of your former students just wrote a
book called Drain the Swamp. I won't tell you which student it
was. But if you ever want to see my views of what the political
reality is here, I highly recommend it to you.
I think the only professor that has read it is Robbie
George at Princeton. But I--I would love to get your feedback
on--they tried PAYGO in 2009, 2010. It was a complete disaster.
We tried Gramm-Rudman-Hollings. It was a success for a couple
of years and then a failure.
We have tried to implement different ideas, restrictions on
our abilities, and it doesn't work. Unless we have a baseball
bat over our head, we are not going to, as a Congress, act
within our bounds. And I would love to get your thoughts on
that.
And I would also love to get a picture with you afterwards,
so----
Mr. Blinder. We both put on a few years since you were a
Princeton undergraduate, I think.
Thank you.
Let me disagree with you a little. First, a preface. Gramm-
Rudman-Hollings failed because it targeted the budget deficit,
which is, as we call--say in the trade, an endogenous variable.
It is the outcome of what happens when you get all the spending
and you get all the taxes. Congress can't control that any more
than King Canute could control the tides.
PAYGO was different. PAYGO said if you bring forth a bill
for more spending, cut taxes, you need pay-fors for it.
Congress can control that, and it did control that.
Mr. Buck. Can I interrupt you?
So the way we controlled it was to say we are going to sell
oil from the strategic petroleum reserve, and we bought that
oil for an average of $87 a barrel, we are selling it for an
average of $42 a barrel. In view of Congress, that is a profit,
and we are going to give ourselves credit for that and spend
this extra money. By the way, that same barrel of oil was sold
three times for three different bills.
Congress is fundamentally dishonest. It is a fraud, and we
have to--and I am not suggesting that balanced budget amendment
is the answer, because Puerto Rico had a balanced budget
amendment, and they found ways around that to the point of
bankruptcy. But we have to find some way of creating an honest
system where we actually move forward responsibly.
Mr. Blinder. I agree with that. When this Congress reenacts
PAYGO, which I hope it will before a budget-busting tax cut,
for example, which is what happened to it in the early Bush
administration, it would be wonderful if the new PAYGO rule
excluded asset sales. You could do that. In normal accounting,
that would be considered phony accounting. So you are--to the
specific point, you are absolutely right. But that can be
remedied.
Now, your general point. Is this the magic bullet that is
going to solve everything? No. You are 100 percent right.
Congress will do what it will do. But this helps.
PAYGO--there is a natural tendency for revenues to grow
year after year, because the economy gets bigger and prices go
up, and mundane things like that just bring revenue into the
Federal Treasury. That is the secret sauce of PAYGO. If you can
control the rest so that any act of Congress has to be--
balanced budget at the margin, that is that act, not the whole
budget, but that act is balanced budget, PAYGO will take you in
the direction you want to go. It did for 5, 6 years. I believe
it can work again, and it would be a great thing if somehow
this talk about a balanced budget amendment, which by the way
goes back--I think I first testified this in the 1980s. I
didn't--I didn't check to see if that is----
Mr. Buck. Probably the 1880s, to be honest.
Mr. Blinder. Well, I am not that--I am old, but I am not
that old. But somebody did, probably, then.
But if somehow that could get turned in the direction of
reinstating PAYGO, I think that would be terrific.
Mr. Buck. And I am out of my the time. I appreciate your
thoughts very much. And I can spend hours with each of you
talking about this, because it is my passion as it is so many
others' passion here.
Thank you.
Chairman Goodlatte [presiding]. The gentleman's time has
expired.
The chair will now recognize the gentleman from Florida,
Mr. Rutherford, for his 5 minutes.
Mr. Rutherford. Thank you, Mr. Chairman. Panel, thank you
for being here this afternoon.
And in--you know, there is an old saying that vision
without action is just daydreaming. But action without vision
is chaos. Sometimes I think lacking that long-term vision we
tend to see some chaotic reactions within Congress as was just
talked about. Our attempt at Gramm-Rudman, debt ceilings that
have changed over 100 times since their implementation. But
that is, I think, the strategy and the reason that I would be
interested in a balanced budget amendment, because it creates
that vision. And--at least where we are going. Not necessarily
how--exactly how we are getting to get there, but where are we
going.
And, Mr. Dranias, you were cut off by time when--you were
explaining some of the elements of your compact. And I would
like to hear the rest of that at this time.
Mr. Dranias. Mr. Chairman, Mr. Representative, I really
appreciate that opportunity.
As we said, there is a fixed debt limit in nominal terms,
but there is flexibility. With a referendum to the States, you
can increase that fixed debt limit. So if it did become too
small from the perspective of an outside, oversight committee
of sorts, then you could always--you could lift it with that
consensus. But the key thing is avoiding the conflict of
interest of the debtor deciding his own debt limit.
Now, the next couple of features are really great. As you
know, with the current debt limit, you get into the midnight
hour threat of impoundments all the time. And everyone panics,
and one side or the other folds. We have built into this
amendment a requirement that the President put on his tables,
any impoundments that he is considering when we get to 98
percent of the debt limit. And so you will have at least a
couple of months to discuss specific impoundments. And not only
that, but to avoid Presidential abuses, we give Congress the
ability to do a simple majority override by concurrent
resolution with impoundments of their own in equal or greater
amounts. So this brings the two parties together with specific
items to discuss before panicking with the debt limit coming,
right? So that is an innovation.
And then the other thing we do, and I say this with respect
to Congressman Justin Amash, is we do address the tax issue.
The reality is debt is taxes. Tax policy is inherent in
addressing debt, because somebody is going to pay it
eventually, and it is going to be through taxes.
And the other thing is there is a bias in favor of spending
whenever you have debt in a system, because it is easier to
borrow and spend than it is to tax and spend, right? So you
have to balance that disincentive with some sort of tax limit
policy.
The policy we came up with we believe is bipartisan, and it
is this: The first part, I think some folks on the left won't
like, and that is two-thirds of each house of Congress for any
increase in income or other taxes. But then we add an
exception, which I think can bring common ground to anyone of
goodwill, and that is we preserve simple majorities for
anything that eliminates tax loopholes, we preserve simple
majorities for replacing the income tax with an end-user
consumption tax, and we don't touch tariffs, impose duties. So
we preserve the current simple majority rule on the revenue
side for the areas of taxation which most economists say cause
the least damage. It keeps revenues on the table, but it makes
sure we don't destroy the growth we need to keep fiscal
responsibility going.
So that is the amendment, Mr. Chairman, Representative.
Mr. Rutherford. Thank you very much. I really appreciate
hearing the rest of that.
Mr. Primo, that--the big problem in the Federal budget
stems from healthcare costs right now, and it is getting worse
by the day. Until we fix those costs, we really can't control
our spending.
I would like to ask you, it was suggested earlier that a
budget--a balanced budget amendment would put at risk Medicaid-
Medicare. Is that necessarily the case?
Mr. Primo. In some senses, that gets the logic backwards.
Medicare, Medicaid, Social Security all are already under
threat. And a balanced budget amendment is intended to make
sure that those programs are dealt with before we reach a
crisis, and I think this is a recurring theme in this hearing
and a recurring theme on the issue of entitlements, which are
these, frankly, scare tactics that are used, that the world is
going to come to an end. The Federal Government has to--has to
roughly balance its budget. And that is simply not true because
the alternative is far, far worse.
Mr. Rutherford. Thank you very much. I appreciate you
highlighting that fact.
Mr. Chairman, I yield back.
Chairman Goodlatte. Thank you, Mr. Rutherford.
I want to follow up on the questions of the gentleman from
Florida. As you have mostly, not all of you, but mostly
testified, and as you heard from the panel of Members of
Congress before you, most of them, and as you heard from me in
my opening statement, I think the debt situation is an
increasingly dire situation that--I don't know when it will
become a dramatic problem, but I think it is a serious problem
right now when you look at the impact, for example, of the
government's policy of keeping interest rates low. Yes, that
has other benefits in terms of investment and so on, but it
also has the very powerful benefit of keeping the amount of
interest that the government has to pay on its debt exceedingly
low, and yet it penalizes those people who have saved all their
lives and had the expectation that they could have some income
from their savings. Now they have to take a greater risk to get
any kind of return on their savings or just live off the
savings, because what you get from a bank deposit, which was
supposed to be the safe place to put your money, is no money to
live on. So we are seeing consequences of this already right
now.
Now, I want to know what other solutions there are besides
the kind of discipline that we impose upon--the States have
imposed upon themselves and that they have imposed upon local
governments and economic realities impose upon businesses and
families. There are lots of different ways to do a balanced
budget amendment, but--and there are lots of ways to try to
solve this problem without doing a balanced budget amendment.
But I think I will start with Professor Blinder and then ask
the others of you.
You mentioned the use of PAYGO as a discipline. It
certainly is workable when Congress does it. But Congress very
easily decides not to do it when it is not attractive
politically to do it. So I am just wondering what we missed in
terms of different things done in the past that could be a
substitute for the discipline of simply the law saying, as
virtually every State has said it should say for themselves,
you are not exempt from the laws of economics. The Federal
Government is different than the States, no question about
that, and its impact on the economy in terms of how it raises
money and spends money is different. But we are not exempt from
the ultimate consequences of it.
Do you care to respond to that?
Mr. Blinder. Well, what you said at the end is 100 percent
true. We are not exempt from the ultimate consequences.
Let me say a couple of--one word about interest rates and
then about PAYGO. The Federal Reserve is--you are talking about
the government is keeping interest rates low. It is the Federal
Reserve you meant.
The Federal Reserve is actually trying to push interest
rates up now. It has nudged the short end up about 100--yeah,
about 100 basis points.
Chairman Goodlatte. One-tenth of 1 percent.
Mr. Blinder. One percentage point.
Chairman Goodlatte. One percentage----
Mr. Blinder. But over a period of time. It is going very
slowly which, by the way, it should.
But anyway----
Chairman Goodlatte. I am not trying to get into fiscal
policy. I am just observing that I think one of the unspoken
reasons why interest rates have been kept low is because of the
dramatic impact that it will have on the Federal budget if they
allow them to go back to historic levels.
Mr. Blinder. Having once been vice chairman of the Federal
Reserve, I think I can say, with very little doubt, that that
is not what is motivating the Federal Reserve's decision on
interest rates.
But the point I wanted to make, Mr. Chairman, was that
while the Fed is doing that, it has been frustrated that the
long-term bond rate of the United States Treasury won't go up.
It would actually like that to go up. Not to the stratosphere.
But it has been trying to push it up, and the market will not
go up.
What that is telling you is that the markets don't believe
these dire scenarios, that the markets are eager to scoop up
U.S. Treasury debt at extremely low prices. So I was--you know,
I was going to say I would like--I would make a bet against
some of these doomsday scenarios. But the market is making
trillions and trillions of dollars of bets every single day.
On the PAYGO, the point that you made and Congressman Buck
made and others have made, that it is pretty tough to
discipline Congress, I mean, you are 100 percent right, and you
know it better than I do. Some things work better than others.
The PAYGO worked quite well. The Gramm-Rudman-Hollings did not
work. The PAYGO worked quite well until the Congress decided,
at President Bush's urging, that cutting taxes was more
important than PAYGO. I think that was a mistake.
I would like to see the Congress go back. And maybe there
are--and, again, you will know better than I--ways you can
toughen the discipline of the rule. I give you an example. The
so-called Byrd rule in the Senate has held for a long time, and
Senators obey it. They could rescind it, just like Members of
the House could rescind rules of the House. They haven't. I am
not sure what the secret sauce of that was, but that is worth
thinking about.
Chairman Goodlatte. I don't want to--that is an entirely
different subject that is one that I am also passionate about,
but I am going to stick to this one.
Let me turn to Mr. Holtz-Eakin and get his thoughts on
that.
Mr. Holtz-Eakin. Let me say a word about PAYGO and not be
quite as enthusiastic as my professor and former colleague.
In the spirit of reunions, 33 years ago, we wrote a paper
together, Public Opinion and the Balance Budget. So here we sit
today.
Here is the thing. PAYGO keeps you from making things
worse. So PAYGO, if it works perfectly and Congress disciplines
themselves, means that we get to keep what we have got.
The CBO budget outlook is the answer to the question, What
do you have if you put it on auto pilot and you don't do
anything? And the answer is disaster. So PAYGO is just not
strong enough in 2017. It may have been great in 1995. It is
not going to work now. You need asking stronger, and you need
to change course. I think that is the crucial fact.
And we are just in a different era than--were in the 1990s.
The fundamental issues are in mandatory spending, not
discretionary. We do not want to have another dot-com bubble
that generates revenue flowing into the Federal Treasury. That
was a bad outcome, it turns out. We are not going get a peace
dividends from the fall of the Soviet Union. We are in a bunch
more dangerous world. Mandatory spending is a bigger chunk of
the budget, two-thirds. And the baby boom is now retiring. It
is not 15 years before their retirement.
So the Congress is going to have to face this particular
budget outlook with different remedies than the ones in the
past, because the problems are bigger, they are more immediate,
and they are harder.
Chairman Goodlatte. Professor Primo.
Mr. Primo. If we don't enact a balanced budget amendment or
something--some sort of constitutional budget rule, I could
imagine that periodically there will be bursts of political
courage in Congress where we will see some measure of fiscal
responsibility, and then something will happen. The rules will
be ignored. There will be an economic downturn. Some event will
occur that we will say, ah, wait, wait, wait. We have to some
exceptions. We have to change things. And then the rules will
kind of disappear. We saw it with Gramm-Rudman-Hollings. We
have seen it with PAYGO.
And that is the alternative. It is just sort of lurch from
reform to reform without any sustained effort to actually make
the budget workable in the long run. I mean, that is why you
need constitutional budget reform, because in the absence, we
are going to see what we have seen for the last 40 years,
little blips of success, but overall, market failure.
Chairman Goodlatte. Mr. Dranias.
Mr. Dranias. Mr. Chairman, members of the committee, I am
all for PAYGO. I just recognize what Representative Buck
recognizes, which is if you don't make it a constitutional rule
in some fashion, it is not going to stick. And at the core of
the balanced budget amendment in H.C.R. 73 is a version of
PAYGO. It says you can't spend more at any point in time than
what taxes bring in, unencumbered proceeds, and authorized
debt. So PAYGO is fine. It is the political mechanism of
enforcement that is the problem. And let me leave you with this
analogy.
Chairman Goodlatte. Let me disagree, because I think Mr.
Holtz-Eakin makes a good point that PAYGO is fine as far as it
goes, but it doesn't go anywhere near as far as it needs to,
because most of our spending is on automatic pilot that doesn't
get addressed by that, because we don't address that. It just
happens, and we have to come up with the funds for it. And most
likely our solution most of the time--I don't vote for the most
liberal budgets. I always vote for the most conservative ones.
But they never get 218 votes. Never. Every single year I vote
for the tightest budget offered, and it never gets 218 votes in
the House and never even considered in the Senate.
Mr. Nadler. Will the gentleman yield?
Chairman Goodlatte. Yes, I will yield.
Mr. Nadler. Let me ask professor--professor--Mr. Holtz-
Eakin. You said a moment ago that the growth in the budget is
all in the mandatory spending entitlement programs. That is the
way the basic growth is. And that is what is going to produce
real problems.
Okay. Do I gather from that that you would anticipate that
a balanced budget amendment would force major reductions in
those programs, in Social Security and Medicare, in the
mandatory programs, and that that is one of the reasons we want
it?
Mr. Holtz-Eakin. I actually don't know what Congress would
do. I know----
Mr. Nadler. No. If we pass the balanced budget amendment,
wouldn't that----
Mr. Holtz-Eakin. It would have to balance. I don't know how
Congress would choose to balance. I don't. And so I don't have
a forecast of that type. It would force the Congress for the
first time to come to terms with making mandatory spending,
discretionary spending, and revenues add up. There is no
mechanism that does that.
Mr. Nadler. But if--I understand. But if, as you said, the
growth and the problem is largely in the mandatory spending----
Mr. Holtz-Eakin. Yes.
Mr. Nadler [continuing]. Then you would have to change that
curve. You have to reduce the mandatory spending because it
just isn't enough in other places to do it, if what you said is
correct. Is that not a logical conclusion?
Mr. Holtz-Eakin. I believe that is right and what you
should do. I also believe you should address those programs
because they are not very good programs.
Mr. Nadler. That is a different question.
Thank you. I yield back.
Chairman Goodlatte. Thank you.
And to continue with you, Mr. Dranias, I am very interested
in what you are doing, because it is one of a number of
different approaches that are being taken from the outside to
try to influence this, because I think it reflects that there
is increasing concern. Twenty-eight or 29 States have called
for a constitutional convention on a balanced budget. Some want
a broader constitutional convention.
But what is your perspective on that? Is that going to
continue to grow, that the discipline for this, that the
Congress won't provide with things like PAYGO is going to come
from the outside if we don't pass a balanced budget amendment?
Mr. Dranias. Mr. Chairman, I think it will continue to
grow. And I think you should welcome it. Members should----
Chairman Goodlatte. I do welcome it, as a matter of fact.
Mr. Dranias [continuing]. Welcome it.
But what is great about H.C.R. 73, which activates the
compact for a balanced budget is you can have an opportunity to
partner right now, and it only takes simple majorities. And
there is a good argument against filibuster. So--and, by the
way, it is synergistic with all the other movements, because
what the other movements have is a movement to a convention.
They don't have an amendment.
In the compact is an amendment that five States have agreed
to ratify. And so at least you've got a starting point for a
conversation and all those other efforts.
And, frankly, Mr. Chairman, if I may say, the reason why
all these other statutory or semi-statutory limits don't work
is our current system is something like this. It is like you
had the right to buy a steak dinner at the next table's cost at
Ruth's Chris, only it is the next table 10 years from now. I
mean, who is not going to have a steak dinner every single day?
Who is not going to invite their vegan friends and their
service animals? It is never going to end. And that is why
unlimited borrowing capacity is such a threat to our fiscal
responsibility. The incentives to use it are overwhelming for
human beings, period.
Mr. Buck. Will the gentleman yield?
Chairman Goodlatte. Yeah, I would be happy to yield.
Mr. Buck. I want to just clarify one thing from Mr.
Nadler's question to Mr. Holtz-Eakin.
You said, at least I heard, I thought, that we need to
reduce mandatory spending. I think what we need to do, and I am
asking you if agree with me, is that we need to reduce the
deficit caused by mandatory spending. If we were to fix Social
Security, if we were to raise the retirement age, if we were to
raise the cap on FICA, if we were to means test, if we were to
do various things and Social Security were sustainable for a
long period of time, we wouldn't need to reduce the benefits of
Social Security. What I think you are talking about is the
deficit caused by the Social Security fund right now.
Mr. Holtz-Eakin. Yes, you would want to reduce the deficit
that is produced by the social safety net. And to do that you
don't need to have absolute cuts. You need to slow the growth
rate going forward so that you can bring it into alignment with
the revenues, which are also growing.
Mr. Buck. And we can discuss----
Mr. Nadler. Will the gentleman yield? Will the gentleman
yield?
I just----
Mr. Buck. I don't think it is my time to yield.
Chairman Goodlatte. It is my time to yield, but I will be
happy to yield to.
Mr. Nadler. Thank you.
I just want to say that what the gentleman just mentioned,
raising the retirement age of Social Security and various other
things, are, in fact, benefit reductions. Maybe they are good
ideas or not. But raising the retirement age of Social
Security, which, of course, cuts the increasing cost of Social
Security, is, in fact, a benefit reduction.
Chairman Goodlatte. I will reclaim my time. And I don't
want to have a debate here, because we have the witnesses. But
I will say that minor tweak--I think the point is that minor
tweaks on a regular basis of that system could keep it
actuarially sound. And that is not true of some of our other
entitlement programs that are--Medicare, for example. I think
the first year it was in operation, 1966, it cost $1.2 billion
to serve 18 million people, mostly senior citizens. This year,
we are going to serve about 56 million people, about three
times as many people, and it is going to cost 500 times as much
money, at close to $600 billion. That is an unsustainable
trajectory. It is got to be reformed. But we will how--to do
that, we will discuss another day.
This has been an excellent presentation. I appreciate all
of your testimony, and we will move forward on this issue.
Thank you again. I want to thank every member of the
committee for their participation today, and the hearing is
adjourned.
Oh, I am going to reconvene. Without objection, all members
will have 5 legislative days to submit additional written
questions for the witnesses or additional materials for the
record.
And now the hearing is adjourned.