U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

57–496 CC 1999

BUDGET PROCESS REFORM

HEARING

BEFORE THE

COMMITTEE ON RULES

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

ON

H.R. 853

THE COMPREHENSIVE BUDGET PROCESS REFORM ACT OF 1999

MAY 12 AND 13, 1999

Printed for the use of the Committee on Rules

(

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, DC 20402
ii

COMMITTEE ON RULES

DAVID DREIER, California, Chairman

PORTER GOSS, Florida

JOHN LINDER, Georgia

DEBORAH PRYCE, Ohio

LINCOLN DIAZ–BALART, Florida

DOC HASTINGS, Washington

SUE MYRICK, North Carolina

PETE SESSIONS, Texas

THOMAS REYNOLDS, New York

JOHN JOSEPH MOAKLEY, Massachusetts

MARTIN FROST, Texas

TONY P. HALL, Ohio

LOUISE M. SLAUGHTER, New York

VINCE RANDAZZO, Staff Director

ERIC PELLETIER, Deputy Staff Director

GEORGE C. CRAWFORD, Minority Staff Director

DAVID POMERANTZ, Deputy Minority Staff Director

BRYAN H. ROTH, Office and Systems Manager

SUBCOMMITTEE ON LEGISLATIVE AND BUDGET PROCESS

PORTER GOSS, Florida, Chairman

DEBORAH PRYCE, Ohio

DOC HASTINGS, Washington

SUE MYRICK, North Carolina

DAVID DREIER, California

MARTIN FROST, Texas

JOHN JOSEPH MOAKLEY, Massachusetts

WENDY SELIG, Staff Director

KRISTI WALSETH, Minority Staff Director

SUBCOMMITTEE ON RULES AND ORGANIZATION OF THE HOUSE

JOHN LINDER, Georgia, Chairman

LINCOLN DIAZ–BALART, Florida

PETE SESSIONS, Texas

THOMAS REYNOLDS, New York

DAVID DREIER, California

TONY P. HALL, Ohio

LOUISE M. SLAUGHTER, New York

WILLIAM EVANS, Staff Director

MICHAEL GESSEL, Minority Staff Director

(II)
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C O N T E N T S

Page

MAY 12, 1999

Opening statement of the Hon. David Dreier, Chairman of the Committee

on Rules [prepared statement p. 03] 01

Opening statement of the Hon. John Joseph Moakley, Ranking Member of

the Committee on Rules [prepared statemnet p. 06] 04

Opening statement of the Hon. Porter Goss, Vice Chairman of the Committee

on Rules [prepared statement p. 09] 08

Statement of:

Crippen, Dan L., Director, Congressional Budget Office [prepared statement p. 13] .................................................................................................... 11

Nussle, Hon. Jim, a Representative in Congress from the State of Iowa

[prepared statement p. 34] ........................................................................... 31

Cardin, Hon. Ben, a Representative in Congress from the State of Maryland [prepared statement p. 43] .................................................................. 40

Minge, Hon. David, a Representative in Congress from the State of Minnesota [prepared statement p. 47] ............................................................... 46

Irving, Dr. Susan J., Associate Director For Federal Budget Issues, General Accounting Office [prepared statement p. 64] .................................... 61

Phillips, Martha, The Concord Coalition [prepared statement p. 90] .......... 85

Greenstein, Robert, Center for Budget and Policy Priorities [prepared

statemtent p. 100] ......................................................................................... 96

Muris, Timothy J., George Mason School of Law [prepared statement

p. 115] ............................................................................................................ 112

Additional Information Submitted for the Record

Submitted Questions and Answers by Mr. Dan L. Crippen ......................... 27

Statement of Mr. Bill Frenzel, Co–Chairman, Committee for a Responsible Federal Budget ..................................................................................... 58

Submitted Questions and Answers by Dr. Susan J. Irving .......................... 78

Document on Percentage of Income Tax Paid by Hon. Pete Sessions ......... 153

Submitted Questions and Answers by Timothy J. Muris ............................. 159

Submitted Questions and Answers by Martha Phillips ................................ 161

MAY 13, 1999

Statement of:

Smith, Hon. Nick, a Representative in Congress from the State of Michigan .................................................................................................................. 167

Gekas, Hon. George, a Representative in Congress from the State of

Pennsylvania [prepared statement p. 170] ................................................. 168

Barton, Hon. Joe, a Representative in Congress from the State of Texas

[prepared statement p. 173] ......................................................................... 171

Regula, Hon. Ralph, a Representative in Congress from the State of

Ohio [prepared statement p. 178] ................................................................ 175

Castle, Hon. Michael N., a Representative in Congress from the State

of Delaware [prepared statement p. 185] .................................................... 181

Spratt, Hon. John, a Representative in Congress from the State of South

Carolina [prepared statement p. 196] ......................................................... 191

(III)
(1)

HEARING ON H.R. 853, THE COMPREHENSIVE

BUDGET PROCESS REFORM ACT

Wednesday, May 12, 1999

HOUSE OF REPRESENTATIVES, COMMITTEE ON RULES, Washington, D.C.

The committee met, pursuant to call, at 9:30 a.m. in Room H–

313, The Capitol, Hon. David Dreier [chairman of the committee]

presiding. Present: Representatives Dreier, Goss, Linder, Hastings, Ses- sions, Reynolds and Moakley. The CHAIRMAN. The committee will come to order. Today the Rules Committee embarks on the first of two original jurisdiction

hearings on H.R. 853, the Comprehensive Budget Process Reform

Act of 1999. The committee today will receive testimony from three

of the lead sponsors of the reform bill as well as analysis by the

Congressional Budget Office, the General Accounting Office, the

Concord Coalition, the Center on Budget and Policy Priorities and

other noted witnesses. Tomorrow we will hear more testimony from

many of our colleagues on both sides of the aisle.

This bill is the product of two years of work between members

of the Rules and Budget Committees and also represents the first

time in almost a decade that the two committees of jurisdiction in

the House have come together in a bipartisan manner to construct

a comprehensive budget process reform package. This is largely

due to the leadership of Porter Goss, who has united the two committees behind a common–sense reform plan which we are committed to bring to the full House for consideration in the near future.

Make no mistake, the current budget process does not work. It

is a disorganized patchwork of decades–old rules and laws. This

comprehensive bill increases efficiency, improves accountability and

strengthens enforcement in the budget process.

Coming from California, let me highlight just one example. We

have learned that natural disasters are a fact of life, whether it is

hurricanes in Florida, ice storms in New York, floods in Iowa or an

earthquake in my home State. We know that there will be some

impact on the budget each year. This bill will reform the budget

process to require the President and the Congress to face reality

and set aside a disaster reserve fund in the budget. We don’t need

to pit the victims of Mother Nature against those who desire sound

fiscal policies, and this is just one of the many sensible reforms included in the bill. Again, it is a very bipartisan measure. We have

Democrats who have joined in cosponsoring the bill.
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I look forward to the testimony of our distinguished witnesses

today and tomorrow to engage in this important debate.

[The prepared statement of Mr. Dreier follows:]
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The CHAIRMAN. With that, I am very happy to call on what looks

like a brilliantly written opening statement by my good friend from

south Boston, Mr. Moakley.

Mr. MOAKLEY. Thank you, Mr. Chairman. I have a medical appointment right after this, and then I have the rule on the floor.

The CHAIRMAN. I have one of those two things.

Mr. MOAKLEY. You have the medical appointment.

The CHAIRMAN. That’s right.

Mr. MOAKLEY. Ever since the Congressional Budget Act became

law in 1974, people have blamed it every time they don’t get their

way. I think if anyone is to blame, it is the actors and not the act.

The Budget Act can only set up incentives to do the right thing,

it can’t force a majority of House Members to make budget decisions against their will.

Mr. Chairman, the bill we are discussing today makes three

major changes in the Budget Act, all of which I oppose. First, this

bill guts the pay–go rule. Under the current law, as entitlement increases, tax cuts must be paid for. This bill says you don’t have to

pay for tax cuts or entitlement increases. If there is a surplus, this

provision encourages Members to rush out to spend the surplus before anyone else can use it. Any hope of reserving the surplus for

debt reduction would be totally lost. So the resources we could be

using to fix Social Security and Medicare would be used to pay for

a tax cut.

Secondly, the automatic continuing resolutions will set a permanent appropriations level. This will encourage Members to choose

between the regular appropriations bills and the automatic continuing resolution.

Third, the joint budget resolution and fall–back will create more

incentives for political posturing and delay.

So let’s face it, Mr. Chairman, the congressional budget resolution and the President’s budget are both political documents, and

as long as one party controls the Congress and one party controls

the White House, there won’t be much negotiation on budget resolutions. No one has any reason to compromise at such an early

stage. But if Members can see the fall–back, and if they know that

the automatic continuing resolution is in place, the Majority has

every reason to pass a budget that forces a Presidential veto and

delineates the difference between the parties.

I agree with my colleagues that the 1997 changes to the system

for designating emergency spending is in a shambles, but I don’t

believe these are the ways to fix them. I object to the extraordinary

power granted to the Budget Committee Chairman to determine

what constitutes an emergency, and I find the definition of emergency unrealistic. For example, Kosovo is neither sudden nor unanticipated, but it certainly is an emergency. Nor do I believe this appropriation lockbox proposal will work any better than lockbox proposals in the past. Everyone agrees that the appropriation caps are

working well, maybe just a little too well, and I don’t think that

we need any more downward pressure on appropriations.

Mr. Chairman, there are a handful of smaller ideas in this bill,

some of which are good, such as Mr. Cardin’s proposed changes to

the budget treatment of insurance programs, and of course my pro5

posal to make unreported measures subject to Budget Act points of

order. But some of the smaller ideas are dangerous, such as the

definition of the pocket veto. This definition implies, contrary to the

long–standing view of the House, that only the budget joint resolution cannot be pocket–vetoed during the session.

Mr. Chairman, despite the inclusion of Mr. Cardin’s proposal and

mine, this bill contains a lot of dangerous changes to our budget

process. We should either leave well enough alone or go back to the

drawing board.

[The prepared statement of Mr. Moakley follows:]
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The CHAIRMAN. As I said, we are very pleased that this bill enjoys wide bipartisan support.

Mr. MOAKLEY. It is not wide enough.

The CHAIRMAN. I am pleased to call on Mr. Goss.

Mr. GOSS. Thank you, Mr. Chairman. I have a prepared opening

statement.

The CHAIRMAN. Without objection it will appear in its entirety in

the record.

Mr. GOSS. First of all, the distinguished gentleman from Boston

knows I never have dangerous thoughts—

Mr. MOAKLEY. Not lately.

Mr. GOSS. And we didn’t start out with the idea—

The CHAIRMAN. Why don’t you go to your doctor’s appointment.

Mr. GOSS. I think the concept of ′′leave well enough alone′′ doesn’t pass the laugh test, and I remember some of the comments

from the gentleman from Boston’s party regarding the omnibus bill

last October. And I heard more comment that rather than ′′leave

well enough alone′′, ′′never again′′ would have been the appropriate

description for that process.

The other areas that you have raised in your opening remarks

I think are appropriate areas and have received a lot of attention,

and we have tried to come up with what we thought was a good

working solution. Obviously we are having these hearings to deal

with that. I want to particularly thank Chairman Dreier for pushing forward on this, bringing this to some kind of conclusion and

taking our legislative shot at it. I think it is long overdue that we

do something in this area. If we haven’t got it right, perhaps this

process will make it better. I think we have a good product.

As to the definition of emergency and things like that, I submit

that two months ago there was not an emergency in Kosovo. The

reason that there is one today is because of actions that have been

taken, not because of the situation that was. I think there is some

room to negotiate what an emergency is, but I think we ought to

do it up front, and I think a lot of us feel that it encourages, like

Kosovo, that before we do them, we know better what we are getting into.

As for the automatic CR, that is something that we discussed a

number of times and have had regular discussion on.

As for the pay–go, I think it makes a lot of sense that all of the

playing field be equal when we talk about surplus. I think that is

what this bill does. Having said that, no matter how you look at

this, any reasonable observer would say that we can make the

rules through a budget process.

The CHAIRMAN. Thank you very much.

[The statement of Mr. Goss follows:]
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Mr. LINDER. I have only one comment. I think it is long overdue

to fix this process. Thank you.

The CHAIRMAN. Mr. Reynolds.

Mr. REYNOLDS. As a cosponsor of this legislation, I look forward

to the discussion in the hearing. I have had the honor of serving

at town and county and State government levels before being elected to Congress. I now use some of that strength of 25 years that

local governments must produce a balanced budget, and the Governor of New York is required by the State constitution to present

a balanced budget to the legislature, and then for the legislature

to adopt a balanced budget within that. So the State and county

and local governments simply must balance their budgets and are

required to do so by a cohesive and time–line process.

Congress needs to reform the existing budget process to make

the necessary changes to get a more accurate picture of what we

are dealing with in the new millennium.

The CHAIRMAN. Mr. Sessions, you have missed a load of brilliant

opening statements.

Mr. SESSIONS. Mr. Chairman, I did miss some, and when my colleague from New York speaks, we speak with one voice.

The CHAIRMAN. Thank you all very much, and let me say that

it is a privilege once again to see Dan Crippen and to formally congratulate him. He is the fifth Director of the Congressional Budget

Office, having been appointed to the that post just a couple of

months ago in February. From 1987 to 1988, he served as the

President’s advisor on all issues relating to domestic policy, including the presentation of the Federal budget. From 1981 to 1985, he

served as chief counsel and economic policy advisor to the Senate

Majority Leader, working on major tax and budget bills.

Prior to joining the CBO, Mr. Crippen was a principal with the

consulting firm Washington Council. He has also served as executive director of the Maryland International Advisory Council and

senior vice president of the Duberstein Group.

Let me welcome you. I look forward to your testimony.

I apologize right now, I don’t have to go to the doctor like Mr.

Moakley, but I have to make a call, and then we have to be down

on the floor on our Y2K bill, which is coming up, and Mr. Goss is

going to be presiding.

Obviously as a cosponsor of the bill, I think it is very clear that

I do have a great interest in bringing about this reform, and we

are going to try our darnedest to make it more bipartisan.

If you have any lengthy prepared remarks, we will include those

in the record without objection.

Mr. CRIPPEN. I have a 2–minute version and a ten minute

version.

The CHAIRMAN. Gosh, should we flip a coin.

We will look forward to your 2–minute version.

STATEMENT OF DAN L. CRIPPEN, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE

Mr. CRIPPEN. Mr. Chairman, and Members of the Committee,

thank you for the opportunity to testify on the Comprehensive

Budget Process Reform Act of 1999. It responds to many of the con12

cerns that have been voiced by Members of Congress and others in

recent years.

A joint budget resolution inviting the President to negotiate early

in the year on the budget has merit, but it is no panacea. If there

were wide disagreements, the joint resolution might delay the process, having to go through a veto and the fallback mechanism. If

there were no wide disagreements, the joint resolution would be

unnecessary.

An automatic continuing resolution has substantial merit, especially to avoid a government shutdown. Working out a suitable determination for an appropriate funding level will require the concurrence of the appropriators, in which case you may want to consider a number of alternatives to the current levels. You might

choose the average between the House and Senate or some other

level.

Insurance reform is great in theory but difficult to carry out. The

six years envisioned for implementing reform is a minimum, although some types of insurance might be scored earlier than that.

If you were to do nothing else on emergency spending, simply

codifying the definition would be helpful. Without a definition, it

matters little what else you do.

Finally, Mr. Chairman, the extensive changes proposed by the

bill suggest a broader issue of budget process reform that should

be addressed. It is time to convene a new Commission on Federal

Budget Concepts. In general, federal budget concepts are based on

the recommendations of the 1967 President’s Commission on Budget Concepts. Although the commission’s guidelines continue to

apply broadly in the budget process, they do not address certain

fundamental issue that lawmakers and budget scorekeepers currently face. For example, various proposals to reform Social Security, especially those that call for personal retirement accounts,

raise thorny questions about the appropriate budgetary treatment.

Further, the dividing line between federal spending and revenue

law has become blurred, as evidenced by the increasing use of refundable tax credits as a device for expanding budgetary resources.

The use of public/private partnerships, such as those involved in

military housing and various lease–purchase agreements also

raises questions of budgetary treatment for which the 1967 Commission’s recommendations provide little or no guidance.

These and other issues put budget scorekeepers in a difficult position as they seek to apply outdated or incomplete concepts to

novel budget policies. That situation suggests the need to reevaluate the current budget concepts and to try to reach consensus on

changes that will make them clear, comprehensive, and more effective. I encourage the committee to consider that enough has

changed in the past 30 years to warrant another look at our rules.

The CHAIRMAN. Thank you very much. That is very helpful. We

appreciate it.

[The prepared statement of Mr. Crippen follows:]
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The CHAIRMAN. Let me jump right into the issue that I raised

in my opening remarks, that being this emergency reserve fund. Do

you have any thoughts about that? We were talking in a meeting

yesterday about the Oklahoma situation, and last Thursday the

Federal Emergency Management Agency indicated that they had

everything necessary fundingwise to deal with that. Over the weekend and the last couple of days when the President went there, he

came back and requested $372 million. Now we have been told that

there is a request for nearly three times that amount, approaching

a billion dollars, to go to the Federal Emergency Management

Agency.

My personal response to that is we should proceed with what is

necessary rather than all of a sudden just building up a huge surplus there for emergencies, but the proposal that we have in this

measure obviously calls for us to move in the direction of setting

up a fund there. What thoughts do you have about that version?

I will tell you that I have tried to get us to a point where the

American people don’t immediately come to Washington every time

there is a disaster, natural or man–made, and we have worked in

the past on legislation which would set up a joint public–private

partnership with the insurance side. We are still working on that

and hoping that we can move on that. But as we try to approach

this question, would, in fact, building up a reserve there create a

situation where people would more naturally be inclined to draw

on it? What thoughts do you have about that?

Mr. CRIPPEN. You can limit that, depending on the definition of

emergency and what conditions you delegate to the Budget Committee Chairmen in order to designate something an emergency.

The most important issue is the definition of what constitutes an

emergency. Once a definition has been reached, the only other concern is how a reserve fund might work, particularly in floor debates. For example, how quickly could the Budget Committee

Chairmen make these determinations? So how a reserve fund

might work is unclear, but we don’t have any evidence from states

that have contingency funds and rainy–day funds, or whether such

funds encourage emergency designations.

The CHAIRMAN. How many States have that?

Mr. CRIPPEN. Almost all. I think well over 40 do. Amd most have

constitutional or statutory requirements that they have a balanced

budget. So as part of that process, they tend to do contingency

budgeting.

We have had a wide range of emergency designations in the recent past—from about a $1.5 billion to $21 billion (in fiscal year

1998). Whether or not you think all of the $21 billion was for emergencies is another question, but the range is big in terms of the

amount of funds required.

The Federal Emergency Management Agency (FEMA) tends to go

out and address an emergency or a disaster and come back and request a replenishment of funds. So in some sense, FEMA works on

the notion of a reserve basis already. Expanding that approach to

other agencies that become involved in emergency situations might

be an alternative to having the Congress establish a reserve–fund

procedure.
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The CHAIRMAN. Do you want to respond to any of the specific

concerns on pay–go and other issues raised by Mr. Moakley in his

opening statement?

Mr. CRIPPEN. Whenever you begin to change these processes, you

may be changing the dynamics, political power, and other things.

The only concern I have—and it wasn’t addressed quite directly by

Mr. Moakley, is that we take care not to shift power away from the

Congress in dealing with these matters.

The Congress established this whole process—in the wake of the

Nixon impoundments and called it the Budget Impoundment and

Control Act. It is not just a budget act. The tension between the

President and the Congress prompted the establishment of the

Congressional Budget Office. I think we need to take care not to

give up Congressional power in the interest of expediency.

But I am not as concerned as Mr. Moakley is about automatic

continuing resolutions. There are a lot of issues about how they

would work and, in turn, who the balance of power would go to—

the appropriators, the President, or the Congress.

The CHAIRMAN. There is some bipartisan concern about automatic CRs.

Thank you very much, Dan. I will turn the opportunity to question and the Chair over to Mr. Goss.

Mr. GOSS. [Presiding.] Thank you, Mr. Chairman. I wish you success in your rule.

I wanted to ask a little bit on the emergency. We looked a lot

at that, and there are any number of definitions that you could use,

and I am in agreement with your testimony that we ought to try

to corral it a little bit. We may not get it exactly right, but anything we do would be an improvement.

In that spirit I am mindful of the Federal insurance agency and

flood insurance, FEMA, and relocation revolving funds, and all of

those mechanisms that are out there. I am not talking about how

you do it. What I am trying to say for budget purposes so we don’t

have surprises every year that break the bank up here, and in addition to the surprise the opportunity to break the bank even further because of the practices that go on now, can we make an improvement? And I think the answer is yes.

One of the things that I am concerned about besides the definitional questions that have been raised is the amounts, the numbers. How much is the right amount for a rainy day fund? We have

some language about a five year rolling average. Does that make

any sense?

Mr. CRIPPEN. Sure.

Mr. GOSS. Is there a better way to do that?

Mr. CRIPPEN. Probably not. It is arbitrary. The amount has

ranged from about $1.5 billion to $20 billion in the recent past. The

average has been $5 billion, but as with all averages, it depends

on your experience. The amount put in is arbitrary, but the rolling

average seems to make sense.

Mr. GOSS. The fence you build around that, it seems to me, is

going to be very important as well. And when we talk about the

rolling averages, we need to define emergency, because we don’t

want to count the underexpenditures that get added onto emer25

gency legislation because it is passing. Is that a reasonable conclusion?

Mr. CRIPPEN. Yes. That is why I raised the one concern—How

does it get worked out on the floor when you have an emergency

supplemental and amendments are being added? How does the

Budget Committee address that issue. Saying this is an emergency

but that is not, might complicate floor consideration of the proposed

measures.

Mr. GOSS. Fair enough.

There are a couple of responses I would like to get for the record.

We are trying to complete a record which has been going on for

some time. In your testimony you mention the Catch–22 between

trying to encourage more authorization of spending while at the

same time discouraging more authorizations. In reference to the

timetable for reauthorizations that committees would establish, you

suggested some form of staggered program with the schedule.

Would you please comment further on that, on your suggestions in

that area?

Mr. CRIPPEN. The notion I was trying to convey: is pretty simple

if you have a ten year sunset on major authorizing bills, you would

not want them all to expire at the same time. It is a notional idea,

but we have to be careful about how you do that, and once you get

started on the schedule, you would want to stagger how the operations would come up and be required.

Mr. GOSS. How much information does CBO have on this subject

right now?

Mr. CRIPPEN. Each year we compile a report, which we issue in

January, on how many programs were appropriated for the current

fiscal year without authorization.

Mr. GOSS. So this is information that is readily available?

Mr. CRIPPEN. Yes. And for other agencies, too.

Mr. GOSS. Thank you very much. That is very helpful.

Mr. Linder.

Mr. LINDER. I would like you to comment on what I have seen

pursuant to the Federal rules on tax cuts, the result of that.

Mr. CRIPPEN. We clarify the ability to use surpluses for tax cuts,

and the answer would be yes, the bill does that.

Mr. LINDER. When you talk about the five–year rolling average,

in your observation of the history going from $1 billion to $20 billion, are we getting more and more disaster claims?

Mr. CRIPPEN. On a five year rolling average, $21 billion was

clearly out of the normal range, but last year was an unusual year.

So I don’t know that there is a trend. There may be a slight trend,

but if you drop last year, the $5 billion average is a good place to

start with adjustments.

Mr. LINDER. I have watched more and more money shifting from

appropriated categories to other categories, such as the supplemental bill last year for Strategic Defense Initiative. Is there anything in the Budget Act to solve that?

Mr. CRIPPEN. No. The rules are designed to allow those kinds of

funding changes. In this instance, if you have the votes, you can

do it. I can’t see an easy way of—

Mr. LINDER. What about if there are no votes? It was appropriated directly for SDI.
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Mr. CRIPPEN. I am sorry, I don’t know the answer. But the numbers should prevent that from happening.

Mr. LINDER. Is there ever a time when we are treating emergencies for private insurance or rate insurance?

Mr. CRIPPEN. To some extent, yes. You do that in public/private

partnerships, flood insurance and other things. There will always

be unforeseen risks—instances in which the losses are so large that

it becomes very difficult for an actuary to decide what the premiums are and, in turn, to encourage citizens to buy that kind of

insurance because the events are so rare. Short of mandates from

the federal government, buying insurance is difficult to get the

kind of inclusive coverage for those, but it is certainly possible.

There has been consideration to ask for insurances, but it takes a

fair amount of guidance from the Federal Government.

Mr. LINDER. Thank you.

Mr. GOSS. Mr. Hastings?

Mr. HASTINGS. I don’t have any questions, Mr. Chairman.

Mr. GOSS. Mr. Reynolds?

Mr. REYNOLDS. No, I am fine. Thank you.

Mr. GOSS. We have a couple of unanswered questions which we

would like to submit for the written record, if that is satisfactory.

They are straightforward and basically follow your commentary in

your prepared statement.

Mr. CRIPPEN. Okay.

[The information follows:]
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Mr. GOSS. We want to thank you very much. No doubt we will

be talking about this more.

We are joined by our colleagues from Minnesota and Iowa. This

will be called panel one. It will be followed by Dr. Susan Irving,

and she will be followed by panel two.

We welcome you here, gentlemen, and thank you for the positive

contribution you have made to the process which has been ongoing

now for a number of years, and we all know that it is appreciated

and valued and part of the product we are dealing with.

The good news is that we are planning to go forward with legislation. The bad news is, for some at least, that is hardly a surprise.

I think everybody has an opinion on whether it is doable, and that

is what we are presenting at this point.

We welcome your views, your participation. Your prepared statements will be accepted for the record without objection, and your

wisdom on top of that will be encouraged eagerly at this time by

this meeting.

STATEMENT OF HON. JIM NUSSLE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF IOWA

Mr. NUSSLE. Mr. Chairman, thank you so much for conducting

this hearing, and, similar to hearings before the Budget Committee

on this subject, we are singing to the choir so to speak. Your leadership in moving this bill forward, your participation in crafting

this bill as well as the rest of the Rules Committee in a bipartisan

way, the bipartisan nature of the Budget Task Force and the Budget Committee in drafting this legislation, I think, has been part of

the reason why we have been able to bring this bill to this point.

So we truly appreciate your leadership. I am sorry Ben Cardin is not here to start off with, because as

you know, Mr. Chairman, he put in so much spadework in getting

us to this particular point, Mr. Minge as well, and other members

of our Budget Task Force that basically sat down with a couple of

ideas and just for the record—and also it kind of goes to Mr.

Linder’s line of questioning as well. Let me just touch on a couple

of things. Number one, we decided that the process had to be bipartisan.

There are certainly things that while David and I would agree on,

not everybody in the Congress, not everybody from both parties

would necessarily agree to do, and so we had to do a lot of listening, and we came up with a process that we believe is bipartisan,

one that both parties can enjoy and support. The second is we did not try and game outcome, substantive outcome of a particular issue. Just an example, the question that Mr.

Linder was asking about the pay–go scorecard and on–budget surpluses and could they be used for tax cuts, the answer is yes, but

there is a corollary answer that it could also be used for spending

increases. So there is nothing in our bill that necessarily games the

outcome that says because of the rules, something substantively

must occur. It still allows for—and I think this is the beauty of our

bill—it doesn’t necessarily work against tax cuts any more than it

works against increasing or decreasing spending. It still allows the
32

Congress to work its will and make a decision that is in the best

interest of the country.

I think the biggest reason why we are here is, number one, we

had the poster child of all reasons for budget reform come in 1998,

and that was a broken process in which almost nobody from any

particular party or from whatever your point of view could suggest

that the process worked.

As the Task Force for Budget Reform sat down and tried to look

over the last many years since the 1974 Budget Act, we could not

find many years when the exact process was followed. If we could

pick all of the years from 1974 on and try and take whatever

worked and try and codify it, what year would we use? We found

that in 1997, we had agreement with the President and the Congress up front early in the process. The aggregate decisions, the big

numbers were chosen very early in the process, and the result was

contentious. It obviously will be in an appropriation and tax process, but we knew the rest of the fight could be on detail, on discussion and majority rule, and on amendments and an open process

that everybody could follow. So we tried to codify that in this particular bill.

The first thing we did was made this budget have the force of

law with a joint resolution as opposed to our current process,

which, as you know, is a concurrent resolution. What this suggests

is that the President and the Congress have to be real early in the

year. There are many Democrats who are frustrated with our current process because they thought that our current process is not

real. We as Republicans are finding that it is going to be difficult

to make that budget real. But no matter what perspective you

bring to it, having the President and the Congress in January and

February, and by the deadline of April 15 come up with an agreement that has the force of law is an important perspective to bring

to this.

The second big area, I believe, is in the area of emergencies. We

for the first time budget for emergencies on a rolling average,

which sets aside a rainy day fund, which just about every family,

big business, farm, many States in this country have as a way to

deal with unforeseen, yet predictable emergencies that will occur

this year. And we are currently and maybe possibly the poster

child of emergency and supplemental problems with the process

that we are currently in.

Finally, let me just suggest that what we are also doing is looking toward the future. We begin to budget toward the unfunded liabilities and other long–term obligations of this government. At the

point in time where we find ourselves in the era of surpluses, when

you take a new measure of your—not only your budget process, but

those priorities that the country has to take a look at, and our unfunded liabilities which have never been managed, some of the insurance programs have never really been taken—as you know, we

operate on a cash budgetary process as opposed to an accrual process, and it does not take into consideration some of those liabilities.

So we begin the process of looking toward the future and how we

can better manage budgetary decisions later on.

Now, is this the best process bill we can come forward with or

at least the strongest one? As Mr. Linder is suggesting, will it solve
33

every single problem? No, it can’t. When I explained this to kids

back home in government classes because they study this, some of

our more mature constituents in the district glaze over when you

talk about budget reform, but kids are learning about this. This is

an interesting subject to them because it shows the way that Congress works.

I tell them all we are doing in this bill is writing the rules on

the back of the box that you play Monopoly on. The rules are the

same every time you play the game. We are not deciding the outcome, or determining who is going to win the game, or who gets

what property, or how many hotels you have on the game board.

What we are saying is every time you turn that game box over,

every time you look at the rules, they ought to make sense and

make the process fair, and we believe that we have brought forward a bill that will do just that.

With that, I appreciate the time, and I will turn it over to my

colleagues.

[The prepared statement of Mr. Nussle follows:]
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Mr. GOSS. I am happy to welcome and acknowledge Mr. Cardin,

who has joined us as part of this panel. His testimony is prepared

and already accepted into the record.

You missed the accolades that we were heaping on the panel before you came in.

Mr. CARDIN. You can repeat those.

Mr. GOSS. We welcome you.

STATEMENT OF HON. BEN CARDIN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MARYLAND

Mr. CARDIN. Thank you, Mr. Goss, for those kind comments, and

I appreciate the opportunity to testify on our budget reform bill,

and I thank the committee for holding early hearings on this subject, and hopefully we will be able to move some legislation during

this session of Congress. As Mr. Nussle pointed out, this process started with the Budget

Committee looking last year at setting up a special task force to

take a look at our budget process. Mr. Nussle chaired it. I was the

Ranking Democrat on it, and we really looked at all of the proposals that Members of Congress had come in with. We worked on

a very bipartisan way. There was a lot of give and take, a lot of

compromises that were made in order to try to move legislation

that could be enacted and become law.

I must tell you as a way of background, I started in the State

legislature 32 years ago, and I served on the committee that had

the State budget. I later became a chairman of the Ways and

Means Committee and later speaker of the house and was speaker

for 8 years. When I came to Congress in 1987, I was appalled by the way

that we used to deal with the Federal budget. My own experience

in the State showed that there was a better way in which for us

to handle the fiscal policy of our Nation. I must tell you that the objectives that we looked at in the Budget Reform Task Force were several. First, in my view, I wanted to

make the Congress a more effective entity in dealing with the fiscal

policies of this country. I don’t think we have much to say in this

institution about the fiscal policies of the Nation. I think we have

given too much to the executive branch because of our way that we

are so disorganized in our consideration of the fiscal policy of this

Nation. So many of our recommendations are aimed at making

Congress a more effective entity, not whether it is controlled by Republicans or controlled by Democrats or split control, or whether

the White House is of a different party than the Majority in Congress. We want to make this institution work better so that all of

us who are elected can have more to say about the fiscal policies

of the Nation.

That is one reason why we recommended a joint resolution

signed by the President, so that we engage the President earlier.

Under the current system when we have a disagreement, and we

have one again this year with the White House, if we resolve that

late in the process, the executive branch is going to have a lot more

to say than the legislative branch on the fiscal policy of our Nation.

We, as members of this institution voting in our committees and
41

voting on the floor, are going to have much less to say about an

appropriation bill or an entitlement bill when that decision is made

with the last vote of the session, where you have to vote for it or

not in order to go home. That is not carrying out the will of the

people that I represent. So a joint resolution is to engage the President earlier in the process so we can have a fiscal program that

reflects the will of the people of this country.

I must tell you one of the changes that we made was to have

what is known as a soft landing on the joint resolution. If we are

unable to agree with the President, he vetoes the bill and we can’t

override the veto, rather than paralyzing Congress, we said, okay,

we will go back and work on our legislation. So we are not trying

to make Congress weaker, we are trying to make Congress stronger

to give us an opportunity to work more effectively.

The automatic and continuing resolution is an acknowledgment

that if we need a continuing resolution, we fail. We fail. We should

pass our appropriations bills. The fact that we provide for automatic continuing resolutions, we are trying to take the politics out

of a gridlock so it is more likely that we will get our appropriations

bills done. If we know that there is an automatic CR, the likelihood

of using it is more remote because the appropriators want to have

their will. That is their career. They are not going to want a CR

to become law. Knowing that the fall–back is an automatic CR, we

take away penalizing our constituents, and we make it more likely

that Congress, in fact, will succeed.

Our second major objective in addition to increasing the role of

Congress is to work in a true bipartisan way to make this really

a bipartisan product. Here I want to congratulate Mr. Nussle for

the work that he has done. Mr. Nussle has kept us focused on a

bipartisan product. He has taken a lot of lumps on the Republican

side of the aisle in order to keep us together in a true bipartisan

way. I really want to applaud him in those efforts because there

are many times during that process where I know the pressure he

received, and he stood up to it and said, no, we are going to continue with the commitment we made.

So first, we have limited the resolution to only deal with the general budget parameters and the extension of debt if it is required

by the budget resolution. That is all the budget resolution can deal

with.

Secondly, the CR is neutral. It doesn’t increase or decrease. I

know that there was a lot of pressure to have it as a reduction.

That would have caused a partisan backlash, and we stuck true to

keep the CR neutral at the current level.

Third, the current budget rules are applied to budget surpluses,

as was interpreted by OMB. We decided not to take on any real

change in the use of the surplus. That was extremely controversial

last year when we talked about ways in which we could finance additional tax cuts or spending.

When we came up with that recommendation, the surpluses were

nowhere near as large as they are currently being projected, both

on and off–budget surpluses. I helped develop in our State what is

known as spending affordability, and I think it might be worthwhile for us to look at what we can afford to spend on new spending or tax cuts as we look at large surpluses in the future, because
42

I think all of us want to make sure that those surpluses are real,

and it would be very nice to reduce some debt while we are having

a strong economy, and we may want to look at large surpluses in

the future, how we achieve those surpluses and reduce debt at the

same time.

We use the current budget rules on entitlement spending. There

was a lot of pressure to change that particular issue, and we stuck

true to our bipartisan commitment in that regard.

And then on emergency spending, we provided that we would use

the same budget rules as relates to the budget caps on emergency

spending until we adopt new budget spending caps.

And then the third point I want to mention, in addition to trying

to improve the role of Congress in working in a bipartisan way, we

want to make the process more fiscally accountable. There we

adopted many changes. Many are technical, and I will not go

through them, but I will answer any questions you might have.

On emergency spending, it is ridiculous, it is wrong, so we developed a way to use a five year average. Mr. Nussle explained it in

the normal budget process to have a new definition, a true definition of what emergency spending is to bring the Budget Committee

into that process and have some checks and balances on the way

that we handle emergency spending. It is very timely considering

the debate going on on the floor this week.

And then we developed some accrual accounting. I talk to my

business leaders, and I tell them that the Federal Government is

too small an entity to use accrual accounting. So we start down the

path of doing true accounting, accrual accounting with insurance

programs.

I think these reforms clearly move us in the right direction. They

move to make this institution a stronger institution. They are truly

bipartisan recommendations, and I am proud to be part of this effort.

Mr. GOSS. Thank you, Mr. Cardin. Those are helpful.

[The prepared statement of Mr. Cardin follows:]
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Mr. GOSS. Mr. Minge.

STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MINNESOTA

Mr. MINGE. I feel all I have to do is sit here between two giants

in the process. I have a statement which has been circulated. My

statement attempted to pick up on two or three things which I felt

that they would neglect to mention. It turns out that they have

mentioned everything.

The only comment I would like to make is that this product in

a way, I believe, represents the best of the types of efforts that we

can produce in Congress.

I have heard the statement quite often, don’t let the best be the

enemy of the good, and I would say here let’s not let the best be

the enemy of the best from somebody else’s group’s perspective. We

really have a product which I think is responsible and credible.

Yes, as you indicated earlier, Mr. Chairman, there are things that

each of us would do differently, I am sure, in some detail if we

were the one solely response for drafting this. I am pleased to be

included in this effort and to be associated with it. I look forward

to its prompt consideration by this committee and on the floor.

[The prepared statement of Mr. Minge follows:]
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Mr. GOSS. I thank you all. I am sorry that we don’t have a fuller

committee to see the bipartisan and professional quality of the testimony and work which has been done on this. A lot of people have

a commitment to it and an understanding of the subject. It is a refreshing moment.

There are many points of view on this process. We are hearing

them on our side of the aisle and on the other side of the aisle, and

as recently as opening statements this morning we had a discussion about whether leaving well enough alone is a better idea than

plunging forward. Obviously the reason that we are not leaving well enough alone

is because we do not think it is very good. We all went through

that last year and decided that—in fact, we didn’t decide, we promised, we pledged to go forward. We filed the bill last year symbolically before the close of the 105th in order to ensure our colleagues

and the American people that we were going to try and do better,

and I consider this is moving forward on that promise, and it would

not be happening were it not for you gentlemen and the work that

you are doing. I have a couple of questions, and we are going to hear some testimony, and these are by way of alerting you to the kinds of things

that we are hearing here. I understand that the testimony that we

are going to be hearing a little later in the two days of this, is that

this measure is going to lead to increased delays in consideration

of the appropriations bills, undue pressure on the discretionary

process of the Federal budget and have detrimental impacts on Social Security. In fact, we have already heard some of those statements in some of the opening remarks. These are the types of

things that we are going to be talking about. Clearly these will be

debate–type items. If any of you wish to comment on any of them

now, your comments are welcome. We can discuss them when we

get this legislation to the floor. I am not concerned. I think we have

a good product. Mr. CARDIN. We cannot do any worse in a delay in considering

the appropriations bills. In the twelve years that I have been here,

I can’t tell you how many times we have passed appropriations

bills in a very disorganized way at the end of a session. Sometimes

we have lumped them into one final vote, as we did last year. It

is the wrong way. The current way is the wrong way to consider

it.

Yes, we have had a couple orderly years in my twelve, but that

has been the exception rather than the rule. What we have proposed is a way that we can have an orderly process between the

executive and legislative branch. It may work, and it may not. It

is possible that we may run into differences that we cannot resolve

early. I think it is much more likely that we will have an orderly process with this bill. You can’t guarantee that under any procedure if

you have a sharp difference between the executive and legislative

branches of government, but I think the chance of success are

much greater. On the issue of Social Security, we preserve the current budget

rules on surpluses. Let me repeat that. We preserve the current
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budget rules on surpluses. OMB met with us early and told us

what we were doing was their interpretation of the current budget

rules. I understand that they may have changed some of their

views because budget surpluses are a lot larger than we anticipated, but there was a lot of pressure on us to change the budget

rules to make it easier for a tax cut and using all surpluses. We

didn’t do that.

So I think those criticisms are unfair, and I regret that people

that I admire greatly have raised those issues because I think it

is an effort to not have us discuss the merits of these proposals.

Mr. GOSS. Any further comments?

Mr. NUSSLE. I would not be surprised if there are those out there

who want to, for their own particular advantage substantively, I

am not talking partisan, because they want to be able to accomplish something for themselves, their committee, their own jurisdiction, to try and stick something in here to gain the outcome, skew

it toward one direction or the other, and that is exactly what we

tried to avoid. And this is more a comment toward the amendment

process than anything else. And I don’t know how the Rules Committee will look on this kind of a bill toward the amendment process, but whether it is an open rule or whether it is—however it

might be described, I am going to argue that anybody who wants

to argue on technicalities—in other words, the increased delay argument is one that is a valid discussion. Let’s have a discussion on

that, concern about how long the process will take. But to say substantively it is going to skew the outcome for Social Security or

Medicare or the Aviation Trust Fund or this trust fund or that

trust fund or certain tax cuts, I think, would be a mistake.

Those who have looked at this can find fault in many areas. One

area that has been brought up is the whole question of the joint

resolution. There are those who are suggesting that this gives too

much power to the President. It is a legitimate discussion point

that we need to have.

But to suggest that it skews the outcome of a substantive issue

before the House today I think would be a mistake, and I think

those experts that have looked at the bill would agree that it really

doesn’t game the system.

You may disagree with the way that Congress is approaching

this, and you may disagree with the way—the balance between the

Congress and the President in this instance, but to suggest that it

skews a substantive issue before the House would be a mistake.

There are very few who can hold that argument.

Mr. MINGE. I would simply like to point out that on page 17, beginning at line 15 of the bill, there is a point of order that can be

raised by the Senate when the Senate considers the concurrent resolution, which would compromise the Social Security program. For

those that would like to raise the specter of the Social Security program being at risk here, I think this is just one sort of modest example of how this bill tends to protect Social Security. We should

not let that type of red herring be blown out of—made of whole

cloth into something that someone would consider an issue. It is

not.

Mr. GOSS. I appreciate your bringing that up. I think it is current law as well, as you just basically referred to it.
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The point of my alerting you is that we all can have a budget

discussion this year or any time soon without talking about Social

Security, or about anything else, not just Social Security, it seems.

So I think we need to be prepared to answer factually what the

provisions are; and I think obviously the quality of the testimony

where you have acknowledged the depth of this and understanding

and fairness among your colleagues that this is not going to be that

kind of a problem.

But it does lead to the question of are we doing the right thing

with bipartisan support on both sides? We are proceeding to move

this legislation on that assumption, and we hope that is true. I

have no reason to believe otherwise, and obviously those are guesses that we all make in judgments on legislation.

We want this very much to be a bipartisan effort; we are emphasizing that. The bipartisan nature of the effort that has gone so far

is remarkable, exemplary, I would say, for this institution.

Mr. Linder.

Mr. LINDER. I agree that the later we finish the work, the more

power the executive branch has in getting its way. By requiring the

executive branch’s signature on the budget early on, a lack of

agreement between the legislative and executive branches could

presently delay this game and just force everything late in the season.

Mr. CARDIN. Well, understand that the resolution will contain

just very, very broad instructions, broader than our current resolution, so that if the President vetoes it, he is vetoing it on a very

specific issue; that is, that there is too much spending or not

enough spending, too many tax cuts or not enough tax cuts. It is

going to be on a very broad matter.

If he vetoes it, the Congress has basically one of two choices. It

can work with the President, as we hoped it would, to resolve this

issue so that we can have appropriations bills that are going to be

signed into law that don’t have to be modified later, that we are

going to have a tax bill or an entitlement bill that will be signed

into law; or will be fighting over the policy, not the dollar amounts,

and that we can have a much more intelligent debate in Congress,

a more sincere debate, one which Members are going to spend a lot

more time on because they know it is going to become real.

So I think it makes the whole process work a lot better.

But let us say, if we just have a President and Congress that are

out of step with each other and don’t want to work together for

whatever reasons, their political agenda, then we are basically

stuck with the current system; we are not in any worse shape. Congress goes on and does its work as it does today. There is no delay.

We just move forward, as we would under the current budget rules.

And then, of course, in the fall of the year, we will have a problem, but we hope that is not the case. We set up a process where

we can avoid it, but we would know right up front that there is a

disagreement between the President and the Congress on the size

of spending or on the amount of money in entitlements or taxes.

Mr. LINDER. Are you all considering at any point a capital budget

as well as an income and outgo budget?

Mr. MINGE. I think that was discussed. I should really let Jim

speak to this, but my—just speaking for myself, one of the concerns
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was that the array of things that could be taken up and the impact

it would have on the appropriations process and the budget process

here was vast, and that it made more sense to do something that

we could realistically hope could be passed by this institution than

the more ambitious reform efforts which, at least in my short experience here, I have seen flounder and just never carried forward.

Mr. NUSSLE. I think that is a good answer. It does lead me to

one thing that I did neglect, and that is, you know, there are many

who have given us—and that includes the Rules Committee—credit

for coming up with this, and I would just suggest that the first

thing all of us did was research and talk to all of the other giants

in this institution that have been concerned about budget reform

in the past, including those that have written legislation on capital

budgets and others; and then we gleaned from all of those people

and their bills the best, or what we consider to be the best that

they came up with.

So, yes, this is an original document that we came up with, but

as happens around here, if you see something good, you steal it and

you make it your own and that is what we have done here. We

have taken—we stand on the shoulders of people who are no longer

in the institution, that have been waiting for the day to try and

make some positive changes; and so, yes, we considered it, it was

part of the hearings.

However, we decided that—at the end, as David said, that we

wanted something that seemed a little bit too drastic. This was

something that could gain the kind of support that we thought was

necessary to move it not only through the House, but when we

were holding these hearings, the Senate. The other body didn’t

seem to be as interested in reform, and as you know, earlier this

year they made the commitment to budget process reform as well.

So the realistic chance became much more realistic, much more

prevalent than it had been while we were writing the bill.

Mr. LINDER. Thank you.

Mr. GOSS. Mr. Hastings.

Mr. HASTINGS. I want to follow up on something that John Linder mentioned regarding the potential for slowing the process

down, and it could be the difference of the markup between the

Congress, the House and the Senate; it is not confined to the presidency.

Ben, at least you suggested that one of the solutions to that is

having a budget resolution that is very broad, which I agree, that

would be part of the solution. What sort of incentives do you have

in the bill to ensure that it stays broad, or is it just political will

that you would have to go through to make that happen?

Mr. CARDIN. The budget law, if this were to become law, but the

resolution is limited to basically two items. One is the overall—and

I think Jim has a chart that shows the difference.

Mr. NUSSLE. I will just show you the difference between the two

budgets. This will be the—this is the current budget bill and the

way we currently do it. This will be the new one.

Mr. HASTINGS. Okay.

Mr. NUSSLE. We have this in a handout that we give you, so you

don’t have to look at the chart. I apologize; there is no place to put

this so everyone can see it.
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Mr. GOSS. We would like the record to include the handout as

well.

Mr. NUSSLE. We will do that.

Mr. CARDIN. So the point is it is less likely that there would be

a difference between the House and the Senate in bringing a budget resolution forward than under the current rules. It is less likely

you are going to have a disagreement between the White House

and Congress on a budget resolution. It still can happen, but it is

less likely. And in the event that you don’t reach agreements, you

are in no worse shape than you are today.

What we are trying to do is have a process where we do reach

an agreement, and we think it is more likely that we will have

these issues resolved early. There is enough to fight over in the

budget itself. I mean, I would love to have a good debate on some

of the specifics on the appropriation bills where not the dollar

amounts, but how we actually spend money—and that would be, I

think, a better use of our time than going through a process where

most people say, well, we have to put this in for leverage for the

final negotiations that will take place in October—September, October between the President and the Congress.

Mr. HASTINGS. The only reason I say that, and I recall having

seen this before, but I can see down the line one entity or the other

that is involved in this could then have some sort of report language that that line item will have—I guess my concern is, I can

see how this can steamroll, and I just wonder if you discussed that

and if there is any way that perhaps you could reduce those things,

other than just political will.

Mr. CARDIN. I think it is a very good point. Remember, the President in signing the resolution would only be signing what is in the

resolution. The President would be fully within his right to say,

look, I am signing this resolution because I agree with what is in

it, but I understand some of the assumptions that the Budget Committee put in their report that I can tell you would be very difficult

for me ultimately in agreeing to a bill that carried out that policy.

Mr. HASTINGS. Suggests that the House or the Senate had that

report language rather than the President.

Mr. CARDIN. Right.

Mr. HASTINGS. I just bring this up—

Mr. CARDIN. Remember, we have report language right now in

appropriations bills that do not have the force and effect of law, so

that is a current prerogative of Congress, and it is an effective way

that sometimes we can get different types of administrators to respond.

Mr. HASTINGS. Thank you.

Mr. NUSSLE. This happened in 1997 with the memorandum of

agreement between the Congress and the President. Again, the aggregate numbers, similar to the ones that I just showed you, which

will be part of the new budget resolution, were agreed to, but none

of the details were agreed to. In fact, many, on both sides, were

able to read whatever they wanted into that, into that final agreement and say, well, it means we can have this much for tax relief;

well, it really means we can do this in spending.
53

What happened was, the normal process then took hold and

eventually we did reach a successful conclusion. But at least the

big discussion, the big aggregate numbers were done ahead of time.

One other observation I would just make as a member of the

Budget Committee and someone who very much enjoys my membership on the Budget Committee, after April 15th, we are done,

and from April 15th until the next time the President submits the

budget, we don’t have all that much to do on the Budget Committee; and thankfully, we all have other committee assignments,

to do that work.

I believe that if you pass this kind of an approach, as you know,

OMB and CBO continue the budgeting process throughout the rest

of the year without Members involved. All of a sudden, almost as

a surprise and in a very political document, both the President and

the Congress submit their budgets then the next year, without any

discussion. I mean, unless there is something to force that discussion, it is just all of a sudden some mysterious political document

that comes down, both sides can harangue the other, both can say

it is dead on arrival, and then the process really begins.

If you force a bill that needs to be signed in order for it to be

effective, you will see what happened in 1997 where, at that time,

Chairman Kasich and OMB and the chief of staff sat down—I believe, if I am not mistaken, as early as November; and this was

without any mandate or law to force that—sat down in November

and December of the year prior—of 1996 to begin working out the

details of that memorandum.

And I believe that process you will see begin April 15th; as soon

as that next year’s budget passes, you have to start the process on

the next budget. It begins for everyone else; it should for the Budget Committee and for the Congress as well.

Mr. HASTINGS. Good. I thank you for your comments on that. I

obviously hope that that is followed in that broadest sense; I think

that is the key.

What you mentioned, Jim, leads to another question that I have,

and that is the whole process of oversight of government programs.

It seems to me that we don’t do a very good job. When you look

at the budget process, like you say, the Budget Committee works

hard until April 15th and then they exhaust it, they go out and we

pass it, and then the appropriators do their job; and finally in October we are totally exhausted, we go home, and we come back in

January and start the process all over again, and no oversight,

really good oversight, exists.

To me, one of the solutions to do that would be a biennial budget.

Did you discuss that at all? Where are you with those discussions?

Is that just one of those—go ahead.

Mr. NUSSLE. We did discuss it. It was—we received testimony on

that, and to be quite honest, we decided that we weren’t going to

pursue a biennial budget. There is nothing in here that would suggest that you couldn’t make this a two year process as opposed to

a one year process, an annual process.

I would agree with you, it may in some instances give more opportunity for oversight. The converse to that and the reason we

didn’t put it in is we felt that it was more of a Senate—it was

something the Senate was obviously very interested in from Chair54

man Domenici’s standpoint; and from a House perspective, when

you have only a two year term, and as a result, get only one shot

at a budget which the next day is out of—not out of balance, but

almost out of date, certainly by the rest of the year, whether it is

through emergencies or through changes in our economy, can be

out of date—we didn’t want to automatically give it a two year

stamp of approval without having some opportunity to make

changes in priorities throughout the rest of our term in the next

year.

So I think for those in the Senate that have a six year perspective, it is probably a little bit more attractive than for those of us

who have a two year perspective.

I don’t disagree that long–term planning can be a part of that.

That is why we adopted a ten year approach to the numbers, similar to the Senate, so that we can start taking a more forward look

as well as adopting the provisions for accrual accounting and beginning to test our unfunded liabilities.

I think that will help in answering your question, but we didn’t—

we decided not to put the two year in here until we had a chance

to meet with the Senate and discuss that.

Mr. MINGE. The only other comment I would make is, much like

the capital budget, I have heard many people on the Appropriations Committee say, we don’t like this, we don’t like that; and the

next thing you know, you have the full committee organizing on a

bipartisan basis to oppose something.

I think we already faced the threat that some of the troops within Congress on a bipartisan basis, the committees are going to—

it is sort of a delicate balance between what is politically possible

to pass within the institution and what would be best for us to do.

Where that balance is struck each time is sort of a tough call. But

I would certainly compliment both Jim and Ben for trying to stick

within the bounds of what is realistic.

Mr. CARDIN. Let me say that I have no objections to a biennial

budget, but I think in a legislature that meets every year, it is unlikely that we would do a biennial budget even if we put it into

law. I would think the Appropriations Committee would probably

put out a product every year regardless of what we try to do with

a two year budget. So, as a pragmatic approach, I think it is one

that is not a high priority in what we are trying to get done, because I am not sure it would be enforced.

Mr. HASTINGS. I appreciate the fact that the Senate has taken

a pretty strong position on this. I am one that happens to believe

that it is also good policy, and I can see the second year for Congress, however, having a number of supplementals.

I mean, we have annual budgets. How many supplementals do

we have floating around and potentially another one coming up? So

we have a lot of supplementals under any case, but it at least puts

you in a position that all political parties at one time or another

would not be faced with a government shutdown in an election year

where you really turn over at that point all of the power to the

presidency, no matter who is in power, if you have a disagreement;

and it seems to me a biennial budget would be one way to resolve

that, because you work it out as much as you can in the first year,

and the supplemental in the second year.
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Thank you.

Mr. NUSSLE. In some respects, that is what we did last year. We

basically kept the budget in force because we didn’t have a budget.

So you almost saw last year what a two year budget was like. I

am not suggesting it was; I am just saying that the budget kept

its effect. And so you can do it, but I think the fact that we have

never gotten the numbers right—and it is no reflection on CBO or

OMB or anybody; it is impossible to forecast as big as we are, and

so getting it right for 1 year I think is something we ought to try

and do first. You know, let’s walk before we run.

But 2 years is a possibility, although we don’t include that under

what we have written.

Mr. HASTINGS. I suspect the Senate, their position will be that

that is something that we talk about. So thank you.

Mr. GOSS. Mr. Sessions.

Mr. SESSIONS. Thank you, Mr. Chairman.

Ben, I would like to go first to a question to you to make sure

I understand. You said that the CR would be neutral if we were

unable to agree. That means that you take which year’s—

Mr. CARDIN. Last year’s.

Mr. SESSIONS. The prior year. So you just take the prior year and

keep moving forward until we are able to—

Mr. CARDIN. Right. There are some who think that there should

be an inflator to it, some who think there should be an automatic

reduction. By using neutral, we took last year’s number without an

deflator or inflator.

Mr. SESSIONS. The last one that had presumably been utilized

and agreed to?

Mr. CARDIN. Correct.

Mr. SESSIONS. And that just automatically happens and does not

require any act of Congress, the President knows it, we know it?

Mr. CARDIN. Right. There is no new appropriation bill enacted

into law, that is passed by the Congress and signed by the President; and then it would be an automatic continuation of the current budget.

Mr. SESSIONS. The reason why I asked this is because I believe

last year we were unclear as to really what would happen and

what needs to take place to avoid shutting down the government,

at least some suggestions that I had.

I would like to direct some of my questions, and I will confess

to you I have not read the bill yet. Do we have a copy?

Mr. GOSS. Yes. Do you want it?

Mr. SESSIONS. Do we have one?

Oh, that is theirs? Okay. It sure is. Excuse me, I thought that

was the prior testimony.

Do you talk anywhere in this budget about scoring dynamic

versus static and make any changes?

Mr. NUSSLE. No.

Mr. SESSIONS. No?

Mr. NUSSLE. No.

Mr. SESSIONS. Okay.

Mr. NUSSLE. Just if I could comment on that, that has been an

oversight purview of the Budget Committee as an unsettled issue;

and it is one that, as you know, is somewhat contentious between
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the parties, or has been contentious, and we wanted to avoid that,

again in the name of bipartisanship.

Mr. SESSIONS. Okay. Do you anywhere in here—and it kind of

goes back to Ben’s comments, which I do agree with, about having

the legislative branch have some say in how the money will be

spent—do you in any sense talk about walling off money? I looked

at your charts that are here, and it looks like, look, this is a budget

resolution we will worry about when things are actually appropriated.

But do you in any way talk about the walling off of money, because I think in particular, it has caused—

Mr. MINGE. Walling off money for what?

Mr. SESSIONS. Well, for instance, let’s suppose—and we could

take current circumstances with the war—there was a question

about what the President used money for, where he got the money

to do things. Is there a provision for tightening up?

Really, Congressman Cardin, I am going on your comments.

Mr. CARDIN. Right. Well, we do have the lockbox provision which

has been passed by this House on several occasions on a bipartisan

vote.

Mr. SESSIONS. For Social Security?

Mr. CARDIN. No, no, lockbox for cuts that we make in appropriations bills that we don’t want to just get recycled, that it would be

actually used to reduce the deficit. We do provide for that provision. I think Mr. Minge was very actively involved in the development of that proposal.

As far as the legal use of money, we have not changed the definition of how appropriated funds can be used, but there are certain

legal restrictions today on how monies that are appropriated for

one purpose can be used for any other purpose other than what it

was appropriated for. Whether we need to look at enforcing that is

a good question.

You raise a very good question on that, but I think all of us who

served on this task force would like to see appropriated monies

used for their intended purposes and would support efforts that

you might want to look at.

Mr. SESSIONS. Does it say that in here or reinforce that in any

way? Did you address that really is my question.

Mr. CARDIN. No. It was not brought to our attention. We did not

take a look at it, but I think we share your concern that appropriated monies be used for its intended purposes.

Mr. SESSIONS. And only for that intended purpose?

Mr. CARDIN. Correct.

Mr. SESSIONS. Good. I thank the Chairman.

Mr. GOSS. Ms. Pryce.

Ms. PRYCE. Thank you, Mr. Chairman. I am sorry I missed most

of the substantive testimony. I just had one quick question. The

CR, is that similar to the Gekas proposal?

Mr. NUSSLE. Almost identical. I would hate to say it was identical without matching it, but it is almost identical language, yes;

and Mr. Gekas knows about that and has been supportive in putting that provision into our legislation.

Ms. PRYCE. I had long thought that he had a great idea, and I

am glad that you incorporated it.
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I have no other questions. Thank you for your hard work.

Mr. GOSS. To be completely fair, I think there is also a provision

in this bill identical to the Crapo and Harman lock–box.

Mr. NUSSLE. Yes. The problem is, we have gleaned so much, so

much of this has been gleaned from others that have worked so

hard. So we must make sure we give credit where credit is due.

Mr. GOSS. One of the reasons we are trying to bring this to a conclusion and pass legislation at this point is, we do feel we have had

a lot of good testimony over the years, a lot of good ideas, and the

time has come to pass it, take it out and see how we go.

Along the line of Doc Hastings’ question, I would just point out

that I was very much impressed that when I read the compilation

in Title IV, the accountability and the incentives to start getting

order into the process, as Mr. Cardin has stated, but particularly

the 401 provision, the fixed year authorization request, and then

the ten year congressional review and the continuing additional

budget process reforms, I mean all of these things go to bringing

order to a process now.

I think that the debate frankly is going to boil down to, do you

want order or do you want political flexibility? And I think the institution is better served by a little more order in this area, so I

think that is what we should shoot for.

I want to thank you all very much. This is a very distinguished

panel and we are going to count very much on your participation

as we move along. Thank you all.

We have had reference to giants in the testimony we just had,

and we have written testimony from one of those giants, Former

Member Bill Frenzel, the cochairman for the Committee for a Responsible Federal Budget. Without objection, I am going to submit

his full statement for the record.

[The prepared statement of Mr. Frenzel follows:]
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Mr. GOSS. At this time, Chairman Linder is going to call the next

witness.

Mr. LINDER. [Presiding.] Dr. Irving, welcome. We are pleased to

have you here.

Dr. Susan J. Irving from the General Accounting Office oversees

work on the structure of the Federal budget, the budget process,

the U.S. fiscal position, and related issues. Dr. Irving has served

as a Legislative Assistant and Legislative Director to members of

the Senate Finance Committee, as Staff Director to the President’s

Council of Economic Advisers in the Executive Office of the President, and as Vice President of the Committee for a Responsible

Federal Budget. Dr. Irving was a Fellow at Harvard’s Institute of

Politics and has taught public management at the John F. Kennedy

School of Government at Harvard University.

Welcome.

STATEMENT OF DR. SUSAN J. IRVING, ASSOCIATE DIRECTOR

FOR FEDERAL BUDGET ISSUES, GENERAL ACCOUNTING OFFICE

Ms. IRVING. Thank you. It is a pleasure to be back. In fact, attached to the back of my written formal statement, which I would

like included in the record, is a list of a number of testimonies I

have presented here or in the Senate or House Budget Committees

dealing with the budget process. We have gone through several

years of looking at issues around this process.

I think it is really important to start this discussion with the recognition of how important the budget process is. In some ways, it

is one of the most important things all of you do, because it is

through the budget debate that you make decisions, with the President, about how to juggle and balance the sometimes conflicting desires of the American people about how much of the wealth we

produce in the country shall be used collectively for goals that we

can only reach together, and in what form it should be collected

and in what form it should be spent.

It is not really a surprise that it takes you some time to think

about how to restructure the process, because it is so important. It

is also because it is so important that we ask a great deal from

that process, and it is never going to measure up in every way to

make everybody happy.

On the other hand, you now face a very different situation than

you faced in the last decade when the process was last changed

greatly. It is important to remember the 1974 act was designed to

be outcome–neutral. The goal was to reassert the role of the Congress vis–a–vis the President. Remember, in 1974, we were only

five years away from our last balanced budget, so deficit reduction

didn’t look like a big issue for the process. It was not until the

mid–1980s that the process was rewritten with an eye toward

achievement of a particular goal, a goal you have now reached.

So for the first time we look at an interesting mix of outlooks.

We have budget projections for a surplus as far as the eye can see

beyond our normal projection period, combined with the certainty

that, absent policy changes you will be faced with a demographic

tidal wave which will overwhelm those surpluses.
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So what do you want your budget process to do? You want it to

allow you to look at the long term, to think about the trade–offs

and the big drivers, and to think of that not solely in terms of the

ones we think of as long–term commitments—not just Social Security and Medicare—but also other issues. For example, the decision

to be the world’s superpower carries with it some long–term cost

implications that we sometimes fall into the trap of pretending are

annual decisions.

We like a budget process that gives you all the information and

structure to consider trade–offs. Should we spend more or invest

more on consumption? You would like to be able to make trade–

offs between missions and tools, and you would like a process that

is enforceable and permits you to control results, hold all of us accountable, and at the same time is transparent. These are not consistent goals.

I would like to focus specifically today on the two elements of the

bill before us which we had a fair amount to do with developing.

One is its focus on the very long term, and the second is its approach to budgeting for insurance. I have some technical comments

on some other parts of the bill in the written statement, and we

would be happy to continue to work with your staff as you move

ahead in markup.

The focus on the long term has long been an interest of the General Accounting Office. Indeed, in 1992, we were the first of your

support agencies to do some modeling, looking out 50 years at what

would happen if you imagined a computer that could just make the

budget keep going, but you allowed some interaction with the economy. Now, this is an unrealistic set of assumptions—let me be

clear about that—and sure enough, it showed you couldn’t do it.

The world explodes.

What we see if you update the model to reflect the current situation which we have done periodically at the request of various

Members, is that the combination of a good economy and some very

tough decisions by all of you has, in fact, dramatically changed the

situation. But we still face an unsustainable long–term fiscal policy, and I think the benefit of the provision in this bill to look out

over the very long term for everything is that it permits all of you

to look ahead and see what are implied commitments, what the

budget looks like as a whold, not just parts in isolation.

The Social Security Trustees’ report tells you what Social Security looks like. They do a very good job of telling you the system

has a problem on its own terms, but they do not in the Trustees’

report tell you what happens if you fix it on its own terms to the

rest of the budget, to the economy.

We have a great many programs where we don’t look out that

far because we feel ourselves limited to things where we can measure precisely, and no 75–year projection would be better than giving you a sense of direction and order of magnitude. But I think

this is critically important as you begin to look further and further

ahead and make more and more commitments that, in fact, have

long–term implications.

I would like to talk a little more specifically about insurance. For

a lot of reasons having to do with control, we use what is loosely

referred to as a cash–based budget. Cash is harder to game, you
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can count it and frankly, the difference between accrual and cash

for things like your salary and my salary is trivial. But we discovered in the 1980s that for credit, the difference between cash and

accrual was a dramatic difference. The budget in the 1980s showed

a direct loan just like a grant. All the money went out and we ignored that it would be repaid. Conversely, loan guarantees looked

free; you could put any loan guarantee you wanted in the budget,

and it was free. The fact that some of those would be defaulted and

money would flow out later, well, that was the future, somebody

else’s problem.

So in 1990, as part of the Budget Enforcement Act, you all enacted the Credit Reform Act, and we now try to look at the estimate of what the government is actually on the hook for in credit

programs: what is the subsidy. These estimates are not great, but

they are a lot better than what we used to do.

Insurance is harder. Right now the Pension Benefit Guarantee

Corporation looks like a cash generator to the Federal Government.

It is a profit center, because we count the premiums that come in

on a cash basis, and in the years we don’t have to pay out, it

doesn’t look like it costs us any money. I would suggest there is almost no plausible scenario under which, over the long term, PBGC

is a profit center, it is not set up to be a profit center; and it makes

much more sense for us to begin to think about the insurance commitment the Federal Government is making when it issues insurance.

What kind of risk are we assuming for the Federal budget? In

the abstract, a model that is almost exactly based on credit makes

a lot of sense. The problem is, we know how to do it for credit—

not very well, but we know how to do it. There is lots of experience

out there with estimating loss ratios. We can look at cohorts, you

know, one group alone versus another, until it makes sense.

Insurance is a lot harder to model. And an accounting analogy

doesn’t work precisely. So the approach taken in this bill has a lot

to recommend it.

There is a fairly slow phase–in period during which OMB and

CBO are required to attempt to do the numbers, to display them

as additional information. It requires that OMB, CBO and GAO

comment on progress. It sets FY 2006 as a date certain for putting

those into real budget numbers. I presume that is to create a huge

incentive for the agencies to get it right.

However, I think there are problems with a two–year sunset. It

puts insurance in for 2006 and it triggers off at the end of 2007.

I think you may wish a sunset, that is, you may wish a trial period

at which point Congress votes explicitly on whether they think this

is working, but I think 2 years is probably too short.

Those are the two areas of this bill on which your staff asked me

to focus. I will be glad to answer any questions you may have.

[The prepared statement of Ms. Irving follows:]
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Mr. LINDER. Just the fact that we are looking at long–term potential liabilities is a plus. Do you have a number at GAO in terms

of what our underfunded liabilities are with respect to retirement

programs?

Ms. IRVING. The answer on the Federal is, we can find it. I don’t

have it off the top of my head.

Mr. LINDER. We have had numbers bandied around here for

years of 6 to 12 trillion.

Ms. IRVING. Many estimates are made using different assumptions. Some estimates of Social Security are based on a, closed system, which assumes you are getting no new entrants. Those numbers tend to be the highest.

I know there is a debate in the community of people who are interested in improving the numbers. I think using huge scary numbers makes it worse. I think it is better to look realistically at the

fact that you have some pension liabilities that you know how to

count, and Social Security, which is sort of a different animal, and

then you have sort of the implied commitments that we don’t know

how to account for: deposit insurance, some of the other insurance

programs.

Let me be clear. The numbers that you would use under risk assumed will probably be wrong, but they will at least be in the right

direction. I mean, I don’t think it matters if it is ten when it really

should be twelve, but it matters if it is plus three when it should

be minus five.

But I will get you what we have on that, sir.

Mr. LINDER. The question was raised earlier, by Mr. Sessions I

think, about dynamic versus static scoring; and my understanding

that is not a legislative solution, that is a solution determined by

the various agencies that do estimating based on their best judgment. But we learned, I think, a pretty big lesson on the cuts in

capital gains taxes that brought dramatic increases in revenues.

You see nations since 1984 to 1996, Caribbean nations, dramatically cutting marginal tax rates, increasing their revenues. We

have had some experience here with that.

Are we moving toward more dynamic scoring, a more honest assessment of the tax burden that we impose on business and individuals? Does it have an impact on the future size of the economy?

Ms. IRVING. The discussion of ′′dynamic′′ versus what is

misleadingly called ′′static scoring′′ I think is often a misleading

discussion because we fall into the trap of implicitly accusing CBO

and Treasury of doing really static scoring. Really static estimates

would be—to use a really bad example—taking a 50 cent cigarette

tax per pack and, multiplying it by the number of cigarette packs

bought last year to get a revenue estimate. No one does that kind

of static scoring. Estimators would assume that there will be a reduction in the number of cigarette packages bought, so that, to that

extent, what I would call ′′first order effects′′ are generally taken

into account.

In terms of the longer–term issues or the broader issues of impact on the economy, there are of course two sides of this issue. It

is mostly raised in terms of tax cuts, but there are a great many

people out there who believe that there are some spending in78

creases that also should be scored dynamically once you start down

that road.

In addition, capital gains is a really interesting one because the

other way to get an increase in capital gains receipts is to announce a prospective capital gains rate increase. We know that if

you enacted a tax increase for two years from today, you would get

dramatic realizations over the next two years. One of the issues in

other countries is that in many of the countries where you see dramatic responses from changes in tax burdens, their tax burdens are

so much higher than the ones we are discussing now, and these

things tend to have decreasing marginal impact. There is a real difference going from a 90 percent tax rate to a 50 percent, compared

from going from 50 to 40. For most estimators it feels like a slippery slope when one person calls up an amendment saying it will

generate investment and another person says, ′′Oh, but if it is

spent on airports, we will get more.′′ CBO did an interesting paper on this about two years ago.

I am glad to say at GAO one hard and fast rule is, we don’t

score. You don’t need a third set of numbers.

Mr. LINDER. We may have some questions submitted to you later

for your review.

[The information follows:]
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Mr. LINDER. Mr. Hastings.

Mr. HASTINGS. I just wanted to understand what you were saying about long–term planning and forecasting. The two obvious

ones of course are Medicare and Social Security. The assumption

is that there will be no changes, but if there are some changes,

then of course the dynamics will change.

Give me some examples of other long–term commitments that we

have that we don’t address fully. I think I heard you say that we

don’t do a good enough job on that, so give me some examples of

that.

Ms. IRVING. Social Security and Medicare are obviously the 800–

pound whatever you want to call them in the budget, and they are

the ones that would have the greatest effect on the macroeconomy.

In terms of choices within the government, we do a mixed bag on

our Federal pension obligations; that is, we have begun to include

them within the budget to recognize those cost estimates. I think

even though we write insurance contracts as one year contracts

sometimes, I think it defies belief to think of flood insurance as a

one year commitment and renew it every year. So I think it would

make much more sense to think about most insurance programs as

long–term commitments, and we don’t. We just show those on a

cash basis.

I also think that there is this interest—the reason I like the idea

of the broad budget as a whole simulation out for 75 years, making

some assumptions about discretionary, is that there are an awful

lot of things that are in fact annually appropriated, but are de facto

long–term commitments. We need to take into account our role in the world. We may

change how much we spend on defense every year, but we are

never going to go to a tiny defense budget. We are not going to give

up our role in the world as a leading power. I think it is unlikely we will shut down the FBI or the Justice

Department or the Immigration and Naturalization Service, and

yet by modeling only the long–term legal commitments, we pretend

those are annual decisions that could be as low as zero.

One of the things I think is a good idea in this bill is showing

long–term estimates for the budget as a whole. It is not that the

numbers are right, but it gives you some rough idea of what the

size of it would look like and how the composition would change

if you just kept everything even. Do not misunderstand me. These are not real estimates; these

are order of magnitude and progression and scope, context providers.

Mr. HASTINGS. Projecting into the future is an inexact science. If

anybody here could do that with some certainty, we wouldn’t be sitting here. Ms. IRVING. Exactly. Mr. HASTINGS. Thank you very much. Mr. LINDER. Mr. Sessions.

Mr. SESSIONS. Thank you, Mr. Chairman. I probably would be

sitting here and we would be in trouble if we could project that.
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I note at the very beginning that I am impressed with not only

your testimony, but also that you serve on the Board of Directors

for The Concord Coalition. I admire that—

Mr. LINDER. You have the wrong one.

Mr. SESSIONS. You are not Martha Phillips? I am just having a

tough day. This is what happens when you have your staff guy not

here. There is nothing wrong with me.

That is what struck me that I was going to go into because I

have, following along with what Mr. Linder said, I heard your discussion and debate that you had about what I thought was very

interesting, that John followed up on, where I was talking about

the circumstance where we have a tax cut and it raises revenue

rather than costing money; and I was interested that you turned

that around where you almost wanted to turn us into tax collectors,

rather than being for the taxpayer.

Ms. IRVING. Actually, I am glad you raised that. If I—

Mr. SESSIONS. Well, I heard you say, as a matter of fact, since

you are interested in revenue, if you are going to raise taxes, you

get more money.

Ms. IRVING. Well, but I was pointing out—

Mr. SESSIONS. That is why I found it interesting.

Ms. IRVING. I can understand it. I was actually attempting only

to make an analytic point: if the question about dynamic scoring

was that someone had scored a capital gains tax cut as losing

money, and then the next year it brought in more money—

Mr. SESSIONS. And that did happen.

Ms. IRVING. Yes, I was trying to say that it is also true that that

does not, in and of itself, tell you that a capital gains tax is a good

or bad idea.

Mr. SESSIONS. Why is that?

Ms. IRVING. Because if your reason for supporting a capital gains

tax cut was that you were going to get more revenue the next year,

that would also be true if you announced a future raise.

Mr. SESSIONS. But why would we turn this Republican Congress

into tax collectors when we are the opposite?

Ms. IRVING. Well, Mr. Sessions—

Mr. SESSIONS. It is not to get revenue.

Ms. IRVING. But I presume that the reason to advocate a cut in

capital gains taxes is not because it produces more revenue the

next year, but because you think it does something for the economy. The analytic question I was presented with was really a multiplication issue.

Mr. SESSIONS. Here is why we would, because we could do it

without having to pay for it. Yes, it does produce all of those

things, but we are really not doing it to produce revenue. We want

it to be neutral.

Ms. IRVING. Mr. Sessions, I was presented with the arithmetic

statement that pushing this button gets you this much more revenue; I was merely saying that you also get more money by pushing a different button. Therefore the debate between those two buttons is a debate broader than whether you get more revenue; it is

a debate having to do with what would be an appropriate tax level.
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Mr. SESSIONS. That would lead us to the next question. There is

an estimate that 62 percent of taxes in this country will be paid

by 1 percent of the tax—of the citizens.

Mr. LINDER. Thirty–three. The top one percent pay 33 percent of

the taxes.

Mr. SESSIONS. The figure I have seen is 62 percent will pay one

percent of the taxes this year.

Mr. LINDER. I think the numbers are wrong. I think the number

is the top one percent.

Mr. SESSIONS. Well, let’s say that I can produce something that

says that, and I can get it sent over here; regardless of whether I

am right or wrong, would your philosophy be that we should have

40 percent, 30 percent, or 1 percent of people in this country paying

taxes?

Ms. IRVING. Mr. Sessions, except as a private citizen, I would not

have a philosophy on that issue. There is a very clear line—

Mr. SESSIONS. But you are an economist. I am not trying to attack you at all.

Ms. IRVING. Actually, my degree is in public policy, which is a

mixture of economics and government. But there isn’t an analytically single right answer to that number; it is fundamentally a

value and a policy call.

I don’t have a view on that as an analyst. That is a decision

about the appropriate tax structure for the United States, which is

appropriately a decision for our elected representatives to make.

Mr. SESSIONS. Well, what is interesting is that we don’t even

know what the correct answer is.

Ms. IRVING. That actually is probably an answer Treasury could

give you.

Mr. LINDER. The numbers I have seen, the bottom 50 percent of

the income earners pay about four percent of the taxes. The top one

percent pay 32.5.

Mr. SESSIONS. Thank you.

Mr. LINDER. Thank you very much.

Ms. IRVING. Thank you.

Mr. LINDER. Our last panel this morning is comprised of Professor Tim Muris, Martha Phillips and Robert Greenstein.

Ms. Phillips is a member of the Board of Directors of The Concord Coalition, a bipartisan, nationwide grass–roots organization

founded by former Senators Warren Rudman and Paul Tsongas.

She served as the Executive Director during the Coalition’s first six

years, October 1992 to 1998. Ms. Phillips is also currently a member of the Medicare Advisory Committee of the National Academy

of Social Insurance; the Advisory Board of The Brookings Institution’s Economic Studies Program; and the Advisory Committee of

the Commonwealth Fund’s Program on Advancing the Well–Being

of Elderly People.

Before joining Concord, Ms. Phillips was a Republican Staff Director for the House Committee on the Budget from 1986 through

1992. From 1977 through 1985, Ms. Phillips was the Deputy Minority Staff Director of the House Ways and Means Committee,

where she also served as Staff Liaison to the Budget Committee.

From 1974 to 1976 she was the Staff Director of the Republican

Policy Committee, and from 1969 to 1973 she worked for the House
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Republican Research Committee, where she served as the Committee Staff Director as well as staff to several task forces. Prior

to that, she worked for the U.S. Office of Education and for Representative Melvin Laird.

Mr. Greenstein is the Founder and Executive Director of the

Center for Budget and Policy Priorities. Considered an expert on

the Federal budget and, in particular, the impact of the taxing

budget proposals on low–income people, Mr. Greenstein has written

numerous reports, analyses, op–ed pieces and magazine articles on

poverty–related issues. He appears on national television news and

public affairs programs and is frequently asked to testify on Capitol Hill.

In 1996, Greenstein was awarded a MacArthur Fellowship. The

MacArthur Foundation cited Greenstein for making the Center ′′a

model for a nonpartisan research of policy organization.′′ In 1994,

he was appointed by President Clinton to serve on the Bipartisan

Commission on Entitlement and Tax Reform.

Prior to founding the Center, Greenstein was Administrator of

the Food and Nutrition Service at the U.S. Department of Agriculture, where he directed the agency that operates the Federal

food assistance programs with a staff of 2,500 and a budget of $15

million.

Mr. Greenstein received his undergraduate degree from Harvard

and has done graduate work at the University of California, Berkeley. In May of 1991, Mr. Greenstein received one of the six Public

Achievement Awards awarded by Common Cause. In 1995 he was

one of the two recipients from the Center on Law and Social Policy’s 25th Anniversary.

Professor Muris has been teaching law at George Mason University since 1988 after serving three years as Executive Associate Director of the Office of Management and Budget. Prior to that he

served in various capacities at the U.S. Federal Trade Commission

and in the office of the Vice President. He has also taught at the

University of Miami and was the Law and Economics Fellow at the

University of Chicago School of Law.

You all have been very busy, and I am tired.

STATEMENTS OF MARTHA PHILLIPS, THE CONCORD COALITION; PROFESSOR TIM MURIS, GEORGE MASON SCHOOL OF

LAW; AND ROBERT GREENSTEIN, CENTER FOR BUDGET AND

POLICY PRIORITIES

Mr. LINDER. Please begin, Ms. Phillips.

STATEMENT OF MARTHA PHILLIPS

Ms. PHILLIPS. Thank you. I am pleased to be here today on behalf of The Concord Coalition in support of this bill. We commend

the bill’s sponsors for this set of proposed reforms.

Some people look at a bill and think the glass is half full; others

say it is half empty. We think that although there are some things

that we might change in this bill, on balance, it is a very useful

piece of legislation. The Concord Coalition is pleased to support it

and pleased also that it has been developed on a bipartisan basis.

The budget process no longer focuses on reducing or eliminating

gaping economically damaging deficits, so the central problem is
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maintaining sufficient control to prevent the off–budget Social Security surpluses from being diverted to other purposes in the name

of emergencies or just good old fashioned pork and to prevent temporary surpluses in the rest of the government accounts from being

used as down payments on expensive, long–term commitments that

will continue long after those surpluses disappear.

A second problem that this bill really doesn’t touch on is the

need to act very soon to prepare for the retirement of the baby

boom generation. As previous witnesses have said, we know it is

coming and we have to get ready. At least this bill provides a foundation to help us get ready, although it doesn’t directly deal with

it.

The last Congress gave us several examples of what is wrong

with the budget process and what needs to be fixed: the costly and

appalling end–game bargaining—which really is a budgetary game

of chicken rather than a deliberate, careful allocation of taxpayers’

hard–earned dollars, the emergency provision abuses, the tendency

of Congress to expand entitlements or even create new ones,

whether on the tax side of the ledger or on the spending side, and

the failure to recognize long–term unfunded liabilities.

The bill proposes several changes to address these problems.

Concord likes changing from a concurrent resolution to a joint resolution. We think that makes a lot of sense. Realistically, however,

the bill anticipates that sometimes a joint resolution might not be

possible, to achieve, and so it provides fallback of a concurrent resolution.

I very much like the idea of streamlining the budget resolution

to get away from what, frankly, are sort of hokey 20 functional categories are not very useful. It is kind of interesting to go through

the tables and look at the functions, but they do not have anything

to do with enforcement later in the game. Each functional category

is a mixture of credit, mandatory, discretionary, all mixed up.

While it is useful to have that information, it is not an enforcement

tool.

So pare back the budget resolution to the things that really

count, which are the big aggregates—spending, taxes, deficits and

debt, or surpluses; and then your control areas—entitlements or

mandatory, whatever you want to call it; defense, nondefense, and

then this new idea of creating an emergency fund. I think that

makes a lot of sense.

I agree with those who say it will take a little longer perhaps to

reach agreement on a joint resolution. Even getting both ends of

Pennsylvania Avenue to agree only on how much spending, and

how much revenue there should be might not be done quickly.

Therefore, Concord would favor a two year process. When a new

Congress comes in, produce one budget plan at a summit at the beginning of the two year cycle; decide on what the aggregates are

going to be. You can still have an annual appropriations sequence

if you want to within that framework, but once every two years is

often enough to produce a budget plan.

One thing for sure is, that a two year cycle would cut in half the

chances for fiscal mischief. You would have the budget resolution

locked in, and it would run for the duration of the Congress. So I

wouldn’t dismiss the two year budget out of hand.
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I very much like the automatic CR. It changes the ′′or else′′ from

one that says, ′′or else we will close down the government and

blame it on you,′′ to one that says, ′′or else you are going to be

stuck with last year’s level.′′

Frankly, there are going to be people who want more money than

last year for this and less money than last year for that, and they

are going to be stuck with last year’s level if they ca not get an

agreement. From a taxpayer’s point of view and the perspective of

people who need government services, being stuck with last year’s

level is a lot better than some of the things that we have witnessed

in recent years either with government close–downs or the gluttony

of $24 billion of emergency spending, most of which is not emergency, but merely the price that has to be paid to get out of town.

An automatic CR avoids all of that.

I would suggest, though, that you might want to change the language when you set the automatic CR at last year’s level not to

count last year’s emergency appropriations. If you had the proposed

automatic CR this fall, for example, you would be stuck with last

year’s level, including most of that $24 billion. So you might want

to redefine that when you make up the bill.

Abuse of the emergency procedures has become the most egregious and flagrant disregard of the spirit of the budget process that

there is. This loophole has become large enough to accommodate

not only a Mack truck or a Sherman tank, but even an entire bachelor enlisted housing complex at a base in Bahrain. This is not the

way to go.

There are two problems with emergency spending, an old one

and a newer one. The old one is that we pretend we aren’t going

to have any emergencies next year, and so we don’t appropriate

any—or very much—money for them to occur. That is ridiculous.

Scarcely a year goes by without a catastrophic fire, flood, drought,

earthquake, tornado, hurricane somewhere in the Nation; and in

America, we respond by helping the victims.

But rather than setting aside sufficient funds in advance in the

Appropriations Committee through the appropriations process, we

give disaster relief just the smallest maintenance diet; spend all

the rest of the money that is allowed under the cap on other, higher priorities; and then when emergencies happen, say, ′′oh, my

gosh, this is an emergency; we have to have still more money.′′ Part

of this is happening because the caps are so tight and you need this

money for other things, so you spend it on other things, and then

you have nothing left for legitimate emergencies.

So Concord likes the idea of peeling back out of the discretionary

cap an emergency reserve fund. How much? I think the rolling five

year average is as good as you are going to get. Then you put some

definitions on when the resources can be released. If there is an

emergency, then an allocation goes to the Appropriations Committee or the other appropriate committees, and the resources are

released. That would help deal with the more recent budget hypocrisy, which is the newer problem of just adding on emergency

spending because the caps are too tight.

That is simply what is going on. We really need to deal with this

emergency procedure.
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The temptation to create new entitlements or tax expenditures,

or expand existing ones is much greater now that everybody thinks

we have surpluses—the politicians, the press and the public. We

have money to spend, so why can’t we have entitlements? Concord

Coalition believes that these permanent taxes on future resources

are the chief budget problem. Appropriations are subject to limits

called ′′caps,′′ and spending for appropriated programs has to be debated each year; programs have to compete to justify their share

of the pie.

Entitlements don’t have to go through this process. They have

been likened to appropriated programs that have died and gone to

heaven. They just automatically get their money, even if you

couldn’t justify them in light of today’s priorities.

The bill attempts to address this situation by subjecting new entitlements to annual appropriations. They would be annually appropriated. The bill would bar enactment of new entitlements lasting longer than 10 years. It would require oversight review of all

programs, including existing entitlements, at least every decade.

And it would require 10–year cost estimates to give an idea of

where an entitlement is going. Finally, it would encourage reductions in existing entitlements by permitting the resulting savings

to increase discretionary appropriations.

Ms. PHILLIPS. Regarding this last point, we would oppose the reverse, i.e., letting reductions in discretionary spending be used to

pay for entitlement increases or be used to pay for tax cuts. Your

former colleague Bill Frenzel, who was the Ranking Republican on

the Budget Committee, used to remind me that ′′tax cuts are forever, but discretionary cuts last only until the next supplemental.′′ So you are making a trade–off. You go back and revisit discretionary decisions every single year, and in the meanwhile continue

to spend money on a permanent commitment even when the savings may long since have disappeared.

Spending the surplus is the really big new issue in front of us

and why I think this bill is particularly well designed to grapple

with this issue.

It is too tempting in an era of perceived surpluses to create new

entitlements and enact tax cuts. The Concord Coalition believes

that surpluses attributable to the Social Security Program should

be reserved for that program. They should not be diverted to routine spending or used to pay for tax cuts.

But what about surpluses in the rest of the government’s accounts? Here again, Concord strongly favors using the rest of government surpluses to reduce the public debt.

With the retirement of the baby boom generation looming only a

decade off, having as small as possible a public debt will make it

easier to cope with the enormous strains that our economy is going

to face when that happens.

Second of all, reducing the debt frees money for private investment in things that will make us more productive, and as you saw

on the business page of the Post this morning, productivity is

where we get our higher wages and higher standard of living without setting off a round of inflation.

When the boomers retire, for each young person coming into the

work force you are going to have somebody leaving for retirement.
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You are going to need all of the productivity increases you can get

because you are not going to be enlarging the size of your work

force.

There has been some question whether the pay–as–you–go discipline on tax cuts and entitlement increases would apply when you

have surpluses in the rest of the government. There have been letters from officials saying ′′yes′′, letters saying ′′no′′, letters saying, ′′we are not quite sure.′′ H.R. 853 makes clear that pay–go still applies when there are surpluses. That is a good thing.

However, the bill would permit those surpluses to be added to

the pay–go scorecard, and you could use those surpluses in the rest

of the government accounts. One of Concord’s concerns is that although we admit that this is a valid debate and there may be some

things that you want to use surpluses for, like government investment in productivity (I am not sure that there are such things, but

it is possible), also you could use surpluses to establish discretionary caps at higher levels than the freeze level allowed in this

bill, which is unrealistically low.

Surpluses could be used, and here is one that I would probably

favor: to prefund our obligations to pay Social Security and Medicare when the boomers retire. That would be a very responsible

thing to do. But we are concerned that you would use the rest of

government surpluses to fund long–term, virtually eternal commitments, maybe prescription drug coverage for everybody under

Medicare, or long–term care, or something else that is fairly compelling. Then the surpluses would be smaller than you thought or,

in fact, nonexistent.

When you think of what makes a surplus go away, it is probably

a recession. So what do you do? Do you say, ′′sorry folks, we have

a recession on, so we are going to take back that tax cut we gave

you three years ago?′′ I don’t think so.

The bill says if you do use the anticipated surpluses, you are

going to have to have offsets. If the surplus goes away, you are

going to have to come up with offsetting legislation to pay for the

money that is not there anymore, or reverse your legislation and

undo it, or you get a sequester. We have had sequesters before, and

I would think that would give legislators a lot of pause before

spending every penny of surplus. Concord would oppose using the

surplus just for routine spending because it is easier to spend

money than to say no, especially when people think that we have

surpluses. Surpluses, if they occur at all, and we are not sure that

they will materialize or last very long, are a rare and precious resource. Letting them trickle away through the lack of budget discipline would be the height of generational irresponsibility.

[The prepared statement of Ms. Phillips follows:]
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Mr. LINDER. Mr. Greenstein.

STATEMENT OF ROBERT GREENSTEIN

Mr. GREENSTEIN. Thank you, Mr. Chairman. I think I am the

critic of the bill on the panel. I should start by saying that I think

there are a number of useful provisions in the bill that improve the

budget process, such as the changes in the treatment of Federal insurance programs. But I think there are a number of provisions

that would pose serious problems and that the problems outweigh

the positive aspects, and therefore I am a critic of the bill as a

whole.

The things I am most concerned about, a number were just alluded to by Martha Phillips in her testimony, and I want to start

where she left off and talk about the changes that the bill would

propose in the pay–as–you–go rules.

As she noted, H.R. 853 would essentially allow projected surpluses to be used instead of real offsets to fund tax cuts or entitlement increases. I think there are two principal concerns there. The

first is that both from the standpoint of big picture government policy, but also from the standpoint of future deficits down the road

when the baby boomers retire, the most important decisions we

have are what are we going to do to ensure the long–term solvency

and fiscal stability of Social Security and Medicare, and Medicare

is part of the on–budget, not the Social Security budget.

Most experts I know think that to resolve the Medicare solvency

problem, because the hole is so great, we are going to need a combination of reforms that at the present time are maybe too controversial to pass in the program, and additional resources, that we

are going to need both.

I am concerned about the provision of H.R. 853 that would allow

the entire non–Social Security surplus to be consumed by tax cuts

and entitlement increases before we have resolved Social Security

and Medicare. We may find to get bipartisan agreement, we need

a portion of the on–budget surplus for, as Martha said, prefunding

some of Social Security and Medicare. It is not that I am suggesting one can’t touch any dime in the on–budget surplus, but to

say, as this bill does, that 100 percent of the projected surplus can

be used before we settle Social Security and Medicare I think is imprudent.

Now, adding to the imprudence is the fact that projected surpluses, as Martha just said, may not materialize to the degree that

CBO projects. CBO has a very important chapter in its new report

about how uncertain its projections are. CBO notes that if its projections five years into the future are off by the average amount

that its projections five years into the future have been off as a percentage of GDP for the last 15 or 20 years, then its projections for

five years from now could be too high or too low by several hundred

billion dollars a year.

For 2004, CBO projects a $63 billion surplus in the non–Social

Security budget. Let’s assume that they were off by $60 billion, a

fraction of the average that they have been off 5 years in a row.

Let’s assume that H.R. 853 passed and Congress passed tax cuts

or entitlements increases that consumed the 63 billion. We get out
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to 2004, and you either have to raise taxes or cut other entitlements or lower the discretionary caps by $60 billion a year, which

is larger than the first–year savings of any budget plan, including

the Contract with America budget plan which Congress has considered. No plan has ever cut as much as $60 billion in the first year.

Alternatively the bill says if you couldn’t raise taxes or make

these cuts, there would be a sequester that would be concentrated

in certain programs. A $60 billion sequester would result in complete elimination for 2004 of payments in farm price supports, crop

insurance, the social services block grant and the 4 percent payment to Medicare providers. You wouldn’t allow that to occur. So

at the end of the day, as sometimes happened when there were big

sequesters threatening under Gramm–Rudman in the late 1980s

that the Congress and the President couldn’t tolerate, we changed

the rules, and we allowed the deficit to return.

If one is to change the rules so that on–budget surpluses can be

used to finance without any other offsets tax cuts or entitlement

increases, I think we should very seriously have a limitation, and

here is an off the top of the head thing. Maybe we could say you

can use to finance tax cuts, or entitlement increases 80 or 90 percent of the projected surplus for the first year, then 70, then 50,

then 30, then 10. But to say that a projection eight years out in

the surplus, the whole thing can be used now for entitlement increases and tax cuts when we have no idea how much of that is

going to materialize I think is very fiscally imprudent.

The other major problem that I see with the bill is that although

this is not the intention, I am sure, of the authors, I think it would

have the effect of squeezing discretionary spending. As Martha suggested, the level of the caps is already unrealistic politically.

First, I think the aspect of the bill that would effectively allow

lowering discretionary caps in order to fund tax cuts or entitlement

increases is unwise for the very reason Bill Frenzel mentioned that

Martha quoted: Discretionary changes are temporary; tax cuts and

entitlements are permanent.

This is aggravated in the bill by a provision that says that in

computing the amount of the projected surplus for the next ten

years, CBO is to assume that once the caps expire, the discretionary spending is just frozen all of the way out.

If you compare the discretionary spending assumptions under

H.R. 853 to the current CBO baseline, they are $436 billion lower

over the next ten years because they assume that we have the caps

through 2002 which go down, and then we have a hard freeze at

the 2002 level through 2009.

My purpose is not to debate for discussion purposes what is a cut

and what is an increase one should or should not adjust for inflation, but the fact of the matter is that Congress is not going to pass

appropriations bills that are frozen ten years in a row. A ten year

freeze at the current CBO inflation assumptions is a 23 percent

real cut in services by the tenth year. That is not going to happen.

And by using that assumption to compute the surplus, we artificially inflate the projected surplus, which can lead to too big a tax

cut, too big of entitlement increases passing, and then we get to the

outyears and we can’t sustain the discretionary levels. Maybe the

economy has weakened and our budget estimates are off. We have
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seen in the last several years how uncertain revenue projections

are. We have just learned in the last week that the hoped–for July

surprise this year is probably not going to happen, and we get out

there and either of several things could happen.

Mr. LINDER. Excuse me. I am leaving to go vote, and Mr.

Hastings will act as pro temp Chairman.

Mr. GREENSTEIN. The surpluses are now gone, and one cannot

raise the discretionary caps, and we can’t meet some basic needs

in defense and basic areas.

Alternatively, the Congress could raise the discretionary caps,

but that would trigger a sequester in Medicare and farm price support payments and the like. Or the most likely outcome, we would

raise the caps, change the rules and run the deficits.

So for these reasons, and one or two other quick ones and then

I will conclude, I am concerned with the delays that this would

cause in appropriations bills. I think it is unwise to repeal the provision of law that says if there isn’t a budget resolution by May

15th, that appropriations bills can start to move. I think that is

particularly unwise in years in which there is a discretionary cap

in place. In years in which there is a discretionary cap already in

place, the budget resolution is largely superfluous for purposes of

discretionary spending, and if the President is of one party, and

Congress is of another party, and they can’t work out an agreement

on budget resolution until August or September, the appropriators

should not have to wait that long to start to move a bill.

I am also concerned that the automatic continuing resolution is

a year–long automatic continuing resolution. It is one thing to say

if an agreement cannot be reached by September 30, there is an

automatic continuing resolution for 30 days, but to have an automatic continuing resolution for a year long makes it too easy for

Congress never to work out an agreement on the appropriations

bill and just have the auto CR take effect. Even if you want to

freeze the overall discretionary level for the bill as a whole, in any

appropriations bill from year to year, some programs should be cut,

and some should be increased. Needs change. To have an automatic

year–long CR I think reinforces the status quo and makes it unlikely that we will adjust to needs as they change.

Finally, the lockbox provision in the bill goes too far. It provides

that if either House passes a reduction in an appropriations bill,

the amounts of the reductions must be averaged, and the discretionary caps are lowered by that amount for all years in which

there is a cap. This means if there is a one–time pork barrel

project, and you want to cut it, you can’t cut it without lowering

the discretionary caps for all of the years for which a cap remains.

That leads you to either of two results. It is either too hard on the

discretionary caps, or it makes it harder to pass cuts in projects for

which otherwise you would have a majority to vote.

Let’s suppose you have a pork barrel project, except that within

that majority you have people that don’t want to cut a one–time

project if it means a cut in the discretionary caps for 5 years. So

for that reason they vote against it, and you can’t get a majority

to cut the pork barrel project.

To conclude, I think there are a number of serious problems in

the bill, and while I think there are some useful provisions, I think
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the serious problems outweigh the useful provisions, and if one had

to either move the bill as a whole or not move it, I think we would

be better off not moving it. I think it would create more problems

than it would solve. Thank you.

Mr. LINDER. Thank you.

[The prepared statement of Mr. Greenstein follows:]
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Mr. LINDER. Professor Muris.

STATEMENT OF TIM MURIS

Mr. MURIS. Thank you very much, Mr. Chairman. I realize it is

the end of a long morning, so let me just make a few points.

The first point is that, despite surpluses, we need to reform the

budget process. The rise and fall of large deficits was the result of

three major surprises. The first was the unexpected and deep recession of the early 1980s, the second was the end of the Cold War,

and the third was the unexpected surge of revenues in the late

1990s. The surpluses resulted in spite of, not because of, the budget

process.

Before the mid–1970s, when large deficits of two percent of GDP

occurred, they were rare. When they did occur, there was a quick

correction. The deficit quickly disappeared. But beginning in the

mid–1970s, large deficits began, and they continued for over two

decades. The system had become inflexible.

What are the flaws and how does this bill, which I support, address them? The most important flaw and the hardest to fix is the

Balkanization of spending authority. When most of the spending

went through one committee—the appropriators—there was no persistent deficit problem. By the mid–1970s, with the rise of entitlements, there was no one in charge. It is what economists call a

common pool problem. When someone owns all of the fish in a lake,

that person will not allow the lake to be overfished. When no one

owns the fish, there is too much fishing.

A colleague, Mark Crain, and I tested States that had one committee in charge of spending and compared them to States that had

spending authority Balkanized. We found in the Balkanized States

spending grew six percent a year faster.

H.R. 853 takes some positive first steps to dealing with this problem. The joint resolution is a good step because what it puts more

focus on the totals. A law signed by the President in is more important and will have more influence than the congressional budget

resolution.

The bill is also good because it makes it harder to create new entitlements. The requirement of reauthorization is beneficial. I

would add to that a default rule. For example, if you did not reauthorize, your spending was ten percent below the previous year’s

level.

The bill does have a default rule for appropriations—default at

last year’s level. This is one provision that I would change. I would

recommend the lower of the President’s request for an account or

what either House or both Houses have passed.

This provision is meant to deal with the shutdown problems that

have occurred recently if Congress were to send last year’s level to

the President and send it to him repeatedly, however he could not

shut the government down with the argument that, he wants 100

percent, not 90 percent or 95 percent. That is not a credible position. Congress could send that bill to the President every day and

force him to shut down the government and do a Leslie Gore, ′′it’s

my party and I will cry if I want to.′′ The President could not sustain that position. If you are going to have an automatic continuing
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resolution, it ought to be one with some more bite to it, and my

proposal would do that.

The next flaw that the bill addresses is the baseline system. We

have several problems with this system. Although it is often said

to measure current services, that is the cost tomorrow of today’s

government, it does not. For example, the Medicare baseline is significantly greater, almost double what a measure of current services would be.

A second problem, there is the misleading use of the word ′′cut.′′ When the public hears ′′cut,′′ they are comparing it to last year.

Third, there is a series of baseline games in which particularly

the Finance and Ways and Means Committees have invented the

Sistine Chapel of the budget art in finding ′′cuts′′ that even by the

peculiar logic of the baseline are not cuts. H.R. 853, by focusing on

last year’s level and by focusing on the reasons for future growth,

goes far in addressing these problem. I recommend that in addition

you eliminate all discussion of words such as ′′cut′′ or ′′decrease′′ from project growth.′′ Moreover, when counting for pay–go purposes, that you eliminate the games.

Incidentally, in terms of pay–go, I would support the provision

that my colleague on the panel says exist in terms of sequesters

that make the process look more like Gramm–Rudman. Unfortunately I do not find that in the current legislation. Pay–go now only

applies to policy changes and not to economic and technical

changes. Although I wish it did, these changes in the bill do not

make pay–go apply to economic and technicals.

Speaking of additional flaws that the bill addresses, the caps are

porous for a variety of reasons. In fact, domestic discretionary

spending has had healthy increases under the caps. Discretionary

spending as a whole has not had healthy increases, but that fact

is largely attributable to the end of the Cold War, which can hardly

be credited to the passage of the Budget Enforcement Act.

Your bill addresses emergencies, which is the biggest loophole,

and I commend you for that. The Senate provision, which takes a

different tack is good as well.

An additional issue that you should address are so–called user

fees or filing fees. Under the cap these fees, which now fund much

of the regulatory state are free because the caps count net outlays

and budget authority. One of the things that they are net of are

these so–called ′′fees.′′ In fact, most of these filing fees under appropriate budget scoring would be called receipts and not filing fees,

but the committees have coerced the scorekeepers into calling them

filing fees.

I recommend that you eliminate that practice, and adjust the

caps upward so as to not penalize anyone. In the future you will

then deter this incredible increase that we had in the 1990s which

started in the 1980s, filing fees.

Finally, let me echo something that the CBO Director said this

morning. It has been over 30 years since the report of the President’s Commission on Budget Concepts. The intervening period reveals the difficulty. It would be very useful to have budget experts

consider these topics in the abstract and devise rules as opposed

to trying to deal with them on the fly when the various issues

arise. The issues of how to score various Social Security plans, the
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continuous use of the tax system to produce outlays, and other

issues could be usefully addressed by a budget concepts commission. Thank you.

Mr. LINDER. Thank you.

[The prepared statement of Mr. Muris follows:]
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Mr. LINDER. Are you aware that the continuing resolution that

is in this budget proposal is the reason that the President vetoed

the bill 2 years ago? Are you aware of that? That is the reason he

chose for it, because it was a rather important bill, and it was put

on there so we wouldn’t get into the same circumstance that we got

in before, and it was the cause of the veto.

I am interested in Balkanizing the spending authority. I came

from many years of experience in legislature, and I wondered why

we had both authorizing and appropriating committees and the

Budget Committee. In your proposal would you get rid of the Budget Committee or the authorizing committees or the Appropriations

Committee?

Mr. MURIS. The Budget Committee was passed as a weak attempt to deal with the problem. By the time the Budget Committee

was created, the horse was out of the barn, as they say.

What happened was, realizing that they could not get control

over the totals through the one committee, Congress created the

Budget Committee. There are several steps you could now take. The steps you already plan to take are useful. You took a first step towards

consilitdation with welfare reform. I would make those programs

discretionary and create a new subcommittee of the Appropriations

Committee. Let the authorizers be part of the appropriations process.

Historically we have one precedent for doing this. The appropriators lost control at the end of the 19th century, and they regained

control again in the 1920s. Even though this sounds very dramatic,

your bill takes some first steps, and what happened with welfare

reform shows that you can end entitlements. The Budget Committee would not be needed ultimately in this world, but it exists

now as a weak substitute.

Mr. LINDER. A couple of you talked about reauthorizing. My experience in sunsetting departments and agencies, it doesn’t work.

They always get reauthorized because of the intense pressure and

the lack of interest, so it is a one–sided lobbying operation. It takes

a lot of time. I don’t recall in the legislature anything being

sunsetted.

Mr. MURIS. Part of the problem depends on what the default rule

is. If the default rule is zero, that is a very difficult choice. If you

have a minor reduction as a default rule, as exists in food stamps

right now, where there is a provision for a pro rata reduction, there

might be real opportunity for change. I certainly agree, that it

should not be a meaningless exercise, and it is mostly a meaningless exercise if the choice is zero on the one hand or nothing happens at all if there is failure to reauthorize. Mr. GREENSTEIN. I note that food stamp provision has never been

invoked in 22 years. Mr. LINDER. We dramatically increased food stamps in the last

6 years in spite of the fact the number of people dropped dramatically. Mr. GREENSTEIN. Food stamp spending increased between 1989

and 1994 or 1995. It has dropped dramatically. It has decreased

very dramatically since then. In fact, it is billions of dollars per
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year below the CBO projection of what it would cost when the welfare law was passed. The number of people on food stamps has

dropped about 9 million in the last 4 years. Both participation and

costs are much lower.

Mr. LINDER. Ms. Phillips, you talked about enforcement mechanisms. In your judgment, are the enforcement mechanisms in the

new proposal sufficient?

Ms. PHILLIPS. I think this bill moves in the proper direction. A

lot of ideas have been raised this morning that are not in the bill,

other things you could do. But we are really now in the realm of

trying to enforce the existing laws. I think the emergency set–aside

is probably the singler best doable, gettable piece that you have in

this bill.

I would hope that the people in Congress and elsewhere who see

parts of this bill that they don’t like, rather than just bringing all

guns to bear and trying to stop it dead in its tracks, would work

together—this bill started with a bipartisan sponsorship—and work

together on the things that can be agreed on.

Enforcement in the name of the game, but enforcement can only

be as good as you want it to be. You can always pass another law

that says, never mind, we are going to raid the refrigerator at midnight, and we don’t care how many locks you put on. We have keys

to every one of them. If you have the votes, you can do it; You can

overturn any enforcement mechanism. It is as much an exercise in

the spirit of the law and understanding why it is important to be

able to say no as anything that you can put into a law. If the law

gives you excuses, if the law sets limits and says you can only do

this much and no more, then you have got a situation where you

are enforcing those limits, and maybe that enables you to muster

the will.

But as other witnesses have said this morning, we have the baby

boom heading toward retirement, and last I heard they are planning on getting benefits. Any way you look at the numbers, whether they are a little optimistic or pessimistic, we are not prepared

for the aging of our population or the strains it will put on the

budget. We know it is coming, and it is going to be a huge strain

on our economy. It is too easy to focus on what good things you can

do between now and the next election, but 15 years from now you

are going to say, why they didn’t make us be fiscally responsible

back in 1999.

Mr. LINDER. Your coalition seems to view tax increases and

spending cuts as equal participants and neutral irrespective of reducing deficits.

Ms. PHILLIPS. Our position is that you have to be responsible,

and if you really want the tax cuts because you think it is the responsible thing to do, and you don’t have a recession, you are not

at war, and you are enjoying a prosperous peacetime economy, then

if you want those tax cuts, you ought to be willing to cut back your

spending commitments so you have a balanced budget at a lower

level.

If you don’t want to cut back your spending, and you want to

have spending back where it was at 23, 24, 25 percent of GDP,

then you have to be willing to raise taxes to that level to pay for

it.
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We are in an extremely prosperous peacetime economy. It doesn’t

get better than this. What in the world can be the excuse for running deficits in the rest of the government, much less raiding the

Social Security surplus, which we already know our fiscal policies

are not even up to the job that lies ahead? So that is where we are

coming from. If that is what it comes to, and you have to have a

tax cut in order to be responsible, we would support it if you are

willing to make the spending cuts to get government down to the

level of revenues.

Back in 1992, when Concord was formed, people were very cynical about the possibility that anybody could ever balance the budget, and in order to have any credibility, Paul Tsongas and Warren

Rudman had to come up with their Zero Deficit Plan for the year

2000. Ironically, we proposed balance at 20 percent of GDP on revenues and 20 percent on expenditures at a time when revenues were

at about 18 percent and expenditures were 22 or 23 percent. We

brought them to the middle. People on the left didn’t like us because we cut spending, and people on the right didn’t like us because we proposed raising revenues. Twenty percent is about where

we ended up balancing. The country is going on pretty well.

Mr. LINDER. That is not where we are today.

Ms. PHILLIPS. A little more than 20 percent.

Mr. LINDER. About 22.

Mr. GREENSTEIN. I think it—

Ms. PHILLIPS. I think GDP is going to be better than you think,

so that keeps it a little lower.

Mr. LINDER. Mr. Hastings.

Mr. HASTINGS. John, you mentioned that the sunset laws don’t

work in Georgia. I have to tell you when I was in the legislature,

we did get rid of one commission. It was the Grist Mill Commission, and it was put in place in 1890, and the last grist mill we

had in Washington was in the 1930s. So there is some success out

there.

Ms. PHILLIPS. When I came to the Budget Committee staff, revenue sharing was still on the books. That was an entitlement that

was created to give excess Federal revenues to the States, but it

turned out there were no excess revenues to share. Finally they repealed that entitlement, but it took three separate stakes through

the heart. That entitlement would not stay dead, and people kept

trying to bring it up again and again.

Mr. LINDER. I was in the State legislature at that time, and we

kept spending programs going on that we had started with the revenue–sharing money and then picked up the bill elsewhere.

Mr. HASTINGS. One of the areas that I happened to focus on here,

and I tend to focus on, we were talking about spending in terms

of GDP and the whole economy and so forth, and I tend to focus

on what the average tax burden is for each individual. When you

add local, State and Federal—and, of course, Federal is the biggest

component of that, that figure has gone up, it is around 38, 39 percent on the average—and what disturbs me as we go into a global

economy, where we have to admit we are a global economy, we cannot pretend that it is not there, it makes it harder for us to compete in that global economy unless people have more discretionary

dollars to spend.
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So when I look at tax cuts, I look at it from that standpoint recognizing it has an impact on the Federal budget, but also recognizing that we will continue, I hope, to lead the world, but the only

way we can do that with a smaller population is to have more dollars for us to invest around the world. So I tend to look at it from

that standpoint, and I know that is off the subject.

Mr. Greenstein, you mentioned that you are probably the only

one opposed to the process, and then I had to go vote, and I came

back as you were wrapping up. I wanted to ask you—if you said

this, I apologize for having to ask you again. You didn’t say that

you were defending the status quo or the status quo is good. And

if you didn’t say that, what do you think some reforms ought to be

in the budget process, because I think most people will agree that

it is broken.

Mr. GREENSTEIN. Let me start by saying on the one hand I think

there are improvements that can be made. So I am not simply saying keep the status quo. I would disagree that the budget process

is broken. There are problems in it, but it has actually worked

much better in the last 10 years than we often give it credit for.

The Budget Enforcement Act of 1990 had two major elements. It

set discretionary caps. I don’t hear most people talk about abandoning the concept of discretionary caps. And while it is true that

they got stretched in last October’s bill, and the emergency designation was overused, and frankly that has happened again in the

current supplemental, I think that is a reflection of the fact that

the current caps are unrealistic. But if you look at the last 9 years

as a whole, most of us predicted in 1990 those caps would not last

very long, and they would be breached by much larger amounts

than they did. They held much better than any of us forecast they

would.

Similarly, the pay–as–you–go rules have been very effective.

They have frustrated both people who want entitlement expansion

and people who want tax cuts. Martha and I feel that they have

served their purpose. I remember in the early 1990s when we had

projections of $600 billion deficits. Clearly there have been faster

rates of economic growth, and revenues have been faster than forecast, but we also should give a lot of credit to the fact that the caps

and the pay–go rules really contributed a lot.

In that context, part of the testimony that I made when you were

voting was that one of the things that I am most concerned about

in the bill is I think it weakens the pay–as–you–go rules too much.

It allows the entire projected non–Social Security surplus to be

used for either tax cuts or entitlement increases without any offsets. When you take into account the fact that in the past our projections of both surpluses and deficits, for more than a year or two

into the future, have been way off, I think it is much too fiscally

dangerous to say that 100 percent of a projected surplus can be

used in this fashion. We ought to maybe allow a fraction of the projected surplus to be used in this fashion, with the fraction declining

the farther you get into the future, because projections are more

uncertain farther into the future, and the farther you get into the

future, the more question there is about whether the projected surplus will actually materialize.
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The kind of thing that is in this bill that I think is useful is reform of Federal insurance programs. I think there are some problems with exactly how it deals with emergencies, but we clearly

need some tightening up. I think what we need in the emergency

area is a combination of more realistic discretionary caps and tighter enforcement of them by not allowing the emergency designation

to be misused.

Now, I am a critic of the bill, but I will say a positive thing here.

It has a provision which makes sense, which says its changes in

the emergency provisions only take effect after the caps are

changed, because it recognizes that its provisions to change the

emergency rule aren’t realistic in the context of the current law.

The kind of thing that I think could be—and this doesn’t take a

wholesale change—the kind of thing that needs to be modified in

the emergency area of the bill is if you have used up the projected

surplus, and you are right in balance, and what is clearly a big

emergency comes along, it could be a national disaster or a foreign

military involvement that the United States is called upon to respond to, if that entails spending above and beyond the emergency

reserve the bill calls for, the bill has a provision that the Budget

Committee can determine whether it is truly an emergency or not.

The problem is that there is a conflict between two provisions of

the bill here. If you are in balance, and something like a foreign

involvement comes along, and the Budget Committee determines

this really is an emergency that entails going beyond the reserve,

under the bill, if not offset, that would trigger a sequester. I am

not sure that was intended. It may be the unintended effect of two

different provisions of the bill. I only noticed this in the last 48

hours. I had not noticed this combined effect when I first read the

bill months ago.

I think the bill ought to say if it is really an emergency, it doesn’t

have to be offset, but it really has to be an emergency. Instead,

where we are now is, we classify things that are not emergencies

as emergencies, and then a number of Members of Congress say

emergencies need to be offset because of the designations. I think

those are examples of things where we do need improvement in the

process.

As I went through my concerns, I said that the things that I

think are problematic are more serious than the improvements.

But if we can do a bill with the improved parts in it, it is useful

to make improvements in the budget process. Those two areas,

emergency insurance and accounting for insurance programs, are

clearly areas where we can make strides.

Mr. HASTINGS. It appears to me, and your explanation of that,

what drives some of those decisions are policy decisions that every

Congress would have to face regardless of what the process is, policy decisions on what the priority is in one area, and what we are

simply putting in place is a check someplace along the line you

have to answer A before you proceed to B.

It appears, to me anyway, some of the criticisms that you have,

those are smaller things than the idea that we need to start this

process early on. I have no doubts, however, that can get done, but

we will have to see about that. Policy decisions we are going to be

faced with, I suggest that when the reserve is set up, somebody
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will set up a new definition of emergency, I should say, and there

will be a big fight. But these decisions are faced by every Congress

regardless of what process we have in place.

Mr. GREENSTEIN. Sure, but the budget rules have a big impact.

Without the caps, we would spend more on discretionary programs.

Without the pay–go rules, we would have expanded taxes and entitlements more, and we would still have budget deficits.

Part of what I am saying is, while there are a number of small

areas like the emergency designation where the bill tightens the

process, I view the bill as a whole as weakening fiscal discipline

primarily because of the changes it makes in the pay–go rules,

which I think go too far.

Mr. HASTINGS. With the Balkanization, I would agree with you,

Professor, on that. I think our problem is 435 Members here. That

is the problem.

Mr. LINDER. Mr. Sessions.

Mr. SESSIONS. Mr. Chairman, I would like to ask unanimous consent to have submitted in the record this document which would

support your theory of dollar amounts used, and I appreciate the

opportunity to do that.

Mr. LINDER. Without objection.

[The information follows:]
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Mr. SESSIONS. I know that we are into a whole bunch of processes. Is there any belief that the Congress is addressing properly

the Social Security issue, any one of you, by us trying to have a

resolution to take Social Security off budget to where all of the

money and interest would flow? Are we going to get any credit for

that?

Mr. GREENSTEIN. It is already officially off budget.

Ms. PHILLIPS. It has been taken off budget three different times

by acts of Congress, signed into law by the President.

Mr. LINDER. Most recently in 2001.

Ms. PHILLIPS. It was done in 1983 to be effective later, and in

the 1985 Gramm–Rudman Act they did it again and said, we want

it to start right away. It was later reaffirmed again and again. But,

until you can get people to forget the existence of Social Security

and its surpluses, you are going to know that they are there.

Mr. SESSIONS. So what can we do then? Is that the first responsible act, or are you saying that it was not responsible?

Ms. PHILLIPS. I think the responsible thing to do is to address

the tough issues. We have unfunded liabilities that far exceed anything we think taxpayers in the future are going to be willing to

finance, particularly because you can’t just look at Social Security

alone, you have to recognize that almost every one of these people

also expects to be getting Medicare, and that this is a double burden.

Mr. SESSIONS. What is the first step that you recommend?

Ms. PHILLIPS. Some combination of—to be officially Concord neutral, getting the future expenditures and future revenues more in

line. I would suggest that because you have an unusual situation

of a bulge in the elderly population beginning in ten years followed

by a permanent aging of the population, having each generation to

the greatest extent possible prefund some or quite a bit of its own

benefits is good for the economy and is generationally responsible.

Mr. SESSIONS. If you prefund, isn’t that the same as taking it off

budget and keeping it in a fund?

Ms. PHILLIPS. Only when it is entirely out of the budget—it has

been off budget since the first surpluses in Social Security began

to build up after the 1983 legislation. We started seeing appreciable surpluses in 1985. We spent them. It has been off budget.

But if you have Social Security surpluses safely off budget, and

over here, on the budget, you run big deficits, economically the effect is to use the Social Security surpluses to finance the on–budget

deficits.

Mr. SESSIONS. But we are not doing that anymore.

Ms. PHILLIPS. We will see.

Mr. SESSIONS. What is the first step? Is the first step hitting a

home run or learning to walk?

Ms. PHILLIPS. The first step is addressing the problem in the unfunded liability in the program. That is extremely hard because it

means telling younger people now what many of them already suspect, which is that Social Security is not going to pay them the

′′huge′′ $12,000 that people are getting from it today on average. It

is going to be less.
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Mr. SESSIONS. So you don’t think that it is practicable to take it

off budget? Ms. PHILLIPS. We have already taken that step a couple of times.

If you want to do it again, I have no problem with it. If doing it

a fourth time makes you live up to the rule, great. But I am a little

cynical that four times is going to be magic when three times

hasn’t been.

Mr. GREENSTEIN. I largely agree with Martha. I think there

might be some process things that you could do with points of order

and supermajority points of order that would help. Having said that, if you look at some of the proposals that are

around now, they are all far from foolproof. The bill that Mr.

Herger and Mr. Shaw introduced attempts to say that you could

not use the Social Security surplus for other spending, but there

is an exception for any legislation that Congress classifies as Social

Security or Medicare reform legislation, and there is no definition

what that means. The bill that Senator Abraham and Senator

Domenici have introduced ties itself to specified levels of the publicly held debt, but there is a view which I think may be shared

by the Treasury, Senator Roth, and perhaps Chairman Archer, that

that approach poses too great a risk in terms of default and the

debt.

The bottom line, I think, as Martha has said, is that the only

way to address the problem is to address the problem. Martha and

I have differing views on exactly what to do in Social Security, but

I think we would share the view or share the concern that both

parties are too attracted to what we would call the free lunch approaches, trying to solve the long–term imbalance between benefits

and payroll tax revenues without raising revenues or cutting benefits. Both parties are looking at approaches that pour tons of

money from the rest of the budget into the retirement system. It

is unclear where that money comes from when the baby boomers

retire.

At the end of the day we have to be willing to do some benefit

modification, some payroll tax increases or a combination of the

two, or we are going to have an approach to fixing retirement security that either won’t last, will cause overly large reductions in

basic government functions or overly large tax increases, or eventually will bring back deficits in a big way. That is the single most

distressing part of the debate. Each party is afraid that if it proposes any substantive structural changes, the other party will jump

on it and attack it. I think that is preventing us from making

progress.

Mr. LINDER. Professor Muris?

Mr. MURIS. The most important step is to make the economy as

big as possible to make it easier to support the baby boom. There

are three steps we can take.

First, we ought to guarantee that the Social Security surpluses

cannot be spent. The way to do that, is to set up individual retirement accounts so that the money is committed.

Second, we need to take the on–budget surplus and give that

back to the people in tax cuts. They will use that money better

than the government would.
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Third, one of the reasons that the economy has been so robust

is that we have had an incredible amount of indirect deregulation

through things like internationalization, the Internet, and computers. We ought to make sure that the plans in Washington to

regulate fail. Moreover, we ought to have significant regulatory reform that would further encourage increased productivity in the

economy.

Mr. SESSIONS. Well, obviously I am pleased to hear that. I will

tell you that part of your observations, and I will not call them cynical observations, part of your observations, I believe, are very true,

and that is we—even looking at the Republican side, there is some

unpredictable behavior as to what we are really after. But yet I

would like to tell you that we will be, as with the last debate that

was made—that we are attempting to increase the amount of

wealth held by the middle class of this country and to encourage

behavior that would include savings and allowing the individual to

have that $2,000 in their pocketbook.

I am an optimist, and I believe we are going to create a circumstance where we will continue to have good fishing and good

economy. That will come with the fiscal restraint that you do talk

about.

Thank you, Mr. Chairman.

Mr. LINDER. Just one more question. The strength of Social Security was that it was 40 employees for every one retired in 1935. It

is now approaching two for one. Can the structure survive? Can

just the basic structure survive?

Ms. PHILLIPS. Not the way that it is now structured. Something

has to give. There is a big long–term problem out there. This bill

is helpful, but the problem is still out there.

Mr. LINDER. I am so much opposed to raising the payroll tax because you are asking so much more from fewer and fewer people.

Five million people have opted out of Social Security. There are

fewer and fewer payers for more and more retirees.

Ms. PHILLIPS. You cannot solve this problem on the payroll tax.

It is already the largest tax for most working–age families.

Mr. LINDER. Seventy–four percent.

Ms. PHILLIPS. If you are talking about payroll tax supporting

Medicare Part A and Social Security, it doesn’t take much imagination to get you up to 35–40 percent payroll tax when the full brunt

of the aging process has occurred. That simply is not going to happen in the United States of America, so we have to deal with the

benefit side, and we have to deal with having each generation to

the extent possible prefund its own benefits.

If I had my druthers regarding what to do with the surpluses,

I would park them in individual accounts or some sort of a mechanism where the Treasury pays it right to the retirement accounts

of every worker age 45 and younger, which unfortunately would

leave me out. It could only be used to finance retirement benefits.

That way you would get it off the Federal books so it could not be

used for anything else. It would be increasing national savings,

which would help the economy grow. It would also be there as a

partial funding to make it possible then to say, okay, now that you

have got this nice nest egg building up from the surpluses from the
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first decade of the century, we can peel back the government benefits a little bit because your grandchildren can’t pay for them.

Mr. GREENSTEIN. Let me say that there are fundamental debates

on what would be a better way to go, should one convert part of

Social Security to individual accounts or not do that. I think that

is not the way to go.

I did want to say that if you look at the long–term figures, you

cannot sustain Social Security without any changes. You can sustain it within what I would call the current basic structure. You

have to be willing to make some changes in the benefit formula.

You can do it without raising the payroll tax rates. You have to be

willing to make some changes, but you don’t have to replace it with

something else such as individual accounts. There is a debate on

whether one should or shouldn’t, but what is clear is that you have

to do something. We cannot simply leave it exactly as it is now.

It is also clear that you can solve Social Security’s problems without any benefit or tax changes if you pour in enough money from

the rest of the budget, but then you squeeze the rest of the budget

too much. So if you want to be able to deal with other issues as

well, you have to be willing to make some changes in Social Security.

Mr. MURIS. I teach graduate students, who are mostly in their

20s, and when you talk to them about Social Security they laugh.

Their cynicism is appropriate, unless we make the fundamental

change that I talked about before to guarantee that those benefits

will continue. Again, far and away the most important step is concentrating on policies that make the size of the pie as big as possible.

Mr. GREENSTEIN. Where we would differ on that last comment is

whether you have to do that through individual accounts or you

can do more prefunding of the Trust Fund, but we would all agree

that we should advance–fund.

[Questions and answers submitted for the record]
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Mr. LINDER. Thank you all. The hearing is adjourned.

[Whereupon, at 12:25 p.m., the committee was adjourned.]

(167)

H.R. 853, THE COMPREHENSIVE BUDGET

PROCESS REFORM ACT OF 1999

Thursday, May 13, 1999

HOUSE OF REPRESENTATIVES,

COMMITTEE ON RULES,

Washington, D.C.

The committee met, pursuant to call, at 9:30 a.m. in Room H–

313, The Capitol, Hon. David Dreier [chairman of the committee]

presiding.

Present: Representatives Dreier, Goss, Linder, Pryce, Diaz–

Balart, Hastings, Myrick, and Reynolds.

The CHAIRMAN. The Rules Committee will come to order. We are

here for the further consideration of hearings on H.R. 853. Yesterday we had a fascinating group of outside witnesses as well as the

lead authors of the legislation. Today we have set aside time for

Members to testify on comprehensive budget process reform. We

are very pleased to welcome our first witness, the distinguished

gentleman—who wants to go first? Both of you are distinguished

gentleman.

Mr. GEKAS. I am yielding.

The CHAIRMAN. We are happy to recognize the very distinguished

gentleman from Michigan, Mr. Smith, and we look forward to

your—what you told me is a two minute presentation?

Mr. SMITH. Yes, sir.

The CHAIRMAN. It wasn’t my request. Your time has just begun.

STATEMENT OF THE HON. NICK SMITH, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. SMITH. Mr. Chairman, I appreciate that Rule 23, the

′′Gephardt rule,′′ is repealed in here. But what appears is that you

have replaced it with provisions that you can increase the debt

limit as part of the overall joint resolution.

And so on page 8, section 8, my interpretation of that provision

of the bill says that you can still increase the debt subject to the

debt limit, which would be sort of clouded in with the whole composition of the budget resolution. I don’t see that as much different

than what we have now.

So I think there should be serious consideration, or at least I

would request that an amendment be allowed so that we can vote

on an increase on the debt limit separately. It just seems that it

is so important in terms of where this country goes, the imposition

that we put on future generations by clouding, whatever the correct

word is, by incorporating a couple sentences in a huge joint resolu168

tion on the budget provisions that the debt limit will be automatically increased.

So I think it would be a lot more reasonable if Members stood

up and took a position as a separate vote on increasing the debt

limit, simply because I think it is such an important part of not

only our economic future and the reasonableness and honesty of

government, but still making it a—having a little separate, more

separate consideration for an issue that is so important; that is,

raising the debt limit that our kids and grandkids are going to

have to pay back.

John, what I just said was my interpretation of this legislation

still puts an increase in the debt limit, the national debt subject

to the debt limit, and includes it as part of the whole joint resolution as a provision that can be there. I would just think that this

should be a separate vote.

The CHAIRMAN. Thank you very much, Mr. Smith. We appreciate

you being here.

Mr. Gekas.

STATEMENT OF THE HON. GEORGE GEKAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

Mr. GEKAS. Thank you. This is not news to the gentleman from

Georgia or the gentleman from Florida nor to the gentleman from

California.

The CHAIRMAN. Possibly it is to the gentleman from New York.

So he should—

Mr. GEKAS. Maybe I should make my remarks to him. I think the

record does require me to postulate the rationale.

The CHAIRMAN. The record doesn’t require that. You do whatever

you feel is appropriate.

Mr. GEKAS. In doing so, I am also making clear to the gentleman

from New York what the legislation does. We have termed this legislation euphemistically as ′′instant replay.′′ That is, at the end of

a fiscal year, if an appropriations bill, any 1 of the 13, or all 13,

have not been enacted by the Congress, then the next day, October

1, is an automatic instant replay of last year’s budget.

What does this do? This ensures that there never again will be

a government shutdown. The legislation that is before us for your

consideration amply considers that and incorporates it into the

total budget picture that you are trying to formulate in this legislation. I am very appreciative of that.

Since 1977, there have been some 17 separate shutdowns of government. That number is intolerable. That is almost once every

year, almost every year. The most egregious one, and I reemphasize that every time that I have an opportunity to speak about it,

when Desert Shield was being organized, when our half a million

troops were being deployed to the deserts of the Middle East, during that period of time in December of 1990, while they were with

musket in hand, our young people over in that desert, the government shut down. That is intolerable. They were actually armed,

ready to do conflict for a government that didn’t exist in one fashion, did not exist. We cannot sustain that. We cannot tolerate that.

What our legislation here does, what your legislation does is

guarantee that that won’t happen again.
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One other thing. It is not just the Federal employees who are

very supportive of this legislation—as you can imagine they would

be, because it would mean that they would not have to worry about

when to come to work, if to come to work, and when their next paycheck is to arrive. That is part of the mystique of all of this anyway. But more importantly perhaps, or equally as important, is the

fact that contractors who do business with the government, they in

their continuum of providing goods and services, come to a halt. It

is costly to them. It is costly to the government and the taxpayers

and causes havoc in the private workplace where these contractors

depend sometimes very heavily on the revenue from a government

contract to keep going in their business.

On top of that, maybe a simple thing, but it was brought home

several times. The shutting up of the Washington Monument or the

Smithsonian Institute is a slap in the face to the American citizens.

To go to the door of one our institutions and then be told that the

government has shut down, they cannot enter. Although that is

not—that won’t bring the end of the world, it does show a crumbling, a little crumbling of our system that shuts off other citizens

from their institutions.

Anyway, these are the basic tenets of what we do. I have reviewed the provisions in the bill and they are—they do exactly

what we intend them to do.

One other fact which I cover very well: That is that the obligations that the government has as to Social Security, Medicare, et

cetera, already set by other law, are unaffected by this, and they

are guaranteed at whatever level their own computer indicates is

due. So that the instant replay of last year’s numbers may not

apply to Social Security, but in all other respects, we have a continuing process that prevents government shutdown.

Well, I don’t know that Doc Hastings has heard this.

The CHAIRMAN. Mr. Hastings has heard this.

Mr. GEKAS. I wanted to repeat it.

The CHAIRMAN. We have a spectacular record that was developed

on this issue. You see what we have done?

Mr. GEKAS. Yes, it is excellent. I am very happy about that.

The CHAIRMAN. We appreciate your tenacity. It most likely would

not have been incorporated in the bill if it were not for your regular

appearances before the Rules Committee. However, we want to say

there are other ways to get it to appear in legislation other than

appearing before the Rules Committee.

Mr. GEKAS. I suppose there are.

The CHAIRMAN. We appreciate your efforts on this very much,

Mr. Gekas.

Mr. GEKAS. I do want to thank the three men who are facing me

here because they have been here with me from the beginning on

this. And now the two others are going to be imbued with the same

fervor as the gentlemen from California, Florida, and Georgia.

The CHAIRMAN. Thank you very much.

[The prepared statement of Mr. Gekas follows:]
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The CHAIRMAN. Mr. Goss may have a question.

Mr. GOSS. I think I understand it.

The CHAIRMAN. We are starting to understand it.

Mr. GOSS. The issue is not one of comprehension. The issue is

one of how to deal with it and how to take a good idea and put

it into affect. I think that you know that has been a part of our

goal. As I think that you know in our process, this has gotten a

lot of attention. I can assure you that it is going to get a lot more,

whether we want it or not, as we go along. We hope that you will

be ready to explain it to some others.

Mr. GEKAS. We will.

The CHAIRMAN. Mr. Linder.

Mr. LINDER. I do appreciate the issue.

The CHAIRMAN. Mr. Hastings.

Mr. HASTINGS. There was a witness that was critical of that provision of the bill, saying that this would cause the Congress to take

the path of least resistance and therefore that would be the path

that they would take, rather than to face up to the issue and pass

appropriations bill. What do you respond to that?

Mr. GEKAS. We reject that. Each fear brings new areas and new

areas of concern. The appropriators and Members of Congress that

see something that needs to be changed in the next fiscal year are

not going to be satisfied permanently with last year’s numbers or

last year’s speeches with a particular piece of legislation.

So this dynamism that the Congress has normally will carry to

today when it comes to making sure that next year’s appropriations

bill does have features that are required by a majority of the Congress, even though for temporary purposes we have fallen back to

the instant replay.

Mr. HASTINGS. Thank you.

The CHAIRMAN. Mr. Reynolds.

Mr. REYNOLDS. I would just thank the gentleman for his insight

and time.

The CHAIRMAN. Mr. Reynolds is such a bright guy that he

grasped it with your first presentation. They have improved over

the years. We thank you very much and look forward to it.

The CHAIRMAN. I just saw Mr. Barton. I believe he is our next

witness and we are happy to welcome the gentleman from Texas,

Mr. Barton. You are welcome to summarize your remarks.

STATEMENT OF THE HON. JOE BARTON, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Thank you, Mr. Chairman, other members of the

committee, especially our Minority friends, here in spirit if not in

person. I have testified before this illustrious group a number of

times on budget process reform. I think with Chris Cox, myself,

and Mr. Nussle a lot of progress was made in the last Congress—

Mr. Goss, I should put his name in the loop. He worked very hard.

So I do have a written statement and I will put it in.

The CHAIRMAN. Without objection it will appear in the record.

Mr. BARTON. The main thing that I would ask you to do is I

think this Congress really, really needs to move the bill. The process that we were working under was passed in the mid–seventies.
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It enhances the expansion of entitlements. It enhances the ability

of a few Members, late in the session, to do back–room deals. It

gives the President unusual power, again in light of Congress, if

not to extort the Congress, to make it very difficult to maintain the

spinning of the caps and things like this.

I have not introduced a comprehensive bill in this Congress. I am

going to do that in about two weeks. I am working on it right now.

If you take the package that Mr. Nussle and Mr. Cox and myself,

Mr. Salmon, and Mr. Goss put together the last Congress, we probably need to fine–tune it a little bit, but I think that would be an

excellent package.

Some of the elements are that I think we should go to a two year

budget process. Not everybody agrees to that but we operate on a

two year cycle. It would be good to have a two year budget process.

I think that you eliminate the supplemental and you put in a rainy

day fund to set aside a certain amount each year. You put definitions about what qualifies for emergency spending.

And then in my bill, again this is somewhat controversial and I

know the Chairman has a concern about this, but I put in a supermajority requirement in order to override the definition to take

money out of the emergency supplemental account.

I guess I will kind of end it there. I will put the testimony in the

record. I would be happy to answer questions. I do again encourage

you to try to move a bill as soon as possible. This would be one of

the most important things this Congress could do is to change the

budget process.

The CHAIRMAN. Thank you very much.

[The prepared statement of Mr. Barton follows:]
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The CHAIRMAN. As you know, that is why we are sitting here. It

is a priority for us. You use the term ′′fine–tune.′′ I think that we

can do that, I hope, and come to an agreement.

Mr. BARTON. I stand ready to work with whatever group this

committee or others may put together to make this happen.

The CHAIRMAN. Thank you very much. We appreciate that.

Mr. Goss.

Mr. GOSS. I also want to very much compliment the gentleman

from Texas for his willingness to find middle ground. I know there

are some things in your kit bag that you care very much about that

you have been willing to leave out there so that we can get something good, but maybe not perfect in your eyes. That is the process

this year. We have pledged to do that.

Mr. BARTON. Could I ask the Chairman a question? What is your

timetable, Mr. Chairman? Do you have a definite timetable on this

issue?

The CHAIRMAN. Well, as you well know, definite timetables

around here do have a tendency to move. But it is our hope to see

the Budget Committee proceed with hearings on this next week.

The Budget Committee is going to be holding hearings next week.

And beyond that, about 2 weeks following their hearings, we look

forward to marking this up.

Mr. BARTON. Oh, good.

Mr. GOSS. My staff has been told to do this in June. I hope that

is possible.

Mr. BARTON. That is good news.

The CHAIRMAN. Mr. Linder. Ms. Pryce.

Ms. PRYCE. Thank you, no.

The CHAIRMAN. Mr. Diaz–Balart. Mr. Hastings.

Mr. HASTINGS. No questions.

Mr. BARTON. I think that I am going to see your smiling face in

about 15 minutes.

The CHAIRMAN. Mr. Reynolds.

Mr. REYNOLDS. No questions.

The CHAIRMAN. Thank you very much, Mr. Barton. Thank you

for your hard work on this issue.

The CHAIRMAN. We are happy to now have the very distinguished cardinal, the gentleman from Ohio, who has some strong

thoughts on this issue, Mr. Regula.

STATEMENT OF THE HON. RALPH REGULA, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. REGULA. Thank you very much.

The CHAIRMAN. It appears that you have no prepared remarks.

Mr. REGULA. I will send them over this morning. I didn’t get

back to the office, with school kids visiting from Ohio, but you may

even have a copy here. I am here to speak about the two year

budget. I worked with it as a legislator in Ohio. I have introduced

legislation to establish a two year budget in every session since I

have been here.

Let me say as a Chairman of an appropriations subcommittee, I

am even more aware of how important it is. I do a lot of oversight.

We have had six or seven oversight hearings this year. I think that
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if you are going to have good management, you need to find out

what is happening and you need to visit, in my case, parks, of

course, and so on.

What I would see with a two year budget is you could do a lot

better planning and the people in the field could do a lot better

planning, because I know park superintendents don’t know until

maybe the middle of October what they are going to have for the

year. Then pretty soon they are trying to put together next year’s

budget. They therefore cannot contract efficiently because they can

only contract for a year at a time. They are in a one year time

frame. In Congress we just don’t have enough time to do oversight.

What I would think would contribute significantly to improving

management would be to have a two year budget, because you can

deal with the interim problems with the supplemental, as we are

trying to do right now. We finished up about 1:30 this morning and

we are back in today. It is contentious and, of course, the supplemental becomes a train that is going to leave station. Our brethren

on the other side find it very convenient.

In any event, if you could do a two year time frame the first year

of the session would be used to make budget and appropriations

decisions. The second year could be used to do oversight to bring

people in to talk about what works and what doesn’t work. I find

oversight hearings extremely valuable and it is good discipline for

the agencies because they have to come up and justify their management. What I try to do and I think the other Chairmen do likewise, is to get some management discussions during these hearings. There is no reason when you are operating with a trillion and

a half dollar budget you shouldn’t think about management. Every

company in the world does it or they don’t survive.

We have instituted a number of changes as a result of oversight

hearings. For example, just a couple weeks ago we had the GAO

do an oversight report on the Everglades. We are going to spend

as you know, Mr. Goss, probably—I think probably 20 to $25 billion

before we complete that project. So we sent the GAO down, they

did oversight over the project, they came in and testified before the

subcommittee. We gave the opportunity for others involved to come

in too. As a result, we will make hopefully better decisions in the

allocation of the resources.

So I see a lot of pluses to a two year budget. I believe President

Bush supported it. There is just a certain amount of lethargy that

keeps it from happening. Of course, frankly, some Members probably like the fact that an annual budget gives you more control because obviously you have got a bite of the apple every year. When

you are on the Appropriations Committee the annual budget has

some leverage involved; but I just think in terms of managing and

being cost effective as a government on behalf of the taxpayers, a

two year budget makes sense.

We are making some changes on the way parks get their money

for buildings and the way that they manage their construction

budget. It is not that we will necessarily save a lot but we will be

able to do more things that members would like to have done because we can spread the money further and get what I call more

bang for the buck. So that is why I feel strongly that a twp year

budget would be a good way to go.
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And one last thing, in 1987 we had in effect a two year budget

agreement. It wasn’t exactly a two year budget, but it was a projection of where we would be. In 1988, was about the only year that

we got all thirteen appropriations bills out on time because we had

a road map in place. We could think in terms of the two year cycle,

and it worked. I would guess that we could well end up with another omnibus this year. That is not a good way to manage the federal budget and federal programs.

[The prepared statement of Mr. Regula follows:]
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The CHAIRMAN. Thank you very much, Mr. Regula. The only

question that I would pose is how—do you envision the appropriations process on two year cycles?

Mr. REGULA. Yes. You would appropriate for a two year cycle, because that would give the executive branch the ability to manage

in a two year cycle. They could contract for services for two years

and get a better price, obviously. And then the second year would

be used to pass needed supplementals but would also be used more

importantly for oversight and for visiting facilities.

The CHAIRMAN. As you know, one of the priorities of this Congress has been policy and programmatic oversight, and trying to

focus on that. I happen to concur that your proposal is one way to

deal with that.

Mr. Goss?

Mr. GOSS. I do, too. The problem is that no one is running from

the debate on it at all. It is just that we don’t hear the drumbeat.

Some friends on the other side say, push, push, but we are just not

hearing it. We are trying to find stuff that we can put in that is

good for the process of reform.

This is something that I find, when you start toying with it, is

they haven’t really given it the kind of thought that we have given

it and people have to deal with these problems. I have looked at

the pluses and minuses on it and I am convinced that there is time

for a debate on it. I think this would be right to have a debate. I

don’t know how the debate would come out, but sooner or later—

The CHAIRMAN. Would you yield for just one quick question? I

wonder how your colleagues on the Appropriations Committee

would respond.

Mr. REGULA. I think they would like the idea, because you certainly do a much better management job. I would daresay that private industry wouldn’t even think about trying to operate on a one

year cycle in terms of budgeting projections for plant improvements, et cetera, et cetera. I would hope your committee will bring

in a couple of CEOs or CFOs to say from a management standpoint

how they do it and how it works out in the private sector.

Mr. GOSS. I thank you, Mr. Chairman. I know that the business

cycle, and how you do it and when you do it and time of year is

very important. I agree that there is a lot of technical information

that we need.

In my own bill, the intelligence bill, we are required by law, because of the extra level of oversight needed, to do the oversight annually. I frankly don’t want to change that. You have got to be on

top of that to do the oversight job. But the leverage that is involved

with the budget, I think is very important. I agree with you on

things that out and about in normal business activity, day in and

day out in this country, if we can improve management, this is a

tool that ought to be looked at.

Mr. LINDER. I agree with you.

The CHAIRMAN. Ms. Pryce.

Ms. PRYCE. Thank you, Mr. Chairman. I think that you have significance for this committee. I am happy to hear an appropriator

come forward and say that this is a good way to go because I have

seen some resistance or perceived resistance from that committee.
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It is good to have you here to show us that you all are not of that

ilk. Thank you very much.

The CHAIRMAN. Mr. Diaz–Balart.

Mr. DIAZ–BALART. It really makes a lot of sense.

The CHAIRMAN. Mr. Hastings.

Mr. HASTINGS. I agree with you, too. I have always felt that that

is the way to go, precisely because of the reasons you said and because of the oversight aspect. You just don’t have that many steps

and pressures, particularly in your area that you deal with, contentious as they are. So if you put something in place and you don’t

know if they work or not because—well, I just think that you are

right on. I appreciate it.

The CHAIRMAN. Mr. Reynolds.

Mr. REYNOLDS. No questions.

The CHAIRMAN. Thank you very much Mr. Regula.

Mr. GOSS. May I give one piece of advice?

The CHAIRMAN. Mr. Goss.

Mr. GOSS. You have heard here a little bit of an outpouring of

appreciation for your wisdom. We find that our colleagues on the

Budget Committee don’t share that.

The CHAIRMAN. Respect for his wisdom?

Mr. GOSS. I would very much appreciate it if you would spend

some time with them.

Mr. REGULA. I understand.

The CHAIRMAN. Thank you very much, Mr. Regula.

The CHAIRMAN. Now, we are pleased to welcome the distinguished gentleman from Delaware, Mr. Castle. We are happy to

have you here and your remarks will appear in their record in their

entirety without objection. You are welcome to provide any kind of

summary that you wish.

STATEMENT OF THE HON. MIKE CASTLE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF DELAWARE

Mr. CASTLE. Thank you very much, Mr. Chairman. I would like

the assumption that everybody here will read my prepared remarks

thoroughly and I will refrain from reading them myself. And frankly, in your case and in the case of some of the others here, what

I have to say is not necessarily original or new to a lot of people

in this Congress. I have been talking about some of these issues

almost since the day I arrived here. I am strongly in support of

H.R. 853. I am only going to talk about certain portions of it, but

I don’t know any part of which I am not in support. I think the

budgeting appropriation process is without a doubt the engine that

drives the Congress of the United States. I think it is the portion

procedurally of what we do that is most out of whack with what

it should be.

Frankly, it is my hope that you all, as I guess one–half of this

with the Budget Committee as esteemed Members of Congress,

lesser mortals such as myself, could never envision being on the

Rules Committee, but you have the ability to really carry this. I

just hope to the Lord that you will run with this. I just think this

is really, really important.

I am tired of the naysayers who say that we should not change

the budget process. I think somebody needs to take a different look
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at it. I think that you all are in a position to do that. So more than

anything else, I would have to say that if we are going to have a

credible and responsive budget process, I think that is what has to

happen.

Just a couple of brief thoughts and I would answer any questions

that you might have. One is I heard Mr. Regula testify to some of

this, but I believe that the President should be a part of this process. The President is part of the financial process of how we spend

money in the United States of America in a big way, and in my

judgment should be brought into the process early on in terms of

budget resolutions and signing onto it. If he or she does not like

that, then he or she can veto it or come to the Hill and lobby or

whatever it may be. I just think that is an absolutely essential part

of it.

When was the last time that we ever got through the appropriations process without a series of summons at the White House?

And all of it springs from the budget resolutions which would pass

here. So I am strongly in favor of that. I am also in favor of the

two year budget and appropriations cycle. The planning that is

needed for the long–range things which are done, in my view,

needs longer term than one year, particularly when that one year

ends up being less than one year because sometimes of the way

that we go about our appropriations. Obviously, you could make adjustments in a timely fashion in off years if need be. But the whole

concept of running two years to me makes all of the sense in the

world.

The part of the bill that I am most focused on from a personal

point of view, because I have my own legislation and they adopted

most of my legislation, is budgeting for emergencies. I don’t know

how many of you stayed up last night to see the conference discuss

the emergency appropriations which is going on right now. Apparently it ended at 1 o’clock in some sort of a stalemate. I frankly

don’t watch a lot of C–SPAN unless I am trying to figure out how

I am going to vote on something. I don’t stay awake at nights

watching it. If I did, I would probably fall asleep. But there were

people who were galvanized by this. Some probably stayed up until

1 o’clock, like watching a championship playoff game or something,

who couldn’t take their eyes off of it. And they were just amazed

at what was going on here in terms of the people trying to pen in

every program in the world.

We don’t have an emergency process in this Congress. We simply

don’t have it. What about our States? The States all basically have

this. Just about all have some sort of emergency process. They appropriate the money and they have a process by which something

is declared an emergency and then the money is spent. Only in the

Congress of the United States have we reached the point where we

ignore this altogether, and we have found, because we have trouble

with our caps and budget resolutions in terms of what we appropriated to us, as we saw recently in the House–passed bill with the

extra military expenditures. Only in the Congress of the United

States do we have the system to avoid it, the cap problems, that

avoid addressing the cap problems and is called add it to the emergency spending and making everything an emergency. Any need
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which is out there now becomes an emergency so that we could do

this.

I just think that it is an abhorrent process, one which is an extraordinarily difficult one, made more difficult, I might add, by this

senate which believes in its filibuster rules they have to get 60

votes for everything. I say let them filibuster over there. Let them

read from the Bible and the Constitution for a while. Let’s stand

up to some of the actions that are going on in the Senate of the

United States.

That is my view of it all. The bottom line is it is a process that

I think is tried and true and failed completely. It is up to us in the

House to make the changes which are necessary. I am not going

to go through a lot of details of it. I think that some of you have

been through this with me before. You know what we have tried

to do. Essentially it is each year to appropriate a sum of money

that would be for emergencies. As I said, they do it in the States

now. That means that some first year you have got to start this.

You have got to find that five or $6 billion dollars. You have got

to squeeze it into an already tight budget.

Our revenues are quite a bit higher than they were when we set

the budget caps. I am not one to necessarily be persuaded that we

have to hold the budget caps forever. Everyone winks about that,

that we are not going to have budget caps in the end. I say we face

this issue early on. What we need to do is this. By the way, I am

far from a big spender. I just truly believe that we should spend

adequately, and we are not doing it. You have to have a rainy day

fund. We can set the amount based on looking back over five years

or so. And it does come out to about five or $6 billion. It doesn’t

take a Kosovo in your consideration. You obviously have to have

breakers on this in a sense so that if something significant happens

you can go beyond it.

But you would do this, you would have a definition as to what

an emergency really is. You would have a panel that could review

true emergencies that would be able to supersede some appropriator’s interpretation of what an emergency may be, which would be

a process to go by. You wouldn’t have to get into this incredible offset fight that we have now with respect to what we as a Congress,

and particularly Republicans, are trying to do.

I happen to believe in offsets now. But if you have it as part of

the appropriations process, you would get away from that. I think

that is something that we should do as well. It also means, by the

way, that communities which are devastated by the tornados and

hurricanes and earthquakes would get their money in a faster

sense. It also means there would be a review process for that. I can

tell you right now that those communities, the smallest ones to the

biggest State out there, are submitting claims that are probably

close to—I was going to say ′′fraudulent,′′ but strike that word and

say ′′excessive,′′ because they figure they get a percentage of this.

If we had some sort of system for review of emergency requests,

that would be extraordinarily helpful, too, something that is missing as far as the Federal Government is concerned.

All of this has to be within existing budget limits. It would be

part of the budget process. Whether or not it ended in that in

terms of determination of who metes it out with appropriations or
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budget is something that could be resolved by any of you, I suppose, but I just think that we absolutely need to address is. Frankly, this is about the third or fourth year in which we are getting

into a situation in which we going into emergency spending as a

way of trying to do things that we need to do. We have a series

of appropriations bills, I would say two or three maybe four or five

emergency appropriation bills that aren’t going to get done. We are

going to sit down with the White House sometime in October or

November and have this big combat and get a bill that none of us

can handle, which John and the Democrats as well as the Republicans are going to say is excessive. It is just not a good way to go

about our business in my judgment.

I come to you, pleading with you, because this is something that

virtually everyone agrees on. It should be done. But there is always

some handful of people out there that have more power than some

of us do that manage to stop this. I would hope that you all with

the strength that you have would really run with this and hopefully do something about it.

The CHAIRMAN. Thank you very much, Mr. Castle.

[The prepared statement of Mr. Castle follows:]
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The CHAIRMAN. We appreciate your being here and for the time

and energy you have put into this. I have had discussions with you

about this before. I know that we will continue. We are hoping that

we will be able to move as expeditiously as possible and have it in

this legislation. Your thoughts will certainly be taken into consideration.

Mr. Goss.

Mr. GOSS. I would like to bottle that and spread it around. It is

very encouraging to hear that kind of enthusiasm for this. I really

mean that. This is not a task that has ignited a lot of what I would

call colleague interest, mostly people who are concerned about it,

and people say somebody ought to do something. We seldom get a

member ready to jump in the fracas and I very much appreciate

that.

Mr. CASTLE. I am equally as enthusiastic with the intelligence

authorization.

Mr. GOSS. That fine.

The CHAIRMAN. Mr. Linder.

Mr. LINDER. Did you have a two year budget in Delaware?

Mr. CASTLE. No, we did not. That is a good question, actually.

Most States do not. I never pushed for it, in fairness, but we had

a bond process. So all of your long–term spending was tied up in

that. You didn’t have aircraft carriers tied out over seven years, or

whatever it may be. You had a process by which any long–term

spending you had was put into a bond bill and understood from

that point of view. Plus we would report on the—in a longer–term

sense, too, we had reports on it. But we were handicapped by the

Federal Government. We weren’t sure what they were going to do

each year. We would have to go back each year and review it. It

is a smaller problem, a more manageable process so we are able

to do it.

I think there is a difference between the States and the Federal

Government. However, I think the States should be looking more

at this, too, in terms of longer–term planning. But their processes,

I think, lend themselves to a little bit of longer–term planning now.

It is a little bit of a simpler process. We did not have it in Delaware. We are not pushing for it in Delaware; that is, the present

Governor is not pushing for it.

Mr. LINDER. Have you looked at the question of a capital budget?

Mr. CASTLE. I have looked at that question. I am a capital budget

fan, obviously, in the way that you don’t go into the market necessarily quite as clearly in terms of debt. But I think it helps tremendously with the planning. Most people know where things are

to separate all of that out and do it separately. I am not sure that

is in this bill or not, but I do personally support that concept. I

have not really reviewed it in terms of how you would actually do

it. I get personally frustrated when you have long–term projects

going on in the Federal budget. I don’t think it gives you a very

good picture. It takes a genius to figure out what the heck is in all

of the appropriation bills, as we all know. I think some sort of a

separate capital budget, long–term budget process, at least in

terms of designation, would be in order.

The CHAIRMAN. Thank you. Mr. Hastings.
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Mr. HASTINGS. Did you have a capital budget in Delaware?

Mr. CASTLE. Yes, we did.

Mr. HASTINGS. Was that constitutional limits or bonded indebtedness or constitutional indebtedness?

Mr. CASTLE. Actually, we did not. We had a very high bonded indebtedness for various reasons which never made me very happy.

But we did have constitutional limits in terms of expenditures.

Delaware had an Economic Financial Advisory Council. Boy, could

we use that down here. We have got to get something like it. Basically, it was made up of both political parties, public and private

experts, and they projected what the revenue was going to be each

year. You could not exceed that revenue.

Mr. HASTINGS. By the Constitution?

Mr. CASTLE. Actually put in the Constitution. We had a rainy

day fund, which I think was equal to five percent of the budget.

Then we had another two percent set–aside which was a little softer than the rainy day fund. We had a huge budgetary problem back

in the seventies. That is when all of this happened. You could

spend the two percent a little more easily, but I don’t think that

we spent the rainy day fund yet. We carried it over from year to

year.

For various reasons, my recommendation here is to use it to retire debt and then reappropriate it the next year. We carried it

over. We had two stops before you would get outside the budget.

We didn’t even get close to that amount.

We have now, I think, the highest financial rating of any State;

if not the highest, the next category down. I think that we just

went to the highest with a handful of other States because of a lot

of the budget processes which we adopted. We also, by the way, reduced our per capita debt tremendously in spite of the fact—

Mr. HASTINGS. The reason that I ask that, Washington State has

a constitutional limit. I don’t know what the figure is. Statutory is

lower, but you need some sort of mechanism like that on capital

funding. We don’t have that here. By the way, I was one of those

that stayed up and watched Congress until I saw my issue addressed, and then I went to bed.

Mr. CASTLE. I don’t want to ask what the issue was.

The CHAIRMAN. Thank you very much. Mrs. Myrick.

Mrs. MYRICK. I too thank you. I am real encouraged by what you

had to say. I agree with you completely. I think that some of the

points you made are especially important, having done a budget for

a city, not a State.

Mr. CASTLE. Maybe as big as Delaware.

Mrs. MYRICK. It is anymore. But we had a separate capital budget as well. It is very simple to do that. You know exactly what you

are spending and when you are spending it. It just makes so much

sense as well as the limits. We have a AAA bond rating still, and

had it for many, many years. That contributes to it.

The CHAIRMAN. Thank you very much, Mr. Castle. We appreciate

you being here and again for your very thoughtful remarks. We

look forward to continuing to work with you on that. Thank you.

The CHAIRMAN. We are now very happy to welcome as our final

witness today, the distinguished Ranking Minority Member, the

gentleman from South Carolina, Mr. Spratt.
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STATEMENT OF THE HON. JOHN SPRATT, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF SOUTH CAROLINA

Mr. SPRATT. Thank you, Mr. Chairman. I am happy to have this opportunity. I am sorry I don’t have the required number of copies

of my statement. I got a copy of it from my staff last night. I took

it home and worked on it until late last night and managed to save

it in such a way that I reinstated the original document and wasted all of my effort. The CHAIRMAN. Welcome to the 21st century.

Mr. SPRATT. That is what you call leading with your left. Mr. Chairman, I am grateful for the opportunity to testify about H.R. 853 because the bill is comprehensive, wide–ranging and covers all kinds of items. I think it is critically important that we

study it carefully and I would like to call attention to several provisions of it. I don’t want to slight or diminish the work that Mr.

Nussle and Mr. Cardin and others on the task force put into it, but

I take exceptions to the major provisions of the bill. There are parts

of it that I think are positive, but on the whole I am not convinced

that it moves the ball forward. I am a big believer that if it ain’t

broke, don’t fix it.

We last made major changes in the budget process in the Budget Enforcement Act of 1990. Since 1992 this process has helped us

from a deficit of nearly $300 billion to a surplus this year of more

than $100 billion.

I am not here to tell you that we can’t make improvements or shouldn’t make improvements in the budget process, but a budget

process that helps us improve the bottom line by $400 billion in

seven years ought to enjoy some presumption that it is working in

the right way. If there is a Congressional majority that can agree upon an overall plan, the process that we have got allows that majority to make

a budget plan and implement it. We did that in 1997. There is a

will to do it. Last year we didn’t do it because there was not a will,

not a common majority to get it done. If we are in earnest and do

have some kind of consensus, what we have got in the budget process that is on the books now are quite a few enforcement tools, so

that the broader outlines of the plan can be laid down, not just for

1 year but many.

We are typically now budgeting for at least five years and this

year we ran our projections of the budget in both houses for ten

years.

Let me mention four main concerns that I have with the bill before you. The first is with the provisions of this bill that we can

statutorily—the Pay–As–You–Go requirement. The second is with

the automatic continuing resolution, the automatic CR. The third

is with the movement that this bill would make towards a joint resolution, a law rather than a concurrent resolution. The final is with

the way that this bill will take the budget resolution and diminish

it substantially, strip it down to just a few bare bones essentials,

aggregate spending, aggregate revenues, and the resultant deficit

of the surplus: the 20 spending functions that are now typically the

House’s, Congress’s opening expression of our priorities. Our only

real programmatic statement of a budget would be put in the committee report, diminish in staff. So would the reconciliation instruc192

tions be taken down a notch by putting them in the committee report rather than the text of the bill itself.

Let me first mention weakening the so called Pay–As–You–Go.

I think you would agree this is one of the disciplines that has

helped us get from huge deficits to substantial surpluses. This bill

would repeal the requirement that entitlement increases or tax

cuts be fully offset. It will allow projected on–budget surpluses to

be used as offset.

Now, the problem is the same for entitlement increases or tax

cuts, but let’s take tax cuts as an example. Suppose a tax cut is

enacted that uses up all of the projected on–budget surpluses. You

can understand easily these projections are over–optimistic. Congress will be faced down the road with several choices: a large tax

increase, a large entitlement cut, a large discretionary spending

cut, sequester, none of them pleasant choices.

Basically, I don’t think that it is wise in any event to invite the

wiping out of our on–budget surpluses or even a large portion of

it until we have actually squared up and dealt with Social Security

and Medicare for the long term. I don’t think that it is safe to run

our projections far into the future, five, ten years. That has been

notoriously unreliable. Keep in mind that the CBO’s projection of

the surplus of twelve months’ time has increased by $750 billion

over a period of ten years. Anything that goes up by $750 billion

in ten years can come down by $750 billion because it is all in the

commerce construct. It is on paper. It is not a reality yet.

I have a problem, just willy–nilly across the board saying, okay,

we don’t need this rule that has helped discipline us since 1990.

We can dispense with it now and allow on–budget surpluses to

fully offset even entitlement increases or tax cuts.

This budget bill would also turn all existing discretionary appropriations into capped entitlements. That may come as a neurotic

surprise to you, but by enacting an automatic continuing resolution, that is the end result. That is the effect. Congress, if we have

this automatic CR will no longer need to pass or even consider an

appropriation bill. Right now, failing to appropriate is mostly unthinkable. It happens sometimes, but with an automatic CR, failing

to appropriate could become routine.

The risks are substantial to this institution, to both houses. I beg

you to weigh these risks. Let me just suggest a couple of the unintended consequences that could ensue. We use ′′must pass′′ bills

like appropriations, a way to define priorities each year, to get the

President’s attention, to make the agencies of the government more

responsive to us. But it is poor tactics for us, I think as an institution, to give up these vehicles. This is the way that we assert ourselves.

It would be unwise also, I think, to allow 41 Senators to kill regular appropriation bills by way of a filibuster. That is what an

automatic CR would do. By the same token, it would allow the

President to kill a regularly approved appropriation bill, if he preferred the status quo, by vetoing it. Then a small minority of the

Congress could sustain the status quo in reference to any appropriation bill. These powers wouldn’t enhance the ability of the majority to run this institution.
193

In addition, this bill provides for something that I understand

the purpose of, but I am not convinced is achieved by what it proposes; and that is, it calls for a budget resolution which is now a

concurrent resolution to be made a joint resolution, which means

the President would have to sign. I took part in the negotiations

in 1997 between the President and the Congress. I think it was a

constructive experience. I think that it is something that we ought

to emulate. I think the President out to get engaged in the process

earlier rather than later. We don’t need to have this all crammed

into the end of the year to be resolved in some patchwork process

as it was last year.

I am troubled by this provision to a joint resolution for a couple

of reasons. The first is I think if we require the President to engage, we will just impede the budget process. We are required by

statute and by joint resolution in those years where the President

or the Congress, together or separately, really don’t want anything

resolved early. They aren’t ready to make the compromises as we

were in 1997 to reach a common agreement. If you have a strong–

willed President who has decided that he is going to change the direction of the government, he can throw a monkey wrench into the

whole budget process by simply extending the negotiations, holding

out the prospect of an agreement, and then vetoing the resolution

obstinately when it gets to him.

By the same token, Congress can spin its wheels inordinately,

trying to get a resolution like that. What happens when the resolution fails? This bill says, well, we don’t have a fast track procedure

so that if the President vetoed the resolution, he could bring the

same resolution as the current resolution up on the House floor. In

all probability, if you go that far down the road towards giving the

President a resolution which you hope is a product of your negotiations he might sign, you would probably make concessions in it

that you would want to withdraw before you put it into the form

of a concurrent resolution and offered it as your resolution. You

would want to start the negotiation over.

What does that mean? We are into June, July. We are cramming

the process into the latter months of the fiscal year once again. I

don’t think that helps us at all. Ironically, the bill, after having

proposed it, we enhance the budget resolution by making it a law,

a joint resolution which the President signs, turns around and diminishes the contents of the bill and the statute of the bill by stripping out of the bill the 20 function levels which, as I said, are the

one effort that we make to give some sort of programmatic statement of our priorities across the board of Federal spending.

It also takes the reconciliation instructions and, with the 20 functional levels, puts them into the committee report, taking them

down a notch in legal significance. The remaining resolution is a

bare bones resolution. Now, we have engaged the President, invited

him to negotiate, put off the budget process until we can reach

some agreement, but what is the end result of the agreement? Aggregate spending, aggregate revenues, resulting deficit of surplus

and some committee report language about funding levels and reconciliation. All of this effort comes to a very, very small end result,

hardly worth achieving if we are really going to have budget reform.
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Let’s go back to the one big compromise made in 1974 contained still in 302(b) look at the 302(b) allocation process. If you are going

to work towards a process where the President and the Congress

are building on the foundation of a common budget where we have

made our compromises and come to some accord, then that budget

resolution has got to contain the elements of that accord.

When we got to the end of the balanced budget agreement in

1997, we had a problem as to how to state all of the things in binding form, semi–binding form that we just agreed to. How to do lay

them out for a five year period of time? This bill doesn’t begin to

address that. Instead it moves in the opposite direction by reducing

the budget resolution to some simple numbers that don’t begin to

address all of the disputes that we will have with the President

over whether the money goes to defense or education, health care,

or highway building. So I don’t think that this is helping the process at all. I really think it may move the ball backwards instead

of forward.

Finally, Mr. Chairman, as I look at it, I am curious as to why

the bill skirts some of the bigger issues. You and I were on the

Hamilton committee dealing with legislative reorganization. We

batted back and forth on biannual budgeting and didn’t come to

any clear settled conclusion about it. I think the conclusion we

came to is that if we had biannual budgeting we would probably

have a big appropriations process one year and a mini–process the

next year. The supplemental would be a much bigger than the supplemental that we are doing now. You wouldn’t get away in the

second year of the biannual process of some sort of appropriation.

Social Security. You have got a bill that is moving, I understand

would deal with the segregation of the Social Security surpluses.

That is something that we seem to be converging on the end at

least, if not on the means, but there are other trust funds, as Mr.

Shuster reminds us. This is a problem, too, that we should address.

We have got a number of trust funds, over 150 in the Federal

budget, which are dedicated and earmarked. The moneys that are

collected and put into these trust funds are supposed to be spent

on the dedicated purposes. But by and large, there are a lot of

misses between the cup and the lip. There are a lot of cases where

the money just doesn’t get there because it is appropriated for

other purposes.

If we are going to do true budget reform, I think we probably

ought to take a systematic look at that. As I said, anybody who

wants to touch the third rail, 302(b), if we really are going to do

budget reform, if we are really going to involve the President, that

is the kind of allocation process we should be talking about institutionalizing.

The Supreme Court also has invited us to do something when

they threw out the item veto. We have had expanded and enhanced

procedures on the floor. It is not the equivalent of an item veto but

it is better than what we have got under the existing statutes. Certainly things like this out to be considered for inclusion in this bill.

I have got a number of other things in my testimony which I will

file for the record, where I think there have been positive contributions made by this bill and this task force. But I urge you, plead

with you, to weigh these changes carefully and consider whether or
195

not we are in many of these cases moving the ball forwards or

backwards if we adopt them.

The CHAIRMAN. So what do you really think of the bill?

Mr. SPRATT. I wouldn’t vote for it in its present form.

The CHAIRMAN. You have gone through extraordinarily well virtually every item in it. As I listened, I wanted to see if I could find

something that you didn’t touch on. One of those was the emergency fund.

Mr. SPRATT. I think they have got the basics of something that

we should consider, but the mechanics still need to be worked.

The CHAIRMAN. What do you see as the problem with that?

Mr. SPRATT. Well you can have big years of evaporations that

would skew the average. I will tell you a problem we have had before with funding FEMA. If you put a lot of money in for FEMA

or for any Federal agency, and at the end of the fiscal year if they

haven’t spent it, there is a great temptation to find places and

ways to spend it. I remember we used to fund part of a—authorized

part of FEMA’s budget on the MILCON Committee in Armed Services. When we gave them the actual money, we found they spent

it even though there weren’t emergencies. We looked to see what

they were spending it on. They were doing all kinds of paper

consultancy contracts. All over the Beltway somebody had a contract working with FEMA because they had this money at the end

of the fiscal year. So I think we need to get some refinement as to

how much we should budget for emergencies, but clearly, we have

got a good example now as to why we need more teeth, more discipline in the process of budgeting for extraordinary causes and

emergencies.

The CHAIRMAN. Thank you, John.

[The prepared statement of Mr. Spratt follows:]
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The CHAIRMAN. Mr. Goss.

Mr. GOSS. Your testimony is obviously very helpful. It is challenging. I think that we started out with a much bigger idea and

we ended up sort of fishing for supper or fishing for a trophy. You

are suggesting that we go back to fishing for a trophy. I don’t disagree with the overall goal. I just don’t think that we are going to

be able to do it in one step. This is something that is going to take

a process of education, constituent–building among our colleagues

of what we are trying to accomplish.

I do think the efforts that were made in the area we have singled

out for debate on this are ripe. I think that the abuse on the emergency spending thing is egregious beyond description, as we are

seeing that as we sit here. I think the problem of not getting the

President on board up front is a serious problem. I agree there are

problems in what you do downstream, but I still think it is worth

getting in upfront.

I think that the items that we picked, the little fishing that we

are going after here, is a good place to begin this. I hope that it

is not the final work, but I hope there is enough progress for people

to say, yes, with a little effort we can do better, and maybe with

a little more we can do better yet. So that is the way that I am

looking at this.

Mr. SPRATT. Let me call your attention to one problem that is so

bad you have to read it several times or you have to have somebody

like Richard Kogan on our staff to read it before you can even discern what the problem is. The way that we read the bill, this bill,

assumes that after discretionary spending caps expire in 2002

there is a presumption in forecast subjecting future surpluses and

deficits, that the level of discretionary spending will be frozen at

its level in 2002.

Now, with that forecasting assumption, you have inflated on

budget surpluses too. We all know, I think, that discretionary

spending caps are already too tight. We are bursting the seams

right now. To assume that these will be set at existing low levels

and not increase over time and that on–budget surpluses will be

a function of these is to assume, therefore, that on–budget surpluses are going to be a lot larger than they really will be. That

invites big tax cuts to be offset by these on–budget surpluses that

are not likely to materialize or, for that matter, entitlement increases, contributions to Social Security.

Mr. GOSS. What I guess we are trying to do is to get into a box

where we can set up a process that works a little better, get a better result without some of the problems that we are seeing. We are

trying some things out.

I agree, if you take Alan Greenspan’s pulse and you don’t like it,

the whole thing falls out; or Robert Rubin resigns, the whole thing

goes crazy. What I want to do is try to get a process that gives us

a better handle so that when something unexpected does happen,

we don’t have midnight sessions of the Appropriations Committee

and conference reports going on ad nauseam, especially the Rules

Committee, which fortunately our wise Chairman—

Mr. LINDER. —has kept to a minimum.
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Mr. GOSS. Has kept to an absolute minimum. We look at this,

and last year clearly was a benchmark. If we can’t do better than

that, we probably ought to give up trying. That is the way that I

feel about it.

The CHAIRMAN. Thank you. Mr. Linder.

Mr. LINDER. John, you mentioned the enhanced provisions or

veto. I would like you to comment on that. The growing body of

legal opinion is, I think, that the President already has the authority to item veto under any act of Congress. Each item is going to

occur at some point or another in a subcommittee.

Mr. SPRATT. Well, I will quote no less a constitutional authority

than Judge Bork, who said if the President has a line item veto,

why is it that no President has noticed it in the last 200–odd years,

including George Washington who presided over the Constitutional

Convention and wrote a letter clearly stating that he did not have

such authority. I think the Supreme Court’s decision pretty well

sealed that. An enhanced and expedited procedure simply says that

the President likes something in the bill, he can send it back up

here and shine a spotlight on it, make us vote on it within a fixed

period of time, and it would be enhanced to the extent that it could

apply to targeted tax provisions and things like that, as well as

spending items. It is, I think, a constructive substitute if we can’t

have an item veto.

I voted for the item veto. When I voted for it, I said I don’t think

this is constitutional, but I am willing to let the Supreme Court say

whether or not it is. They said that it isn’t. So we have got an alternative. I don’t want to amend the Constitution, but I think that

we can have statutory enhancing and expedited rescission that

would give the President a little more leverage and help him cull

out appropriation bills of all kinds of extraneous riders.

The CHAIRMAN. Mrs. Myrick.

Mrs. MYRICK. Thanks for your really thoughtful testimony. The

service that you do on the Budget Committee is very fair and I appreciate that. Again, the only other thing that I would say is I tend

to wonder and question that the budget process is responsible for

the balanced budget because I come from the other side; that I

think that we did a balanced budget in spite of the budget process

that we currently have.

Mr. SPRATT. Well, the discretionary spending counts, the PAYGO

rules have helped. I was here before them and here after. I think

they made a difference.

Mrs. MYRICK. I appreciate it.

The CHAIRMAN. Thank you very much, Mr. Spratt. We appreciate

you being here. Let me just state for the record that we are expecting testimony from our colleagues, Mr. Obey and Mr. Cox, and a

couple of others so we plan to keep the record open for that. I am

told that we may even have some testimony submitted from the Office of Management and Budget.

The CHAIRMAN. This concludes the hearing and your entire statement will appear in the record, Mr. Spratt, without objection. With

that, the hearing stands adjourned.

[Whereupon, at 10:34 a.m., the committee was adjourned.]

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