[Congressional Record Volume 141, Number 203 (Monday, December 18, 1995)]
[Senate]
[Pages S18808-S18810]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           BUDGET PROJECTIONS

  Mr. BENNETT. Mr. President, at one point in my business career I was 
called upon to act as a consultant to a firm that was having 
difficulties. In Washington language, it had a deficit. In the language 
of the business world, it was losing money.
  I sat down with the CEO of this company and we looked at the coming 
year 

[[Page S18809]]
and he had, as is always the case in an accounting circumstance, the 
figure of what it was going to cost to keep the company doors open 
throughout the year. The cost was going to be x number of dollars every 
month to meet the payroll, pay the overhead, the gas bill, the light 
bill, the rent, et cetera.
  I knew what the margins were. For those who are not acquainted with 
accounting, ``margin'' means that portion of the sale price of your 
goods that is not covered by the cost of goods. If you are selling a 
widget for a dollar and you buy the widget for 60 cents from the widget 
manufacturer, your margin is 40 cents, or 40 percent. This was a 
manufacturer, so he had a pretty good handle on what his costs were for 
his particular widget. He knew what the sales price was.
  I looked at the size of his margin, as I recall it was around 30 
percent, and then multiplied the number of widgets he was going to sell 
over the year by 30 percent and said to him, ``The total margin that 
you have for the year is not enough to cover the monthly expenses that 
you have in overhead to keep this place open. That is your problem.'' 
It did not take an MBA from Harvard to figure that one out, but that is 
the problem.
  He came back a little while later and he had new projections. I 
looked at his numbers and I noticed that he had done nothing to cut the 
monthly expenses but he had raised the estimate of his sales. Now, 30 
percent of that sales number was a number big enough to cover the 
monthly expenses.
  I said to him, ``How did you get there? This is wonderful. You now 
have a projection that shows you are going to make a little money this 
year.''
  He said, ``Well, I went back to all the salespeople and I told them 
that they were being too pessimistic and that they needed to take 
another look at what they might be able to sell. And every one of them 
responded wonderfully to my pep talk and everyone said, `We are going 
to sell this much more, we are going to sell this much more, we are 
going to sell this much more.' And now, you see, my company is 
projected to make a profit.''
  I said, ``That's terrific.''
  And he said, ``Oh, I did something else. I raised the prices on some 
of my products. So a product that costs me 70 cents to make and I sell 
for $1 and I have 30 cents of margin, now I am going to sell for $1.10, 
so I have 40 cents of margin. So, the combination of increased prices 
and increased projections brings my proposal for the coming year into 
balance and we are going to make a profit this year.''
  The first month passed. I looked at the reactions for the first 
month. His costs were right where they said they would be. But his 
sales were a little low.
  ``Well,'' he said, ``we had bad weather in January. You cannot expect 
January to be the real test. Wait, we are going to do just fine.''
  February came in. His costs were right where they said they were 
going to be, but his sales were a little low.
  ``Well,'' he said, ``we had a little trouble in February. We had 
difficulty with suppliers and so on.''
  I went out to talk to some of the people who were actually selling 
the product and I said, ``What is happening?"
  They said, ``For one thing, we cannot get the increased prices. The 
customer won't pay $1.10 for these widgets. The customer is used to 
paying $1, and furthermore, the widget seller down the street only gets 
$1 for these widgets, so in order to get any sales at all we have to 
give back this price increase. It is there in the projections but it's 
not there in reality. Furthermore, the increased optimism in sales did 
not come to pass either. We are selling at the same rate we sold last 
year.''
  I sat down with the CEO and I said, ``You now have 3 months in for 
the year. If you take the sales pattern for those 3 months and 
extrapolate it over the whole year you are going to lose $1 million 
this year, if you do not take $1 million out of your monthly costs.''
  Well, taking $1 million out of his monthly costs meant firing some 
people. He said to me, ``Some of these people have worked at this 
company for 20 years.'' He said to me, ``Some of these people are my 
best friends. I have worked at this company for 20 years along with 
them. We socialize together. Our wives know each other. I cannot do 
that. They will lose their jobs.''
  Mr. President, the year went on. At the end of the year the company 
lost $1 million. And I said, ``What are you going to do next year?''
  ``Oh,'' he said, ``we are going to tighten down. Oh, boy, we are 
going to solve this problem.'' And the next year the company lost $3 
million. Because they tried the same solution. Change projections and 
raise the prices but do not deal with your structural problem.

  Does this sound familiar, Mr. President? I believe it is the 
description of what we are seeing with our Government right now. They 
look at the structural costs and they say: We cannot do anything about 
these structural costs. Let us change the forecasts to be more 
optimistic, like the forecasts of the sales force, and let us raise our 
prices, only in Government the way you raise prices is to raise tax 
rates.
  The reason I harp on that is because--I gave a speech on this earlier 
but I think it is worth repeating--Marty Feldstein, the economist, did 
a study and an analysis of the President's tax increase passed in 1993. 
I put the analysis in the Congressional Record. People can find it. He 
analyzed the revenue derived from that tax increase and found that it 
was one-third the amount projected. Just as in the case of my business 
friend, the people would not pay the extra price that he put on his 
product, so the people in the economy, when faced with increased tax 
rates, changed their behavior, changed their investment pattern, and 
did not pay the taxes that it was projected that they would. And, 
according to Dr. Feldstein, the revenue coming in to the Government was 
one-third the revenue projected at the time all of this was made.
  Why is all of this important? Because right now one of the things we 
are arguing about is who gets to make the projections? We are saying it 
ought to be the Congressional Budget Office. The President is saying 
no, he wants to be like my businessman friend and have his own sales 
force make the projections because it will make it look better.
  People say to me, how can you be sure that the Congressional Budget 
Office numbers will be right? I can be absolutely sure that the 
Congressional Budget Office numbers will be wrong, because nobody on 
this planet has the capacity to look 7 years ahead and tell us what is 
going to happen to the economy with any degree of absolute certainty. 
The best we can do is guess. And the Congressional Budget Office 
numbers are better guesses than the Office of Management and Budget 
numbers, but they are guesses nonetheless. So, we must recognize that 
going in. But guesses are made and then people go ahead and do the best 
they can.
  In the case of the business I have talked about, investors took one 
look at the accuracy of the guesses that were being made and they made 
an investment decision. They sold the stock. And the price of the stock 
went down.

  That is the key to this whole debate, Mr. President, because up until 
now the market--that is, the people that do the trading on the bond 
market, the people that do the trading on the stock market referred to 
collectively as the market--has looked at the numbers and the 
projections, and the suggestions that have all come out of this 
Congress. They have bet that it is all going to work, that the 
Republican proposal is going to pass, that we are going to get a 
balanced budget, that we are going to get the benefits that the Senator 
from Iowa was talking about, and the stock market is up 40 percent year 
over year, and the bond market has seen interest rates drop 2 full 
points since the Republicans were elected in November of 1994.
  Over the weekend when the President did not come forward with a 
proposal, and when the congressional leadership responded by saying 
there is no point in talking anymore, for the first time the signal was 
sent to the market that the fix might not occur. And today the stock 
market dropped 100 points--just as the investors could not tell with 
any exactness how much money the company I was talking about was going 
to lose but they could sure tell the trend, and sold the stock on the 
trend.
  The market today cannot tell us with exactness what is going to 
happen in 7 years. But they are worried about the trend. And the trend 
is signs of business as usual around here, signs of solving the budget 
balance issue by 

[[Page S18810]]
changing the forecasts around here, signs of talking about the thing 
being taken care of in the outyears, and no action being taken right 
now around here. And they do not like it, and they are selling the 
stock. They are selling their investment in America because they 
believe for the first time that we may not be successful in our effort 
to get a balanced budget.
  I learned in private business that the market can be ruthless. The 
market can be unfair. But long term the market is the best barometer of 
all of what is finally going to happen.
  We had a serious signal today, Mr. President. The market is telling 
us to get our act together, and make this happen--not with phony 
estimates, and not with price increases that do not ever come to pass 
in terms of actual revenue but with firm resolve to deal with the 
structural costs built into our balance.
  I conclude, Mr. President, with this analogy that illustrates what it 
is we must do. I was watching television about a week ago. There was a 
tribute on television to the memory of the late Jack Benny. I remember 
laughing at Jack Benny when I was a preteenager. Some people may not 
remember Jack Benny. But I remember him very, very fondly. In this 
tribute to Jack Benny they told a classic Jack Benny joke. Jack Benny, 
as you will recall, Mr. President, built his persona around his 
stinginess and his unwillingness to spend money.
  So here is the joke. Jack Benny went in to see his doctor. And the 
doctor looked at the x rays and said, ``Mr. Benny, you need an 
operation, and it is going to cost you $400.'' And Jack Benny responded 
by saying, ``Doctor, for $25 can't you just touch up the x ray?''
  Mr. President, that is what we are being told now. ``Can't we just 
touch up the estimates? Can't we just touch up the forecasts, and avoid 
the pain of actually having to deal with the balanced budget? After 
all, we have been doing that for 35 years.''
  You can find Presidents, Republican and Democrat, all the way back to 
Harry Truman who have promised balanced budgets sometime, promised 
balanced budgets in the outyears, promised balanced budgets down the 
road, far enough away that, if you just touch up the estimates a 
little, we can convince ourselves that we do not have to do anything 
now.
  Well, Mr. President, we do. And it is wonderful to say touch up the x 
ray for 25 bucks. But the underlying problem that the x ray tells us 
about is still there, and the operation dealing with it is still 
required. And if ever there was a signal coming to us as strong as 
anything that the retribution for our failure to act will be severe, it 
was in today's 100-point drop in value in the Dow as the market says 
for the first time we are beginning to get nervous about your 
willingness to do what you have said you will do.
  If it is necessary for us to be here on New Year's Eve, this Senator 
will be here on New Year's Eve. My wife is not going to be happy to 
hear me say that because she is in Utah, and I am not too happy about 
her being there alone because she has the credit cards, and she is 
doing all of the shopping. But if that is what it takes, that is what 
we will do because the stakes are too high, and the eventual 
responsibility is too great for us today.
  Mr. President, I yield the floor.
  Mr. KENNEDY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Mr. KENNEDY. Mr. President, I ask unanimous consent to proceed as if 
in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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