[Congressional Record Volume 141, Number 12 (Friday, January 20, 1995)]
[Senate]
[Pages S1259-S1261]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                       BALANCED BUDGET AMENDMENT

  Mr. KYL. Mr. President, I would like to turn for a moment to the 
subject of a balanced budget amendment in this overall context that we 
are debating unfunded mandates, and soon we will be debating the 
balanced budget amendment because the Joint Economic Committee held a 
hearing this morning and took testimony from both House and Senate 
Members on their proposals for achieving this goal.
  When we talk about the Federal Government achieving a balanced budget 
without passing the costs on to the State and local governments in the 
form of unfunded mandates, the question of course, arises, how are we 
going to do it? In fact, some people, some Members of the Senate, have 
challenged those of us who support a balanced budget amendment as to 
how it is going to be done. They say be specific. Of course, we have 
said, ``You say we don't need a balanced budget to achieve balance. So 
why don't you tell us how you would do it? Why don't you be specific? 
You have had 40 years in the case of the House of Representatives and 
you have not gotten the job done. Give us a chance and we will do it.''
  First, we want to establish the discipline that requires us to do it. 
Assume we had passed the balanced budget amendment in the House and it 
is the version that did not pass but almost passed the House of 
Representatives and, we believe, has the votes to pass in the Senate 
now and will pass the House of Representatives. That merely requires 
that the Federal Government balance its budget. What then? We know that 
there are people in both the House and Senate who propose that we also 
limit taxes. I am for a three-fifths vote to raise taxes. That would 
put an additional constraint on the House and Senate and would make it 
more difficult for us to try to achieve a balanced budget by raising 
taxes. The fact is that has never worked.
  In March of 1993, W. Kirk Hauser wrote an article, an op-ed piece, in 
the Wall Street Journal in which he noted that over the last 30 or 40 
years revenues to the Federal Treasury have been almost static at about 
19 percent of the gross national product or 19.5 percent of the gross 
domestic product. It has ranged very little, and it does not matter 
whether we try to raise taxes or lower taxes or whether we have a 
Democrat President or a Republican President or we were in war or good 
times or bad times. None of that mattered. Over a few weeks revenues 
would fluctuate a little bit. But very soon they would stabilize at 
19.5 percent of the GDP.
  In fact, when we tried to raise tax rates in order to bring in more 
revenue, for a very short period of time more revenue came in. Then, as 
people changed their behavior, it settled right back into 19 percent of 
GNP. When we lowered tax rates momentarily there was a reduction in 
revenues. But very quickly the increased economic activity that 
resulted from those lower rates resulted in more taxes to the Federal 
Treasury even though at a lower rate.
  How could that be? It is like a store that has a sale. When you 
reduce the prices you do not necessarily reduce income. You bring more 
people into the store. You sell more goods, and you can make more money 
than if you price the goods at a very high price. It is the same thing 
with revenues to the Treasury.
  So we reduced tax rates. We have not reduced revenues to the 
Treasury. They have stabilized at 19 percent of the gross national 
product.
  The lesson to be learned from this is this: People change their 
behavior based upon governmental actions. You cannot expect people to 
just sit there and take it when the Government does things to them. The 
result is that if we limited spending to 19 percent of the gross 
national product we would be limiting spending to the historic level 
that the American people have been willing to pay in the form of 
Federal tax revenues. We would also be balancing the budget because our 
spending would be the same as our revenues. That is what a balanced 
budget is all about.
  The other advantages to this kind of approach--and I have to confess 
that the very first bill that I introduced as a Member of the House of 
Representatives was a Federal spending limit as the way to balance the 
budget and it was also the very first bill that I introduced here in 
the U.S. Senate; a bill that would require a balanced budget and 
achieve that by limiting spending 
[[Page S1260]] as a percent of the gross national product.
  There are additional advantages to that approach. In addition to 
spending the historic amount that Americans have been willing to pay to 
the Federal Government, we would also be achieving another 
extraordinarily important objective.
  Mr. President, I cannot stress this point too much. People who say 
that all we have to do is have a requirement for a balanced budget are, 
in effect, saying that we could balance the budget at twice what it is 
today, or three times as much or four times as much as long as we bring 
in the revenues to pay for that.
  Would anybody support that? I think not. We have a $6 trillion 
economy right now. Would anybody suggest that we should have a $6 
trillion Government budget and try to raise the money to pay for that 
budget? We would be in balance if we could do it. But, of course, that 
would be extraordinarily detrimental to our standard of living, to our 
economy, and nobody, I think, suggests that there should be an 
unlimited amount of money that could be spent so long as we raise it.
  So it matters as much where we balance that budget as the fact that 
we require it be balanced. We need to balance it at a sensible level. I 
suggest that the level is again a historic amount that Americans have 
been willing to pay to the Treasury, 19 percent of the gross national 
product. That is where we need to balance the budget.
  It also matters how we try to balance the budget. Did we raise more 
revenues by raising tax rates? The answer is no, because people change 
their behavior. The luxury tax of a few years ago is a perfect example. 
Congress thought that by raising the rates on yachts and jewelry, 
expensive cars, we would rake in more money. Of course, rich people are 
not necessarily dumb. And they just stopped buying the yachts and the 
jewelry and the cars. So guess what? The tax revenue did not come in. 
And there was another very serious unintended consequence. The people 
who made the yachts, for example, lost their jobs because people 
stopped buying them. You price yourself out of the market in the 
private market. Government can do the same thing in the case of tax 
rates.
  So it matters how we achieve a balanced budget, and you cannot do it 
by artificially raising tax rates. No. You need to do it the simple, 
straightforward way by getting at the heart of the problem. What is our 
problem? The problem is Congress spends too much. Is there any other 
problem? Why are we out of balance? It is because we spend too much. So 
the simple and straightforward way to deal with that problem is by 
limiting Federal spending.
  There is another very important reason why I believe that a Federal 
balanced budget amendment and spending limit makes a lot of sense. We 
need to do things to stimulate economic growth, to provide more jobs in 
this country. Fortunately, our unemployment rates are low right now. 
But it is a constant challenge, as the Secretary of Labor would attest, 
it is a constant challenge for us to keep this economy growing, to keep 
providing jobs so that future generations will have the same kind of 
standard of living that we have been able to enjoy.
  You do not do that by sucking all of the money out of the private 
sector for Government revenues. I have never understood how you make 
people better off by taking more of their hard-earned tax dollars.
  It is like the old practice of bleeding a patient with leeches in 
order to make the patient healthy. They figured out after a while that 
taking a patient's blood did not make him more healthy. The same thing 
is true with extracting more tax dollars. If you leave those dollars in 
people's pockets, they invest them, they spend them on things that are 
important in their lives; they will send their kids to college, they 
will put some money in a savings account.
  By the way, what happens if they buy a stock or bond? Say they take a 
little of that and put it into a money market account --that is a 
stock; it is money that goes to a corporation which needs the money to 
expand, to build a new plant, let us say. Then they build a new plant. 
Plants are empty, so what do they do? They hire people to work in them. 
Putting money to work in the private sector is capitalism. That is what 
our economy and a free market is all about.
  If you leave that money in the private sector, we will have a growing 
economy. Congress too often has pursued policies that are inimical to 
economic growth and to sound market principles. I believe if we had a 
spending limit requirement on a balanced budget amendment, what we 
would find is--particularly if we tied it to a percent of the gross 
national product--that Congress all of a sudden got real smart about 
economic policy. If we said--as my amendment says--Congress can only 
spend 19 percent of the gross national product, what would Congress' 
incentive be with respect to the gross national product? It would be to 
pursue policies to grow the gross national product, because the more 
the gross national product grew, the more the Congress could spend. If 
the gross national product grew $100 billion, Congress could spend $19 
billion more. What does Congress love to do? It loves to spend money. 
Let us take advantage of a little human nature here. If we want 
Congress to promote sound economic policies, to help the economy grow, 
as measured by the gross national product, we say to the Congress, you 
can have more money to spend if the economy grows. So why do you not do 
some things to help it grow?
  What are things we can do? We can reduce certain tax rates that are 
too high to promote economic growth. Studies show that there is $7 
trillion locked up in our economy because of our capital gains tax 
rates today. That means if we were able to reduce the capital gains tax 
rates, people would say: Now there is incentive for me to turn this 
piece of property over that I have been holding all these years. I 
inherited this from Grandma Jones, and we have held onto it because if 
we sold it, we would have to pay a huge tax on it. But we could use the 
money and would like to invest it in something.
  With reducing the capital gains tax rates, that family might make the 
decision to sell that piece of land, to reap the liquid result, the 
liquid capital from the sale, and invest that into something else.
  Economists believe that this $7 trillion that is thus locked up could 
be freed by a reduction of capital gains tax rates in a way that would 
generate huge economic growth because of the turnover of this capital 
in our market.
  So there is additional incentive to balance the budget by limiting 
Federal spending as a percent of the gross national product. I believe 
it would cause Congress to be more responsible in the way we deal with 
our economy.
  Mr. President, these are just a few thoughts that I have regarding my 
proposal to limit Federal spending as a percent of the gross national 
product. I realize that this is too tough and, in a sense, it is too 
sensible, and that it is going to be easier to get the votes to pass a 
balanced budget amendment if we are not too tight, if we are not too 
tough, because some people have a view that we should be able to raise 
taxes, for example. And so the only version that probably has a chance 
of passing is one that simply requires us to balance the budget. It 
does not set the level or tell us how to do it. It does not provide 
incentives to help the economy grow. But we can achieve those 
objectives by the way we implement the balanced budget amendment.
  In conclusion, what I am going to be suggesting here very soon is 
that as soon as the balanced budget amendment is adopted, we need to 
come in behind that, in the wake of the passage of the balanced budget 
amendment, with implementing legislation. A lot of our friends have 
said, ``How are you going to do it? Tell us how.'' Here is how I would 
do it. I think if we can provide implementing legislation that limits 
Federal spending, we can guarantee that we are going to achieve the 
objective in the right way. There will have to be enforcement 
provisions, and we will still have to make the tough, specific 
decisions as to exactly which programs in which to reduce spending, for 
example. But in terms of an outline of how we will achieve the 
objective, I think this spending limitation approach is exactly the 
right approach.
  So while I would support the balanced budget amendment that does not 
have the spending limit requirement in it--because that is all I think 
we can get passed--I think we have to come in right behind that with a 
proposal to 
[[Page S1261]] limit spending as the way to implement the 
constitutional balanced budget amendment. Of course, as a mere 
statutory program, Congress can override it. We can always unpass what 
we just passed. But at least I think it sets forth a blueprint, a 
guideline for achieving the objective.
  Finally, Mr. President, I think almost all of us agree that if we 
pass this balanced budget amendment and send it to the States for 
ratification, we have to begin achieving that balanced budget today. We 
have to go back to last year's budget and see if there is anything in 
the appropriations we passed last year that we can pull back--money 
that we can save. We need to look at this year's budget as the first of 
the budgets that gets us on the glidepath to a balanced budget, and set 
the outside limit of perhaps 7 years. But we probably ought to try to 
do it in a shorter period, if we can, so that when the balanced budget 
amendment has finally been ratified by all of the States, it will not 
be an impossible task for us; so that we will have already started the 
process and each year intervening will have brought that budget deficit 
down another ratchet.
  If we do that, in the last couple of years when we actually have to 
do it as a constitutional requirement, it will be an achievable 
objective, and in the last year or two, we will be able to make the 
savings and limit spending in such a way that we can achieve that 
balanced budget at the time it is called for in the constitutional 
amendment.
  So these are some of the things we are going to have to think about 
as the balanced budget debate begins to unfold. I think it is important 
to at least begin to think about them in the context of the debate we 
are having on unfunded mandates, because as the Governors and State 
legislators that have to deal with the balanced budget amendment tell 
us, they know we have to mean business and get on with the balanced 
budget amendment.
  At this point, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. NUNN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Coats). Without objection, it is so 
ordered.
  The Chair recognizes the Senator from Georgia for up to 15 minutes in 
morning business.

                          ____________________