[Congressional Record Volume 141, Number 113 (Thursday, July 13, 1995)]
[Senate]
[Pages S9933-S9935]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    WHY BALANCE THE FEDERAL BUDGET?

 Mr. SIMON. Mr. President, some may wonder, why is anyone still 
talking about the budget when the budget has been adopted?
  The reality is that until we act on reconciliation and 
appropriations, we are still a long way from getting our budget 
problems resolved.
  In addition, without a constitutional amendment requiring a balanced 
budget, I believe the political pressure will mount to cause us to move 
away from the direction of a balanced budget. That has been our 
experience in the past. Legislative answers, such as Gramm-Rudman-
Hollings, which I voted for, hold up until they become too politically 
awkward. And any real move on the budget deficit eventually does become 
politically awkward.
  My reason for mentioning all this is that in the midst of the 
struggle on the budget, I did not get a chance to read carefully the 
Zero Deficit Plan put out by the Concord Coalition, headed by two of 
our former colleagues, Senator Warren Rudman and Senator Paul Tsongas.
  It is an impressive document. Each of us could probably make some 
adjustments, but the staff and officers of the Concord Coalition should 
take great pride in their solid contribution. The executive director of 
the Concord Coalition is Martha Phillips, formerly on 

[[Page S 9934]]
the staff of the House Budget Committee, and the president is Peter G. 
Peterson, the former Secretary of Commerce.
  The other officers are:
  Lloyd Cutler, secretary and treasurer; Dr. John P. White, vice chair, 
issues committee; Eugene M. Freedman, vice chair, finance committee; 
David Sawyer, vice chair, public relations; Roger E. Brinner, vice 
chair; Hon. Maria Cantwell, vice chair; Dr. John W. Gardner, vice 
chair; Dr. Hanna Holborn Gray, vice chair; Hon. William H. Gray III, 
vice chair; Dr. George N. Hatsopoulos, vice chair; Hon. Barbara Jordan, 
vice chair; Harvey M. Meyerhoff, vice chair; Hon. Timothy J. Penny, 
vice chair; Joseph M. Segel, vice chair; and Paul Volcker, vice chair.
  In the introduction to their proposal, they have a statement that 
responds to the question ``Why Balance the Federal Budget?'' I ask that 
the statement be printed in the Record.
  The statement follows:
                    Why Balance the Federal Budget?

       The Zero Deficit Plan is a plan for our economic future. 
     The goal is to assure a more secure, prosperous future for us 
     and our children.
       We are not seeking to balance the budget for its own sake. 
     Reducing government spending and increasing taxes means 
     short-term sacrifice. This can only be justified by the long-
     term economic benefits that will flow from putting our fiscal 
     house in order.
       Eliminating the deficit will help put the nation back on 
     the path to lasting prosperity and to a rising standard of 
     living in the next century. That larger goal cannot be 
     achieved as long as the nation continues to run large budget 
     deficits in good times and bad, year in and year out.
       A balanced budget and the nation's economic future are 
     directly linked. There is a tie between budget deficits today 
     and what we can enjoy tomorrow:
       Because there are only so many hours in each day, the 
     principal way in which Americans can increase their standard 
     of living is for each worker to become more productive: 
     workers must produce more and better goods and services for 
     each hour worked.
       For workers to become more productive, investments must be 
     made in education and training; in modernized plants, 
     equipment, and productive techniques; in new discoveries and 
     innovations; and in transportation, communications, and other 
     infrastructure.
       To make these investments, there must be a pool of savings 
     that can be used for this purpose. Historically, the United 
     States has had a particularly low rate of private savings, 
     but, what is worse, the federal government's deficit is 
     financed by soaking up most of the savings we do manage to 
     put away. When the government spends more money than it has, 
     it borrows the rest. Most of the money borrowed comes from 
     private savings.
       Only if the government stops using up private savings will 
     the money be available for investment. Balancing the federal 
     budget will free up the nation's savings for investments that 
     would increase our productivity,
      create good jobs, and raise our standard of living.
       The declining trend in what Americans produce for each hour 
     worked illustrates how serious a problem this has become. 
     From 1946 to 1973, what Americans produced for each hour of 
     work increased 2.9 percent each year. From 1974 to 1994, the 
     increase was only 1.1 percent a year. If productivity had 
     improved as rapidly in the past two decades as it had in the 
     previous three, the median annual family income today would 
     be over $50,500, instead of the $35,000 it is. That $15,500-
     a-year gap is related to our large federal deficit. But 
     because we never had the $15,500, we don't miss it in the 
     same way we would if we had first enjoyed the income and then 
     given it up. As long as incomes continue to creep up even 
     slightly from one year to the next, the cumulative shortfalls 
     in income remains largely hidden from public indignation.
       Solving the deficit problem does not automatically 
     guarantee a rosy economic future. Other developments are 
     needed to complement a balanced budget: reduced consumption, 
     increased savings and investment, improved productivity, 
     education, inflation and interest rates at desirable levels, 
     and a favorable worldwide economic climate. But unless we get 
     our deficit problem behind us, we will remain unable to take 
     advantage of these other necessary economic ingredients.
       We cannot ignore the consequences of deficits much longer. 
     Growing commitments made by one generation to the next cannot 
     be honored on empty pocketbooks. A stagnant long-term economy 
     cannot support retirement payments, medical care, and all the 
     other benefits and services we would like. And it cannot 
     support economic opportunity for today's youth to live as 
     well as their parents' generation.
       Massive federal budget deficits threaten our economy in 
     other ways as well. They increase the likelihood of 
     reigniting inflation by putting pressure on the government 
     simply to print more money to pay off its debt. The more 
     dollars are printed, the less each dollar in your wallet is 
     worth.
       As foreign ownership of our resources has grown, so has our 
     dependence on the actions of foreign investors and 
     governments. These entities have come to own more and more of 
     our productive capacity. In addition, foreign investors have 
     bought up almost 20 percent of our government's recently 
     issued debt. As foreign holding of U.S. debt grows, so will 
     U.S. interest payments to foreign nationals.
       Huge, continual deficits strangle the ability of even a 
     nation as rich as ours to respond when emergencies arise or 
     when new opportunities or problems emerge, including 
     recession. With our government deep in debt and continuing to 
     run huge deficits, we remain unable to shoulder new 
     responsibilities.


    how large are our annual deficits and accumulated national debt?

       In 1994, our government spent $203 billion more than it 
     raised in taxes. That deficit amounts to $780 for every 
     single American, or $3,120 for each family of four. That is 
     the sum your government borrowed on your behalf last year, 
     whether you wanted it to or not.
       The $203 billion deficit was equal to 14 percent of federal 
     spending. For every dollar the government spent, 14 cents was 
     borrowed.
       The $203 billion deficit was for all government operations 
     in 1994. It included the $57 billion 1994 surplus in the 
     Social Security Trust Fund., and a $1 billion deficit in the 
     Postal Service. This means that all other government spending 
     exceeded other revenues by $259 billion.
       Our national debt, the net accumulation of all of the 
     annual deficits we have run and all the money we have 
     borrowed from government trust funds, stood at $4.8 trillion 
     in May 1995. That is $18,460 for every single American, or 
     $73,840 for each family of four.
       The $4.8 trillion debt is equal to 67 percent of our 
     national economic output in 1995 (called the gross domestic 
     product, or GDP). If every American worked from January 1 
     through September 1 and paid all of his or her earnings to 
     the federal government and spent nothing on food, clothing, 
     shelter, or anything else, the public debt would still not 
     quite be paid off.
       Some people say there is no line-item in the federal budget 
     labeled ``waste, fraud, and abuse.'' But, in a way, there is. 
     It is called interest on the national debt, and last year it 
     cost our government $203 billion. We spent more on interest 
     than we spent on the entire U.S. military and almost as much 
     as we spent on Social Security. What did we get for it? 
     Nothing--not a single Social Security check, military 
     aircraft or mile of highway--not even a single school lunch.
       Because annual interest payments on the debt are so large, 
     our government is actually borrowing just to pay interest. It 
     is as if we were running up our MasterCard to pay off our 
     debt to Visa, knowing that next year we will have to borrow 
     even more from American Express to keep the game going.


           how did we accumulate a $5 trillion national debt?

       Our nation was born in debt, a consequence of the high cost 
     of fighting the Revolutionary War. Our first president, 
     George Washington, adopted the practice of running generally 
     balanced budgets. President Thomas Jefferson went one step 
     further, pledging the nation to the goal of paying off its 
     debt within one generation. All subsequent administrations 
     for more than the next century and a half following the 
     founders' lead: running infrequent deficits during most wars 
     and deep recessions, and building surpluses to pay down the 
     national debt in times of peace and relative prosperity.
       The Great Depression of the 1930s led to large deficits 
     when government revenues fell dramatically due to the high 
     number of people out of work, who were no longer paying 
     income taxes. Following on the heels of the depression, World 
     War II required still greater borrowing to mobilize 16 
     million American troops to fight in Europe and Asia.
       In the early postwar period, the Truman and Eisenhower 
     administrations and the Congresses with which they worked 
     roughly balanced the budget. Each president presided over 
     three surpluses and five deficits. As the economy boomed, the 
     national debt fell as a percentage of GDP.
       However, during the 1960s and 1970s, the government began 
     to run deficits continuously. The debt grew slowly and 
     steadily, and by 1980 it was almost $1 trillion. By the 
     beginning of 1993, it had exploded to $4 trillion. And, 
     despite enactment of President Clinton's deficit reduction 
     legislation in 1993, the debt will reach the $5 trillion 
     level by the end of 1995. Since 1980, our debt has grown far 
     more quickly than our economy. Today, the debt is a much 
     greater percentage of GDP than it has been since the 1950s. 
     The 1980s marked the first peace-time economic expansion 
     during which the debt grew faster than the economy.
       Who is to blame for amassing such debt in times of peace 
     and relative prosperity, a debt that would have shamed our 
     nation's founders? All of us. Presidents Reagan, Bush and 
     Clinton, as well a secession of Congresses, resisted spending 
     cuts and tax increases of the magnitude needed to balance the 
     budget. And voters supported candidates of both parties who 
     kept telling us what we wanted to hear instead of what we 
     needed to hear.


                       two visions of the future
                     What Happens if We Do Nothing?

       If we ignore our mounting debt, if we just wish it would go 
     away and do nothing about it, it will grow and grow like a 
     cancer that will eventually overwhelm our economy and our 
     society. The interest we owe on the debt will skyrocket. We 
     will continue our vicious 

[[Page S 9935]]
     cycle of having to raise taxes, cut spending, and borrow more and more 
     and more to pay interest upon interest. Our productivity 
     growth will remain stagnant; more of our workers will have to 
     settle for low-paying jobs; and our economy will continue its 
     anemic growth. America will decline as a world power.
       Sometime early in the next century, we will have to 
     confront in the fundamental truth that low productivity and 
     slow economic growth have failed to generate enough goods and 
     services to satisfy all of our demands. Working people will 
     be required to pay an ever larger share of their earnings to 
     support a growing retired population and to pay the exploding 
     interest on the debt that the older generation accumulated. 
     Eventually, working people will refuse to submit to the 
     crushing burden forced upon them by their elders. They will 
     vote for leaders who will slash entitlement programs, even on 
     the truly needy, rather than raise taxes still further. 
     Millions of elderly people who thought that they could count 
     on their retirement benefits will find that the resources are 
     not there to meet their needs. There will be a generational 
     conflict pitting American against American, child against 
     parent, in a way that our nation has not seen before.


             What Happens if We Instead Balance the Budget?

       We could, on the other hand, do the right thing: we could 
     refuse to let our leaders continually borrow and spend and 
     borrow and spend; insist that they stop wasting our money and 
     our children's money on programs that do not work and on 
     entitlement payments for the well-off who do not need them; 
     insist that what spending is done is
      paid for now, out of current taxation. If we do this, our 
     deficits will disappear; our debt will shrink; our 
     interest payments will become more and more manageable; 
     our businesses will invest; our economy will renew its 
     rapid growth of earlier years; and more of our people will 
     find employment in higher-paying jobs. Our society will 
     continue to flourish, and the American dream will be 
     restored to our children and to our children's children.


                        do we have to start now?

       Yes. Every year we delay deficit elimination, the problem 
     gets worse. And every year we muddle through with halfway 
     measures, we slip deeper into debt. Even a smaller deficit 
     adds to our mounting national debt and pushes up interest 
     payments.
       Some argue that the economy is headed into recession and 
     that this is the wrong time to launch a serious deficit 
     reduction campaign. the same voices were heard opposing 
     deficit reduction in 1993, when the economy was recovering 
     from a severe recession, and opposing a serious run at the 
     deficit in 1994 because an election was approaching. There 
     will always be excuses for postponing the tough choices 
     required to balance the budget. But until we get control over 
     our deficits and our debt, we will not control our economic 
     destiny.

  Mr. SIMON. Then, they outline their principles for the deficit 
elimination.
  Those principles strike me as being eminently sound. It is of no 
small significance that they do not ask for a tax cut.
  Why both political parties are so enamored of a tax cut when we have 
this huge deficit simply defies all logic.
  I ask to have printed in the Record their principles of deficit 
elimination at this point.
  The material follows:
            What Are Our Principles for Deficit Elimination?

       From the experience of past deficit reduction attempts, the 
     views of our members, and the economic needs of the country, 
     we have derived the following principles for deficit 
     elimination:
       1. Balance the budget by the year 2002, and aim for a 
     surplus thereafter.
       2. Distribute short-term sacrifice fairly and equitably 
     among Americans of all ages and income groups, except for the 
     very poor.
       3. Enact policy changes right away, but phase them in 
     gradually to accomplish steady deficit reduction while 
     minimizing short-term economic dislocations.
       4. Cut defense spending prudently, according to a realistic 
     assessment of the military capability needed to counter 
     threats to our national security today and in the foreseeable 
     future.
       5. Control entitlement growth.
       6. Contain mounting health care costs.
       7. Keep revenue increases to a minimum, but if revenues 
     must rise, the increase should come from energy, luxury, and 
     alcohol and tobacco taxes.
       8. Enforce deficit elimination with credible mechanisms, 
     including a balanced budget amendment to the Constitution.
       9. Avoid gimmicks. Use conservative economic projections.
       10. Attract and deserve broad public support with a sound, 
     realistic deficit elimination plan.

  Mr. SIMON. Finally, I simply want to commend the Concord Coalition, 
again, for a very constructive effort. I believe that their program is 
more solid than the one adopted and, particularly if combined with a 
balanced budget constitutional amendment, could really move our Nation 
in the direction that we ought to go.


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