[Congressional Record Volume 141, Number 19 (Tuesday, January 31, 1995)]
[Extensions of Remarks]
[Pages E233-E234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                BUDGET BALANCING VIA CONFLICT CONTAINMENT

                                 ______

                        HON. ANDREW JACOBS, JR.

                               of indiana

                    in the house of representatives

                        Tuesday, January 31, 1995
  Mr. JACOBS. Mr. Speaker, Professor Janos Horvath is one of Indiana's 
most distinguished citizens. His Ph.D. in economics was earned at 
Columbia University. He now teaches courses in advanced macroeconomics, 
principles of economics, international business and business ethics.
  He is known and rightly known as a brilliant theoretician.
  Before his immigration to the United States, he was a leader in the 
Hungarian independence movements in 1956. Earlier he was imprisoned by 
the Nazi Gestapo. He was elected to the Hungarian Parliament in 1945.
  The following is an example of the imaginative writing of Dr. 
Horvath.

[[Page E234]]

               Budget Balancing Via Conflict Containment

                           (By Janos Horvath)

       There exists a workable option for Congress in 1995 to 
     balance the budget by 2001. It is not to push through some of 
     the plans as they stand. The numbers do not add up. Not only 
     conventional economists hold doubts, but conservatives such 
     as Herbert Stein and William Niskanen who advised Presidents 
     Nixon and Reagan are also skeptical.
       The road I propose toward budget balancing has three guide 
     posts. They say: (1) hold expenditures constant in inflation 
     adjusted real terms, (2) hold tax rates constant, (3) allow 
     tax revenues to increase from the growing tax base which is 
     the Gross Domestic Product. In essence, halt the deficits 
     that beget debt accumulation, crowding out of investments, 
     confiscatory taxes, debilitating inflation, debt repudiation, 
     and erosion of the social fabric.
       Here are the salient figures. Expressed in current dollars 
     the 1994 level of government spending, $1,485 billion, will 
     amount to $1,844 billion in year 2001. The higher number 
     reflects inflation--the two amounts are of equal purchasing 
     power. During the same interval from 1994 to 2001, tax 
     revenues rise from $1,249 billion to $1,859 billion. The 
     increase results from 2.5% economic growth plus 3.2% 
     inflation. But if the growth rate becomes 3.0%, a sound 
     estimation, then the deficit reduces to zero in six years.
       To implement the proposal, I offer a ``conflict 
     containment'' model. The GOP Contract With America being the 
     seminal document, it would be naive to assume away stress in 
     the bipartisan arena. Occasionally Republicans in the House 
     and in the Senate may differ. Even though certain groups 
     might lack the majority to reach their declared goals, they 
     could block others from reaching their goals. Here conflict 
     minimizing means maximizing the potentials for compromise: 
     the mother milk of legislation.
       On the revenue side, the tax mechanism shows the 
     perspectives: (1) Tax revenues will increase, (2) without 
     increasing tax burden, (3) with constant tax rate, (4) 
     because the tax base grows with the growing economy. A family 
     making $100,000 taxable income with 20% tax rate does pay 
     $20,000 tax. As taxable income grows to $110,000 the tax 
     payment rises to $22,000. The $2,000 tax increase comes from 
     income growth. The tax burden has not risen.
       The expenditure side is more tangled. The key is to hold 
     the sum total of governmental spendings constant. This means 
     no cut and no rise in the bottom line amount. Undoubtedly 
     such a tall order prompts challenges. On one side is the 
     fiscal restraint movement who wants to prune. On the other 
     side are cynics who accept that entitlements rise and by 
     curbing them the society would crumble. In the middle are 
     solution seekers recalling that the USA has survived and 
     prospered with less government spending and even financed and 
     won the cold war. To intone an aphorism: ``whatever exists is 
     possible.''
       Successful budget balancing being a viable pursuit, it is 
     less agonizing to mutually consent to continue spending 
     allocations the way they are rather than to battle over every 
     detail. Therein lies the rational for the maxim: ``no-tax-
     cut-no-tax-raise-no-spending-cut-no-spending-raise.'' 
     Suspicions of inequity and the pangs of
      envy get mollified. Nobody's ox gets gored.
       The no-cut-no-raise maxim is a self-discipline apparatus 
     for Congress. While the bottom line is untouchable, there is 
     ample room, actually duty, for efficient and compassionate 
     reallocations between and among existing provisions. On the 
     outlay side are two major items: increases in Social Security 
     and health care. On the saving side are: government 
     streamlining, welfare reform, peace dividend, privatization, 
     etc. Further savings result if bureaucrats were rewarded for 
     cost cutting innovations and if the deceptive practices were 
     discontinued which label reduction in projected increases as 
     spending cut.
       Attempts at creative solutions have been tried before. In 
     March, 1994, Rep. Gerald B. Solomon (R-N.Y.) proposed more 
     than 500 specific spending cuts totaling more than $700 
     billion, balancing the budget within five years. His bill did 
     not raise taxes, did not cut Social Security, and even 
     increased defense spending by $60 billion. Among the spending 
     cuts were: eliminating the Interstate Commerce Commission and 
     the Travel and Tourism Administration, restructuring the 
     Interior Department, downsizing the Bureau of Reclamation, 
     privatizing the Government Printing Office, the Government 
     National Mortgage Association, and the Air Traffic 
     Controllers.
       A coherent farm policy review is the work of Senator 
     Richard Lugar (R-Ind). Now chairman of the Senate Agriculture 
     Committee, he is determined to substantially reduce the 
     agricultural programs that cost about $60 billion a year. 
     Nothing escapes scrutiny: bloated bureaucracy, food stamps, 
     subsidies to producers of corn, wheat, cotton, rice, sugar, 
     tobacco. Lugar's two year review has already led to closing 
     of 1,070 underused field offices nationwide.
       As the 1995 legislative agenda evolves, the ``Lugar 
     Initiative'' and the ``Solomon Bill'' are emulated. Recently 
     President Clinton has joined the thrifty moderates proposing 
     expenditure cuts. Among the targets are: inventory 
     liquidation (petroleum, metals) could recover around $100 
     billion and the privatization of assets (power plants, 
     grazing lands, mineral rights) about $200 billion. Pruning 
     outdated programs and cutting deadwood are on everybody's 
     agenda. However, while bipartisan bargaining promises 
     results, there are ideological and operational aspirations 
     which becloud the horizon.
       There is gathering a momentum of conflicts as Congress 
     debates the GOP Contract With America. It is labeled ``fairy-
     tale economics * * * not * * * specific,'' by Senator Tom 
     Daschle (D-S.D.) and Rep. Richard Gephardt (D-Mo), leading 
     Democrats. House Majority Leader Dick Armey (R-Texas) wants 
     ``discipline which comes from the balanced budget amendment * 
     * * [so] once members of Congress know exactly, chapter and 
     verse, the pain that the government must live with in order 
     to get a balanced budget, their knees will buckle.'' Such 
     early signs divine that the budget debate brings fervent 
     struggles. When the political stratagem--patriotic devotion, 
     party discipline, arm twisting, log rolling, and deal 
     making--does succeed to enact a hard fought budget, the 
     battles might inflict grievous injuries that handicap 
     subsequent legislation.
       Hence the need for conflict containment. Less conflicts 
     allow more time for creative work. The crux of the matter is 
     how to shape the budget to everbody's heart's desire. It is 
     beyond the
      realm of possibilities to pursue four rival goals 
     simultaneously: to cut tax, to raise tax, to cut 
     expenditure, to raise expenditure. Even if the arithmetics 
     worked, still distrust about burden sharing would deadlock 
     the process. It would be like opening a Pandora's box.
       Successful conflict containment is logical human behavior. 
     Legislators, representing various constituencies, will be 
     less unwilling to support reform (1) if the cure is 
     believable, and (2) if burden sharing makes no exception. 
     This is the venerable idea of fairness. People who resent 
     special deals may embrace fair deals. Thus people make 
     sacrifices when moved by patriotic, religious, emergency, or 
     community appeals. Nowadays the threat of a national 
     bankruptcy arouse people.
       In conclusion, budget balancing via conflict containment is 
     an operational blueprint ready to use. It saves time, reduces 
     pain, and guarantees cure. Congress, authorized by the 
     Constitution, has all the power to do the job. Efforts to 
     pass a constitutional amendment to balance the budget could 
     be directed to balancing the budget. Anyway, after the 
     symbolic process of constitutional amendment the 
     reallocations in spendings still must come. Congress may 
     choose a symbol before, even though it is a detour. In a dry 
     spell some gardeners do a rain dance before fetching buckets 
     to carry water from the pond.
       Finally, let's peek into the future. After following the 
     conflict containment framework through six or seven years, 
     the trend lines of government spending and tax revenue will 
     converge. Thus, 2001 becomes the year of bliss when the 
     deficits reduce to zero and surpluses begin to accumulate. 
     Then we shall have options. How much of the budget surplus 
     should be directed where: tax cut, human capital, 
     competitiveness, social insurance, governmental debt. First, 
     of course, we ought to get there. For which the prospects 
     exist.
     

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