[Congressional Record Volume 142, Number 84 (Monday, June 10, 1996)]
[Senate]
[Pages S5990-S5997]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            BALANCED BUDGET

  Mr. HOLLINGS. Mr. President, let me revise my original topic. Because 
the distinguished majority leader is leaving, I want to talk in that 
context.
  When Senator Dole first came to the U.S. Senate, I had recommended 
Clement Haynesworth for the U.S. Supreme Court. My distinguished senior 
colleague had recommended another individual for that post, and I was 
looking to the Republican side for leadership in support of the 
Haynesworth nomination. The then distinguished junior Senator from 
Kansas, who had recently arrived in the Senate, was very, very helpful 
to this Senator from South Carolina.
  Let me get right to the point, Mr. President. I have the greatest 
respect for Senator Dole. The fact is that when we had the recent 
Republican primary in my State of South Carolina, I was asked to give 
my thoughts regarding who I thought was the best candidate in the 
Republican field. I categorically replied that of those vying for the 
Republican nomination, the distinguished Senator from Kansas, Senator 
Dole, could handle the job, and there is no doubt in my mind that he 
could.
  I think his difficulties arise from the crowd he has to carry with 
him, which gets right to the point of this so-called balanced budget 
amendment to the Constitution.
  On last week, the distinguished majority leader said:

       We tried to reach out to those Senators to ensure Social 
     Security surpluses can never again be used to mask deficit 
     spending. I believe that after a suitable phase-in, the 
     Federal budget could be balanced without counting the 
     surpluses in the Social Security trust funds.

  Mr. President, that is a remarkable statement, in light of the 
history of Social Security and the Social Security trust fund.
  Specifically, in 1983, the distinguished majority leader served on 
the Greenspan Commission which was charged with rescuing Social 
Security. The Greenspan Commission recommended that after a certain 
period of time--which later that year was agreed to be 1992--Social 
Security should be off budget. We now talk in the context of 
Presidential campaigns and children and grandchildren. But the same was 
true some 13 years ago, when the majority leader, himself a member of 
the Greenspan Commission, issued its report and said, ``Let's put 
Social Security off budget.''
  Thereafter in 1990, I offered a resolution before the Senate Budget 
Committee that removed Social Security outlays and receipts from 
deficit calculations. By a vote of 20 to 1, the Budget Committee 
adopted my amendment.
  When it reached the floor, I teamed up with the former distinguished 
Senator from Pennsylvania, Senator John Heinz, and on October 18, 1990, 
saw the full Senate adopt our amendment by a vote of 98 to 2. We said, 
Social Security should not be used to obscure the size of the deficit, 
that it should be off budget and that it should never be included in 
any reporting of the deficit whether by the President or by Congress.
  The distinguished Senator from Kansas voted for that amendment. And 
on November 5, 1990, President George Herbert Walker Bush signed it 
into law. Today it stands as section 13301 of the Congressional Budget 
Act. So much

[[Page S5991]]

of the confusion over the budget is brought about by the failure of 
politicians to respect this law. This is true even though the 
continuing validity of the law has since been reconfirmed several 
times, by Senator Dole and Senator Hollings and others.
  So I say when the distinguished majority leader says, ``We tried to 
reach out to those Senators to ensure that the Social Security surplus 
can never again be used to mask deficit spending''--that is already the 
law. It is required. They act like the constitutional amendment would 
give us something new. The truth is, Mr. President, that the 
constitutional amendment trumps and repeals the existing law. That is 
why we did not get the votes for the balanced budget amendment.
  Here is House Joint Reslution 1. The language in section 7 clearly 
includes Social Security trust funds in deficit calculations. It 
states, ``Total receipts shall include all receipts of the United 
States Government except those derived from borrowing.''
  But the Government not only borrows from the public markets but also 
from the Social Security trust fund. As a result, at least five 
Senators have said, ``You have got our votes if you spell out the 
exclusion of Social Security trust funds from deficit calculations.'' 
If we had included such language, we could have easily passed the 
amendment.
  But the majority leader paints a different picture. That somehow or 
other we need a constitutional amendment that repeals the protection 
that we already have in the law. That is where I differ with the 
distinguished leader. He knows and I know that there are three stages 
of denial with respect to the Social Security trust fund, as my 
distinguished friend, Senator Dorgan, has pointed out. First, the 
statement is made that there is no Social Security trust fund; second, 
that there is one, but we are not spending it; and, third, there is 
one, we are spending it, but we will stop in the future.
  Therein is the source of the intentional confusion that is being 
perpetrated on the American public. They know it, and I know it. That 
is why I wanted to come and correct the record, particularly with 
respect to the statements made by the chairman of the Budget Committee, 
Senator Domenici, and recent statements made in the press.
  Let me just allude to ``Clinton's Budget Game,'' by David S. Broder 
in the Washington Post, dated Sunday, June 9, 1996.
  Mr. President, I ask unanimous consent that this particular editorial 
be printed in the Record in full.
  There being no objection, the editorial was ordered to be printed in 
the Record, as follows:

                [From the Washington Post, June 9, 1996]

                         Clinton's Budget Game

                          (By David S. Broder)

       A recent exchange between Sen. Christopher (Kit) Bond (R-
     Mo.) and Secretary of Veterans Affairs Jesse Brown casts a 
     clear light on the reality behind the partisan rhetoric of 
     the past week's budget debate.
       Bond is chairman of the appropriations subcommittee that 
     handles the VA budget. He was grilling Brown on President 
     Clinton's budget proposal for veterans' health care and 
     hospitalization. For next year, Bond noted, Clinton is urging 
     a level of spending for this politically important 
     constituency more than $1 billion higher than it was in 1995. 
     But in the following two years--after the election--Clinton's 
     budget would cut that spending from $17 billion down to $14 
     billion, and then slice it further.
       How can you meet your obligations to veterans under that 
     budget? Bond asked. ``Sen. bond, we cannot,'' Brown replied. 
     If funding were to remain flat (as Republicans have 
     proposed), ``it would force us to deny care to about a 
     million veterans and it would force us to close the 
     equivalent of 41 hospitals. So obviously . . . we will not be 
     able to live with the red line'' showing the postelection 
     cuts suggested by Clinton.
       And then Brown made this eyebrow-raising statement: ``The 
     president understands that. I talked with him personally 
     about it and . . . he gave me his personal commitment that he 
     was going to make sure that the nation honors its commitments 
     to veterans and that he will negotiate the budget each and 
     every year . . . with the veterans of the nation.''
       Bond: ``So you are saying that these out-years mean 
     nothing. It is all going to be negotiated in the future, so 
     we should not worry about the president's budget plan. . . . 
     You are not planning to live with that budget?''
       Brown: ``I am not planning to live with it. I am not 
     planning to live with your budget . . . nor am I planning to 
     live with the president's line.''
       Bond: ``You do not work for us. You work for the president. 
     You are saying that you do not like our budget, but you know 
     that his budget does not mean anything.''
       After this remarkable exchange, Bond made similar inquiries 
     of the director of another huge agency, Dan Goldin of NASA. 
     He too said that White House budget officials had told him to 
     make no plans based on the sharp cuts indicated for future 
     years in Clinton's budget. As Goldin put it, ``the White 
     House has instructed us to take no precipitous action on out-
     year budgets, and we are taking them at their word.''
       To Bond and other Republicans, this looks suspiciously like 
     a shell game. The president has told Congress and the country 
     that he can achieve a balanced budget by 2002, without the 
     serious savings in Medicare and Medicaid that Republicans 
     have proposed. At the same time, he has said that he can keep 
     spending in five or six priority areas at least even with 
     inflation.
       He can do all that, he has said, by cutting ``less 
     important'' spending. Veterans and space budgets are not on 
     his priority list. But the men running these programs say 
     they have assurances that the numbers the White House has 
     given Congress are just paper figures--not mandates to 
     prepare for belt-tightening.
       White House Budget Director Alice Rivlin has assured Bond 
     and his colleagues--and then tried to convince me--that there 
     is no contradiction. ``Simply put,'' Rivlin wrote Bond, ``the 
     president is committed to the discretionary savings needed to 
     help reach balance in 2002 . . . but will continue to revisit 
     decisions about specific programs one year at a time.''
       ``Nobody is cheating,'' Rivlin insisted in an interview 
     with me.
       ``I don't think it washes,'' Bond said. ``It's not an 
     honest budget.''
       Two things are going on here. Clinton, in his desire to 
     dodge serious cuts in politically popular programs such as 
     Medicare and Medicaid, while promising more spending for 
     education, the environment and law enforcement, is projecting 
     cuts in other programs that are so severe they will be very 
     hard to achieve. That is why people like Brown and Goldin say 
     the cuts are unimaginable.
       And second, in order to postpone the pain, Clinton is 
     telling not just the constituents of the endangered programs 
     but their managers that they will have plenty of 
     opportunities in future years to stave off the cuts.
       That may not be ``cheating,'' as Rivlin says, but it is 
     playing a game that is too clever by half. Balancing the 
     budget means making tough choices. Clinton is postponing 
     those choices and--by giving people the sense that the goal 
     can be reached without giving up anything that is important--
     making it that much harder when the crunch comes.

  Mr. HOLLINGS. The most objective, most analytical journalist and 
editorialist that we have writing talks about a budget game. He argues 
that the ``President's budget is suspiciously like a shell game,'' 
quoting the distinguished Senator from Missouri, Senator Bond as 
saying, ``It is not an honest budget.''
  Then let me quote Mr. Broder's words further down.

       That may not be cheating, as Rivlin says, but it's playing 
     a game that is too clever by half. Balancing the budget means 
     making tough choices. Clinton is postponing those choices, 
     and by giving the people the sense that the goal can be 
     reached without giving up anything that's important.

  Heavens above. Have we just discovered these budget games? Is the 
Clinton budget the only one deserving of blame? Just look at the 
Republican budget. Look at the Bush budgets. Look at the Reagan 
budgets. Look at the Carter, Ford, and Nixon budgets. We have not had 
anything but a shell game since Senator Lyndon Baines Johnson balanced 
the budget back in 1968-1969.
  The press--Mr. Broder and others--continually refer to the Republican 
budget as balanced, but the facts say otherwise. I have in my hand the 
document itself, the fiscal year 1996 budget resolution conference 
report. That is what Mr. Dole says is balanced. ``Last year we passed 
the first balanced Federal budget in a generation.'' Absolutely false. 
And they know it.
  On page 3 of their own conference report, it shows in black and white 
that the expected deficit in the year 2002 is $108,400,000,000. And 
over on page 4, the debt increases in the year 2002--the year of 
supposed balance--by $185,100,000,000.
  How can they talk about a balanced budget when on the face of the 
document itself it shows a $108 billion deficit? The distinguished 
majority leader has to know better when he says, ``Last year we passed 
the first balanced Federal budget in a generation.'' It is absolutely 
false.
  Let me take one other particular statement, because the distinguished 
leader is, of course, the Republican candidate for President. We are so

[[Page S5992]]

quick to accuse the other of not leading. In fact, Senator Dole says 
that the balanced budget amendment demonstrates that the President 
lacks leadership. I quote again:

       President Clinton's opposition continues to be the single 
     largest obstacle standing in the way of a balanced budget 
     amendment to the Constitution.

  I have not heard anything from President Clinton or the White House 
concerning the balanced budget amendment. But then again I happen to 
know that the single greatest obstacle to a balanced budget amendment 
is the intransigence of the Republican leadership with respect to not 
protecting the Social Security trust fund.
  Because my time is limited, let me say a word about deficits and 
refer immediately to another article.
  Mr. President, I ask unanimous consent to have printed in the Record 
the article in full, the ``Ace in the Hole'' by John Cassidy in the 
recent New Yorker magazine dated June 10, 1996.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                  [From the New Yorker, June 10, 1996]

                            Ace in the Hole

                           (By John Cassidy)

       It was James Carville, Bill Clinton's fast-talking 
     political consultant, who in 1992 put up a now famous 
     handwritten sign at the Little Rock campaign headquarters 
     saying, ``The Economy, Stupid.'' Actually, as Carville 
     reminded me recently, the sign also contained two other 
     statements--``Change vs. more of the same'' and ``Don't 
     forget health care''--but it was the first one that captured 
     the moment. Indeed, were it not for the economic malaise that 
     gripped the country in late 1991 and early 1992 we might now 
     be discussing a Quayle-Gore Presidential race.
       This time around, the economy looks different, which is 
     excellent news for the White House, although it tends to be 
     overshadowed by more dramatic stories, such as the recent 
     Whitewater convictions. A glance at history confirms the 
     point. Of the sixteen occasions over the past century in 
     which sitting Presidents have run for another term, just five 
     incumbents lost: Taft, Hoover, Ford, Carter, and Bush. The 
     elections of 1912 and 1976 must be seen as anomalies--thanks 
     to Teddy Roosevelt's Bull Moose campaign and Richard Nixon's 
     Watergate coverup, the incumbent Republican Party self-
     destructed in those years--which leaves 1932, 1980, and 1992, 
     all years of financial gloom. In 1932 and 1980, the economy 
     was actually in a slump, and in 1992 it was just emerging 
     from a recession the previous year.
       Despite some suggestions to the contrary--notably by the 
     Heritage Foundation, a conservative think tank--this year 
     cannot be compared with 1992, let alone 1980 or 1932. In the 
     first quarter of 1996, inflation-adjusted growth in national 
     output, which is the broadest index of economic performance, 
     was 2.3 per cent on an annualized basis; over the full 
     course of the Clinton Administration, such growth has 
     averaged around 2.5 percent a year. This record is about 
     average for the post-1973 era but well above the growth 
     rate of 1.6 per cent eked out during the Bush Presidency. 
     A number of other measures also suggest that the economy 
     is doing significantly better than it was four years ago: 
     two of the most widely followed are the ``misery index,'' 
     which is the rate of inflation added to the rate of 
     unemployment, and the size of the federal budget deficit.
       At the moment, the unemployment rate is 5.4 per cent, and 
     the inflation rate is 2.9 per cent. Added together, these 
     numbers produce a misery index of 8.3, which is an extremely 
     low number. The last year it was lower was 1968, when the 
     unemployment rate was 3.6 per cent and the inflation rate 
     averaged 4.2 per cent. For much of the nineteen-seventies and 
     eighties, the misery index was well into double digits. As 
     recently as 1992, it stood at 10.4.
       Perhaps the most important, and least heralded, achievement 
     of the Clinton Administration is the improvement it has 
     wrought in the national finances. According to the 
     Congressional Budget Office, the federal budget deficit for 
     the 1996 fiscal year, which began last October, will be about 
     $145 billion. This is a large number, but it is only half the 
     size of the deficit that the federal government recorded in 
     1992, which was $290 billion. And these raw numbers don't 
     tell the full story. In ranking budget deficits, economists 
     usually look at them in relation to the size of the economy. 
     Measured in this way, the federal deficit this year will be 
     about 1.9 per cent of the gross domestic product, according 
     to the C.B.O. This figure is down from 4.9 per cent in 1992; 
     indeed, it is the lowest such figure recorded since 1979, the 
     year before Ronald Reagan was elected, when the budget 
     deficit was just 1.7 per cent of G.D.P.
       Statistics like these are what prompted President Clinton 
     to make the recent claim, which had all the earmarks of 
     election-year hyperbole, that the United States economy is 
     ``the healthiest it's been in three decades.'' Surprisingly, 
     the President is not the only one making such apparently 
     outlandish statements. In March, DRI/McGraw-Hill, a leading 
     firm of economic consultants, issued a report saying that 
     ``normal economic indicators'' suggest that the economy ``is 
     in its best shape in decades.'' When I asked David Wyss, the 
     Harvard-trained economist who is the research director of 
     DRI/McGraw-Hill, how he came to make that statement, he 
     explained, ``If you look at the economy during the Clinton 
     Administration, you have to say that it's been a success. We 
     have low inflation, full employment, and steady growth. This 
     is really just about the best of all macroeconomic worlds.''
       To understand how the present economic situation came 
     about, we must go back to a winter morning in Little Rock 
     thirteen days before the Inauguration. On that day, January 
     7, 1993, the President-elect's entire economic and political 
     team gathered in the Arkansas Governor's Mansion. Leon 
     Panetta, the prospective White House budget director, 
     presented the Bush Administration's final forecast, which 
     had just been released in Washington. It predicted a 
     budget deficit of $305 billion for 1997, an increase of 
     $70 billion over previous estimates. Panetta believed the 
     actual figure could be as high as $360 billion.
       By the end of that January day, after six hours of 
     discussions, the nascent Administration had agreed on a 
     course of action that would define the forty-second 
     Presidency. Clinton had been elected on a potentially 
     contradictory platform of tax cuts for the middle class, 
     faster economic growth, and budget-deficit reduction; in 
     Little Rock he decided to sacrifice the first promise and 
     prejudice the second in order to achieve the third.
       The result of this decision, following eight months of 
     intense political struggle, was the Omnibus Budget 
     Reconciliation Act of 1993, which pledged to reduce the 
     budget deficit by a total of about $500 billion over four 
     years. This would be achieved through a program of about $250 
     billion in spending cuts and about $250 billion in tax 
     increases.
       Given the centrality of the 1993 budget act to the Clinton 
     Administration's record, it is surprising how little 
     attention has been paid to its results. Even some people in 
     the White House are reluctant to discuss the subject, for 
     fear of reminding voters of the 1993 tax increases. This is 
     odd, because the story that has not been told is that the 
     deficit-reduction policy turned out to be far more successful 
     than even its authors had dared hope--a point made to me by 
     Alan Blinder, a Princeton economics professor and a former 
     vice-chairman of the Federal Reserve Board, who was a White 
     House economic adviser during 1993 and 1994. ``The real story 
     is that a calculated risk was taken, and in this case it 
     turned out far better than anybody had any reason to 
     expect,'' Blinder said. ``There are plenty of gambles in life 
     that don't turn out well. This is one that turned out 
     extremely well.''
       It is easy to forget how controversial the deficit-
     reduction policy was in 1993, even within the White House. 
     Two books about the first year of the Clinton 
     Administration--Bob Woodward's ``The Agenda'' and Elizabeth 
     Drew's ``On the Edge''--portrayed a government driven by 
     internal dissension. At various points during that year, 
     Hillary Clinton, George Stephanopoulos, Paul Begala, Stan 
     Greenberg, and Mandy Grunwald all expressed serious doubts 
     about the deficit-reduction strategy. Begala, in particular, 
     complained repeatedly that the White House was ``obsessed'' 
     with the budget. Even the President himself had mixed 
     feelings. According to Drew, he considered deficit reduction 
     a ``rich man's issue,'' and Woodward says he several times 
     referred to his own budget plan as ``a turkey.''
       The Woodward and Drew books were solid works of reporting, 
     but both essentially stopped at the end of 1993, when the 
     budget act had become law. In terms of how the deficit-
     reduction policy actually affected the economy, the story 
     only begins then.
       The biggest danger back in early 1993 had been that the 
     budget package would tip the economy into another recession. 
     As anyone who suffered through Econ 101 will recall, raising 
     taxes and reducing government spending both tend to reduce 
     the over-all level of demand for goods and services in the 
     economy. President Clinton is a lawyer, not an economist, but 
     he knew enough about the dismal science to see a potential 
     fiasco in the making. ``You have to remember that the economy 
     was perceived to be very fragile back then,'' Gene Sperling, 
     a senior White House economic adviser, recalls. ``There was 
     lots of talk about the possibility of a double-dip recession. 
     The President's initial reaction was: If I call for a major 
     fiscal contraction, won't there be a recession?''
       At the same time, Republican leaders in Congress were 
     warning of imminent disaster. ``I believe this will lead to a 
     recession next year,'' Newt Gingrich declared following the 
     House vote on the budget package, which ended in a nerve-
     racking 218-216 victory for the President. ``This is the 
     Democrat machine's recession, and each one of them will be 
     held personally accountable.''
       Even some of the President's economic advisers were worried 
     about the possible impact of the planned spending cuts and 
     tax increases. The economic models they relied on suggested 
     that another slump was unlikely, but the models could not 
     rule out a ``growth recession'' of the sort that so damaged 
     the Bush Administration. Despite their private fears that 
     history might repeat itself, the economic advisers argued 
     that deficit reduction was the right thing to do--on both 
     theoretical and practical grounds.
       The theoretical argument was one that mainstream economists 
     had been making ever since 1981, when Ronald Reagan's tax

[[Page S5993]]

     cuts put the economy on the path to fiscal chaos: budget 
     deficits lead to higher interest rates and lower business 
     investment, and lower investment, in turn, restricts 
     productivity growth and technical progress, which are the 
     keys to future prosperity. Laura D'Andrea Tyson, the Berkeley 
     professor who headed the White House Council of Economic 
     Advisers, repeated this argument to Clinton but coupled it 
     with a more immediate argument: budget deficits not only do 
     long-term damage but can lead to disastrous financial panics 
     in the short or medium term, and these panics, which have 
     stricken many developing countries, occur when investors lose 
     faith in the political system.
       From the perspective of mid-1996, it may sound unrealistic 
     to suggest that the United States Treasury could ever 
     experience such a crisis of confidence, but back in 1992 
     perceptions were different. In the twelve years since 
     Reagan's election, the amount of outstanding federal debt had 
     risen, from $909 billion to more than $4 trillion. Even 
     allowing for growth in the economy, that rise was dramatic. 
     The total federal debt as a percentage of G.D.P. had risen 
     between 1980 and 1992 from 34.4 per cent to 67.6 per cent, 
     and it seemed to be on an inexorable upward trend. ``We all 
     attached some not insignificant probability to a scenario 
     of financial-market instability if we didn't take a 
     credible position on the deficit,'' Tyson told me. ``Given 
     the growth of total debt relative to output, there really 
     was a danger that at some point--nobody could know when--
     the United States could hit a confidence problem.''
       Bill Clinton didn't need much convincing that budget 
     deficits were bad, but he did need a good deal of reassurance 
     that doing something about them wouldn't wreck his chances of 
     reelection. In making a practical case for deficit reduction, 
     his advisers relied primarily on one of the institutions that 
     the Democratic candidate had railed against in his populist 
     attack on the Reagan-Bush years; the Wall Street bond market.
       Their argument was that deficit reduction needn't 
     necessarily be a drag on the economy, as Econ 101 models 
     suggest, because these simple models ignore the effect a 
     credible fiscal plan can have on the bond market. If bond 
     traders could be persuaded that the planned budget cuts were 
     real, they would bid down long-term interest rates, and the 
     decline in rates would provide a boost to the economy which 
     would at least partly offset the proposed higher taxes and 
     lower government spending. The key thing to understand, as 
     the experts explained to the President-elect, was that the 
     long-term interest rate is determined not by the government 
     but by the bond market; in fact, it is basically equal to the 
     nominal coupon on a thirty-year bond divided by the bond's 
     market price, so anything that raises bond prices also 
     reduces long-term interest rates. There was a sequel to the 
     story. If, in addition to the favorable bond-market reaction, 
     the Federal Reserve's response to the budget package was to 
     cut short-term interest rates, which are under its control, 
     then deficit reduction might not slow the economy at all.
       When this scenario was laid out for the President-elect in 
     Little Rock, it did not go down well, as Woodward recorded: 
     ``At the President-elect's end of the table, Clinton's face 
     turned red with anger and disbelief. `You mean to tell me 
     that the success of the program and my reelection hinges on 
     the Federal Reserve and a bunch of ------ bond traders?' he 
     responded in a half whisper. Nods from his end of the table. 
     Not a dissent.''
       Clinton's advisers were well aware that relying on the bond 
     market was a high-risk strategy: traders might ignore the 
     budget package, or dismiss it as another Washington gimmick. 
     ``We all believed in the direction of the argument, but even 
     the models themselves were uncertain about the size of the 
     effects and how fast they would occur,'' Tyson recalls. 
     ``There was a range of estimates.''
       In order to provide an alternative short-term stimulus to 
     the economy, the White House proposed an immediate $16 
     billion program of public investments. ``People called it 
     old-fashioned Democratic spending, but it was really done as 
     an insurance policy,'' Sperling explains. Congress killed 
     the stimulus package, however, leaving the advisers in the 
     White House even more beholden to Wall Street, a place few 
     of them knew well.
       The one senior official who knew a lot about bond markets 
     was Robert Rubin, the head of the newly created National 
     Economic Council, for he had only recently left Goldman, 
     Sachs, the highly profitable investment-banking and 
     securities firm, after twenty-six years. Rubin, who later 
     succeeded Lloyd Bentsen as Treasury Secretary, was a 
     passionate believer in deficit reduction; indeed, he saw it 
     as a ``threshold issue,'' which had to be dealt with before 
     anything else positive could happen to the Administration. 
     But even he was far from certain how his former colleagues 
     would react to the budget package. ``We'd seen a long period 
     during which the political process had not dealt with the 
     deficit,'' Rubin explained to me recently. ``Given the very 
     high level of skepticism in the markets about the willingness 
     of the system to make tough decisions, it was unclear how 
     long it would take before the market gave us credit for 
     deficit reduction. There was at least the possibility that 
     the skepticism would last much longer than we projected, in 
     which case it could have upended our program.''
       In the event, the bond market's reaction to the Clinton 
     fiscal plan was remarkably positive. In the twelve months 
     following Clinton's election, long-term interest rates 
     tumbled from 7.75 per cent to a low of 5.78 per cent--the 
     lowest level since the Treasury started selling thirty-year 
     constant-maturity bonds, in 1977. After spiking up sharply in 
     1994, as the Fed raised short-term rates, long-term rates 
     fell back down, and they have stayed low ever since. At the 
     moment, they are still under seven per cent, which is 
     remarkable for an economy that is in its fifth year of 
     recovery, with unemployment at 5.4 per cent.
       It is one of the richest ironies of recent years that the 
     much maligned bond traders, acting entirely in their own 
     interest, bailed out a Democratic Administration that was 
     fighting to raise their marginal tax rates sharply. In the 
     White House, officials watched the action on Wall Street with 
     surprise and delight. ``The markets gave credibility to this 
     program more rapidly than folks had expected--and, frankly, 
     more rapidly than I had expected,'' Rubin says. Even Blinder, 
     who had presented the bond market argument to the President-
     elect in Little Rock, was stunned. ``I never thought we'd get 
     the bond rate down to 5.8 per cent,'' he now admits. ``I 
     don't think any of us thought it would get that low. If you'd 
     polled economists back then and said we're going to drive the 
     long-term interest rate below six per cent, I don't think one 
     in a thousand would have believed you.''
       With interest rates so low, the economy grew at a rate that 
     made a mockery of the Republicans' dire predictions. In 1994, 
     the first year the deficit package started to bite, the 
     economy expanded by a healthy 3.5 per cent. In 1995, growth 
     fell back to two per cent, but current indications are that 
     it will be back around 2.5 per cent this year.
       The easiest way to trace the impact of the falling interest 
     rates is to look at the path of investment, the type of 
     spending most responsive to the cost of credit. Business 
     investment has grown by eleven per cent a year since 1993, 
     which, as Tyson points out, is the highest rate of growth 
     since the Kennedy Administration. As a percentage of G.D.P., 
     investment rose from 12.7 per cent in 1992 to 14.8 per cent 
     in 1994. Much of this extra capital spending has gone into 
     high technology, and especially into computers and 
     telecommunications equipment--areas in which American 
     companies now lead the world. Whether this upturn in 
     investment will lead to a higher rate of productivity growth 
     throughout the economy is unclear--the results so far are 
     somewhat disappointing--but it is precisely what economists 
     of all political hues have been recommending for more than a 
     decade. ``I remember saying very clearly in the first year 
     that what this is all about is shifting resources toward 
     interest sensitive private spending,'' Tyson says. ``That is 
     exactly what has happened.''
       Bob Dole's difficulties in constructing an effective 
     critique of Clinton's economic policies are obvious. (After 
     building a considerable reputation for fiscal rectitude in 
     the Senate, he is now said to be mulling throwing it away by 
     proposing an across-the-board reduction in income-tax-rates.) 
     As a matter of logic, the Republicans have only two 
     alternatives: to say that things are not as good as they seem 
     or to say that things are as good as they seem but Clinton 
     has nothing do with it. Earlier this year, Dole seemed to be 
     veering toward the first approach. Speaking in New Hampshire 
     on February 13th, he said, ``Corporate profits are setting 
     records, but so are corporate layoffs. And middle-class 
     families feel less and less secure about the future. There is 
     a wide and growing gap between what the government's 
     statistics say about our economy and how American families 
     feel about it.''
       It struck me that these words could have been spoken by 
     Carville, by his colleague Begala, or by Labor Secretary 
     Robert Reich. All of them have put a similar argument to me 
     in recent months, and there is clearly some truth in it. Wage 
     for middle-income households have been stagnant since the 
     mid-nineteen-seventies, and the over-all inequality of income 
     and wealth has risen sharply. These long-term problems have 
     not been solved by the Clinton Administration, and they will 
     continue to plague the country long after November's 
     election. The sad fact is that they are so deeply rooted in 
     the way capitalism is evolving that no Presidential 
     candidate--and certainly not a Republican believer in 
     laissez-faire--is in any position to offer a credible remedy 
     in just four years.
       Thus, it was always going to be problematical for Dole to 
     pursue a Reichian line for long. Predictably, once a Pat 
     Buchanan was safely in his rearview mirror he eased up on the 
     populist pedal. There may be sound political as well as 
     personal reasons for his switch of tactics. Although the 
     country does face serious problems, there is evidence that 
     most Americans are more upbeat about the economy than 
     Buchanan believes they are. This spring, Frank Newport and 
     Lydia Saad, two top editors of the Gallup poll, published 
     a little-noticed article in The Public Perspective 
     addressing the widespread belief that the electorate is 
     still in a funk about the economy. Their conclusion: 
     ``When compared to four years ago, Americans' current take 
     on the economy and their personal finances is noticeably 
     bright and certainly suggests that . . . incumbent Bill 
     Clinton is in a much better position vis-a-vis reelection 
     than was George Bush four years ago.''
       At least three of Gallup's findings are worth mentioning. 
     In January of this year, just fourteen per cent of those 
     polled--down from forty-two per cent in 1992--identified

[[Page S5994]]

     the economy as the most pressing problem facing the country. 
     In March, when Gallup asked people to describe business 
     conditions in their own community, seventy-one per cent said 
     local conditions were ``good'' or ``very good''--a number as 
     high as any recorded since 1961. In the same poll, fifty per 
     cent said they were financially better off than a year 
     previously--up from twenty-nine per cent in June of 1993. In 
     interpreting this finding, Newport and Saad wrote, 
     ``Americans are as likely to claim that they are `better off 
     financially' than they have been at any point at which the 
     comparable questions have been asked since 1976.''
       If doom and gloom won't work against Clinton, what will? 
     One person who might have the answer is Martin Feldstein, a 
     Harvard professor of economics who was the chairman of the 
     Council of Economic Advisers under Ronald Reagan. Feldstein, 
     who is acting as an informal adviser to Dole, recommends the 
     second option open to the Republican candidate: admit that 
     the economy is doing well but tell the voters that Bill 
     Clinton has nothing to do with it. Shortened to two words, 
     Feldstein's argument could be expressed like this: Alan 
     Greenspan.
       ``I think that the good performance of the economy can be 
     attributed primarily to the Federal Reserve,'' Feldstein told 
     me recently from his home, in Belmont, Massachusetts. 
     ``Having set the goal of low inflation back in the early 
     nineteen-eighties, they have really stuck to it. That is the 
     principal reason interest rates have come down, and why we 
     have had this long recovery. If you put Saddam Hussein aside, 
     we've been in recovery since 1982. That's where I put the 
     credit, rather than in the tax bill of 1993.''
       According to Feldstein, whose ideas are likely to figure 
     prominently in Dole's campaign, the lower interest rates 
     induced by Greenspan's policies can also explain most of the 
     budget-deficit reduction that has taken place in the past 
     three years. ``If you take the reduction from $290 billion to 
     $145 billion this year, Bill Clinton can indeed say he cut 
     the deficit in half as promised,'' Feldstein said. ``But 
     you can actually explain most of that by the recent 
     decline in unemployment and the rise in economic activity. 
     Only about forty billion of the deficit reduction has been 
     structural.''
       To support his case, Feldstein and a colleague recently 
     published a research paper arguing that the 1993 tax increase 
     on high-income earners raised less than half as much revenue 
     as the Treasury Department had predicted. The paper covered 
     only the 1993 fiscal year, and the Treasury responded by 
     arguing that the tax shortfall was only temporary, but 
     Feldstein says he is confident that when the data become 
     available the same result will hold up for later years. ``In 
     my experience with tax changes, people who don't want to 
     believe the results always say they are temporary,'' he said.
       Feldstein's arguments are open to question, particularly 
     his explanation for the sharp fall in interest rates. It is 
     true that the Fed has been pursuing a counter-inflation 
     policy since the early years of Paul Volcker's reign as 
     chairman (1979-87), but long-term interest rates did not dip 
     below seven per cent until early 1993, when the Clinton 
     deficit-reduction package appeared likely to become a 
     reality. At that point, Greenspan had not altered short-term 
     interest rates in almost two years.
       Alan Blinder, the former Clinton adviser, points out that 
     when the President's deficit-reduction program was being 
     discussed, long-term interest rates fell by two percentage 
     points even as the Fed was holding steady. ``Furthermore,'' 
     he adds, ``you could see that the cadence of the fall had to 
     do with the budget package. In the late spring and early 
     summer, when the budget looked shaky, interest rates stopped 
     falling. Then the budget passed in August and interest rates 
     plummeted.''
       Officials in the White House were well aware of how closely 
     their actions were being monitored in the bond market. On one 
     occasion, Lloyd Bentsen suggested on ``Meet the Press'' that 
     the deficit-reduction package might include an energy tax, as 
     it eventually did. The very next day, bond prices soared, and 
     interest rates dropped to a six-year low. Bensten was so 
     impressed by the market reaction that he clipped a report 
     from the Wall Street Journal and read it aloud at a meeting 
     of the National Economic Council, in the Roosevelt Room.
       Feldstein's dismissal of the budget deficit as not being 
     ``structural'' is also questionable. When professional 
     economists speak of ``structural budget deficits,'' they are 
     not referring to the deficit number that dominates public 
     discussion. The publicly discussed deficit number goes up 
     during economic downturns, when tax payments fall, and down 
     in boom times, when tax payments rise. Structural deficits, 
     by contrast, are calculated by stripping out these cyclical 
     effects, so that the underlying relationship between taxes 
     and spending can be seen regardless of where the economy is 
     positioned in the economic cycle. According to Feldstein, the 
     structural deficit has dropped by at most $40 billion 
     since 1992, and most of the $145 billion fall in the over-
     all deficit is due to the economic upturn.
       An independent arbiter, the Congressional Budget Office, 
     which regularly estimates the structural deficit, found 
     otherwise. According to the C.B.O.'s latest calculations, 
     published last month, the structural deficit fell from $224 
     billion in 1992 to $154 billion in 1996. These numbers imply 
     that $70 billion--or slightly less than half--of the total 
     fall in the budget deficit since 1992 was caused by the 1993 
     deficit-reduction package, and slightly more than half was 
     due to the economic recovery.
       While the $70 billion estimate is much larger than 
     Feldstein's $40 billion figure, it may actually understate 
     the real impact of the Clinton package--a point I was 
     reminded of the independent economic forecaster David Wyss. 
     According to his calculations, if the 1993 deficit-reduction 
     bill had not been passed the structural deficit would have 
     grown and would now be about $100 billion higher than it 
     actually is.
       Wyss also made another point that is often overlooked in 
     the current debate about the budget deficit. ``We complain 
     about it, and we should complain about it, but the fact is we 
     now have the lowest budget deficit relative to G.D.P. of any 
     of the major industrial nations,'' he said. When I looked up 
     the official figures in the semiannual O.E.C.D. Economic 
     Outlook, published by the Paris-based Organization for 
     Economic Cooperation and Development, I found that Wyss was 
     correct. According to the O.E.C.D. projections, the United 
     States structural deficit in 1996 will be about 1.7 per cent 
     of G.D.P. The estimated deficits for Japan, Germany, and the 
     United Kingdom are 2.7 per cent, 2.4 per cent, and 2.5 per 
     cent, respectively. The biggest developed economy I could 
     find with a lower structural deficit than that of the United 
     States was that of Australia.
       There is yet another important statistic that is rarely 
     mentioned in the public debate. For the past two years, the 
     United States Treasury has been collecting more money in 
     revenue than Congress has been spending, not counting 
     interest payments on the national debt. Economists refer to 
     this situation as the government running a ``primary 
     surplus.'' What it means is that if we didn't have to service 
     the vast debts run up during the past fifteen years the 
     budget would now be balanced.
       Both Alan Greenspan and his predecessor, Paul Volcker, have 
     gone on the record to praise the 1993 package. ``I don't 
     think there is any doubt that the package was part of an 
     honest effort to reverse the trend of the budget deficit,'' 
     Volcker told me. ``I wouldn't call it particularly 
     structural, in the sense that it didn't involve any 
     constructive changes in the tax system, and it certainly 
     didn't resolve the entitlements problem, but it was an 
     honest-to-goodness attempt to come to grips with the budget 
     deficit.''
       One of the minor mysteries of the current political 
     constellation is why, when deficit reduction is the 
     unquestioned mantra of the moment, President Clinton doesn't 
     get more public credit for reducing the deficit. 
     Unsurprisingly, this infuriates James Carville. ``The people 
     who are never called to the bar of justice are all those who 
     said when the President's economic program was passed that it 
     was going to be a disaster!'' he shouted on the phone to me. 
     ``If people were put on trial for economic stupidity, these 
     people who said the plan would cause hardship would all be 
     felons!''
       Of course, as I mentioned earlier, one of those criticizing 
     the budget package was Begala, a former colleague of 
     Carville's. Begala no longer works for the White House, but 
     when I tracked him down, in Texas, he was unapologetic about 
     his stand back in 1993. ``If reduced to their core, the 
     arguments were these,'' he said. ``The economic advisers 
     saying, `Do this, because it will be good for the economy.' 
     The political advisers saying, `If you do this it will hurt 
     us politically.' I think history has proved us both right.'' 
     Given the disastrous results for the Democrats of the 1994 
     midterm elections, even some of President Clinton's economic 
     advisers concede the point. Gene Sperling said, ``The 
     Republicans, by being so repetitious with their `largest tax 
     increase in history' line, were able to reinforce a 
     definition which people already had of Democrats. So it's 
     hard to look back and say the political advice had no 
     merit.''
       On the other hand, as Sperling and others point out, the 
     1993 deficit-reduction package produced a variety of long-
     term benefits that are only now paying off. ``We are going 
     into 1996 with a level of achievements that we could never 
     have had if we had not done this,'' Sperling said. ``Also, 
     the fact that we have brought down the budget deficit puts us 
     in a far better position to protect ourselves against the 
     more severe kind of stuff that the Republicans can throw at 
     us.''
       One of these will be the charge that the President, through 
     his political maneuvering during the past twelve months, 
     scuttled the chances of a bipartisan agreement to balance the 
     budget by the year 2002. Another will be that he had done 
     little to head off the mother of all fiscal crises, which is 
     due to arrive in about fifteen years, when the baby boomers 
     start to turn sixty-five. Both points have merit, and Paul 
     Volcker, for one, believes the President's heart is no longer 
     in deficit reduction. ``They're now playing it politically,'' 
     he said. ``You get into this silly business abut whether you 
     balance the budget in ten years or eleven years or seven 
     years. It's all never-never land.''
       These criticisms, while important, do not detract from the 
     policy decisions taken by the President during his first year 
     in office; without the 1993 deficit-reduction package, 
     balancing the budget would not be even a remote possibility. 
     In fact, as Robert Rubin pointed out, without the 1993 
     package the whole political and economic landscape would look 
     quite different. ``We would have continued to have 
     abnormally high interest rates, and that would have choked 
     off the recovery,'' he told me.

[[Page S5995]]

       When I asked Rubin why, with all his Wall Street 
     experience, he thought the markets had reacted so positively, 
     his reply was a modest one. ``I don't know the answer, other 
     than that I know that the President was totally committed to 
     doing this, and he managed to convey that commitment to the 
     American people--and, more important in this case, to the 
     markets--in ways that they believed,'' he said. Volcker made 
     a similar point. ``I think the market had some confidence and 
     satisfaction that this guy came in and took on the budget 
     deficit as a major priority,'' he said. ``The feeling goes 
     beyond the particular budget numbers.''
       Rubin's image of Bill Clinton as a commanding leader who 
     makes tough decisions and sticks with them through good times 
     and bad is not one that gels in the popular imagination, but 
     it was also evoked by Alan Blinder and Gene Sperling. ``I was 
     amazed at how committed he was to going for a substantial 
     deficit reduction, even when he saw some of the ugly things 
     that you had to do to the budget to get there,'' Blinder 
     said. ``Basically, he didn't flinch.''
       Sperling praised the President even more highly. ``For us 
     on the economic team, we will always think of him as a good 
     decision-maker,'' he told me. ``When he had hard choices to 
     make, on both the deficit and NAFTA, he listened to everybody 
     for a few days, then he made the call and never looked 
     back.''
       I reminded Sperling of the passages in Woodward's book 
     where the President berated his own advisers and complained 
     about turning the government over to Wall Street interests. 
     Surely these stories were true, I suggested.
       ``Yes,'' Sperling conceded. ``Just like any of us, he felt 
     pain at times when things weren't going his way. But Woodward 
     missed the bigger picture, which was that Clinton did what 
     virtually no President had done before. The real issue is 
     that it was a very good, effective deficit-reduction plan.''
       After talking to Sperling, I reread Woodward's description 
     of a meeting between Clinton and his economic advisers on 
     April 7, 1993. It goes as follows: `` `Where are all the 
     Democrats' Clinton bellowed. `I hope you're all aware we're 
     all Esienhower Republicans here, and we are fighting the 
     Reagan Republicans. We stand for lower deficits and free 
     trade and the bond market. Isn't that great' ''
       No, not great, but perhaps it's what the country needed 
     after a decade of Reaganomics.

  Mr. HOLLINGS. Remember, the entire sing-song and chant, Mr. 
President, on the other side of the aisle has been ``When is the 
President going to do something?''
  So I quote from this particular article.

       There is yet another important statistic that is rarely 
     mentioned in the public debate. For the past 2 years the 
     United States Treasury has been collecting more money in 
     revenue than Congress has been spending, not counting 
     interest payments on the national debt. Economists refer to 
     this situation as the Government running a primary surplus. 
     What it means is that if we didn't have to service the vast 
     debt run up during the past 15 years, the budget would now be 
     balanced.

  Imagine that. The very crowd that is accusing the President of not 
wanting a balanced budget and not doing anything about the deficit, is 
the very crowd that has caused the deficit.
  Bill Clinton did not cause it. He was down in Arkansas during that 
10-year period actually balancing budgets. He comes here with these 
inherited interest costs, and what does he do? He reduced deficits by 
$500 billion, cuts over 200,000 Federal employees, taxes gasoline, cuts 
Medicare $57 billion.
  Here is a man that has done something being accused of not wanting to 
do anything. Instead of commenting on the facts, we're treated to tax 
and spend and liberal Democrats. It is all sloganism. It is all 
symbols. It is all pollster politicking. It is not the facts. They 
ought to have ashes in their mouths. We who have been here the past 15 
years can be accused of causing this fiscal cancer, but you cannot 
accuse William Jefferson Clinton of causing any deficit.
  I read further from Mr. Cassidy's article, Mr. President.

       Both Alan Greenspan and his predecessor, Paul Volcker, have 
     gone on the record to praise the 1993 package. ``I don't 
     think there's any doubt that the package was part of an 
     honest effort to reverse the train of the budget deficit,'' 
     Volcker told me. ``I wouldn't call it particularly structural 
     in the sense that it did not involve any constructive changes 
     in the tax system, and it certainly didn't solve the 
     entitlements problem, but it was an honest-to-goodness 
     attempt to come to grips with the budget deficit.''
  That was none other than Paul Volcker. Yet, the constant refrain is 
that the President is dishonest, that he lied, that he is not following 
his pledge to the people, that he does not care about deficits. Yet he 
is the only person that has done anything about them.
  Now, quickly, with respect the recent statements of Senator Domenici, 
I had to go back, Mr. President, to his talk on June 6, included in the 
Congressional Record. I refer to page S5879. Here, Mr. President, I 
finally got him to admit that you cannot truly balance the budget 
without increasing taxes. He explains that if Social Security surpluses 
are protected, there are few remaining options:

       Frankly, some would get up and say, ``No. We're going to do 
     it another way.'' How? There is only one other way, and that 
     is to dramatically increase taxes. I do not mean a little 
     bit--a huge amount.

  Now, Mr. President, I challenged the distinguished chairman of the 
Budget Committee, last year. I said, ``If you can present to me a 
balanced budget over the 7-year period that excludes Social Security 
surpluses and does not increase taxes, I would jump off the Capitol 
dome.'' Now we have confirmation that it cannot be done. It took us 
almost a year to get it, but better late than never.
  Someone should tell Mr. Broder that the President's budget and the 
Republican budgets have all been backloaded. This particular balanced 
budget that Senator Dole is likewise backloaded. Look at it. Most of 
the cuts happen after the Presidential election in the year 2000.
  I read here, quoting Senator Domenici, ``Over the next 6 years, from 
1997 until 2002, the cumulative unified budget deficit, that is the 
total receipts less total outlays, a simple proposition, will be $1.1 
trillion, according to CBO. Over that same period, Social Security will 
run a surplus of $525 billion, including $104 billion in the year 
2002.''
  Now, here is the confusion, the misunderstanding, or the categorical 
falsity. In reality, whether we owe it to the private markets or to 
future Social Security retirees, it is still an obligation. When the 
bill comes due, our children and grandchildren will end up having to 
make good on $1.563 trillion of Social Security IOU's by the year 2006. 
Our failure to pay back the $522 billion that we already owe Social 
Security is the height of irresponsibility.
  On paper, we should be accumulating a surplus. In reality, we are 
spending these funds to finance current consumption. By the year 2006 
we will owe Social Security $1.563 trillion. I repeat, by the year 
2006, under the best case scenario of the Republican plan, $1.563 
billion would be owed Social Security.
  It should be of little surprise as to why I, or the Senator from 
North Dakota, or the Senator from California, or others voted against 
such a resolution.
  They are all crying ``Jefferson, Jefferson,'' and ``children and 
grandchildren.'' But there is a conspiracy of silence when it comes to 
the $1.563 trillion bill that the Republican plan leaves in the Social 
Security trust fund. The best way to protect Social Security is to quit 
decimating it. The distinguished Senator and the chairman of our Budget 
Committee continued in his speech last week, ``I am concerned about the 
looming and massive Social Security deficits that are on the horizon.''
  But, Mr. President, looming and massive deficits are not on the 
horizon; they are here. It is not children and grandchildren, it is us. 
We wrap ourselves in glowing rhetoric about our children and 
grandchildren and then do nothing. The truth of the matter is, since 
posterity can do nothing to us, we see no reason to do anything for 
posterity. We look to the next election and not the next generation.
  Entitlements are continually blamed for our current deficit woes. 
Yet, Social Security, is in surplus to the tune of $522 billion. 
Medicare has $130 billion surplus in it this minute. They are not 
causing our current deficits. Thus, the shell game continues. It is one 
of the longest running games in town and we all take part in it.

  The distinguished chairman of the Budget Committee, who has the next 
hour and a half, refers to the exclusion of Social Security surpluses 
in the balanced budget amendment as a smokescreen. I can tell you here 
and now that we are in trouble when the fire chief in the firehouse 
cannot only smell the smoke and see the fire, but starts the fire with 
these misleading statements.
  We are in desperate circumstances. We have deficits and debt going

[[Page S5996]]

through the ceiling. We are spending $1 billion a day just on the 
interest costs to the national debt, but we continue to fail to face up 
to this particular problem.
  Republicans charge that President Clinton does not care about the 
deficit, has not done anything about it. But Paul Volcker, the former 
Chairman, says he is the only one who has made an honest try. Find that 
statement by Paul Volcker about anybody else's budget. President 
Clinton made an honest-to-goodness effort in 1993. And the facts show 
that it is working. I voted for it. But not a single Republican did. 
They caused the deficits. And if they had not caused this horrendous 
cost of $1 billion a day, we would not be talking about deficits but 
would be in surplus under President Clinton's budget.
  Mr. President, since nobody is here, let me complete the thought. I 
use as my text none other than the daddy rabbit of the budget in 
Reaganomics in back in the 1980's. I quote Mr. David Stockman, the 
former Director of the Office of Management and Budget, dated March 
1993.
  I ask unanimous consent that this article be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From New Perspectives Quarterly, March 1993]

                      America is Not Overspending

                         (By David A. Stockman)

       President Clinton's economic plan deserves heavy-duty 
     critcism--particularly the $190 billion worth of new 
     boondoggles through FY1998 that are euphermistically labelled 
     ``stimulus'' and ``investment'' programs. But on one thing he 
     has told the unvarnished truth. There is no way out of the 
     elephantine budget deficits which have plagued the nation 
     since 1981 without tax increases.
       In this regard, the full-throated anti-tax war cries 
     emanating from the GOP since February 17 amount to no more 
     than deceptive gibberish. Indeed, if Congressman Newt 
     Gingrich and his playmates had the parental supervision they 
     deserve, they would be sent to the nearest corner wherein to 
     lodge their Pinocchio-sized noses until this adult task of 
     raising taxes is finished.
       The fact is, we have no other viable choice. According to 
     the Congressional Budget Office (CBO) forecast, by FY1998 we 
     will have practical full employment and, also, nearly a $400 
     billion budget deficit if nothing is done. The projected red 
     ink would amount to five percent of GNP, and would mean 
     continuing Treasury absorption of most of our meager net 
     national savings through the end of the century. This is 
     hardly a formula for sustaining a competitive and growing 
     economy.
       The root problem goes back to the July 1981 frenzy of 
     excessive and imprudent tax-cutting that shattered the 
     nation's fiscal stability. A noisy faction of Republicans 
     have willfully denied this giant mistake of fiscal 
     governance, and their own culpability in it, ever since. 
     Instead, they have incessantly poisoned the political debate 
     with a mindless stream of anti-tax venom, while pretending 
     that economic growth and spending cuts alone could cure the 
     deficit.
       It ought to be obvious by now that we can't grow our way 
     out. If we should happen to realize CBO's economic forecast 
     by 1998, wouldn't a nearly $400 billion deficit in a full 
     employment economy 17 years after the event finally 
     constitute the smoking gun?
       To be sure, aversion to higher taxes is usually a 
     necessary, healthy impulse in a political democracy. But when 
     the alternative becomes as self-evidently threadbare and 
     groundless as has the ``growth'' argument, we are no longer 
     dealing with legitimate skepticism but with what amounts to a 
     demagogic fetish.
       Unfortunately, as a matter of hard-core political realism, 
     the ritualized spending cut mantra of the GOP anti-taxers is 
     equally vapid. Again, the historical facts are overwhelming.
       Ronald Reagan's original across-the-board income tax cut 
     would have permanently reduced the federal revenue base by 
     three percent of GNP. At a time when defense spending was 
     being rapidly pumped up, and in a context in which the then 
     ``conservative'' congressional majority had already decided 
     to leave 90 percent of domestic spending untouched, the 
     Reagan tax rate cut alone would have strained the nation's 
     fiscal equation beyond the breaking point. But no one blew 
     the whistle. Instead, both parties succumbed to a shameless 
     tax-bidding war that ended up doubling the tax cut to six 
     percent of GNP--or slashing by nearly one-third the permanent 
     revenue base of the United States government.
       While delayed effective dates and phase-ins postponed the 
     full day of reckoning until the late 1980s, there is no 
     gainsaying the fiscal carnage. As of August, 1981, Uncle Sam 
     had been left to finance a 1980s-sized domestic welfare state 
     and defense build-up from a general revenue base that was now 
     smaller relative to GNP than at any time since 1940!
       In subsequent years, several ``mini'' tax increase bills 
     did slowly restore the Federal revenue base to nearly its 
     post-war average share of GNP. The $2.5 trillion in 
     cumulative deficits since 1981, however, is not a product of 
     ``over-spending'' in any meaningful sense of the term. In 
     fact, we have had a rolling legislative referendum for 12 
     years on ``appropriate'' Federal spending in today's 
     society--and by now the overwhelming bi-partisan consensus is 
     crystal clear.
       Cash benefits for Social Security recipients, government 
     retirees and veterans will cost about $500 billion in 1998--
     or six percent of prospective GNP. The fact is they also cost 
     six percent of GNP when Jimmy Carter came to town in 1977, as 
     they did when Ronald Reagan arrived in 1981, Bush in 1989 and 
     Clinton in 1993.
       The explanation for this remarkable 25 years of actual and 
     prospective fiscal cost stability is simple. Since the mid-
     1970s there has been no legislative action to increase 
     benefits, while a deep political consensus has steadily 
     congealed on not cutting them, either. Ronald Reagan pledged 
     not to touch Social Security in his 1984 debate with Mondale; 
     on this issue Bush never did move his lips; and Rep. Gingrich 
     can readily wax as eloquently on the ``sanctity'' of the 
     nation's social contract with the old folks as the late 
     Senator Claude Pepper ever did.
       The political and policy fundamentals of the $375 billion 
     prospective 1998 cost of Medicare and Medicaid are exactly 
     the same. If every amendment relating to these medical 
     entitlements which increased or decreased eligibility and 
     benefit coverage since Jimmy Carter's inauguration were laid 
     end-to-end, the net impact by 1998 would hardly amount to one 
     to two percent of currently projected costs.
       Thus, in the case of the big medical entitlements, there 
     has been no legislatively driven ``overspending'' surge in 
     the last two decades. And since 1981, no elected Republican 
     has even dared think out loud about the kind of big changes 
     in beneficiary premium costs and co-payments that could 
     actually save meaningful budget dollars.
       To be sure, budget costs of the medical entitlements have 
     skyrocketed--but that is because our underlying health 
     delivery system is ridden with inflationary growth. Perhaps 
     Hillary will fix this huge, systemic economic problem. But 
     until that silver bullet is discovered, there is no way to 
     save meaningful budget dollars in these programs except to 
     impose higher participation costs on middle and upper income 
     beneficiaries--a move for which the GOP has absolutely no 
     stomach.
       Likewise, the ``safety net'' for the poor and price and 
     credit supports for rural America cost the same in real 
     terms--about $100 billion--as they did in January, 1981. That 
     is because Republicans and Democrats have gone to the well 
     year after year only to add nickels, subtract pennies, and, 
     in effect, validate over and over the same ``appropriate'' 
     level of spending.
       On the vast expanse of the domestic budget, then, 
     ``overspending'' is an absolute myth. Our post-1981 mega-
     deficits are not attributable to it; and the GOP has neither 
     a coherent program nor the political courage to attack 
     anything but the most microscopic spending marginalia.
       It is unfortunate that having summoned the courage to face 
     the tax issue squarely, President Clinton has clouded the 
     debate with an excess of bashing the wealthy and an utterly 
     unnecessary grab-bag of new tax and spending giveaways. But 
     that can be corrected in the legislative process--and it in 
     no way lets the Republicans off the hook. They led the 
     Congress into a giant fiscal mistake 12 years ago, and they 
     now have the responsibility to work with a President who is 
     at least brave enough to attempt to correct it.

  Mr. HOLLINGS. Mr. President, I quote:

       The root problem goes back to the July 1981 frenzy of 
     excessive and imprudent tax cutting that shattered the 
     Nation's fiscal responsibility. A noisy faction of 
     Republicans have willfully denied this giant mistake of 
     fiscal governance and their own culpability in it ever since. 
     Instead, they have incessantly poisoned the political debate 
     with a mindless stream of anti-tax venom, while pretending 
     that economic growth and spending cuts alone could cure the 
     deficit. It ought to be obvious by now that we cannot grow 
     our way out.

  Mr. President, there it is. Someday, somehow, David Broder and these 
other columnists will pick up the truth and quit ipso facto reporting 
balanced budgets. We have do not have a balanced budget plan; all plans 
use the trust funds. We owe the Social Security trust fund; we owe the 
Medicare trust fund; we owe the highway, airport, and Civil Service 
trust funds. We have been borrowed well over a trillion dollars from 
these trust funds.
  In addition, other sleights of hand include factoring in speculative 
interest dividends for budgetary savings. Mr. President, we started 
that back in 1990. You know what the projection was? In the 1990 
budget, we said we would not only have a balanced budget by 1995, but a 
$20 billion surplus. Can you imagine that? Instead, there is a $277 
billion deficit. That is how far off these are. Yet, Mr. Broder comes 
up alleges that, ``This is too clever by half.'' Tell him to wake up. 
He should know better than that.

[[Page S5997]]

  Mr. President, I am watching history repeat itself. I joined in the 
opposition to Reaganomics and what Stockman says was the worst mistake 
we ever made. I joined in the tax increases to try and reverse it. I 
joined in Gramm-Rudman-Hollings. When they write now, as Senator Rudman 
has, that Senator Hollings wanted a divorce, they should be clear about 
the facts. Instead of using the automatic cuts as a spear to urge and 
require fiscal discipline, they started to use it as a shield for 
fiscal irresponsibility, and I wanted no part in that. I voted for the 
tax increases here in 1993. At the time, my colleagues on the other 
side of the aisle said, ``Well, you cannot trust that Washington crowd. 
If they increase the taxes, that means all they will do is increase the 
spending.'' False.
  In 1993, we increased taxes and cut spending to the tune of $500 
billion. In direct result, we have an economy with low unemployment, 
low interest rates, steady growth, and low inflation. And they say that 
the President is ``too clever by half,'' and is ``postponing choices.''
  Once again, Mr. President, when they say the President did not make 
any honest try, perhaps we should remember Mr. Volcker's words on the 
1993 package:

       I don't think there is any doubt that the package was part 
     of an honest effort to reverse the trend of the budget 
     deficit.

  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. DOMENICI. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DOMENICI. Parliamentary inquiry; what is the order of business 
before the Senate?
  The PRESIDING OFFICER (Mr. Grassley). We are in morning business. The 
Senator from New Mexico has control of the time from 1 o'clock until 
3:30.
  Mr. DOMENICI. Mr. President, I yield myself 5 minutes.

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